Moderator: CIC officers
Clinigen Group PLC [CLIN]AIM-listed Clinigen was tipped as a 'buy' in the Sunday Times' Inside the City column, as the distributor of commercial medicines, unlicensed medicines and medicines for use in clinical trials. The column suggests demand for the £1.2bn market cap company's services is set to "surge" in the next 10 years as patients around the world become more aware of the availability of life-saving treatments in different parts of the world. The company's overall principle is about getting "the right drug to the right patient at the right time".
Clinigen floated on the junior market in September 2012 with a valuation of £135m as it raised £50m at a price of 164p per share as it looked to grow organically and through acquisition. The company's early acquisitions included rights to therapies from the likes of Novartis and AstraZeneca, and then in 2015 it bought Idis, a rival ethical supplier of unlicensed medicines, and Southern Hemisphere focused distributor Link. Recent purchases have included Europe and US-focused packaging and logistics specialist CSM and iQone, a Swiss speciality pharma business. If Brexit causes chaos among medicine makers, "Clinigen has been extremely smart" for adding infrastructure in Europe and further afield.
Clinigen's shares are down 17% over the past 12 months, including a sharp fall after the CSM deal was announced in late September but with a bit of a rebound since. At current levels they change hands for 13 times forecast full-year earnings per share.
Mitie Group [MTO]Mitie was put forwards as a speculative punt by Questor in the Sunday Telegraph as the shares "needs more than a quick wash and brush-up" ads the outsourcer is one of many that have taken a hit following the crisis at Carillion. The shares are down by around a quarter since annual results in early June. Chief executive Phil Bentley's 'Project Helix' transformation plan needs to apply "a bit more elbow grease" to get things back on track, Questor says, one year into the programme. "With an uptick in revenue, a normalising balance sheet, a good order book, a focused execution plan, significant investment in technology and a settled management team, I believe Mitie is well positioned for growth," Bentley said at the time.
Analysts at Barclays recently observed that cost savings in the second half of the year will finally exceed the investment that is going into the business. More good news may have been the loosening of the public sector purse strings in the Chancellor's Budget last week.
Warehouse REIT [WHR]Midas in the Mail on Sunday tipped Warehouse REIT as a 'buy' as the investment company aims to reach £500m of assets over the next five years. The AIM-listed company, which floated in September last year, invests in mid-sized warehouse units located close to city centres and generally split into a number of units, generally used by larger retailers for transporting goods directly to consumers - known as last-mile delivery - while other smaller tenants use the warehouses for storage.
As of March this year it had 92 assets split into 881 units, with 652 tenants, ranging from small e-commerce firms to the likes of Amazon, Asda and Boots, giving entire portfolio a valuation of £291m. Managing the company is Tilstone Partners, run by Andrew Bird, a property expert with 25 years' experience under his belt, including at Barlows and Westbury. The Tilstone team have invested more than £17m of their own cash in the REIT on the belief that smaller, centrally located warehouses have particularly good growth potential. "Demand for space is growing, supply is limited and there are relatively few specialists in this sector," says Midas. A dividend of 6p is forecast for the current year to March and directors aim to raise the payout steadily over the next few years.
https://www.ii.co.uk/analysis-commentar ... 9-ii507388Five AIM share tips for 2019
by Andrew Hore from interactive investor | 31st December 2018 11:00
Former AIM writer of the year Andrew Hore names the AIM companies he believes have strong growth prospects over the next year and beyond.
The performance of the 2018 recommendations was not great, even though they were generally solid companies and traded in line with the market.
This year I am continuing to focus on undervalued and solid businesses, along with one more speculative investment.
Driver Group (DRV)
Construction consultancy Driver Group has gone through a transformation over the past three years and the share price reflects this. However, there should be more to come despite the strong share price performance. The recovery phase is over, and the growth phase has begun.
According to the company’s broker N+1 Singer, since February 2017, it increased its 2017-18 earnings forecast by 56% and the 2018-19 forecast by 53%. This covers a number of upgrades and provides comfort that the current forecasts are realistic and provide possible upgrade opportunities.
