Insight - Edison Investment Research

Transcription

Insight
Strategic perspective • Sector focus • Company profiles
February 2012
Published by Edison Investment Research
Contents
Global perspectives: The cycle within the cycle
2
Sector focus
7
Company profiles
11
Events diary
138
Stock coverage
144
Prices at 17 February 2012
Published 23 February 2012
US$/£ exchange rate: 0.6345
RMB/£ exchange rate: 0.1006
€/£ exchange rate: 0.8344
DKK/£ exchange rate: 0.1122
C$/£ exchange rate: 0.6346
NOK/£ exchange rate: 0.1096
A$/£ exchange rate: 0.6779
JPY/£ exchange rate: 0.0082
TRY/£ exchange rate: 0.3584
SG$/£ exchange rate: 0.5053
ZAR/£ exchange rate: 0.0820
CHF/£ exchange rate: 0.6909
HK$/£ exchange rate: 0.0818
SEK/£ exchange rate: 0.0945
Welcome to the February edition of the Edison Insight. We now have over 350 companies under coverage,
of which 254 are profiled in this edition.
The book opens with a strategy piece from Alastair George, who believes we are seeing a cycle within a
cycle. Investors tend to ignore structural issues when sentiment turns and the resulting equity market rally
can be powerful. Alastair believes it is not yet time to take profits although the gains from here are likely to
be slower. Investors should also consider positioning themselves to benefit from a pick-up in M&A.
We have two sector focus pieces this month: Elaine Reynolds looks at oil companies in the Falklands and
Jacob Plieth scrutinises the US biotech bubble.
BioInvent, Comptel, EnWave, Lo-Q, Medigene, Secure Trust Bank, Simba Energy, South American Silver,
Tigenix and Zanaga Iron Ore have been added this month.
Readers wishing more detail should visit our website, where reports are available for download
(www.edisoninvestmentresearch.co.uk).
Edison is a leading international investment research company. It has won industry recognition, with
awards in the UK and internationally. The team of 80 includes over 50 analysts supported by a
department of supervisory analysts, editors and assistants. Edison writes on more than 350 companies
across every sector and works directly with corporates, fund managers, investment banks, brokers and
other advisers. Edison’s research is read by institutional investors, alternative funds and wealth managers
in more than 100 countries. Edison, founded in 2003, has offices in London and Sydney and is authorised
and regulated by the Financial Services Authority.
We welcome any comments/suggestions our readers may have.
Neil Shah
Director of Research
23 February 2012
1
Global perspectives: The cycle within the cycle
•
Time to add beta to portfolios. Although fundamentals are little changed, sentiment has shifted. If
pushed in one direction a positive feedback system keeps going. Our call on equities over bonds has
proved correct thus far; we would be adding beta into this rally and moving away from defensive
names. Behaviourally, it may be difficult to buy into stocks 20% up since mid-December. Rationally,
sentiment has turned and equity valuations are still very attractive.
•
All the structural issues remain – and the market does not care. This is not the first time a sharp rally
has caught bears out. We show that on the way to losing 80% of its value the Nikkei scored at least six
cyclical rallies. These rallies were on average just over 12 months long and had an average gain of 40%.
More recently QE2 demonstrated the same investor behaviour, leading to a 30% rise in the S&P over
eight months. Perhaps, as PMI indices rebound in the US, UK and Europe, this time might be
different – but we would prefer to bet that it will not be and that the rally will continue.
•
Not just sentiment. €500bn of fresh ECB cash (QE by another name?) certainly helps oil the wheels of
finance, especially with expectations of more to come. Credit spreads have contracted sharply since
the start of 2012 and large-cap bank shares (admittedly counter to our ‘underweight’ view) have risen
by 50% or more. It is well known that an over-sized financial system will overlay a positive feedback
loop on economic and asset price dynamics; this is currently working in the equity investor’s favour. A
surprise gift of low interest rates to 2014 by the Federal Reserve is helpful over the short run.
•
Still plenty to play for. Eurozone non-financials remain cheap and UK equities are not far behind. In
terms of financials, large-cap banks are high risk/high reward and we are now neutral – medium-term
value creation looks difficult in the new regulatory regime.
•
But... Armageddon has not been cancelled. All the long-term debt and demographic issues have just
been pushed into the background. Investors need to stick with investing discipline and should not make
hockey-stick projections of monetary stimulus-led growth into future periods. Though agreement on a
second bail-out has now been reached Greece’s financial position remains precarious.. Furthermore,
tensions in the Middle East have once again pushed Brent crude over $110/bbl.
•
Strategy changes – add beta by buying specialist financials and mid-cap oil & gas. Specialist financials
should benefit where the larger banks have exited businesses. A recovery in credit spreads, equity
market volumes and M&A will all be helpful. Please refer to our sales team for specific names under
coverage. In terms of adding growth exposure we have some interesting mid-cap ideas from our oils
team. These companies offer standalone value and could benefit from M&A or provide a useful hedge
should geopolitical tensions increase. We believe bond-sensitive utility positions should now be cut.
2
23 February 2012
If you are going to panic, panic early – add beta now
Since September we have consistently pointed to the value opportunity in equities over highly-rated
government bonds. This call is now more than 10% in the money as sentiment has improved.
In early January we urged investors to prepare for every possibility; now the near-term picture is becoming
clearer (with a significant caveat discussed later) and we believe it is time to raise the stakes. Behaviourally, it is
difficult to buy into rising markets – which is why the move is often prolonged and extends well beyond what
fundamentals would justify.
The cycle within the cycle
We have not forgotten that longer-term debt and demographic issues are likely to pressure structural growth
rates. But against this demoralising background, which unfortunately will be with us for some time, numerous
cyclical fluctuations in growth are inevitable.
Of course it would be a mistake to confuse cyclical growth accelerations with a return to pre-crisis growth
rates, in the absence of meaningful technological innovation. That is not what we are arguing here. But
professional fund managers cannot ignore the scope for substantial market moves on a cyclical upswing
lasting up to a year.
Exhibit 1 shows how the Nikkei, on its way to declining by 80% from the peak, rallied by at least 20% on no
less than six occasions over the last 20 years. The average length of the rally was just over 12 months and the
average return was an astonishing 40%. We highlight the Japanese experience as the structural and valuation
challenges were known to be severe at the time. Yet the market, quite ‘irrationally’, rallied hard into cyclical
upturns. The empirical evidence demonstrates the real and painful risk of being short-term wrong.
Exhibit 1: Nikkei experience – five sentiment driven bear market rallies
70
65
60
55
50
45
40
35
30
25
20
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
Small business sentiment
Jan/10
Jan/05
Jan/00
Jan/95
Jan/90
0
Nikkei 225
Source: Bloomberg, Edison
Readers of a certain age can probably remember the repeated fiscal attempts to ‘fix’ the Japanese economy in
the 1990s followed by the adoption of quantitative easing in 2001. The message is clear – how the story ends
may be relatively obvious from the beginning (ie driven by valuation and supply-side economics) but the path is
critical to investors; the most recent example the QE2-induced 30% rally in the S&P ending in March 2011.
Before leaving the example of Japan we should of course point out the valuation picture in Europe at present is
very different from Japan in the 1990s – investors can currently buy European equities at yields that are both
high in absolute terms and substantially in excess of long term ‘risk-free’ bond yields, Exhibit 2. There is still
plenty to play for.
23 February 2012
3
Exhibit 2: Eurozone non-financial dividend yield
6.0%
5.0%
4.0%
3.0%
2.0%
Jan/11
Jan/09
Jan/07
Jan/05
Jan/03
Jan/01
Jan/99
Jan/97
Jan/95
1.0%
Source: Edison estimates
PMI moving sharply higher – US, eurozone and UK
Exhibit 3 shows that PMI indices have turned in the US, eurozone, UK and China. The US is the key here;
employment numbers are finally surprising on the upside. Some of the adjustments in the US are behind us –
the housing market has fallen by 30% to affordable levels on a price/income basis and the banking sector is
much better capitalised than in Europe.
