finnCap Research Company Notes - 2 July 2018

Sector: Technology and Telecoms

Quartix (QTX): Overseas focus as UK telematics matures

Key data                              

• Share price (p): 380.0
• Target price (p): 425.0
• Market cap (£m): 180.8
• Enterprise value (£m): 173.5

The trading update reveals an H1 performance in line with FY 2018 expectations, with just under 10% growth in revenue, profit in line with LY (after higher investment) and cash flow slightly ahead of LY. The H1 results are driven by the Fleet business as Insurance volumes are declining due to increasingly competitive pricing, which Quartix refuses to match. As flagged at the AGM in March, management anticipates a continued decline in Insurance during H2, although volumes did stabilise towards the end of Q2 thanks to a new direct offering to insurance brokers. Fleet performance was very strong overseas in H1, although the net growth in the UK rollout is slowing. The experienced management team is already taking action to reverse that trend. We make no change in our forecasts at this stage; note these are based on LFL since IFRS15 adoption is likely to see increased revenue recognition on the long contracts.

Lorne Daniel | ldaniel@finncap.com

SRT Marine Systems (SRT): Japanese OEM deal strengthens core business

Key data                              

• Share price (p): 30.8
• Target price (p): 75.0
• Market cap (£m): 39.3
• Enterprise value (£m): 37.3

The global provider of maritime management and surveillance systems and the leader in AIS technology, has entered an OEM partnership agreement with Japan Radio Corporation (JRC) of Japan. It will supply JRC with AIS product solutions customised and branded to JRC requirements. We are not changing forecasts at this stage but this is a very encouraging development, which will help to underpin the recurring revenue base. Japan has several suppliers of AIS technology and it is very encouraging that a UK firm such as SRT has been selected for such a prestigious long-term contract. We continue to feel the business is deeply undervalued, with significant project deliveries expected over the next few years. Greater detail will be available with the results later this month.

Lorne Daniel | ldaniel@finncap.com

ZOO Digital (ZOO): Continuing momentum

Key data                              

• Share price (p): 94.0
• Target price (p): 130.0
• Market cap (£m): 69.4
• Enterprise value (£m): 70.8

After upgrades during the year, ZOO has delivered EBITDA of $2.4m ($2.3mE) from revenue of $28.6m ($28.0mE), demonstrating impressive growth rates of 35% and 73% respectively, including 149% growth in localisation revenue (subtitling and dubbing). Localisation services, elements of the suite of ZOO’s broader cloud-based platform, deliver the ability for content providers to commercialise their content in more languages and territories at a pace and cost which outperform any alternatives. Matching client demand, the clients being both the largest and best known in Hollywood as well as the household name online platforms, the company continues to invest in overseas partnerships of ‘talent’ to deliver further languages and capacity in addition to the 5,000 strong ZOO network. The group delivers momentum from playing to the video media zeitgeist of enabling content delivery over any device, anytime, anywhere – fulfilling the practicality of rolling out a film in 30 languages to 50 territories at the same time, rather than the former practical limit of the typical maximum 10 languages. We nudge up FY19 forecasts (revenue 5%, EBITDA 2%) and introduce FY20 forecasts with 19% revenue and EBITDA growth: continuing revenue momentum alongside further investment and a healthy balance sheet. Twelve-month target price lifted to 130p (116p).

Andrew Darley | adarley@finncap.com