Driver is an international business with Europe and the Americas contributing 49% of revenues, the Middle East 35% and the rest coming from Asia Pacific. It provides services that include construction dispute resolution and provision of expert witnesses.
Driver reported a 2017-18 pre-tax profit of £3.8 million, up from £2.5 million, and it is returning to paying dividends with a 0.5p a share payment. The Diales expert witness business is becoming an increasingly important revenue generator and overall utilisation levels have improved. There has also been a focus on better margin work in the Middle East.
Cash generation is impressive. Net cash is £6.9 million, helped by a property disposal, and this could reach more than £10 million by September 2019 even after dividend payments. Add-on acquisitions are a possibility.
The dividend is well covered and is set to be raised to 0.9p a share this year. The shares are trading on 12 times future earnings for 2018-19 – based on a pre-tax profit forecast of £4.4 million. Buy.
TP Group (TPG)
Engineer TP Group raised £20.8 million at 6.5p a share nearly 18 months ago. The strategy was to use the cash to make acquisitions of profitable businesses, but the progress with these acquisitions has been slow. There is an opportunity to buy the shares at a lower price than in the fundraising before any benefit from further acquisitions.
Polaris Consulting was acquired for an initial £1.5 million at the end of 2017. In November, TPG acquired Westek Technology for an initial £3 million. Wiltshire-based Westek supplies rugged, high performance computer servers and it generated revenues of £3.5 million and pre-tax profit of £200,000 in 2017.
Net cash was £16.4 million at the end of June 2018, so most of this cash pile will still be intact. Using the cash to buy a profitable business will boost earnings, because there will be little in the way of interest income lost.
The business has been refocused into two divisions: consulting and programming services – around one-third of interim revenues - and technology and engineering equipment design and manufacturing, which generates two-thirds of revenues and is profitable. The main markets are defence, communications, space and energy. The order book was £56.5 million at the end of June 2018.
TPG has moved sectors from industrial engineering, a reflection of the old Corac business, to aerospace and defence. This is not likely to have much of an effect on the share price, but it does show how the business has changed in the past three or four years.
A 2018 pre-tax profit of £1.5 million is forecast, and that could nearly double in 2019. The shares are trading on 20 times forecast 2019 earnings, which in itself is not cheap. However, more acquisitions should further enhance those earnings. Buy.
Frontier IP (FIPP)
Frontier IP develops businesses and technologies that are spun-out of universities, both in the UK and Portugal. The model is different to its peers in that it gains stakes in return for providing advice and services. This enables Frontier IP to take a significant stake in its investee companies.
One of the consequences of this is that many of the stakes are in the books at low valuations. These valuations can be increased when there are fundraisings, although the percentage stake is likely to be diluted. There are 15 core shareholdings, which are generally stakes between 15% and 40%. The main sector focus is pharma, technology and advanced materials.
In the past year, the net asset value has risen from 30.7p a share to 33.2p a share. The share price is double the NAV, but there is plenty of upside in the existing investments.
For example, Alusid makes floor tiles from ceramic waste and it is seeking to invest in a new automated facility. This may be funded by a flotation on AIM. Frontier IP chose to invest cash in the September 2018 fundraising and it has a 35.6% stake valued at £1.38 million. This valuation could rise if there is a flotation.
Frontier IP recently raised £2.49 million at 65p a share in order to provide working capital for the business. Allenby reckons the cash will last until the end of June 2020, when it forecasts net debt of £172,000. That assumption does not include any potential realisations.
The timing of any valuation uplifts is difficult to predict s there is no guarantee that they will happen in 2019. Even so, the maturing portfolio makes the shares a long-term buy and there should be progress this year. Buy.
Pressure Technologies (PRES)
Pressure Technologies is selling its underperforming and volatile alternative energy division to a TSX-V quoted shell company and this leaves it with a profitable engineering business which is starting to enjoy an upturn in demand from the oil and gas sector.