Exhibit 3: Global PMI indices ticking up
62
57
52
47
US
Europe
China
Oct/11
Apr/11
Oct/10
Apr/10
42
UK
Source: Bloomberg
In our view, the market’s fears of a meltdown in Europe were driven by the slowdown in global growth. Exhibit
4 shows how the real panic set as growth expectations fell in Q3 of 2011. The triggering of a significant (ie not
just peripheral) European debt crisis led to further growth downgrades. With positive growth expectations
returning credit stress is falling; the death spiral for now has been reversed.
Exhibit 4: EU PMI leading eurozone swap spreads
EU PMI
Oct/11
Apr/11
Oct/10
50
60
70
80
90
100
110
120
130
Apr/10
60
58
56
54
52
50
48
46
44
Eurozone 2yr swap spread, bps (inverted)
Source: Markit, Bloomberg
4
23 February 2012
Not just sentiment but hard cash too
€500bn of hard cash from the ECB, with the promise of more in February, has certainly helped ease tension in
the interbank markets and €-LIBOR rates have been falling since the start of 2012. Avoiding a banking crisis
should have been a priority from the start although it can be difficult to determine (as in March 2009) how much
intervention is required.
Although much of the money has ended up back at the ECB (but from banks that did not get the cash from
the ECB) there has been a large coincident decline in Italian and Spanish bond yields. There is even talk of
banks engaging in sovereign debt carry trades; perhaps MF Global has been forgotten. For now the ECB is
ahead of the curve.
Taking the worst outcomes off the table may provide the confidence corporates require to execute strategic
transactions and invest. 2011 saw European M&A volumes decline to decade lows, shown in Exhibit 5. While it
is an exaggeration to suggest the corporate sector is ‘awash’ with cash – stronger balance sheets are an
entirely rational response to a weak banking system – the potential to leverage balance sheets to execute M&A
is clear, Exhibit 5.
Exhibit 5: European M&A and IPO activity (monthly, €bn)
350
45
40
35
30
25
20
15
10
5
0
300
250
200
150
100
50
IPO volume (RHS)
Jan/12
Aug/11
Oct/10
Mar/11
May/10
Jul/09
Dec/09
Feb/09
Sep/08
Apr/08
Nov/07
Jan/07
Jun/07
Aug/06
Oct/05
Mar/06
Dec/04
May/05
Jul/04
Feb/04
Apr/03
Sep/03
Nov/02
Jan/02
Jun/02
Aug/01
Oct/00
Mar/01
Dec/99
May/00
Jul/99
Feb/99
Apr/98
Sep/98
0
M&A Volume (LHS)
Source: Bloomberg
Exhibit 6: European non-financials – Net Debt/EBITDA
3
2.5
2
1.5
1
0.5
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
0
Source: Bloomberg, Edison estimates
Furthermore, high equity market volatility is often blamed for making M&As difficult as acceptable transaction
values become harder for executives to determine. We note index implied volatility, measured by both the VIX
and VDAX, has fallen back to long-term average levels over the last six weeks, Exhibit 7.
23 February 2012
5
Exhibit 7: S&P index implied volatility – VIX index
80
70
60
50
40
30
20
10
2011
2010
2009
2008
2007
0
Source: Bloomberg
Buts...
There are big buts. Though Greece now looks likely to avoid default in March its financial position continues to
look precarious. Nevertheless, even a qualitative application of efficient market theory would have at least some
of the impact of a Greek default discounted in the price, given the copious press coverage.
A less openly discussed matter in financial circles is the tension in the Middle East. Here we have negotiations
involving aircraft carriers and nuclear weapons. Well-placed Western rhetoric would appear to be preparing the
ground for more aggressive intervention. This is a risk that does keep us awake at night as a significant conflict
would immediately cause a major economic problem, given the potential for an interruption in oil supplies. Our
oils team believe there is already at least a $10 Iran risk premium in the Brent oil price. Investors may recall that
$130 oil essentially undid the success of QE2 as US consumer confidence fell in response to the higher oil price.
Our oils team recommends a number of mid-cap E&P companies that fit both the cycle within the cycle theme
(and a pick-up in M&A) and benefit from higher oil prices. These names are also attractively valued on a
standalone basis at present. In the hopefully unlikely but possible scenario of escalating tension in the Middle
East, these are likely to remain attractive assets to own and should outperform other types of growth exposure.
Separately, European economic policy remains as uncertain as ever. For example, a call by the IMF to increase
bail-out resources was followed by news Merkel was considering running the ESM and EFSF in parallel –
followed a few days later by Merkel ruling out increases in bail-out funding.
In January Germany was also a surprise promoter of a relaxation in bank capital rules, pushing for exemptions
for European bancassurers and delays to full implementation of Basel III to 2018. But we are not making an
investment case based on ever-changing policy. We are focused first on valuation; second on the fact of
reduced credit stress and third on increased global survey optimism.
Strategy changes – buy specialist financials and mid-cap oil & gas
In terms of financials we are now prepared to look at some of the specialist financial names that were
irrationally sold off during the market decline of 2011. Please contact our sales team for the specific names and
an explanation of the investment case. With the larger banks likely to be in deleveraging mode for some time
this should open up opportunities for smaller players to win market share at attractive margins.
In terms of oil & gas the potential for a mini-M&A wave among the mid-cap E&P companies is our base case.
Investing in likely M&A targets makes no sense if the M&A is in the price. For our selected companies, our oils
team believes this is far from the case, given the large discounts to standalone NPV. To fund the switch we
would be looking at cutting utility holdings that traditionally underperform in a rising bond yield environment.
6
23 February 2012
Edison Insight
Focus on:
Healthcare
Oil & gas
23 February 2012
7
Edison Insight
Sector focus: Healthcare
What a difference three months makes
After some of the most frenetic activity seen in the sector for a decade, the US biotech
bubble shows no sign of deflating. Although biotech fever has yet to make a major mark on
Europe the signs of recovery are there, with Algeta set for a momentous regulatory
approval and Vernalis raising a sum of money that three months ago would have seemed
impossible.
And while the euphoria has yet to be accompanied by significant IPO activity, it is highly
significant that generalist funds are again primed to make serious investments in biotech.
Another clinical study success or two, and if company management play their cards right,
Analyst
Jacob Plieth
there should be further deals in store.
In the US, positive investor sentiment shows little sign of abating after the premium-priced
takeouts of Pharmasset by Gilead for $11bn and Inhibitex by Bristol-Myers Squibb for
$2.5bn. Future premium-priced M&A activity represents the dream scenario for any biotech
investor and will at least partly be driven by pharma’s patent expiry cliff.
The added bonus of takeover activity is the trickle-down effect as investors recycle their
windfall, boosting the share prices of other stocks. This is surely part of the reason behind
the pick-up since December in biotech indices in general and in other hep C stocks in
particular – an effect that was only temporarily derailed by Gilead’s Phase II setback with
GS-7977 and GlaxoSmothKline’s words of caution on hep C company valuations; witness
the continued upward trajectories of Achillion, Idenix and Vertex.
On this side of the Atlantic, Norway’s Algeta continues to impress with Phase III data of its
prostate cancer therapeutic Alpharadin, which along with Medivation’s MDV3100 starred at
the ASCO Genitorurinary Cancers Symposium. Alpharadin could be approved this year and
if, as is expected, Algeta exercises a US co-promotion option with Bayer it could become
one of very few European biotechs to have made it all the way from a start-up company to
one with a fully fledged commercial presence.
And the trickle-down effect should apply here, too; With Algeta’s two leading investors,
Abingworth and Healthcap, taking some profits it’s a no-brainer that at least some of this
cash will find its way back into early-stage European businesses.
