finnCap Research Company Notes - 28 June 2018

Sector: Technology and Telecoms

Redcentric (RCN): Prelims – Yorkshire benefit coming through in FY20

Key data                              

• Share price (p): 85.5
• Target price (p): 125.0
• Market cap (£m): 127.4
• Enterprise value (£m): 155.1

Prelims are in line with the April trading update, delivering EBITDA of £18.1m (£18.4mE) from revenue of £100.0m (£101.9mE), leading to net debt of £27.7m and implying a very strong return to positive cash flow. £11.9m of free cash generation (FY17: £-1.6m) demonstrated the construction of an effective financial function and the transformation of the financial control environment, with a normalised working capital profile and net debt expected to dip to 1.2x EBITDA by FY19. Forecasts for FY19 were amended in June and EBITDA is tweaked here -3%; FY20 shows the 21% EBITDA growth benefit of the four-year £70m combined Yorkshire Health & Social Care Network and Public Sector Network contract win, delivering an expected additional +£15m revenue to FY20 (@15% EBITDA margin) and c.£20m per annum thereafter. While the environment for managed services will continue to evolve, the Yorkshire contract demonstrates industry credibility in RCN’s service quality, and shows the potential for large scale contracts wins – the smaller scale lost government hosting contracts led to a revenue revision of c£-5m per annum, so it is a question of perspective – and we reiterate our 125p target price.

Andrew Darley | adarley@finncap.com

Sector: Life Sciences

Synairgen (SNG): Antiviral biomarkers increase in COPD patients

Key data                              

• Share price (p): 14.8
• Target price (p): 63.0
• Market cap (£m): 13.5
• Enterprise value (£m): 8.6

Following confirmation last week that SNG001 is safe and tolerated in COPD patients without any cold or flu virus, today’s announcement that SNG001 increases markers of anti-viral activity in the lungs increases the likelihood of SNG001 showing a clinical benefit in COPD patients with a confirmed cold or flu viral infection. This should translate into a reduction in life-threatening exacerbations caused by the presence of respiratory viral infections, given that similar biomarker increases aligned with improved lung function and reduced symptoms in asthma Phase II studies. This completes the first part of a two-stage Phase II trial, paving the way for an 80-patient efficacy study in H2 2018, with results expected in H1 2019. No change to target price (rNPV based) of 63p.

Omega Diagnostics (ODX): Infectious disease assets sold for up to £2.175m

Key data                              

• Share price (p): 10.7
• Target price (p): U/R
• Market cap (£m): 13.5
• Enterprise value (£m): 14.3

The disposal of its Infectious disease business, excluding VISITECT CD4, for up to £2.175m (£1.8m on completion) to Novacyt is part of the ongoing realignment of the company, following the strategic decision in April to withdraw from its German Allergy business and manufacturing facility in Pune India. The focus remains on growing its profitable Food Intolerance business (“exploring all avenues for realising value for our Food Intolerance business”), as well as bringing Allersys and VISITECT CD4 to the market. Forecasts remain under review pending FY 2018 results, which are expected in July/August.

Mark Brewer | mbrewer@finncap.com