Loss-making Greenlane Biogas is being sold to Creation Capital Corp for £11.1 million, which is below the NAV of £11.8 million. Only £5 million will be received in cash, with £4.1 million in the form of a promissory note, which offers an annual interest rate of 7% and matures 24 months after the completion of the deal, and the other £2 million in the form of Creation Capital shares valued at the price of the fundraising required to make the acquisition. There is a 4% advisory fee, which will be paid for out of the share consideration.
Net debt was £6.7 million at the end of September 2018, so this will be significantly reduced by the cash. Of course, this is assuming that the deal is completed.
Pressure Technologies is capitalised at £17.4 million. Even after allowing for the potential loss of value on disposal the pro forma NAV should be at least £32 million, although £10 million is goodwill, which indicates the undervaluation of the company. This is partly due to the cyclically poor performance, but the upturn appears to have gained momentum.
There was a small group operating profit last year as restructuring benefits showed through. International oil and gas companies are investing in capital projects. Even so, last year’s revenues from oil and gas were 50% of the 2015 figure. The manufacturing operations have increased their order books by between 36% and 54% over the previous year.
Greater focus, improving oil and gas demand and a stronger balance sheet makes Pressure Technologies an attractive recovery prospect. Buy.
Location Sciences (LSAI)
Location Sciences has just raised £2.95 million at 2.25p a share to finance the growth of its new Verify product, which was launched during 2018. Advertising fraud is a major problem and Verify can help advertisers combat this problem, which is estimated by the World Federation of Advertisers as potentially costing advertisers more than $50 billion in 2025. The US is going to be a key market for the group.
Location Services was previously known as Proxama and the original digital payments business was sold one year ago. This enabled costs to be reduced but the company had limited funds with which to grow the business. The new focus is providing intelligence and location data for brands so that they can accurately understand their customer base.
Verify provides evidence of advertising effectiveness in terms of locations and it could become the most significant revenue generator. Advertising fraud can take the form of adverts that are not seen by real people or by the target audience in the right locations. Verify can analyse data and identify abnormal patterns of locations. If these false impressions can be identified, then the brand can refuse to pay for them. Verify charges fees based on the number of impressions for an advert.
Stockdale believes that revenues could reach £2.7 million in 2019, but investment in building up Verify means that there will be a significant loss. If Location Sciences can achieve the 2020 forecast revenues of £8 million, then it could make a pre-tax profit of £1.8 million. To put that into perspective the market capitalisation is currently £7.6 million.
Of course, things may not go exactly to plan, but there is enough to be positive about to believe that Location Sciences is progressing in the right direction and it has a potentially lucrative product in the form of Verify.
Investors can still buy shares at around the placing price. This is the more risky of the five recommendations but it is modestly valued - due to past disappointments and following a share consolidation. The upside could be significant. Buy.
Andrew Hore is a freelance contributor and not a direct employee of interactive investor.
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https://citywire.co.uk/funds-insider/ne ... s/a1185934David Kempton: 4 stocks I'm buying as grim 2019 looms
By David Kempton 18 Dec, 2018
Next year looks like it will feature the toughest world economic conditions in over a decade, but, notwithstanding, I’m constantly seeking undervalued equities projecting strong growth. Although I am keeping 30% of my portfolio in cash, a position I’ve held for most of last year, with two-thirds held in dollars.
Higher US interest rates, the ending of a fiscal spending spree and weak manufacturing output, indicate growth peaking in the world’s largest economy.
Meanwhile the US seems to be ramping up its protectionist trade policies, mostly aimed at China, where there’s already a sharp slowdown in manufacturing output and spending.
Third quarter reports for Europe and Asia showed slowing growth prospects, the worst for four years, with Germany, Italy and Japan actually contracting.
Although markets have been weak in recent months, there is some question whether they yet reflect the cyclical global slowdown. It seems that we should start to consider a hard landing in the US, China and Europe.
