finnCap Research Company Notes - 19 March 2019

Mar 19, 2019 / News

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Sector: Life Sciences

Cambridge Cognition (COG) : Corp

Largest digital health contract win to date

Key data                              

  • Share price (p)                  75.5
  • Target price (p)                175.0
  • Market cap (£m)                              18.2
  • Enterprise value (£m)                    17.1

The announcement of its largest Digital Health contract to date (£1.3m to be recognised over three years) is significant for two reasons. Firstly, it takes its order book to £7.0m, up from £6.0m at 31 December 2018, which was already 52% higher than the previous year. Secondly, the contract is with a large pharma company wanting to measure the day-to-day variability of cognitive measures in an autoimmune clinical trial, illustrating the utility of its product offering outside of its core neurological and psychiatric disease focus. We are leaving our forecasts unchanged for the time being but recognise that this contract makes our FY 2018 outlook all the more attainable. We retain a 175p target price, with scope for this to be raised on any larger partnership deals, which are thought increasingly likely and would include upfront payments and future milestones.

Mark Brewer


Sector: Technology & Telecoms         

K3 Business Technology (KBT) : Corp

Prelims – delivering as promised       

Key data                              

  • Share price (p)                  222.0
  • Target price (p)                290.0
  • Market cap (£m)                              95.3
  • Enterprise value (£m)                    96.0       

Prelims to November 2018 are in line with the positive trading update of 17 December, which had reported performance pleasantly ahead of market expectations: free cash flow of £4.4m (£4.0mE) from adjusted PBT of £4.0m (£3.6mE), reducing net debt to £0.6m (£1.0mE). The strategic initiatives over the prior two years have delivered a return to strong positive operational momentum via completion of unification of operations into a single group, away from the historic confederacy of acquired businesses. Through a combination of a growing subscription model, a focus on K3’s own IP margins; a growing sales and services channel with international success; and the platform agnostic cloud-based K3 | Imagine, recurring revenue is strengthening earnings quality, and cashflow, with a much improved balance sheet. Encouraged by evident delivery of the checklist of strategic aims, we lift our target price to 290p (275p).

Andrew Darley


Sector: Support Services        

NAHL (NAH) : Corp     

Profitable ABSs illustrate the potential          

Key data                              

  • Share price (p)                  89.4
  • Target price (p)                180.0
  • Market cap (£m)                              41.3
  • Enterprise value (£m)                    57.1       

NAHL has reported FY 2018 results in line with our forecasts (revised after a slower Q4). The transition towards the new, digitally enabled platform is progressing well and the Alternative Business Structures (ABSs – effectively the mid-way between the old and new model) are profitable. This validates the concept and the new 100% owned platform will launch in April 2019. Investors are being paid to wait during this transition phase with an FY 2019E dividend yield of 8.7%, and we continue to forecast net debt to peak in 2019 and a return to EPS and DPS growth in 2020. As the return from the new model drives increasing free cash flow we see very significant share price upside, with downside risk protected by the value of the growing Critical Care business.

Guy Hewett


Sector: Technology & Telecoms                     

Pelatro (PTRO) : Corp

New product launches Pelatro into mobile advertising        

Key data                              

  • Share price (p)                  85.5
  • Target price (p)                120.0
  • Market cap (£m)                              27.8
  • Enterprise value (£m)                    26.5

Pelatro has launched its exciting new Data Monetization Platform (DMP) product with a revenue-share contract from an existing customer. A multi-year contract worth $0.5m in year one it is part of the expected pipeline and builds up the base of recurring revenue. Data monetisation – selling mobile subscriber data analysis and marketing services to B2C clients – is at an early stage globally but will become an important revenue and earnings generator for telcos as ARPU continues to slide; opening up the huge mobile advertising market. This is a significant move and we raise our TP by 5% to reflect the long-term opportunity.

Lorne Daniel


Sector: Technology & Telecoms                                 

eServGlobal (ESG) : Corp        

Payments industry M&A thoughts     

Key data                              

  • Share price (p)                  6.9
  • Target price (p)                20.0
  • Market cap (£m)                              83.5
  • Enterprise value (£m)                    68.8

There have been a few developments with Mastercard this month. Having lost out to its rival, Visa, in the auction for Earthport, Mastercard has unexpectedly signed an agreement to purchase Transfast, another cross border account-to-account network. Like HomeSend (ESG’s JV with Mastercard), the Transfast network also supports the Mastercard Send service. HS has much wider reach across multiple markets and channels, already fully integrated with transactions flowing. However Mastercard seeks to address a huge global market and Transfast will add much needed capacity.

Lorne Daniel

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