finnCap Research Company Notes - 1 November 2018

Nov 01, 2018 / Research Notes

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Sector: Life Sciences

Destiny Pharma (DEST): Biofilm research collaboration – non dilutive funding

Key data                              

  • Share price (p): 73.0
  • Target price (p): 250.0
  • Market cap (£m): 31.8
  • Enterprise value (£m): 16.7

Destiny announced a research collaboration with the University of Southampton, targeting infections in diabetic foot ulcers and cystic fibrosis: to be funded by the National Biofilms Innovation Centre. Combining Destiny’s novel XF compounds, which have already been shown to have activity against bacteria such as MRSA within a biofilm, with the University of Southampton’s ex vivo biofilm model systems, the funded (undisclosed) project will explore the utility of Destiny’s XF drug platform in the treatment of infections involving biofilms, potentially identifying additional clinical candidates. There is a huge unmet need for such agents, given the high associated costs in the US ($94bn). We await the outcome of the second Phase I tolerability study for XF-73 by year-end, which (assuming it is positive) will enable the large Phase IIb study for the prevention of post-surgical staphylococcal infections to commence. No change to 250p target price.

Mark Brewer | mbrewer@finncap.com

Sector: Support Services

4imprint (FOUR): Towards the upper end of the range

Key data                              

  • Share price (p): 1810.0
  • Target price (p): 2477.0
  • Market cap (£m): 507.6
  • Enterprise value (£m): 501.0       

4imprint has detailed that the good momentum seen in H1 has continued into H2, producing overall demand consistent with the growth percentages experienced in H1 and maintaining a healthy balance between new and existing customer orders. Consequently, the Board now expects that full‐year sales and underlying* operating profit will both be towards the upper end of the range of current market forecasts. We have upgraded our EPS forecasts by +2% in each year (FY 2018E EPS growth now +19%) 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

Sector: Industrials

Alumasc (ALU): Disposal of Facades business

Key data                              

  • Share price (p): 128.0
  • Target price (p): 165.0
  • Market cap (£m): 45.6
  • Enterprise value (£m): 65.6

The company has announced a useful disposal of its Facades business that has been generating low margins and experiencing a decline in its end market. The sale of Facades for an initial cash consideration of £4.5m is modestly EPS dilutive by 6.4% in 2020, but improves operating margins and frees up cash resources to generate better returns once it is re-invested in the group’s growth products. It also offers the possibility of some consolidation benefits. We consider this to be a small but useful move by the company and retain our 165p price target, with the shares potentially offering significant upside once some recovery in its markets is seen.

David Buxton | dbuxton@finncap.com

Sector: Technology & Telecoms

Proactis (PHD): Back on track

Key data                              

  • Share price (p): 123.0
  • Target price (p): 250.0
  • Market cap (£m): 116.4
  • Enterprise value (£m): 149.7

Post acquisition expectations of a year of cost management and delivery of synergies in FY18, before driving for revenue growth from the combined group in FY19, are on track. While the unexpected customer churn revealed in April was a setback, prelims reveal strength in profitability and underlying cash generation. With the opportunity globally to export the success of the solution set as experienced in a series of core verticals in the UK, to the US, France and Germany in particular, with increasing volumes of new business in those territories over time, encouraged by the rise of e-commerce and regulation. We are seeing positive regulatory drivers . Management can now focus beyond driving the business combination, and dedicated teams are developing advance the significant market opportunity: we see significant further upside (not yet factored into the conservative forecasts but potentially starting to take effect in FY20) through monetisation of The Business Network to drive supplier side revenue, and deploying the accelerated payment facility in existing and new supplier network environments. Target 250p reiterated, with forecasts tweaked (t/o -3%; -0.7% EBITDA; adj dil EPS +7%).

Andrew Darley | adarley@finncap.com

 

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