I’ve always been a strong remainer, but the months since that fateful day in June 2016 have been so depressing, not just in the UK, but right through the eurozone, that I’m even beginning to question that position.
Despite our depressingly dire politics, our economy has grown faster than the eurozone over the last eight months. The eurozone is meanwhile left with no monetary defences (interest rates are already minus 0.4%), the quantitative easing programme ends this month and the big banks are awash with some awful loan books. I’m beginning to wonder how Europe will fare without us.
The current Brexit terms seem quite unacceptable – no wonder we’ve seen so many powerful resignations – but remaining with a lame duck Europe seems awful too.
But hey ho, on we go. I’ve recently bought some stocks and go into the New Year with the usual excitement and expectations in spite of these conditions.
I’ve bought Ashtead (AHT), again, having successfully traded it a year ago, but the 34% price drop since October presents a buying opportunity. Renting out industrial and construction plants, with 87% revenue in the US, growing income by 17% in the last quarter for a revenue of £1.1 billion gives a massive 50% increase in earnings per share. The company is widely followed in the market and 14 brokers have it as a strong ‘buy’. All those dollar earnings and ambitious plans to increase US capacity make it a compelling case to me, enhanced by recent chunky director buying.
I’ve held Anglo Pacific Group (APF) for years but have just bought more. This London-based mining group, doesn’t operate any mines but earns from royalties paid for loans to the mostly Australian mine operators. With a strong October trading statement, when thermal coal and vanadium prices were at five-year highs, commodities look a good place to hide in 2019 and the recently acquired royalties for cobalt and nickel are in strong demand for the fast growing lithium battery industry. I was attracted by a yield over 5%, a projected price/earning to growth (PEG) ratio of 0.5 times and £8 million of cash.
Kape Technologies (KAPE) looks to be the most attractive of the cyber security companies. Last summer’s clever acquisition of Intego is trading ahead of expectations and the shares are trading on 26 times 2018 earnings, falling to a projected 18.4 times next year’s earnings, on a PEG ratio of 0.4 times. With £69 million in cash, the shares look good value in a fast growing sector with skilful ambitious management.
I bought some shares in Hipgnosis Songs Fund (SONG), an investment company floated in Guernsey last July. Having raised £200 million, their objective is to acquire the intellectual property rights for portfolios of songs. Merck Mercuriadis, the chief executive and founder, has an impressive track record in the sector and has already bought four song portfolios.
Market conditions are currently exceptional for streaming services and the derived income, with fast increasing numbers listening to music on their mobiles. Spotify has 87 million paying subscribers growing annually at 30% while Apple has 36 million.
Hipgnosis has a strong pipeline of opportunities currently under negotiation, but this is a new sector, hence not without risk. However I am impressed by the background, the growth and their declared intent to provide shareholders with growing income and capital growth.
As ever, do your own research on these suggestions and stick with the 20% stop loss as ever. Last January I suggested buying Boku (BOKU) when price was 85p. It hit a high of 184p early September, then started to come off in September and October. Running the 20% rule, I missed the top but got out at 138p, 25% from top. That was still up 60% on the price I paid, and the shares are now trading at 72p. A really good example of the 20% stop loss rule working well.
David Kempton is non-executive chairman of Hawksmoor Investment Management and a non-executive director of Impax Funds Ireland. He is an experienced investor, proprietor of Kempton Holdings and a non-executive director of a number of quoted and private companies. He may have an interest in any of the investments which he writes about.
Expert View: Numis – 10 New Year value share tips
By Michelle McGagh 03 Jan, 2019
We select 10 of the non-corporate clients from Numis Securities’ latest monthly review of share buying opportunities.
BT off the back foot
Telecoms giant BT (BT) has the ‘best arsenal’ to grow in the fast-moving world of ‘fixed/mobile converged’ (FMC) services and is under no threat from alternative networks.
Numis analyst John Karidis retained his ‘buy’ recommendation and target price of 340p on the stock, which at 238p has fallen 7% in the past month and is down 12% over the past year.
