finnCap Research Company Notes - 23 July 2018

Jul 23, 2018 / Research Notes

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

Sector: Support Services

Cello Health Group (CLL): Robust H1 in Health

Key data                              

  • Share price (p): 127.5
  • Target price (p): 145.0
  • Market cap (£m): 131.8
  • Enterprise value (£m): 130.2

Cello confirmed last week that H1 saw good growth in overall revenues and profits with margins slightly higher. Cello Health has seen excellent like-for-like gross profit growth, and operating margins are ahead of the same period last year. Cello Signal has had a solid start to the year. We reiterate our view that the market backdrop for Cello’s technically based, strategic marketing services is strong and defensive, supporting good growth prospects. With a strong balance sheet and the potential to leverage its digital expertise into health, there is clear opportunity to create significant value.

Guy Hewett | ghewett@finncap.com

Sector: Technology and Telecoms

SRT Marine Systems (SRT): Riding some stormy waters

Key data                              

  • Share price (p): 26.3
  • Target price (p): 75.0
  • Market cap (£m): 33.5
  • Enterprise value (£m): 33.5

FY 2018 has been a challenging year for SRT, as group revenue fell to £5.3m (2017: £11.5m), leading to an adj. LBT of £4.0m (2017: adj. PBT £1.5m). Both divisions underperformed against last year; the Transceivers business suffered a 12% fall in revenue due to new product shortages (now corrected) but the Systems division generated revenue of just £0.3m (2017: £5.3m). The value in SRT lies in Systems, which holds the enormous promise of £400m of sales opportunities; however, it is subject to the inevitable delays and setbacks of major infrastructure projects in developing regions. Early in the year, a delayed Coast Guard contract led to a £1.5m exceptional impairment of trade debtors. That has been followed by the cancellation of a €28.5m SE Asian contract due to a change in funding, resulting in £8.2m of revenue written back in FY 2018. Assurances from both end-customers lead us to anticipate both will proceed in future, and our confidence is underpinned by the real need for these solutions by authorities around the world for both economic and security purposes. With this loss, SRT ended March with £2.3m net debt but since then it has refinanced with a £3m placing in May and has a £10m loan note programme largely undrawn.

Lorne Daniel | ldaniel@finncap.com