This view can only be strengthened by the £65.9m that Vernalis has raised to finance a
business transformation into a diversified and self-financing speciality pharma company.
Not only was this the biggest UK fund raising for years, the cash came entirely from UK
investors – surely one of the clearest signs that the window is now open.
Biotech will always be a high risk/high reward sector, but even during the years of drought
it has presented pockets of deep value for the smart investor. At last some of that value is
now starting to be recognised.
8
23 February 2012
Edison Insight
Sector focus: Oil & gas
Focus on the Falklands
Northern Basin drilling in 2010 and 2011 bore fruit for Rockhopper Exploration (RKH), with
its Sea Lion discovery looking set to be developed. In 2012, the focus shifts firmly to the
Southern Basin explorers where success for Falklands Oil and Gas (FOGL) or Borders &
Southern (B&S) will be a game changer for the region. Rockhopper and FOGL offer the
most compelling upside for investors. The biggest winner, however, could be the Falklands
itself, with a near $180bn potential prize in royalties and tax on the horizon if 2012 drilling
proves successful.
The drill bit is already turning in the first of four wells in the unexplored deepwater plays of
Analyst
the Southern Basin and the next six months will provide a wealth of newsflow from the
Elaine Reynolds
region. With every prospect holding potential resources an order of magnitude greater than
those in the Northern Basin, we see a clear opportunity for upside in the coming months for
both B&S and FOGL.
Rockhopper’s discovery and appraisal of Sea Lion was the great success story of the
Northern Basin drilling campaign. With robust economics and potential partners invited to
the table we believe the field will be developed and expect value to be crystallised as the
route to development is progressed.
The recent ramp up in rhetoric has reignited the debate over sovereignty of the Falklands,
which we expect to intensify in the coming months as the 30th anniversary of the Falklands
War approaches. Meanwhile, the potential prize from tax revenues could weigh heavily on
relations if 2012 exploration is successful.
The Falklands offers a bit of everything for investors at the moment. Rockhopper provides
relatively low-risk development upside, while FOGL is the most compelling of the
exploration plays, although B&S remains very attractive. Desire and Argos are the least
attractive with no near-term activity, but both could still benefit from regional euphoria in the
event of 2012 discoveries.
For more information, see the recently published sector report Falklands oils: Kicking up a
storm in the South Atlantic.
23 February 2012
9
Edison Insight
Company profiles
10
23 February 2012
Edison Insight
Sector: Consumer Support Services
Price:
Market cap:
Forecast net cash (£m)
Forecast gearing ratio (%)
Market
256.5p
£66m
0.5
N/A
FULL
Share price graph (p)
4imprint Group
(FOUR)
INVESTMENT SUMMARY
The strategy of investing in US revenue growth continues to produce good results. The 2011
trading update (18 January) reported group revenue of £222m, up 10% (13% at constant
currency). North American revenue rose 18% in dollar terms with Q4 up 19%; the group
moved into net cash. On 16 February, the sale of UK-based Brand Addition for £24m was
revealed; £12m will be used to reduce risk in the DB pension scheme. Our estimates will be
revised after the 2011 results announcement on 7 March.
INDUSTRY OUTLOOK
4imprint is an international supplier of promotional products and is market leader in the USA.
Its largest division is US-based 4imprint Direct Marketing (63% of group sales and 65% of
Company description
4imprint Group is an international
supplier of promotional products with
market leading businesses in the US
and UK. It is driven mainly by the US
division where a strategy of investment
in marketing and sales has led to strong
sales and profit growth.
group EBIT in 2010). Its business model is based on continued investment in marketing and on
efficiency in dealing with many small orders from its many customers. The US business has
driven 4imprint's growth since 2005/06 and North American sales have grown at CAGR 14%
since then. 4imprint's US market share is still just 2%.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
169.1
7.8
5.4
17.9
14.3
6.6
2010A
200.8
12.6
10.0
32.2
8.0
6.4
2011E
221.8
14.9
12.5
36.1
7.1
5.8
Analyst
Derek Terrington
2012E
248.1
16.6
14.2
37.7
6.8
4.5
Sector: Pharma & Healthcare
4SC
Price performance
%
Actual
Relative*
1m
6.9
2.6
* % Relative to local index
3m
16.6
6.7
Price:
Market cap:
Forecast net cash (€m)
Market
12m
2.6
6.1
€2.78
€117m
15.8
N/A
FRA
Share price graph (€)
(VSC)
INVESTMENT SUMMARY
Highly positive efficacy data from the Phase I/II SHELTER study of 4SC’s oral histone
deacetylase inhibitor resminostat have strongly supported the compound’s potential in the
treatment of sorafenib-resistant hepatocellular carcinoma, and could attract a licensing partner
for territories outside Japan. The results back the hypothesis that resminostat is able to reverse
some cancer cells’ resistance to sorafenib. The smaller indication of Hodgkin's lymphoma, in
which resminostat has also yielded positive data, could enter pivotal development this year,
funding permitting.
INDUSTRY OUTLOOK
In 2013 4SC is due to report results of a second Phase I/II resminostat trial (SHORE), in
Company description
4SC is a Munich-based drug discovery
and development company focused on
the development of small-molecule
compounds for treating cancer and
autoimmune diseases. Its R&D pipeline
has six NCEs, five of which are in clinical
trials.
second-line metastatic colorectal cancer, and licensing activity on vidofludimus in inflammatory
bowel disease is another possible near-term catalyst. With a near-term focus only on
vidofludimus, resminostat and 4SC-202, current cash should last into next year.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
1.9
(15.0)
(15.2)
(51.2)
N/A
N/A
2010A
1.0
(18.5)
(18.9)
(48.9)
N/A
N/A
2011E
0.7
(17.6)
(17.7)
(44.0)
N/A
N/A
2012E
0.9
(14.6)
(15.0)
(35.6)
N/A
N/A
Price performance
%
Actual
Relative*
1m
91.5
77.1
Analyst
Jacob Plieth
23 February 2012
3m
76.7
50.9
12m
(32.5)
(27.1)
11
Edison Insight
Price:
US$1.84
Market cap:
US$71m
Forecast net cash (US$m)
4.8
N/A
Market
NASDAQ
Share price graph (US$)
Aastrom Biosciences
(ASTM)
INVESTMENT SUMMARY
Aastrom has had a quiet start to 2012. The RESTORE Phase II strongly supports the pivotal
594-patient REVIVE Phase III study about to start. A dilated heart indication has Phase II data
with a Phase IIb starting H112. Aastrom has a leading position in stem cell therapy and deals
in 2012 are possible. A fund raising is underway.
INDUSTRY OUTLOOK
The full 72-patient Phase II RESTORE critical limb ischaemia (CLI) data showed a statistically
significant reduction in the combined amputation and amputation-related risk factor endpoint
(p=0.0032). The pivotal REVIVE Phase III in 594 patients has been FDA agreed under an SPA
and starts Q112. If ixmyelocel-T meets the 12-month, amputation-free survival endpoint, it
Company description
Aastrom Biosciences uses autologous
cell therapy to process and inject the
patient's own cells. The lead Phase III
product aims to reduce the amputation
rate in patients with blocked leg arteries:
this has $1.25bn sales potential.
should be the first marketed cell therapy for CLI and the only US treatment option for
100,000-150,000 potential amputees per year. In ischaemic dilated cardiomyopathy, a Phase
IIa indicated good safety and some responses. This could be a large market.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
N/A
N/A
N/A
N/A
N/A
N/A
2010A
N/A
N/A
N/A
N/A
N/A
N/A
2011E
0.0
(26.9)
(27.5)
(71.1)
N/A
N/A
Analyst
John Savin
2012E
0.0
(33.0)
(33.6)
(86.9)
N/A
N/A
Sector: General Retailers
Abcam
Price performance
%
Actual
Relative*
1m
(4.2)
(8.9)
3m
(22.7)
(30.9)
Price:
Market cap:
Market
12m
(22.0)
(23.2)
328.5p
£603m
67.4
N/A
AIM
(ABC)
INVESTMENT SUMMARY
Abcam reported a sharp decline in sales growth in H211 (13.5% compared to 20.2% in H111),
largely because of a slowdown in US markets, despite an 18.8% increase in the product
range. This slower growth rate of c 13.5% was maintained in H112. It is difficult to see Abcam
accelerating its rate of growth in the near term as austerity measures are implemented.