Karidis said Europe was ‘moving fast’ to FMC, which removes the differences between fixed and mobile networks’ and ‘in Britain, BT has by far the best arsenal – networks plus distribution muscle plus premium content - to grow value as a result of this trend’.
In addition, the group is building on its regulated OpenReach assets with an unregulated all-fibre network ‘knowing that the government, Ofcom, and...customers will want this to be economically viable’.
‘We think it is facile to think alternative networks like CityFibre and Infracapital/TalkTalk will stress Openreach,’ said Karidis.
Capita’s recovery is not priced in
Capita (CPI) has been dogged by bad news on a number of contracts but Numis analyst Julian Cater is looking past this to the recovery potential at the outsourcing behemoth.
Cater retained his ‘buy’ recommendation and has a 205p target price on the stock, which has more than halved to 112p in the past 12 months. Over three months the shares have slid 19% hit by negative publicity on its performance on contracts related to Army recruitment, the NHS and the London Borough of Barnet.
‘Crucial to any re-rating of the shares will be execution and validation of the cost savings plan,’ said Cater.
‘We expect management to confirm that it is on track to deliver £70 million of savings in 2018, and reiterate its current profit before tax expectation of £250-£275 million.’
He added that a 2019 price/earnings of 7.8 times – which he said was a ‘trough earnings per share’ – was ‘too low given the recovery potential within the business’.
Cranswick’s maximum value
Sausage-maker Cranswick (CWK) has been upgraded by Damian McNeela who praised the food producer’s ‘pig carcass value maximisation’ for establishing a lead in niche areas.
The Numis analyst lifted his recommendation from ‘hold’ to ‘buy’ with a target price of £34.50 on the stock, which has fallen 21% to £26.32 in the past year.
‘Cranswick’s approach to pig carcass value maximisation, and investment in its supply chain, has allowed it to develop leading positions in premium niches, such as super-premium sausages,’ he said. ‘These sub-categories are typically faster growing and higher margin,’ he added.
McNeela believed the group was ‘well positioned to drive the development of both the pork and poultry categories in the UK, delivering good growth’ and while its current price is at a premium to its wider UK food peers ‘this is justified by good earnings per share growth, solid free cash-flow generation, and strong balance sheet’.
Derwent London trades on a ‘wide’ 20% discount
Property developer Derwent London (DLN) is carrying on with its work, opening up a value opportunity as investors run scared of the capital, says Numis analyst Robert Duncan.
‘Derwent London refuses to sit on its hands to be carried along by the cycle, and is continuing to actively create value through its development pipeline, as well as capturing the reversion locked within its existing assets,’ he said.
Duncan said the group brings ‘high quality space’ in ‘fringe locations at mid-market rents’, which will remain in demand.
‘The equity market is viewing London with caution given Brexit risks and political uncertainty, but at -20% versus net asset value, the discount is too wide,’ he said.
‘While we remain cognisant of the cycle, we believe that an exodus from London is unlikely...There are few explicit event catalysts to cause a sudden rerating, but as negativity subsides we believe many investors will look back on this as a value opportunity.’
Duncan retained his ‘buy’ recommendation and has a target price of £37.45 on the stock, which has slipped 8% to £28.53 in the past year.
Essentra is turning round
Essentra (ESNT) shares went into meltdown last year but Numis analyst James Beard believes the market is too negative on the plastic packaging provider’s prospects.
Beard retained his ‘buy’ recommendation and has a target price of 485p on the stock, which has fallen by a third to 342p in the past year.
‘We believe that Essentra’s underperformance during this time suggests the market could be anticipating another profit warning, which we view as unlikely,’ he said.
‘In fact, recent positive developments in packaging could leave forecast risk to the upside.’
Beard said the turnaround at the group was ‘taking longer than the market initially anticipated’ but there is ‘light at the end of the tunnel, and with the shares now trading on about 12.5 times 2019 price/earnings, we see value emerging, supported by an attractive 6% dividend yield’.
