finnCap Research Company Notes - 29 April 2019
Apr 29, 2019 / News
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Sector: Technology & Telecoms
ClearStar (CLSU) : Corp
Financial services client expands contract again
Key data
- Share price (p) 58.5
- Target price (p) 90.0
- Market cap (£m) 21.2
- Enterprise value (£m) 20.3
ClearStar is seeing growing success in the financial services sector, driven by a key customer which provides outsourcing and staffing in the financial services industry. ClearStar is contracted to provide background screening for workers placed with this customer’s financial services clients; notably ensuring compliance with the US Federal Deposit Insurance Act (FDIA), and the US Patriot Act. The initial contract was won late last year and was extended earlier this year due to an additional financial institution using the customer’s services. The further extension on ClearStar’s contract, expected to be worth $350k, is an expansion of the scope of screening services provided for that new institution. This ClearStar customer in the financial services sector has delivered $0.5m revenue since the initial contract, and helps to underpin our forecasts.
Lorne Daniel ldaniel@finncap.com
Sector: Energy
Europa Oil & Gas (EOG) : Corp
Wressle appeal date set
Key data
- Share price (p) 2.8
- Target price (p) 45.0
- Market cap (£m) 12.6
- Enterprise value (£m) 8.2
A date has been set in November for the Wressle oil field development plan appeal hearing. While not critical to the investment case, this is still a valuable opportunity, potentially worth more than a third of Europa’s current market cap. A successful outcome will lead to rapid cash flow and underpin the shares. More material for the share price is the awaited outcome of farm-out negotiations that could see three high-impact exploration wells added to the calendar from 2020. Europa’s risk/reward profile continues to look extremely attractive.
Jonathan Wright jwright@finncap.com
Sector: Support Services
Lok'nStore (LOK) : Corp
Exciting pipeline of new landmark stores
Key data
- Share price (p) 495.0
- Target price (p) 617.0
- Market cap (£m) 144.9
- Enterprise value (£m) 175.9
Lok’nStore has reported a strong set of interims, with sales up +11.5% and adj. EBITDA up +8.6% driven by occupancy up +8.0% and pricing +1.4%. Two new stores were opened in the half and the current pipeline of 8 stores will add 27% to trading space. Management has expressed confidence in the outlook, its objective is to open more landmark stores while remaining conservatively geared, delivering sustainable growth and consistently increasing dividends (the interim dividend was raised +10%). We continue to believe the shares materially undervalue both the short and long-term prospects for creating value in the undersupplied UK self storage market.
Guy Hewett ghewett@finncap.com
Sector: Technology & Telecoms
Nasstar (NASA) : Corp
Prelims – showing the sector how to do it
Key data
- Share price (p) 12.1
- Target price (p) 15.0
- Market cap (£m) 69.3
- Enterprise value (£m) 67.8
Nasstar has delivered performance in line with the February trading update, indicating revenue of £25.7m pleasantly ahead of expectations (£25.0m) and all other metrics in line. The initiatives for efficiencies and automation included within the Nasstar 10-19 three-year plan have led to demonstrably positive results two years in, with the £3.1m contract win with a top 50 UK Law Firm for a three-year contract for 850 users. The margin improvement measures continue to bear fruit, on track for 23% for FY20. With systems and processes, management and resources all reviewed for efficiency and growth, the group has proved the strength in EBITDA and underlying cash generation, leaving an ungeared balance sheet primed to deliver profitable growth in recurring revenue, and through acquisition. Target price 15p reiterated.
Andrew Darley adarley@finncap.com
Sector: Technology & Telecoms
Proactis (PHD) : Corp
Interims and strategic update
Key data
- Share price (p) 29.3
- Target price (p) 100.0
- Market cap (£m) 27.9
- Enterprise value (£m) 72.8
Interims indicate performance in line with the February trading update. Review of operations since February has given a clearer picture, leading to revised but broadly unchanged FY19 revenue & EBITDA expectations; changes to FY20 (delivering stabilisation and improved margins); and maiden FY21 (restoring growth). Following the departure of former CEO Hamp Wall (January) and awareness of weak trading (February), the Board has identified changes to enable replication of successful operations (UK, NL) across weaker territories (US, FR, DE). As the fifth-largest procurement solutions business globally, PHD remains undervalued due to a series of challenges which have the opportunity to be corrected with significant valuation benefit – and if not, then private equity or trade buyers will be interested. Given the current share price we trim our 12-month target price to 100p, with further upside available on proof of execution.
Andrew Darley adarley@finncap.com
Sector: Technology & Telecoms
SimiGon (SIM) : Corp
FY 2018 shows recovery but SaaS transition continues
Key data
- Share price (p) 11.0
- Target price (p) U/R
- Market cap (£m) 5.7
- Enterprise value (£m) 1.0
SimiGon has delivered a good year, recovering from the poor FY 2017, suffering from an ongoing transition to a SaaS model. Revenues are growing on the back of strong US sales, margins are strengthening and the losses are being reduced. The company is demonstrating its ability to win additional business in the defence and aerospace sector with its leading edge simulation training solutions, notably in N America with Lockheed Martin and the USAF; however, the announcement of a ground-breaking Augmented Reality (AR) research programme with the Israel Air Force (IAF) is also extremely encouraging. With $6m cash the EV remains extremely low; just £1m for a business with $5m revenue. SimiGon management feels the training market remains solid and trending higher and with its cash, strong technical solution and ability to scale, it is in a strong position to take advantage of this. Given this outlook, we hope to relaunch coverage as soon as possible.
Lorne Daniel ldaniel@finncap.com
Sector: Life Sciences
Allergy Therapeutics (AGY) : Corp
Regulatory and trading update
Key data
- Share price (p) 9.3
- Target price (p) 40.0
- Market cap (£m) 59.5
- Enterprise value (£m) 41.3
Allergy Therapeutics provided a regulatory update following its recent end-of-Phase II meeting with the FDA and the Paul Ehrlich Institut (PEI) for PQ Grass. The company indicated that the PQ Grass Phase III study will now start in FY 2020, a year later than expected, to ensure that the best possible protocol is agreed. Meanwhile, AGY continues to trade in line with expectations and gain market share, implying that physicians have not changed their prescribing habits despite the Phase III PQ Birch trial failure. We have made changes to forecasts to reflect lower R&D spend over the next two years (c.£15m) and reiterate our 40p target price.
Mark Brewer mbrewer@finncap.com