President Obama's 2013 budget, if executed, plans to keep NIH funding flat at $30bn, and the
grants associated with the 2008 US stimulus package are expiring. In Europe there is also
pressure on academic funding. We remain cautious about Abcam maintaining its very strong
rate of growth. Our valuation of Abcam is unchanged at 322p/share.
INDUSTRY OUTLOOK
Company description
Abcam produces and sells antibodies
and other protein tools for use in
research via its website. Its main clients
are universities, research institutes and
pharmaceutical companies across the
world.
A greater proportion of biological research is conducted into proteins, increasing the demand
for protein research tools. However, the funding of academic research is coming under greater
pressure as governments look to reduce their debts. Abcam is the market leader for research
antibodies but has a limited market position in the wider protein research tools market.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
71.1
27.2
26.0
10.9
30.1
23.5
2011A
83.3
33.3
32.3
13.4
24.5
18.0
2012E
96.1
37.8
37.2
15.4
21.3
15.9
2013E
105.7
43.9
43.3
17.9
18.4
13.7
Price performance
%
Actual
Relative*
1m
(4.8)
(8.6)
Analyst
Mick Cooper
12
3m
(7.5)
(15.3)
12m
(5.7)
(2.6)
23 February 2012
Edison Insight
Ablon Group
Sector: Property
Price:
Market cap:
Forecast net debt (€m)
Market
26.5p
£36m
219.0
88.0
FULL
(ABL)
INVESTMENT SUMMARY
Although the group's key property markets remain tough, the IMS for 1 July to 17 November
confirmed stable operational activity. Annual gross rents and overall portfolio occupancy were
maintained, the latter helped by the opening of a c 7,000sqm retail store within the group’s
Buy-Way Dunakeszi shopping centre in Budapest, recently let to Möbelix. Footfall for the
centre overall was reported to be well ahead. There was also a better financial performance by
the Marriott Hotel. In July, Ablon began constructing the Karolkowa Business Park in Warsaw,
with completion scheduled for mid-2013.
INDUSTRY OUTLOOK
Ablon has 15 income-generating investment properties plus 24 other projects and a landbank
Company description
Ablon Group is a leading developer and
investor in commercial and residential
property in Central & Eastern Europe. It
holds a portfolio of 33 assets, 14
income-producing investments and 19
development projects.
in Budapest, Prague, Bucharest, Warsaw and Gdansk. Occupational and investment demand
in Budapest, the group's key market, appears to be picking up on the back of a gradual
economic recovery and the group's new grade A office development in Warsaw targets
occupiers in one of Europe's most robust economies.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
25.3
12.1
(2.1)
2.5
12.7
N/A
2010A
30.7
11.1
(1.9)
7.7
4.1
3.8
2011E
29.0
13.8
3.8
2.7
11.8
4.5
Analyst
Roger Leboff
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Ablynx
Price performance
%
Actual
Relative*
1m
(22.1)
(25.2)
3m
(26.4)
(32.6)
12m
(46.3)
(44.5)
Price:
€2.98
Market cap:
€130m
82.3
N/A
Market
Euronext Brussels
(ABLX)
INVESTMENT SUMMARY
Ablynx has developed a broad pipeline using its Nanobody technology in many disease areas.
These novel therapeutic proteins have the specificity of monoclonal antibodies and many of the
benefits of small molecules. Its lead nanobody, ozoralizumab (ATN-103, developed for the
$21bn TNF market) successfully completed a Phase II study in rheumatoid arthritis (RA).
However, Pfizer has returned the rights to this product, so Ablynx is looking for a new partner.
Ablynx also has two other Nanobodies in Phase II trials, ALX0081/0681 in TTP and ALX0061
in RA. Ablynx has indicated that it is increasing its business development activities; it will also
be more flexible about the terms of potential partnerships and the stages at which it will
partner programmes. It should have enough cash to operate beyond 2014.
Company description
Ablynx is a drug-discovery company
with a proprietary technology platform. It
is developing a novel class of
therapeutic proteins called Nanobodies
to treat a range of indications. It has
seven products in clinical development.
INDUSTRY OUTLOOK
There is a strong demand for novel pharmaceutical products. The characteristics of Ablynx's
Nanobodies and the initial results from clinical trials mean they have considerable commercial
potential in many indications.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
29.7
(19.6)
(19.8)
(53.7)
N/A
N/A
2010A
31.4
(23.0)
(24.0)
(56.9)
N/A
N/A
2011E
23.5
(40.4)
(41.8)
(95.6)
N/A
N/A
2012E
28.2
(35.6)
(37.6)
(86.0)
N/A
N/A
Price performance
%
Actual
Relative*
1m
(6.3)
(11.3)
Analyst
Mick Cooper
23 February 2012
3m
32.4
18.5
12m
(62.5)
(54.5)
13
Edison Insight
Sector: Investment Companies
Price:
Market cap:
Market
80.6p
£96m
N/A
N/A
FULL
Acencia Debt Strategies
(ACD)
INVESTMENT SUMMARY
ACD invests in a portfolio of predominantly debt-oriented hedge funds. It has a traditional
strong focus on stressed and distressed corporate situations, although most of ACD’s
underlying managers pursue multiple debt investment strategies. ACD avoids structural
gearing and looks to invest in funds that also have minimal gearing. ACD gives exposure to
some underlying managers with very strong track records, and whose funds are either closed
to new investment or otherwise difficult to access. And it does so at a discount to NAV.
INDUSTRY OUTLOOK
Distressed debt strategies often perform best when assets can be bought from forced sellers
(for regulatory, sentiment, or financial reasons) at prices below intrinsic value. Corporate
Company description
Acencia aims to achieve annual returns
in excess of 3-month Sterling LIBOR
plus 5% over each rolling 3-year period
with an annualised monthly standard
deviation below 5%.
distress has been soothed by low interest rates and debt reduction. But the debt burden has
largely passed sovereign borrowers (directly and by their implicit support for still leveraged
banks, especially in Europe). The environment would appear to offer good opportunities for
distressed and special situations investing.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
N/A
N/A
N/A
N/A
N/A
N/A
2010A
N/A
N/A
N/A
N/A
N/A
N/A
2011E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Martyn King
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Financials
ACM Shipping Group
Price performance
%
Actual
Relative*
1m
1.4
(2.7)
3m
(0.5)
(8.9)
Price:
Market cap:
Market
12m
(4.4)
(1.2)
161.0p
£31m
4.6
N/A
AIM
(ACMG)
INVESTMENT SUMMARY
The recently concluded takeover talks with RS Platou ASA highlight the underlying value of the
ACM business. As confirmed in the November interim statement, margins are under
considerable pressure from reduced freight rates, but management continues to sustain its
business development strategy and to generate cash. The group's strong position in the oil
tanker market and action being taken to build a presence in dry cargos and to rebuild the sale
and purchase business all reinforce the medium-term recovery potential.
