finnCap Research Company Note - 31 July 2018

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Sector: Life Sciences

Avacta (AVCT): £11.6m placing – funded to first clinic-ready therapeutic

Key data                              

• Share price (p): 25.7
• Target price (p): 120.0
• Market cap (£m): 17.7
• Enterprise value (£m): 12.7

Avacta is a pre-clinical stage biopharmaceutical company engaged in the development of its proprietary technology platform (Affimers) with an in-house focus on novel immuno-oncology Affimer therapeutics as well as generating early revenue through licensing Affimer reagents for research and diagnostics. Avacta has raised £11.6m to advance its proprietary drug pipeline to the point of a partnering deal with large pharma and to take its lead asset, a bispecific PD-L1/LAG-3 Affimer, through IND-enabling studies to a clinic-ready candidate for first-in-man trials. Further funding and/or partnership income will enable Avacta to initiate a Phase I clinical trial for this programme in 2020. Underpinned by the value in its reagents business and with significant upside to come from its therapeutics business, we retain a target EV of c.£125m, which implies a target price of 120p given the new shares to be issued.

Mark Brewer | mbrewer@finncap.com

Sector: Support Services

4imprint (FOUR): Brand marketing results ahead of expectations

Key data                              

• Share price (p): 1917.5
• Target price (p): 2477.0
• Market cap (£m): 537.7
• Enterprise value (£m): 531.3

4imprint has reported a strong set of H1 results with sales +17% on the prior period, PBT +1% reflecting the previously announced investment in marketing and EPS +13% benefiting from US tax reductions. The initial results from the investment in brand marketing have exceeded management expectations, boding very well for continued growth. We have upgraded FY 2018E EPS by 3% and FY 2019E by 4% and reiterate our view that 4imprint will continue to take market share in its large end market, driving double-digit growth in sales and earnings with excess cash generated set to be returned to shareholders.

Guy Hewett | ghewett@finncap.com

Water Intelligence (WATR): Scaling strongly

Key data                              

• Share price (p): 388.0
• Target price (p): 400.0
• Market cap (£m): 59.1
• Enterprise value (£m): 57.7

In a positive H1 trading update, Water Intelligence has detailed H1 sales up +39% and reported PBT up +48% and confirmed it is comfortably in line with full-year expectations. The addressable market for water loss from leakage and poor infrastructure is large and global and Water Intelligence is progressing well with its strategy of building a multinational group with a range of solutions backed by technology.

Guy Hewett | ghewett@finncap.com

Sector: Technology and Telecoms

Pelatro (PTRO): Danateq acquisition opens the door to Europe

Key data                              

• Share price (p): 79.0
• Target price (p): 100.0
• Market cap (£m): 19.2
• Enterprise value (£m): 16.8

Pelatro is scaling rapidly through organic growth; sales have risen from $0.4m to $3.1m in the past two years at a CAGR of 180%. Growth continues in H1 and management will augment it with an earnings-accretive acquisition; Pelatro will acquire the business of Danateq, a Singapore-based provider of cognitive analytics solutions for precision marketing. Like Pelatro, it targets the telecoms market. The acquisition is highly complementary: profitable; adds customers, product and pipeline; expands the global footprint (notably into Europe); brings contracted recurring revenue; and doubles the subscribers managed on group solutions. It will be earnings-enhancing immediately and by 12% next year. Pelatro is raising £6m ($7.8m) to fund an initial consideration with deferred payments from earnings. Investors will gain exposure to a larger, more international operation with a broader product range, a stronger customer base, and opportunities in Western Europe. It will position Pelatro as a credible player in the new ‘Multi Channel Marketing Hub’ space, which orchestrates enterprise communications with (offers to) customer segments across multiple channels.

Lorne Daniel | ldaniel@finncap.com