finnCap Research Company Notes - 18 June 2019

Jun 18, 2019 / News

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Sector: Technology & Telecoms

Castleton Technology (CTP) : Corp

Prelims

Key data                              

  • Share price (p)                  106.5
  • Target price (p)                140.0
  • Market cap (£m)                              86.9
  • Enterprise value (£m)                    91.5

Castleton’s prelims report performance in line with the trading update: EBITDA of £6.3m (vs £6.3mE) from revenue of £26.4m (vs £26.5mE), with operating cash conversion of 97%, and free cash flow of £4.8m. With the maiden dividend reaffirming the board’s confidence in cash flow and net debt approaching breakeven, the balance sheet retains capacity for acquisitions to complement 7.3% organic growth achieved in FY19, and expected to persist into FY20 and FY21. EBITDA margin expansion from 24% (FY19) to 26.5% (FY21) is expected to derive from continuing improvement in cross sales, and the integration of the now unified Software and Managed Services divisions. With operating fundamentals consistently positive and improving, we lift our target price to 140p (125p), representing a 16.4x EV/EBITDA multiple and 4.5% target free cash flow yield.

Andrew Darley

020 7220 0547

adarley@finncap.com

 

Sector: Energy

Chariot Oil & Gas (CHAR) : Corp

Anchois development technically feasible

Key data                              

  • Share price (p)                  4.7
  • Target price (p)                41.0
  • Market cap (£m)                              17.4
  • Enterprise value (£m)                    1.6

Chariot has released details of the feasibility study for the development of its Anchois gas discovery in Morocco. This demonstrates the technical feasibility and commercial attractiveness of this development into a high growth, attractive gas market. The confirmation of this project’s viability should help attract potential strategic partners with a view to funding appraisal operations in 2020. To facilitate this process, Chariot has also initiated a Drilling Environmental Impact Assessment.

Jonathan Wright

020 7220 0543

jwright@finncap.com

 

Sector: Technology & Telecoms

ClearStar (CLSU) : Corp

AGM told that strong H1 growth is on track for FY

Key data                              

  • Share price (p)                  60.0
  • Target price (p)                90.0
  • Market cap (£m)                              21.8
  • Enterprise value (£m)                    21.1

Today’s AGM trading update confirms ClearStar is on track to achieve its forecast for ongoing growth despite a slight softening in the US labour market. Revenue in the first 5 months is up 14% YoY in line with our forecast. This success continues to be driven by direct sales and the expansion of the Medical Information Services (MIS) operation. Management is sensibly focusing sales efforts on targeted business sectors, specifically: the ‘gig economy’ with its high turnover of transient workers; on heavily regulated sectors where screening is vital; and in businesses where risk is increased by workers being sent to customer homes. Furthermore, ClearStar is upselling to existing customers, with additional services and expanding its screening service to more of their organisations. All of this is contributing to a strengthened pipeline of business and we reiterate our growth expectations and target price with a 50% upside to current levels.

Lorne Daniel

020 7220 0545

ldaniel@finncap.com

 

Sector: Consumer & Other

Frontier Developments (FDEV) : Corp

Strong H2 sees upgraded forecasts

Key data                              

  • Share price (p)                  1 104.0
  • Target price (p)                1 750.0
  • Market cap (£m)                              427.7
  • Enterprise value (£m)                    388.2

The leading game developer continues to see success on the back of ongoing success for Jurassic World Evolution, FDEV’s third self-published title, which launched in June 2018. The bulk of sales were seen in H1 but clearly the game retains significant momentum in H2. This is augmented by its strategy of supporting and nurturing the first two self-published titles, Elite Dangerous (launched 2014) and Planet Coaster (2016). This has led to a stronger than expected H2 and FY 2019 performance. We lift our revenue expectations from £83m to £89m and with the much improved operating margin, we lift adj. PBT from £18.6m to £20.0m. Our expected Adj. EPS rises from 41.0p to 43.9p, leaving the stock on just over 25x this year’s earnings and looks increasingly undervalued, due a re-rating. We make no change to FY 2020 or FY 2021 forecasts at this stage, awaiting the FY results due in early September.

Lorne Daniel

020 7220 0545

ldaniel@finncap.com

 

Sector: Technology & Telecoms

K3 Business Technology (KBT) : Corp

Trading update

Key data                              

  • Share price (p)                  220.0
  • Target price (p)                290.0
  • Market cap (£m)                              94.5
  • Enterprise value (£m)                    95.1

K3’s trading update for the interim period to May 2019 confirms a positive start to the year, with unchanged FY expectations. Net debt of £5.8m (1H18: £8.5m) demonstrates ongoing progress against the strategic transformation of the business, and focus on cash generation. The Group signed three new contracts for K3 | fashion, and secured the expansion of two large software licence orders with existing customers. The K3 | fashion pipeline remains strong, with further deals expected to close shortly. Due to a high-proportion of software licence and maintenance contract renewals set to fall in 4Q19, trading is expected to be more 2H weighted than seen historically. Additionally, a slight lag in customer decision-making as a result of Brexit uncertainty caused some disruption to services activity, however this recovered by period end – management remains confident to achieve full-year market expectations. We reiterate our forecasts and target price (290p), and look forward to further details at interims in July.

Andrew Darley

020 7220 0547

adarley@finncap.com

 

Sector: Technology & Telecoms

Pelatro (PTRO) : Corp

Major contract win in Asia underpins forecasts

Key data                              

  • Share price (p)                  73.0
  • Target price (p)                125.0
  • Market cap (£m)                              23.7
  • Enterprise value (£m)                    22.3

A large telco in Asia has engaged Pelatro to implement its mViVa Contextual Marketing Platform on a licence fee model. On top of this, Pelatro continues to see significant Change Requests. The collective value of the new contract and these recent change requests is c.$1.5m, further underpinning our revenue and earnings growth expectations this year. This latest contract also increases the client base to 18 customer telcos across 17 countries, providing significant cross-selling opportunities given the growing number of products in Pelatro’s range. Recent share price weakness has left the stock significantly undervalued on the fundamentals and with the steady flow of contract wins this year, investors can be ever more confident in its market expectations. The current forward earnings multiple of under 6x is woefully inadequate for such a high growth business with global prospects and with this ever-improving visibility we expect an imminent recovery in the valuation.

Lorne Daniel

020 7220 0545

ldaniel@finncap.com

 

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