INDUSTRY OUTLOOK
The shift in global manufacturing capacity towards lower-cost areas has irreversibly enhanced
the underlying potential for shipping, although the recession has created weakness in freight
Company description
ACM is a fully integrated shipbroking
business focused principally on the
global oil tanker market. It arranges spot
and time charters and offers a number
of other services, including the sale and
purchase of ships.
rates, at a time of excess shipping capacity. The major shipbrokers are better equipped to
provide advice to customers. A combination of being at, or close to, the bottom of the cycle
and the cash-generative nature of the businesses suggests strong medium-term buying
opportunities across the sector.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
25.9
6.9
6.6
26.1
6.2
11.0
2011A
29.3
6.2
6.1
24.7
6.5
5.0
2012E
26.0
4.6
4.5
17.0
9.5
10.1
2013E
27.5
4.8
4.6
17.1
9.4
9.3
Price performance
%
Actual
Relative*
1m
13.8
9.2
Analyst
Nigel Harrison
14
3m
26.8
16.0
12m
(28.8)
(26.4)
23 February 2012
Edison Insight
Price:
CHF6.94
Market cap:
CHF54m
Forecast net cash (CHFm)
33.5
N/A
Market
Swiss Stock Exchange
Share price graph (CHF)
Addex Pharma
(ADXN)
INVESTMENT SUMMARY
Addex is probably within around six weeks of the read out of its Phase II study of dipraglurant
in PD-LID and six months from the outcome of the study of ADX71149/JNJ-40411813 in
schizophrenia. Successful results in these studies could catalyse a significant increase in
Addex’s depressed stock market value. This should offer an attractive investment scenario, as
Addex is trading at an unusual discount to its intrinsic value, illustrated by our risk-adjusted
NPV of CHF195m or c CHF29/share.
INDUSTRY OUTLOOK
Addex's allosteric modulation platform is a validated small molecule discovery and
development engine that has the potential to generate a steady stream of high-value novel
Company description
Addex Pharmaceuticals is a Swiss
biotech company with a proprietary
allosteric modulator discovery platform
and a pipeline in CNS, inflammatory and
metabolic disorders. It has partnerships
with J&J (Ortho-McNeil-Janssen) and
Merck & Co.
product opportunities in CNS, metabolic, inflammatory and other diseases. Addex may even
catch up with Novartis's mavoglurant (AFQ056), also an mGluR5 NAM, in the PD-LID
indication, helping partnership discussions.
Y/E Dec
Revenue
(CHFm)
EBITDA
(CHFm)
PBT
(CHFm)
EPS
(CHFc)
P/E
(x)
P/CF
(x)
2009A
4.5
(39.0)
(42.4)
(7.2)
N/A
N/A
2010A
4.0
(29.4)
(33.3)
(5.3)
N/A
N/A
2011E
3.7
(29.2)
(31.5)
(4.1)
N/A
N/A
Analyst
Robin Davison
2012E
0.5
(16.8)
(18.9)
(2.3)
N/A
N/A
Sector: Oil & Gas
ADX Energy
Price performance
%
Actual
Relative*
1m
11.4
8.2
3m
17.2
6.1
Price:
Market cap:
Forecast net debt (US$m)
Market
12m
(36.0)
(31.2)
A$0.08
A$36m
10.3
38.0
ASX
Share price graph (A$)
(ADX)
INVESTMENT SUMMARY
After the drilling of ADX's Sidi Dhaher-1 exploration well in Q411, revised mapping and volume
calculations now put the contingent oil in place resource at 51mmbls. The company recently
signed a letter of intent for a suitable drilling rig and we expect testing of the well to begin
shortly to determine if the estimate resources are commercial. ADX has been carried for all
drilling costs for Sidi Dhaher-1 as part of its 60% farm-down to partners Gulfsands, Xstate and
Verus Investments. Elsewhere, the company recently bought back partner interests in its
Romanian activities giving it a 100% interest in the Parta concession and 11 prospecting
permits.
INDUSTRY OUTLOOK
Company description
ADX Energy is an oil and gas exploration
business listed in Australia with
exploration activities in Tunisia, offshore
Italy and Romania. It has mining
interests that have been demerged and
relisted in Australia under the name of
Riedel Resources.
Chorbane is one of three permits offering high-impact exploration and appraisal targets within
the ADX portfolio, along with Dougga and Lambouka.
Y/E Jun
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2010A
0.0
(2.1)
(2.1)
(0.1)
N/A
N/A
2011A
4.0
(5.8)
(5.8)
(0.2)
N/A
N/A
Price performance
%
Actual
Relative*
1m
16.9
17.0
Analyst
Ian McLelland
23 February 2012
3m
(11.7)
(10.7)
12m
(30.8)
(18.6)
2012E
0.0
(4.4)
(4.4)
(0.1)
N/A
7.8
2013E
32.3
16.6
17.1
0.2
42.7
2.7
15
Edison Insight
Afferro Mining
Sector: Mining
Price:
78.5p
Market cap:
£82m
1.4
N/A
Market
AIM, TSX
(AFF)
INVESTMENT SUMMARY
Afferro has announced the sale of its minority 38.5% stake in the Putu iron ore project to
Severstal, which owns the remaining 61.5% interest and effectively manages the project. The
overall consideration for the deal is US$115m, payable in two tranches with an initial amount of
US$65m and a deferred payment of US$50m. If Putu is sold to a third party, Afferro’s deferred
payment increases to at least US$70m, representing additional upside. The deal was value
accretive, valuing Putu’s attributable contained Fe resource at US$0.25/t compared to
Afferro’s pre-deal EV/Resource multiple of US$0.05/t. This sale has clear rationale for Afferro
as it frees cash needed to accelerate the development of its flagship Nkout project, reducing
the company’s liquidity and the project's execution risks.
Company description
Afferro Mining is a West African iron ore
explorer/developer that owns 100% of
the 1.42bt Nkout project in Cameroon
and 38.5% of the 3.24bt Putu project in
Liberia.
INDUSTRY OUTLOOK
Following sharp declines driven by the destocking, iron ore prices have gained some support
as steel mills resume buying. In the medium term, downside risk prevails as underlying
demand remains weak.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
N/A
N/A
N/A
N/A
N/A
N/A
2010A
0.0
(2.9)
(3.7)
(5.5)
N/A
N/A
2011E
0.0
(4.5)
(5.4)
(5.7)
N/A
N/A
Analyst
Andrey Litvin
2012E
0.0
(4.5)
(5.6)
(5.9)
N/A
N/A
Sector: Mining
African Barrick Gold
Price performance
%
Actual
Relative*
1m
25.6
20.6
3m
70.7
56.2
12m
(56.7)
(55.2)
Price:
443.1p
Market cap:
£1817m
N/A
N/A
Market
FULL
(ABG)
INVESTMENT SUMMARY
Full-year results report revenue up 25% year-on-year to US$1,218m, on a 2% fall in gold
production to 688,278oz. Cash costs per oz of US$692 were 22% higher on 2010 affected by
inflationary costs, leaving net profit of US$275m or 67c/share. A proposed final dividend of
13.1c/share would take the company's total annual dividend to US16.3c/share, up 208% on
2010. Continued power disruptions (which affected three of African Barrick’s four mines) led to
a reduction in production of c 40,000oz. African Barrick is targeting production of
675-725,000oz in 2012 at US$790-860 total cash costs per oz. Our forecasts are under
review.
INDUSTRY OUTLOOK
Company description
African Barrick Gold was historically the
Tanzanian gold mining business of
Barrick and is one of Africa’s five largest
gold producers with output from four
mines, namely Bulyanhulu, Buzwagi,
North Mara and Tulawaka.
