finnCap Research Company Notes - 26 June 2018

Sector: Support Services

Water Intelligence (WATR): Fuelling further growth potential

Key data                              

• Share price (p): 318.0
• Target price (p): 344.0
• Market cap (£m): 48.5
• Enterprise value (£m): 47.1

Water Intelligence has signed an exclusive joint development agreement with Reece Innovation Centre, a UK manufacturing and innovation company. Together they will develop a range of proprietary, leading edge technology products under the Water Intelligence brand for the municipal services market. RIC will also provide Water Intelligence with manufacturing capabilities that the Group needs in order to grow its solutions offerings worldwide. With today’s announcement providing another example of how Water Intelligence will fuel long-term growth, backed by technology and innovation, we have moved our valuation horizon out an additional year to FY 2020E and upgrade our target price from 309p to 344p.

Guy Hewett | ghewett@finncap.com

Sector: Life Sciences

ANGLE (AGL): £12.7m Placing – funded beyond key inflection point

Key data                              

• Share price (p): 54.0
• Target price (p): 110.0
• Market cap (£m): 76.9
• Enterprise value (£m): 69.3

ANGLE has raised £12.7m (gross) to advance the development of Parsortix clinical applications in breast cancer and ovarian cancer triage pre-surgery as well as prepare for growth ahead of FDA clearance for Parsortix, which we expect in CY 2019. A trading update to April 2018 indicates revenues of £0.7m with better than expected year-end cash of £7.6m and a £1.1m tax credit received post period-end. Given the later than expected start to the breast cancer study following final IRB approvals and the ongoing optimisation of the ovarian cancer gene panel, forecasts are essentially pushed out by one year. Despite this and the dilution afforded by the placing, our target price rises to 110p, reflecting the clearer path to commercialisation as evidenced by agreements with Abbott and QIAGEN, and knowledge that the FDA trial is well into enrolment. We apply a 17.5% discount rate to cashflows and roll forward DCF to FY 2019. The target price implies an enterprise value of c.£157m.

OptiBiotix (OPTI): SweetBiotix® – six-month exclusivity to negotiate licence

Key data                              

• Share price (p): 64.5
• Target price (p): U/R
• Market cap (£m): 51.2
• Enterprise value (£m): 49.9         

A six-month exclusivity period to negotiate a licence agreement to scale up, manufacture and distribute SweetBiotix® with an unnamed global corporate, for which it will receive a six-figure sum, is a meaningful statement of intent. Whilst there is no certainty that the negotiations will lead to a full licence, this agreement could be very substantial given the scale of the corporate with which it has had initial discussions. This agreement sustains the accelerating trend of agreements with larger companies and represents the eighth agreement in 2018 across its product range; SlimBiome®, LP-LDL® and SweetBiotix®.

Mark Brewer | mbrewer@finncap.com

Sector: Industrials

Velocity Composites (VEL): Interim results signal FY forecasts on track

Key data                              

• Share price (p): 64.0
• Target price (p): 90.0
• Market cap (£m): 22.9
• Enterprise value (£m): 19.1

Interim results were in line with revised guidance with a reassuring statement that the board is confident of meeting full-year expectations. Action taken to restore margins is already showing benefits, while recent contract awards and a strong pipeline provide confidence of a stronger 2H. No change to PBT forecasts with a reduction in LPS to 0.6p due to a tax credit. Affirmation of FY forecasts should be taken well, giving some confidence to the shares that remain below pre-IPO levels. We believe the shares offer good value and recent contract wins provide positive momentum. We raise our target price from 71p to 90p.

David Buxton | dbuxton@finncap.com

Sector: Technology and Telecoms

D4T4 Solutions (D4T4): Landmark data deals secure strong H2

Key data                              

• Share price (p): 145.0
• Target price (p): 200.0
• Market cap (£m): 55.3
• Enterprise value (£m): 51.4

The prelims reveal that H2 earnings were even stronger than expected; the two largest contracts in the company’s history helped to lift revenue by 14% and underlying PBT to £5.1m, up 22% YoY and 6% ahead of forecast. Adj. EPS and dividend rose 10% and 11% respectively (building on 19% and 13% growth LY). The company is now well established in the data management industry, enabling financial services and consumer enterprises to power their AI and advanced analytics with its innovative data platform solutions. The two landmark deals closed in the last few weeks of FY 2018; one booked to sales and the other to deferred income. Although this left large trade receivables and deferred income balances, it underpins and derisks FY 2019 forecasts and will drive strong cashflow in H1. After the slow H1 last year, the share price was stifled by concerns over the H2 delivery but with this outperformance, we now expect rapid progress towards our 200p target; we feel this will be an excellent year for D4T4.

Lorne Daniel | ldaniel@finncap.com

Sector: Financial and Insurance

HML Holdings (HMLH): Good final results

Key data                              

• Share price (p): 33.0
• Target price (p): 53.0
• Market cap (£m): 15.0
• Enterprise value (£m): 16.5

The business model continues to deliver a consistent growth profile and the company remains well placed to benefit from any further tightening of industry legislation. We raise our target price to 53p, implying potential share price upside of 61%.

Mark Paddon | mpaddon@finncap.com