finnCap Research Company Notes - 18 July 2018

Jul 18, 2018 / Research Notes

Read our regular corporate finance notes featuring updates from the finnCap Research team's sector experts.

Sector: Support Services

DX (DX): Turnaround on track

Key data                              

  • Share price (p): 9.6
  • Target price (p): 18.0
  • Market cap (£m): 55.3
  • Enterprise value (£m): 63.7         

In a positive June year-end trading statement DX has confirmed that the turnaround is progressing steadily and that both the DX Freight and DX Express divisions have delivered in line with management expectations in H2. Net debt is expected to be c.£1.1m at June which is better than our forecast £8.4m due to improved working capital management. We make no changes to our forecasts ahead of the full results in October and reiterate our view that DX’s issues are readily fixable by the new, highly experienced management team. This will allow DX to start moving towards earning an appropriate return on a service that customers both need and value. Our 18p price target is derived using a market FCF yield of 4.5% in FY 2021, but we highlight that the possible continued growth into FY 2022 could generate 30p.

Guy Hewett | ghewett@finncap.com

NAHL (NAH): Strong performance as business transitions

Key data                              

  • Share price (p): 121.5
  • Target price (p): 257.0
  • Market cap (£m): 55.3
  • Enterprise value (£m): 68.1

NAHL has confirmed that the group has performed in line with the Board’s earnings expectations in the six months to June. Personal Injury has continued to deliver good enquiry volumes in an evolving market and has made good progress in developing its Alternative Business Structures. We reiterate our view that we expect 2018 to be the bottom for FCF and see improving cash flow as the main driver for the shares. The FY18 PER of 6.3x and dividend yield of 8.0% assume a far more negative scenario than both our forecasts and today’s statement. Our target price of 257p is based on an FY 2020E target FCF yield of 5.4%, a 20% discount to the current market yield of 4.5%.

Guy Hewett | ghewett@finncap.com

Sector: Life Sciences

Bioventix (BVXP): High sensitivity troponin I – FDA 510(k) clearance

Key data                              

  • Share price (p): 3150.0
  • Target price (p): U/R
  • Market cap (£m): 161.9
  • Enterprise value (£m): 156.3

Siemens Healthineers received 510(k) clearance from the FDA on 12 July for its high sensitivity troponin I test. The approval is significant for Bioventix as the test uses antibodies created by the company, for which it receives royalties based on sales of the test to Siemens’ customers. It is not clear currently when Siemens intends to launch this test. We are not changing forecasts for troponin, which are currently for £0.1m and £0.5m in FY 18 and FY 19, respectively. We expect the company to provide a trading update in late August when it has greater visibility of royalty payments. We will review forecasts then, at which point we should have greater clarity also over the US launch timetable. We are placing our target price under review until then.

Omega Diagnostics (ODX): VISITECT CD4 commercialisation update

Key data                              

  • Share price (p): 15.0
  • Target price (p): U/R
  • Market cap (£m): 19.0
  • Enterprise value (£m): 19.8

The announcement that Omega has appointed three new dedicated distributors for VISITECT CD4 in Ghana, Zambia and Zimbabwe is positive confirmation of the commercialisation progress being made and follows the appointment of its first dedicated distributor for CD4 in Nigeria, which was announced in April. These are resource-poor markets with high HIV prevalence rates (12-15%) in which an estimated 2.9m people are living with HIV. VISITECT CD4 should be of significant benefit in prioritising patients at risk of opportunistic infections, thereby enabling anti-retroviral therapy intervention in markets where treating all patients with HIV is not a realistic option. Forecasts remain under review pending full year 2018 results, which are expected on 6 August.

Mark Brewer | mbrewer@finncap.com

Sector: Mining

Savannah Resources (SAV): Option to acquire additional licences at Mina do Barroso

Key data                              

  • Share price (p): 9.7
  • Target price (p): 20.0
  • Market cap (£m): 80.5
  • Enterprise value (£m): 67.5         

Savannah Resources has announced that it has entered into an agreement to acquire an option (subject to due diligence) with a private Portuguese company to acquire additional licences adjacent to the current Mina do Barroso lithium project in northern Portugal. We maintain our 20p price target.

Martin Potts | mpotts@finncap.com

Sector: Industrials

Somero Enterprises (SOM): Trading update

Key data                              

  • Share price (p): 395.0
  • Target price (p): 465.0
  • Market cap (£m): 222.1
  • Enterprise value (£m): 207.7

The company has provided an update covering its H1 trading. It confirms trading has been solid and is on track to be in line with FY expectations. Four of the company’s six trading territories, including its two largest (US and Europe), have seen growth. Positive trading momentum has combined with continuing healthy market conditions and robust margins and operating cash flow generation. Net cash was also in line with management expectations. No changes to forecasts.

David Buxton | dbuxton@finncap.com

Sector: Technology and Telecoms

ClearStar (CLSU): H1 2018 is EBITDA positive

Key data                              

  • Share price (p): 67.0
  • Target price (p): 80.0
  • Market cap (£m): 24.3
  • Enterprise value (£m): 23.4

A trading update for H1 2018 reveals a strong start to the year, with the company’s highest-ever revenues for a six-month period, up 11%, driven by the onboarding of new direct background checking clients; continued growth of the exciting Medical Information Services (MIS) division and finally the integration strength inherent in ClearStar solutions. The latter is key; it is now integrated with the three largest drug-testing labs in the US and with SAP’s SuccessFactors Recruiting solution. With operational gearing in the model, the strong revenue growth has translated into a positive EBITDA in line with our expectations and management remains confident in delivering the forecast FY 2018 results. With the greater certainty and confidence in the growth forecast, we are lifting our target price by a third to 80p.

SRT Marine Systems (SRT): SE Asia project update

Key data               

  • Share price (p): 29.8
  • Target price (p): 75.0
  • Market cap (£m): 38.0
  • Enterprise value (£m): 38.0         

SRT management has been informed that the previously announced key €28.5m SE Asian government VMS (fisheries monitoring) contract won in March has seen the funding source changed from an overseas development assistance (ODA) loan from a European government, over to direct funding from the national government involved. Unfortunately under procurement rules the contract (which is already in process of delivery and implementation) must be cancelled and re-tendered over the next few months. SRT’s management is very confident of winning the new tender process however £8.2m of revenue from the contract booked in the last month of FY 2018 will now be reversed out, leaving revenues of just £5.3 (from just OEM and em-track) and an Adj. LBT of £4.3m for the period. The company had previously expected revenues of £13.5m and £1.5m Adj. PBT for the year. Although management anticipates these revenues to fall into the current year, at this stage we are not changing our FY 2019 expectations as we await visibility on the re-awarding of the contract and further, SRT’s capacity to deliver on an even greater step-up in revenue in FY 2019 than we already anticipated. The company expects little cashflow impact since the contract payments should still arrive in FY 2019 and will be and will be broadly in line with its existing implications.

Lorne Daniel | ldaniel@finncap.com