In terms of its current P/E ratio, African Barrick is trading at a 40% discount to the average of
its peers (in the form of the Arca Gold BUGS index – the HUI) despite the fact that it is
attended by an absence of commissioning risk (unlike the sector as a whole). In terms of its
aggregate prospective EV/EBITDA multiple, it is trading at a 36% discount.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
975.0
445.2
335.1
59.5
11.7
8.3
2011A
1217.9
544.1
402.7
67.0
10.4
5.7
2012E
N/A
N/A
N/A
N/A
N/A
N/A
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
(5.2)
(9.1)
Analyst
Charles Gibson
16
3m
(17.6)
(24.6)
12m
(19.5)
(16.8)
23 February 2012
Edison Insight
African Eagle Resources
Sector: Mining
Price:
Market cap:
Market
6.6p
£30m
3.6
N/A
AIM
(AFE)
INVESTMENT SUMMARY
In January AFE announced Lycopodium Minerals as engineer to complete a bankable
feasibility study (BFS) on the Dutwe nickel project. Lycopodium has significant expertise in
mine design, engineering and construction, particularly in Tanzania. AFE also announced it has
selected SGS laboratories in Perth to perform pilot-scale hydrometallurgical test works on
Dutwe ore samples. This will form a critical part of the BFS. SGS is a world leader in providing
demonstrable bankable flow sheets to companies, previously undertaking work on other
laterite deposits, including Niquel do Vermelho, Ravensthorpe and Shevchenko. The board
appointments of both Don Newport (35 years' banking experience in London), and Dr Chris
Ponton (six years with BHP developing its Ni and ferrochrome division) as non-executive
directors will contribute significant relevant experience to the development of Dutwe.
Company description
African Eagle is focused on developing
its Dutwa nickel laterite project in
Tanzania, where a total indicated and
inferred resource of 98.6Mt has been
defined (according to JORC) at a nickel
grade of 0.93% equivalent to 948kt of
contained nickel.
INDUSTRY OUTLOOK
A tonne of Ni currently trades at c US$21,400/t.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
0.0
(1.4)
(1.4)
(0.6)
N/A
N/A
2010A
0.0
(1.1)
(1.1)
(0.4)
N/A
N/A
2011E
0.0
(1.1)
(0.9)
(0.3)
N/A
N/A
Analyst
Tom Hayes
2012E
0.0
(1.1)
(0.9)
(0.3)
N/A
N/A
Agennix
Price performance
%
Actual
Relative*
1m
23.3
18.3
3m
10.4
1.1
Price:
Market cap:
Market
12m
(57.6)
(56.2)
€1.74
€89m
42.7
N/A
FRA
(AGX)
INVESTMENT SUMMARY
Agennix is developing talactoferrin for cancer and severe sepsis. Unfortunately the Phase II/III
OASIS trial in severe sepsis was terminated early, as patients receiving the drug had a higher
mortality rate than those on placebo. The data is being analysed in detail, but the product will
probably not resume development in sepsis. There are also two Phase III trials underway for
non-small cell lung cancer (NSCLC). The most advanced is the FORTIS-M trial in third-line+
NSCLC, data from which is due in Q212. There is no read across from the OASIS trial to the
FORTIS-M study, as sepsis and cancer are very different indications and no other serious
adverse events were seen in the OASIS trial. Agennix has enough cash to operate into 2013.
INDUSTRY OUTLOOK
Company description
Agennix is a drug development
company based in Germany and the
US. Its lead product talactoferrin is
being developed for the treatment of
cancer and sepsis.
Efficacious oncology products can enjoy premium pricing and be sold by relatively small sales
forces, but there is significant competition. Talactoferrin has the potential to become
complementary to the current treatments in oncology without competing directly with other
drugs.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
2009A
7.7
(10.5)
2010A
0.2
(35.5)
2011E
0.0
(43.1)
2012E
0.0
(40.0)
Price performance
%
Actual
Relative*
1m
(34.6)
(39.6)
Analyst
Mick Cooper
23 February 2012
3m
(40.5)
(49.2)
12m
(47.6)
(43.3)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
(9.5)
(91.9)
N/A
N/A
(36.4)
(106.7)
N/A
N/A
(44.2)
(82.8)
N/A
N/A
(40.4)
(67.0)
N/A
N/A
17
Edison Insight
Ai Claims Solutions
Sector: Financials
Price:
Market cap:
Forecast net debt (£m)
Market
22.2p
£14m
18.6
92.0
AIM
(ACS)
INVESTMENT SUMMARY
Ai Claims Solutions (ACS) has a new major shareholder. Brand extension company Quindell
Portfolio acquired just under 30% shortly after it announced a tie-up with personal injury law
firm, Silverbeck Rymer, with which it intends provide a joint offering to the UK insurance claims
market. Quindell also owns Mobile Doctor, a medical reporting company. We are keen to see
if, and how, ACS can benefit from its new shareholder. ACS already works very closely with
the insurance industry. The economy is pressuring car use and, with that, accident frequency
is lower. This means less business for ACS in the short term, but we believe it is well placed to
benefit from the likely further consolidation of the market.
INDUSTRY OUTLOOK
Company description
Ai Claims Solutions provides credit hire
and credit repair as well as other
accident management solutions
nationally. It represents non-fault drivers
and insurers of at-fault drivers.
Overall industry conditions are tough as insurers seek to limit their costs by challenging claims
and paying slowly, while falling car use is pressuring industry volumes.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
91.9
4.2
2.7
3.3
6.7
N/A
2011A
117.6
5.8
3.8
4.3
5.2
29.5
2012E
108.2
5.0
3.0
3.4
6.5
1.9
Analyst
Martyn King
2013E
119.9
5.9
4.0
4.5
4.9
4.5
Algeta
Price performance
%
Actual
Relative*
1m
11.2
6.8
3m
(12.8)
(20.1)
12m
(17.6)
(14.8)
Price:
NOK152.00
Market cap:
NOK6444m
Forecast net cash (NOKm) 261.0
N/A
Market
OSE
Share price graph (NOK)
(ALGETA)
INVESTMENT SUMMARY
A NOK260m share placing should give Algeta the financial cushion for a likely sales force
build-up, underlining the company's intention to exercise a co-promotion option with Bayer
ahead of Alpharadin's imminent US filing. Recently-announced data from all 921 patients
enrolled into the ALSYMPCA study showed an increase in median overall survival of 3.6
months (14.9 in the Alpharadin arm vs 11.3 in placebo), up from 2.8 months at the interim
stage. Meanwhile, detailed interim data presented at ASCO-GU showed that Alpharadin
significantly improved three out of four skeletal-related event components, underlining its
advantage over Amgen's Xgeva.
INDUSTRY OUTLOOK
Company description
Algeta is a Norwegian biotech company
with the leading position in
alpha-emitting pharmaceuticals for
oncology. Its lead product Alpharadin, in
development for treatment of bone
metastases arising from prostate
cancer, is partnered globally with Bayer.
Algeta is the world leader in the development of alpha-pharmaceuticals for cancer. Interest
around Alpharadin is growing following positive data announcements and the approvals for
metastatic castration-resistant prostate cancer of Dendreon's Provenge, Sanofi's Jevtana and
J&J's Zytiga.
Y/E Dec
Revenue
(NOKm)
EBITDA
(NOKm)
PBT
(NOKm)
EPS
(öre)
2009A
30.7
(154.9)
(164.3)
2010A
270.9
39.1
23.1
2011E
232.8
3.1
2012E
631.8
413.5
Price performance
%
Actual
Relative*
1m
(1.6)
(6.6)
Analyst
Robin Davison
18
3m
(7.5)
(15.7)
12m
34.5
47.4
P/E
(x)
P/CF
(x)
(474.6)
N/A
34.1
58.5
259.8
N/A
15.5
38.8
391.8
N/A
415.6
1027.7
14.8
17.6
23 February 2012
Edison Insight
Alkane Resources
Sector: Mining
Price:
A$1.10
Market cap:
A$297m
Forecast net cash (A$m)
9.5
N/A
Market
ASX
(ALK)
INVESTMENT SUMMARY
Media attention over the rare earth group of elements has dragged negative sentiment towards
Alkane’s flagship Dubbo Zirconia project (DZP). Indeed, prices for the DZP basket of goods
decreased in Q411 (resulting in a 40% and 22% decrease in LREE and HREE Dubbo
concentrate prices respectively between Q311 and Q411). However, our base case valuation
(A$3.02/share excluding McPhillamys value of A$0.42) is based on significantly more
conservative price estimates (indicative of those seen in Q111) and, perhaps surprisingly, if we
apply the ‘depressed’ rare earth prices seen in Q411, our base case increases by 129% to
A$7.05/share. The development of the Tomingley Gold project is reaching the construction
phase (expected mid-2012) once a final development approval is granted by the NSW
Company description
government (expected late Q112). Financing will require a further c A$50m raised to satisfy the
ALK is a multi-commodity explorer with
projects in New South Wales. It owns
the Tomingley Gold (100%) and Dubbo
rare metal and rare earths (100%)
projects and has a 49% (moving to
25%) stake in the McPhillamys Gold
project with JV partner Newmont.
c A$95m capex bill.
