finnCap Research Company Notes - 17 July 2018

Sector: Life Sciences

Destiny Pharma (DEST): Research collaboration – biofilms

Key data                              

• Share price (p): 109.0
• Target price (p): 250.0
• Market cap (£m): 47.5
• Enterprise value (£m): 30.8

Destiny Pharma has signed a three-year research collaboration with Aston University to investigate new XF-platform antimicrobial candidate compounds to prevent, control and eradicate bacteria and biofilms. The financial terms of the collaboration are not disclosed but do not affect our forecasts. Focus remains on the company’s expected initiation of the Phase IIb trial of its lead asset, XF-73, in H2 2018, targeted at the eradication of nosocomial S. aureus in patients entering hospital for planned high-risk surgery. Although this is relatively early research, it illustrates the potential incremental value that lies within the XF platform technology. Our target price of 250p is a risk-adjusted NPV of XF-73 and excludes any value that large pharma might attach to the broader platform.

Mark Brewer | mbrewer@finncap.com

Sector: Industrials

Flowtech Fluidpower (FLO): HY trading update confirms strong H1 growth

Key data                              

• Share price (p): 175.0
• Target price (p): 215.0
• Market cap (£m): 103.6
• Enterprise value (£m): 118.6

The group’s H1 update confirms growth across the group, delivered by the Flowtechnology, PMC and Process divisions.

David Buxton | dbuxton@finncap.com

Iofina (IOF): H1 2018 update

Key data                              

• Share price (p): 16.4
• Target price (p): 35.0
• Market cap (£m): 20.9
• Enterprise value (£m): 34.7

Iofina’s H1 2018 update confirmed that its operations are performing in line with expectations and that the iodine price continues to recover. The company is on track for a strong H2 as it benefits from normal seasonality in its chemicals business and a full period’s contribution from IO#7, which started up in February. The operational recovery remains on track, as does the improvement in iodine prices. Iofina is highly leveraged to both of these, especially from a free cash flow perspective; a $1/kg improvement boosts FCF by 43% – important as it drives future growth investment capacity.

Jonathan Wright | jwright@finncap.com

Sector: Technology and Telecoms

Amino Technologies (AMO): Delivering TV-as-a-service

Key data                              

Share price (p): 203.5

Target price (p): 275.0

Market cap (£m): 147.9

Enterprise value (£m): 136.5

Interims for the period to May 2018 delivered EBITDA of $6.8m from $41.2m turnover. Contracted revenue represents 77% (FY17: c75%) of the FY18 target and sales orders 40% ahead of last year, leaving forecasts unchanged. Gross margin of 42.1% (1H17: 44.4%) reflected expected market-wide pressure described at prelims in January; however, cost control reduced opex 3% (vs 1H17), including partial benefit from the completed rationalisation of R&D centres (3 to 2), resulting in annualised savings of $1.4m. Cash generation was typically strong (pre exceptionals), lifting cash to $15m and leading to unchanged FY expectations of $23.5m demonstrating balance sheet strength. Abort fees on M&A deals shows management is strategically active; the dividend is 10% ahead of last year; and momentum is strong, with the order book healthy. Amino continues to demonstrate that it is a software-focused solutions provider delivering TV to customers for clients, anytime, anywhere and on any device. We reiterate our 275p target and look forward to further contract win newsflow.

Ideagen (IDEA): Low risk in delivering compliance

Key data                              

• Share price (p): 123.5
• Target price (p): 140.0
• Market cap (£m): 250.3
• Enterprise value (£m): 249.5

Prelims confirm EBITDA of £11.0m from revenue of £36.1m, in line with expectations unchanged at the May trading update. 11% underlying organic revenue growth is supported by acquisitions (current and prior periods), delivering +33% group revenue, +40% group EBITDA, and +33% adjusted diluted EPS. Net cash at period end of £0.8m is expected to be boosted by strong and growing free cash flow, funding both the dividend and the inevitable further acquisitions. Ideagen has a tried and tested formula for delivery of forecasts and sensible acquisitions, and we look forward to continuing positive newsflow as the relentless increase in regulatory compliance leads to the requirement for efficiencies and insight through automation, which Ideagen’s solutions deliver – and Brexit will only increase. We roll out a new target of 140p (120p) based on FY20 forecasts for further organic growth of +10% EBITDA and EPS; however, we fully expect further acquisitions to increase those forecasts in the interim.

Andrew Darley | adarley@finncap.com

Sector: Energy

Independent Oil & Gas (IOG): Thames pipeline integrity update

Key data                              

• Share price (p): 27.5
• Target price (p): 50.0
• Market cap (£m): 33.1
• Enterprise value (£m): 56.9

Analysis of offshore sections of the Thames pipeline confirm it is in excellent condition. A new optimised integrity programme, agreed with regulatory authorities, means that another attempt at intelligent pigging is not required until just before first gas. This saves pre-FID costs, keeps any delay to a minimum and means the development schedule remains on track for first gas in late 2019. We are making no changes to our NAV as we already had a slightly later start-up date for Phase 1 of the project. However, we are yet to assign any risked value to the recently awarded Goddard discovery in our NAV, suggesting an upward bias.

Jonathan Wright | jwright@finncap.com