finnCap Research Company Notes - 6 November 2018

Nov 06, 2018 / Research Notes

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Sector: Mining

Kazera Global (KZG): Investee company operational update

Key data                              

  • Share price (p): 2.5
  • Target price (p): U/R
  • Market cap (£m): 6.2
  • Enterprise value (£m): 6.3

Kazera Global Savannah Resources has released an exploration update from its investee company African Tantalum (Pty) Limited (Aftan). Aftan has a controlling interest in the Namibia Tantalite Investment mine at Tantalite Valley in southern Namibia. We do not have a price target for Kazera Global.

Martin Potts | mpotts@finncap.com

Sector: Life Sciences

Proteome Sciences (PRM): Q3 trading update and preferred provider status

Key data                              

  • Share price (p): 3.8
  • Target price (p): 6.0
  • Market cap (£m): 11.1
  • Enterprise value (£m): 19.7

Despite a strong Q3 and committed service orders expected to be double those in 2017, Proteome is unlikely to meet our revenue targets for FY 2018 due to IFRS15 revenue recognition. Proteome has been selected as a preferred provider of proteomic services to e-therapeutics, citing both quality and speed as key performance indicators. These all point to a more positive outlook and attest to the reorganisation changes undertaken over the past year. We reduce forecasts (EBITDA and PBT) by £0.3m but leave our target price unchanged, given that c.75% is underpinned by TMT® reagents.

Mark Brewer | mbrewer@finncap.com

Sector: Technology & Telecoms

ZOO Digital (ZOO): Globally local

Key data                              

  • Share price (p): 125.0
  • Target price (p): 180.0
  • Market cap (£m): 93.0
  • Enterprise value (£m): 95.5

Interims report performance in line with the AGM statement and unchanged forecasts. 1H19 revenue growth of 17% (vs FY19E 18%) demonstrates resilience in a period where partial revenue hiatus from a major subtitling customer was offset by extraordinarily strong growth from dubbing revenue. The 2H restoration of higher than former (pre March) levels of business at the major subtitling customer – as well as continuing dubbing strength – de-risks expectations, with board confidence demonstrated in ongoing investment in capacity for revenue growth. As the content industry consolidates (Disney/Fox) and invests in content (Netflix: $8bn), the customer base is focused on delivering both efficiency in process and costs, and maximisation of revenue per title through language localisation: ZOO’s cloud-based product set delivers a collaborative approach to localisation that historically eluded studio restrained processes. As the freelancer network expands, technological capabilities continue to advance, and geographical reach of the group extends, we look forward to strong growth in the business into 2H19 and beyond. Target 180p reiterated.

Castleton Technology (CTP): Confidence and delivery

Key data                              

  • Share price (p): 90.5
  • Target price (p): 125.0
  • Market cap (£m): 73.6
  • Enterprise value (£m): 78.2

Last year’s interims note was titled Strength evident in execution, a theme which has become routine for CTP. Revenue growth of 20% included organic growth of 12%, comfortably on track for full-year growth expectations of 13% (+10% organic, excluding Kinetic, acquired December 2017). Given positive momentum; the increase in the backlog of Software (12%) and Managed Services (14%); and the success in the strategic aim of selling more products to more customers, we believe forecasts are comfortable for the remainder of FY19. Operating cash generation of 102% of EBITDA was very strong, and we expect free cash flow of £4.8m (formerly £4.4m), representing an FY19 FCF yield of 6.5% (rising to 7.9%) – demonstrating significant upside in comparison with the market norm of 4.5%. Target 125p reiterated.

Andrew Darley | adarley@finncap.com

Elecosoft (ELCO): Building a virtual world

Key data                              

  • Share price (p): 72.5
  • Target price (p): 88.0
  • Market cap (£m): 56.4
  • Enterprise value (£m): 53.7

The group has undertaken a placing to raise £2.25m in order to part-fund the proposed acquisition of Active Online GmbH for a maximum consideration of €3.45m. This purchase follows the recent acquisition of Shire Systems earlier in H2 2018, and continues a strategy of steady expansion of the software portfolio to cover a broad range of the needs of Architectural, Engineering and Construction (AEC) professionals notably meeting the requirements for the Building Information Modelling (BIM) process. This acquisition will further enhance the cross-selling opportunities, increase the scale of the business and provide synergies to be exploited. Traditionally, the company has used cheap debt and its own cash resources to fund expansion, but is using some equity investment to widen the shareholder base. We expect the acquisition of Active Online to accelerate growth in the longer term and be earnings neutral this year and c.5% earnings enhancing in FY 2019.

Lorne Daniel | ldaniel@finncap.com

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