INDUSTRY OUTLOOK
We value ALK at A$3.44/share (inc A$0.42 for McPhillamys).
Y/E Dec
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
4.7
2.2
2.4
0.99
111.1
N/A
2010A
10.1
7.6
7.9
3.18
34.6
N/A
2011E
0.1
(2.0)
(2.1)
(0.80)
N/A
N/A
Analyst
Tom Hayes
2012E
39.0
7.9
(14.6)
(5.43)
N/A
480.4
Sector: Mining
All Star Minerals
Price performance
%
Actual
Relative*
1m
5.2
5.3
3m
(5.2)
(4.0)
Price:
Market cap:
Market
12m
(10.9)
4.8
0.6p
£0m
0.1
N/A
PLUS
(ASMO)
INVESTMENT SUMMARY
All Star Minerals recently announced the acquisition of Circle Resources, Jodo Gold and Blue
Doe Gold for A$535,000. These acquisitions add seven projects in Queensland, Australia
covering 518km sq, deemed 'highly' prospective for gold, silver, copper, phosphate and
uranium. All Star is restructuring the assets of each company into distinct synergetic groups
focused on precious, base and strategic commodities. Latest exploration results from the
Gilpas uranium project suggest that previously-identified radon gas anomalies are likely related
to dispersal of uranium bearing material in the glacial till rather than uranium mineralisation in
the underlying bedrock. The next phase of drilling at Gilpas and the Samon iron ore target are
expected to start in April and May 2012, respectively.
Company description
All Star Minerals is a uranium exploration
company focused on Sweden, where it
owns 100% of the mineral exploration
licences for three projects: Gilpas,
Samon and Kuusivaara. The licences
cover 111km sq in northern Sweden.
INDUSTRY OUTLOOK
The uranium spot price remains flat at around $52/lb of U3O8, volatility continues within the
sector despite China and India progressing its significant nuclear ambitions.
Y/E Nov
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
0.0
(0.2)
(0.2)
(0.2)
N/A
N/A
2010A
0.0
(0.1)
(0.1)
(0.1)
N/A
N/A
2011E
0.0
(0.1)
(0.1)
(0.1)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
(8.6)
(12.3)
Analyst
Tom Hayes
23 February 2012
3m
(15.0)
(22.2)
12m
(60.3)
(59.0)
19
Edison Insight
Price:
Market cap:
Market
11.6p
£36m
12.4
328.0
AIM
Allergy Therapeutics
(AGY)
INVESTMENT SUMMARY
Two important regulatory catalysts should boost revenue and profits, helping Allergy
Therapeutics become a top three player in the global allergy immunotherapy (AIT) market.
German approval of allergy vaccine Pollinex Quattro (PQ) Grass and FDA approval of clinical
trial protocols for three PQ products, followed by the lift of the US clinical hold, are both
expected by mid-2012. The core European business is profitable and Latin American market
entry is underway; the US AIT opportunity could further boost growth post FY13, but is
contingent on securing a partner. Allergy is also focused on M&A (European consolidation) and
increased business development (products, infrastructure, new geographies) to deliver on its
growth strategy and ultimately become a sustainable, cash-flow positive business.
Company description
Allergy Therapeutics is a
European-based speciality
pharmaceutical company focused on
the treatment and prevention of allergy.
INDUSTRY OUTLOOK
Pollinex Quattro (c 50% of revenues) is an ultra short-course allergy vaccine given as four
shots over three weeks, which has comparable efficacy to existing vaccines (typically requiring
16-50 injections under specialist supervision pre hay-fever season).
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
40.8
3.0
0.3
0.3
38.7
32.4
2011A
41.6
2.0
(1.7)
(0.7)
N/A
N/A
2012E
43.3
4.0
1.3
0.3
38.7
7.5
Analyst
Lala Gregorek
2013E
47.7
4.7
1.9
0.5
23.2
9.6
Sector: Mining
Allied Gold Mining
Price performance
%
Actual
Relative*
1m
13.4
8.9
3m
8.1
(1.0)
12m
60.3
65.8
Price:
118.2p
Market cap:
£240m
17.9
4.0
Market
ASX, FULL, TSX
(ALD)
INVESTMENT SUMMARY
ALD’s activities report for Q411 detailed quarterly group production of 31,181ozs (Simberi;
12,387ozs @ US$1108/oz gross cash costs; Gold Ridge 18,794oz @ US$1319/oz gross cash
costs, and 108,338ozs (Simberi 57,284oz @ US$1319/oz; Gold Ridge 51,054 @ US$1224/oz)
for the full year, marking 2011 as the first year it breached the 100koz production milestone.
Average realised Au price was US$1695/oz. ALD has also agreed a hedge-free US$80m
three-year gold loan with RK Mine Finance, used to repay US$55m in corporate borrowings
and provide additional liquidity while it completes its capex programmes. The loan will be
repaid in physical gold with the number of ounces linked to the prevailing gold price. The
notional repayment over three years is 66,240oz (at a ref price of US$1500). No explicit
Company description
interest rate is charged and no hedging is required as all gold is sold at the prevailing gold
Allied Gold Mining is a gold
explorer-producer. Its main assets are
the Simberi Oxide Gold mine in Papua
New Guinea and the Gold Ridge mine in
the Solomon Islands.
price. Johan Oelofse was also appointed as COO.
INDUSTRY OUTLOOK
The gold price is currently at c US$1,700/oz.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
0.0
0.0
N/A
N/A
N/A
2010A
0.0
0.0
0.0
0.0
N/A
N/A
2011E
138.8
11.7
(5.3)
(2.7)
N/A
43.0
2012E
276.1
103.5
77.3
29.9
6.2
7.5
Price performance
%
Actual
Relative*
1m
(24.6)
(27.6)
Analyst
Tom Hayes
20
3m
(29.2)
(35.2)
12m
(50.4)
(48.8)
23 February 2012
Edison Insight
Allocate Software
Sector: Technology
Price:
Market cap:
Market
81.0p
£51m
3.0
N/A
AIM
(ALL)
INVESTMENT SUMMARY
Allocate substantially solidified its position in H1. It now supplies 45% of all NHS trusts, all of
the Australian army and is a market leader in the Australian healthcare market. Year-on-year
comparisons suffered due to exceptional licensing performance last year, but the situation
should reverse in H2 as the Australian Defence Force deal drops in. Following the results, we
left our earnings estimates largely unchanged on a nudged-up top line, but there remains
scope to exceed. The rating continues to look very undemanding, given the company’s track
record, market position and clear growth opportunity.
INDUSTRY OUTLOOK
Disruption within the NHS is lengthening approval cycles. However, Allocate does have a
Company description
Allocate Software is the leading provider
of software applications designed for
workforce optimisation within global
organisations employing large,
multi-skilled workforces.
genuine spend to save solution, 39% of trusts have yet to deploy a workforce rostering
solution and cross selling opportunities are substantial. Good progress continues overseas,
and the launch of an updated platform should reduce the development overhead of country
specific customisations.