‘Undemanding’ Petrofac a December winner
Numis analyst James Hubbard has replaced Wood Group with Petrofac (PFC) as his top oilfield service pick after the latter was ‘the winner from the December trading updates’.
He said Wood Group, along with Hunting, provided December updates that ‘added uncertainty to their 2019 outlooks’ and GMS drove its share price down 70% in one day on its trading statements, while ‘Petrofac reassured and in fact guided to faster than expected debt reduction as of end-2018’.
Beard said Petrofac was ‘less capital intensive’ and ‘less exposed to oil price swings’ as well as an ‘attractive valuation’.
‘Petrofac is currently trading on an undemanding 2019 enterprise value/EBITDA of 3.1 times and 2019 price/earnings of 5.4 times, with a 7.4% 2019 dividend yield,’ he said.
Beard has a ‘buy’ recommendation and a target price of 821p on the stock, which has dropped 27% to 477p in the three months as the price of oil has tumbled.
Smurfit Kappa on track
Smurfit Kappa (SKG), Europe’s largest corrugated packaging company, is benefiting from the growth in online shopping and sustainable living, said Numis analyst Kevin Fogarty.
‘An inflationary price environment supports margin recovery and recovered paper cost comparatives ease in the second half of 2018,’ he said.
A nine-month trading statement in October showed the momentum from the first half of the year had continued into its second half.
‘Valuation multiples are highly attractive, based on our estimates, and confidence over the full-year outlook and continued financial delivery is likely to act as a near-term share price catalyst,’ he said.
Fogarty has a ‘buy’ recommendation and a target price of £33.00 on the shares, which have fallen 31% to £20.82 in the past three months.
St James’s Place offers good growth
Wealth manager St James’s Place (SJP) is a ‘growth company on a value rating’, according to Numis analyst David McCann.
McCann has a ‘buy’ recommendation and a target price of £15.75 on the stock, which has retreated 18% to 944p in the past three months.
‘We believe the business will continue to demonstrate that it is one of the most consistent and resilient asset gatherers and retainers, regardless of the economic conditions,’ he said.
He said management’s growth target of 15-20% a year, a 2019 free cash-flow yield of 6.9%, and a dividend yield of 5.9% means the shares are ‘offering good growth at a reasonable price’.
Urban & Civic should make progress
Now is the ‘time’ for property developer Urban & Civic’s (UANC) and the market is not giving it enough credit, said Numis analyst Robert Duncan.
Duncan retained his ‘buy’ recommendation and target price of 410p. Formerly called Terrace Hill Group, the stock has slid 11% in the past month to 262p.
He said ‘momentum is building’ and there is ‘an increasing sense that this is the master developer’s time as visibility over returns improves and delivery accelerates’.
This is due to the company’s model of ‘leveraging planning expertise’ to develop land, which is the opposite of ‘housebuilders’ desire for rapid access to oven-ready land’ and that means ‘while returns are predominantly capital value-focused at present, we see a shift over the coming years to cash-flow, as sites progress from capital consumption to cash generation’.
https://citywire.co.uk/funds-insider/ne ... s/a1188091Defensive Whitbread means business
Whitbread (WTB) has simplified its investment case since selling Costa Coffee but analyst Tim Barrett said the market was ‘yet to fully appreciate’ this.
Barrett retained his ‘add’ recommendation and target price of £54 on the stock, which has slipped 2% in the past three months.
The owner of Premier Inn is a ‘defensive business’ he said but he market is ‘yet to fully appreciate the fundamental change in risk profile’ by selling Costa and the benefits of Premier Inn.
‘Premier Inn’s customer base is more than 50% business users with a wide distribution across the UK,’ he said. ‘This is in direct contrast to “old” Whitbread, such as Costa where 60% of the estate was still high-street located.’
He added that Premier Inn’s property backing is ‘critical to unlocking value’ and that as 60% of the estate is freehold it gives scope for ‘selective sale and leasebacks’ and the company had ‘impressive margin resilience’, which was a ‘sign of strong management’.