finnCap Research Company Notes - 26 September 2018

Sep 26, 2018 / Research Notes

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Sector: Technology & Telecoms

KRM22 (KRM): Maiden interims

Key data                              

  • Share price (p): 130.0
  • Target price (p): U/R
  • Market cap (£m): 16.0
  • Enterprise value (£m): NM

KRM22 has released maiden interim results to June 2018, since its IPO in April. The short period covers the first 2½ months since admission, including a one-month contribution from Irisium, delivering revenues of £0.1m (c.100% recurring). In line with its investment policy, KRM22 has made strategic investments and partnerships during the period, and maintains a strong pipeline of investment targets offering subject matter expertise and high levels of recurring revenue. Forecasts and target price remain under review, but we look forward to the ongoing strategic development of the company, through further investment opportunities and the ongoing development of the Global Risk SaaS Platform for capital markets.

KRM22 (KRM): Prime acquisition

Key data                              

  • Share price (p): 130.0
  • Target price (p): U/R
  • Market cap (£m): 16.0
  • Enterprise value (£m): NM

KRM22 has announced the acquisition of Prime Analytics, a risk management technology company providing software solutions for the derivatives market. The acquisition is for an initial consideration of $4.5m funded via a £3.3m placing, with a further $3.0m deferred consideration subject to earn-out conditions. Prime Analytics provides ProOpticus, a solution for derivatives options trading and portfolio management for both proprietary traders and institutional customers. The acquisition represents KRM22’s entry into the Market Risk sector, one of the four primary risk domains set out by the company at IPO, and a strategic step in the development of the new generation Global Risk SaaS Platform.

Andrew Darley | adarley@finncap.com

Pelatro (PTRO): Morphing into a multi-product proposition

Key data               

  • Share price (p): 83.5
  • Target price (p): 115.0
  • Market cap (£m): 27.1
  • Enterprise value (£m): 25.9

This is an exciting period for Pelatro; the IPO in December has been followed by a landmark contract win in Central Asia and then an earnings-enhancing acquisition that brings recurring revenue, a foothold in Europe and additional products, all of which are transforming the offering from a single-product firm into a multi-channel marketing hub. Organic growth has been impressive with sales rising from $0.4m to $3.1m in two years and maintaining momentum in H1; EBITDA and adj. PBT both saw double-digit growth, to $1.5m and $1.2m, respectively. A key driver of this strong performance has been the $1.7m Tele2 contract win with licence and managed services, which effectively secured our pre-acquisition IPO forecast for the year. Slow cash generation is an unavoidable facet of the industry but a net cash position and a pipeline of opportunities underpin organic growth prospects, enhanced by the H2 acquisition of Danateq. We lift our TP from 100p to 115p.

Lorne Daniel | ldaniel@finncap.com

Sector: Support Services

Minds + Machines (MMX): Interims on track despite exceptional items

Key data                              

  • Share price (p): 7.3
  • Target price (p): 17.0
  • Market cap (£m): 51.5
  • Enterprise value (£m): 39.4

FY 2018 will be transformative for MMX; strong registration and renewal revenue growth in the portfolio will be augmented by the ICM acquisition in H2, to create a stronger business with a high proportion of predictable recurring revenues, which are expected to cover the cost base within the next few years. Meanwhile, significant restructuring and reappraisal has been undertaken in H1; certain inherited legacy contracts have been provided-for to enable a clearer picture of the underlying progress, leaving a large headline loss but with little cash impact.

Lorne Daniel | ldaniel@finncap.com

Sector: Life Sciences

Destiny Pharma (DEST): Interims – second programme in dermal infections

Key data                              

  • Share price (p): 89.0
  • Target price (p): 250.0
  • Market cap (£m): 38.8
  • Enterprise value (£m): 23.7

Interim results reflected the ramp up in clinical activities after the company’s IPO in September 2017. A statutory pre-tax loss of £2.58m (adjusted loss of £2.50m) was driven by £1.3m of R&D and a doubling of administrative costs to £0.8m. Period-end cash was £15.1m vs. £16.7m at 31 December 2017. Confirmation from the company that it intends to develop a second formulation and indication for XF-73, for the treatment of infections in diabetic foot ulcers, is a clear example of how the core technology platform will broaden over time. The company remains on track to commence the Phase IIb study for the prevention of post-surgical infections in early 2019, with data readout in H2 2019, and is well funded through to H2 2020, at which point it will have a valuable Phase III-ready package with Fast Track designation awarded by the FDA. Unchanged 250p target price.

Synairgen (SNG): Placing raised £2.9m

Key data               

  • Share price (p): 17.3
  • Target price (p): 53.0
  • Market cap (£m): 18.9
  • Enterprise value (£m): 14.0

Synairgen raised £2.9m, primarily to fund a larger Phase IIa study for its lead product, SNG001, in chronic obstructive pulmonary disease (COPD). Although we expect Synairgen to receive its share (c.17%) of any upfront payment that Pharmaxis receives from licensing its LOXL2 inhibitor in fibrotic diseases, which is targeted for H2 2018, the company cannot wait for such payment given the need to have clinical investigators in place prior to the approaching 2018/19 respiratory virus season. Not only should this generate proof of concept efficacy data given the additional powering of the study rather than only proof of mechanism, but it should also increase the prospect of partnering the asset, better inform the design of the subsequent Phase IIb trial and increase the value of any such licensing deal. We are leaving our rNPV valuation unchanged at £57m, but given the dilution from additional shares, the target price moves to 53p. A successful Phase IIa trial would increase the value of SNG001 to c.£100m, implying an uplift in value of c.£60m for a Phase IIa trial cost of c.£5.5m, illustrating that the risk-reward remains skewed to the upside.

Mark Brewer | mbrewer@finncap.com

Sector: Energy

President Energy (PPC): The best is yet to come

Key data                              

  • Share price (p): 8.6
  • Target price (p): 18.0
  • Market cap (£m): 93.4
  • Enterprise value (£m): 106.4

President’s interims demonstrated strong progress on a number of fronts with production trebling and unit costs declining significantly. This drove a material improvement in EBITDA, which will accelerate in H2. Year-end production is expected to be over 50% higher than H1 as renewed development drilling on Puesto Flores provides a step change to volumes. The expected acquisition of two concessions in Q4 will add further to volumes early next year, while also providing the infrastructure required to deliver its Neuquén basin gas to market – 2019 is already shaping up to be another strong growth year. Also important is the fact that there was no material negative cash impact from the weak peso on these results, which should go some way to helping investor confidence.

Jonathan Wright | jwright@finncap.com

Sector: Industrials

Trifast (TRI): In-line trading update

Key data                              

  • Share price (p): 226.5
  • Target price (p): 300.0
  • Market cap (£m): 272.5
  • Enterprise value (£m): 279.9      

The group has released a solid trading update covering the first five months of the year. Overall trading is in line with expectations, with the US, Europe and Asia all performing well. As previously signalled, some effect in the UK has been seen from lower diesel demand and an increase in input costs. The acquisition of PTS earlier this year has integrated well and is on track to be earnings accretive in the current year. No change to forecasts. Having recently underperformed the shares trade on a P/e of 16x, followed by 15.1x, which is a 15% discount to its peer group. We reiterate our 300p price target with good upside scope.

David Buxton | dbuxton@finncap.com

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