finnCap Research Company Notes - 27 September 2018

Sep 27, 2018 / Research Notes

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Sector: Life Sciences

Allergy Therapeutics (AGY): FY 2018 beat with pivotal year ahead

Key data                              

  • Share price (p): 24.3
  • Target price (p): 47.0
  • Market cap (£m): 154.3
  • Enterprise value (£m): 152.1

Allergy Therapeutics’ full-year results for the year ending 30 June 2018 showed an adjusted LBT of £5.9m (vs -£1.3m in FY 2017), which was £3m better than forecast and helped by phasing of R&D spend. Key drivers were growing market share (+100bps) and rising gross margins (290bps) despite the weak allergy season. This led to pre-R&D EBIT rising 26% to £9.3m. We keenly await the outcome of the Phase III PQ Birch allergy trial, the results of which are due by year-end. We make changes to our forecasts to reflect the increased R&D spend over the next three years and to take account of the dilution afforded by the £10.6m placing in July. We retain our target price of 47p, which is underpinned by the current commercial operations, with potential upside in PQ Grass in the US (c.33p on risk adjusted DCF) as well as Acarovac MPL (house dust mite) and Polyvac peanut.

Omega Diagnostics (ODX): Allersys update – first (albeit modest) purchase order

Key data                              

  • Share price (p): 14.9
  • Target price (p): U/R
  • Market cap (£m): 18.9
  • Enterprise value (£m): 19.7

In line with the company’s short-term outlook for its Allersys product range, provided at FY 2018 results in August, the company has CE Marked five more allergens, taking the panel of tests to 58 allergens. Additionally, a first purchase order has also been received from Immunodiagnostic Systems (IDS), with whom it has a global long-term supply agreement, to be delivered in October. Revenues are modest and in line with our forecasts for FY 2019 of c.£0.1m. We keep our target price under review until we have greater clarity over the timing of the Visitect launch.

Mark Brewer | mbrewer@finncap.com

Sector: Technology & Telecoms

ZOO Digital (ZOO): Positive AGM statement

Key data                              

Share price (p): 170.0

Target price (p): 180.0

Market cap (£m): 125.4

Enterprise value (£m): 126.9

ZOO’s AGM statement gives continuing confidence in delivery of unchanged forecasts. 1H revenue growth of 17% (vs FY revenue growth expectations of 18%) tracks well with expected seasonality, and stated management confidence in a “strong second half”. ZOO continues to offer a more rapid and more efficient localisation services (foreign language subtitles and dubbing) creating enhanced export value to a significantly expanding pool of original content producers and distributors, who have a financial need to maximise international returns on a large sunk fixed cost. With strong forecast momentum in ZOO services, as early-stage dubbing revenue performs three times ahead of management expectations, the excitement remains palpable. We look forward to further detail of studio wins and interims, expected November. Target price raised to 180p (130p), as the US enthusiasm for the tech suite services evidently increases with increasing global capacity (eg Dubai, for Arabic cloud dubbing) even with firm cost control.

Andrew Darley | adarley@finncap.com

eServGlobal (ESG): On the HomeStraight

Key data                              

  • Share price (p): 6.0
  • Target price (p): 20.0
  • Market cap (£m): 54.0
  • Enterprise value (£m): 52.4

For the first time, we have a clear baseline from which to build a projection of HomeSend’s potential. eServGlobal now holds a 35.69% stake in HomeSend, identified by Mastercard as a key cross-border transaction platform. HS has made a strategic expansion from remittance markets into B2B transactions, and the US giant is driving its rollout across the global banking sector as a comparable alternative to the current correspondent banking network. Transaction volumes and HS revenues are now set to take off. High operational gearing will translate that into remarkable earnings and cash generation for the JV. To prime this engine, HS requires a large cash float to hold in multiple currencies enabling a network of direct connections and FX capabilities. Giving some idea of the scale of transactions expected, HS has asked for a €50m capital injection; €32m from Mastercard and €18m from eServGlobal. This will support up to $4.5bn in annual transaction values, and in future the additional float required would likely be covered by a line of trading credit rather than equity. For this injection, eServGlobal has raised £19m from its shareholders in the knowledge that it is entering a crucial phase with HS and Mastercard. Success and significant earnings are now imminent, and we expect that Mastercard, a $220bn market cap global financial services giant, will be keen to secure the operation in totality.

Lorne Daniel | ldaniel@finncap.com

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