Y/E May
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
22.0
3.7
3.5
6.3
12.9
8.6
2011A
30.1
5.8
5.4
6.2
13.1
8.8
2012E
36.0
6.2
5.7
6.5
12.5
10.1
Analyst
Dan Ridsdale
2013E
38.8
7.0
6.5
7.3
11.1
7.3
Sector: Financials
Alpha Strategic
Price performance
%
Actual
Relative*
1m
3.9
(0.3)
3m
3.9
(4.9)
Price:
Market cap:
Market
12m
(8.5)
(5.4)
53.5p
£5m
3.6
N/A
AIM
(APS)
INVESTMENT SUMMARY
Despite challenging markets, performance at Winton and IKOS in the first six months of this
financial year outperformed the broader hedge fund index. Winton delivered positive
performance of +3.2% while the IKOS fund was down 3.65%. This compared to a hedge fund
sector that was down 9.13% in the same period. This resulted in Alpha's revenues being
ahead for the first six months of the year compared to the prior year, group reporting £339k vs
£281k in the comparable period. With growth in revenues and Alpha no longer having to
amortise income arising from IKOS, Alpha reported a much-reduced operating loss of £19k vs
£107k in the comparable prior year period. Cash balances remain healthy at the half year at
£3.3m.
Company description
Alpha Strategic plans to pool a portion
of the revenue streams from several
single strategy hedge funds.
INDUSTRY OUTLOOK
Having struggled through most of last year, hedge funds have started 2012 in positive fashion,
with the HFN Aggregate Index up 2.57%.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.4
(0.5)
(0.5)
(9.4)
N/A
N/A
2011A
0.6
(0.1)
(0.1)
(2.0)
N/A
N/A
2012E
0.9
0.2
0.1
2.0
26.8
32.2
2013E
1.0
0.3
0.2
2.9
18.4
19.9
Price performance
%
Actual
Relative*
1m
(1.8)
(5.8)
Analyst
Neil Shah
23 February 2012
3m
0.0
(8.5)
12m
(18.3)
(15.6)
21
Edison Insight
Amlin
Sector: Financials
Price:
360.4p
Market cap:
£1790m
N/A
N/A
Market
FULL
(AML)
INVESTMENT SUMMARY
Amlin recently warned that the escalating cost of Thai flooding (perhaps as much as a $20bn
industry loss) would further affect a difficult 2011 (full-year results due 5 March). At the same
time it reported a strong increase in premiums at the start of 2012 (1 January renewals are
significant), mostly resulting from reinsurance rate increases. We have adjusted our 2011
estimates for the Thai flood losses but our focus is on the expected improvement in 2012, to a
large extent reflecting an assumed normalisation of catastrophe losses. Amlin has a track
record of successfully managing the balance between volatile catastrophe reinsurance
business and its more steady commercial insurance businesses.
INDUSTRY OUTLOOK
Company description
Amlin is an international insurer/reinsurer
domiciled in London. It focuses on
providing commercial insurance and
reinsurance, operating in the UK, within
Lloyd’s, Continental Europe and
Bermuda.
US property catastrophe premium rates are increasing, with loss affecting international
catastrophe reinsurance rates even more so. This is now supporting gentle increases in a
range primary insurance rates, though not casualty. Investment returns remain stubbornly low.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
1.5
N/A
0.5
99.5
3.6
N/A
2010A
1.9
N/A
0.3
45.4
7.9
N/A
2011E
2.0
N/A
(0.2)
(25.5)
N/A
N/A
Analyst
Martyn King
2012E
2.0
N/A
0.3
43.4
8.3
N/A
AmpliPhi Biosciences
Price performance
%
Actual
Relative*
1m
8.0
3.7
3m
17.2
7.3
12m
(9.6)
(6.5)
Price:
US$0.20
Market cap:
US$4m
3.4
N/A
Market
OTC
(APHB)
INVESTMENT SUMMARY
AmpliPhi recently raised £2.7m in credit loan notes from the prominent private investors Jim
Mellon and Gwynn Williams, and has reiterated its focus on developing bacteriophages naturally occurring viruses - for treating bacterial infections in humans. A 24-patient Phase I/II
trial, which AmpliPhi says is the only such study performed to modern regulatory standards,
earlier demonstrated efficacy in chronic otitis. Meanwhile, the US company Celladon has
raised $43m to advance its Mydicar project, on which AmpliPhi could receive milestone
payments, and another partner, Amsterdam Molecular Therapeutics, is to be acquired by the
private company uniQure BV.
INDUSTRY OUTLOOK
Company description
AmpliPhi Biosciences is a US/UK
biotech company focused on
developing of bacteriophages (viruses
that infect bacteria) for therapeutic
applications. Its lead development
product, BioPhage-PA, has potential in
treating chronic ear infections.
The growth of resistance to antibiotics is a serious problem, and pharma companies look likely
to shift increasingly away from chemical antibiotics and towards new methods of combating
bacterial infections. AmpliPhi is pioneering one such novel method through the development of
bacteriophages that specifically target bacteria.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2008A
8.7
(11.1)
(11.3)
(55.3)
N/A
N/A
2009A
12.2
2.4
2.1
10.2
2.0
N/A
2010E
2.1
(2.2)
(2.2)
(10.5)
N/A
N/A
2011E
0.4
(5.2)
(5.3)
(11.8)
N/A
N/A
Price performance
%
Actual
Relative*
1m
66.7
58.4
Analyst
Jacob Plieth
22
3m
42.9
27.6
12m
(33.3)
(34.4)
23 February 2012
Edison Insight
Amur Minerals
Sector: Mining
Price:
Market cap:
Market
8.2p
£23m
3.5
N/A
AIM
(AMC)
INVESTMENT SUMMARY
Amur has raised £5.48m through issuing 68.5m shares at 8p/share to new and existing
shareholders. The proceeds will be put towards metallurgical and engineering studies as the
company compiles its exploration data from the Kun Manie nickel sulphide project in the far
east of Russia. Analytical work from the 2011 field season is being carried out by Alex Stewart
Laboratories in Moscow. The latest exploration work focused on the Krumkon trend, an area
covering 15km by 2.5km, and the Yan Helgde area 10km north of Krumkon trend and
covering 20km sq. These areas have the potential to expand Amur’s current JORC resource of
341,000t of contained nickel with ancillary Cu. Further sampling and follow-up of anomalies is
planned for 2012. Amur is still pursuing elevated talks with Russian authorities over the
approval of the Kun-Manie mining licence.
Company description
Amur Minerals is an exploration and
development company focused on base
metal projects located in Russia’s far
east. The company’s principal asset is
the Kun-Manie nickel sulphide deposit,
located in the Amur Oblast.
INDUSTRY OUTLOOK
Nickel currently trades on the LME at around US$20,345/t. Our forecasts are under review.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
(1.4)
(1.6)
(1.1)
N/A
N/A
2010A
0.0
(1.9)
(1.9)
(1.0)
N/A
N/A
2011E
0.0
(2.4)
(2.3)
(0.9)
N/A
N/A
Analyst
Tom Hayes
2012E
0.0
(2.4)
(2.3)
(0.7)
N/A
N/A
Sector: Mining
Anglesey Mining
Price performance
%
Actual
Relative*
1m
(10.2)
(13.8)
3m
(13.1)
(20.4)
Price:
Market cap:
Market
12m
(47.7)
(46.0)
28.8p
£46m
1.1
N/A
FULL
(AYM)
INVESTMENT SUMMARY
On 14 February LIM announced Q3 results for 2011 to 31 December. LIM received C$26.6m
for two shipments totalling 319,000t ore at an average grade of 64.9% to give an average
price of C$128/t. A further 67,000t was shipped in December and a stockpile of 178,000t
remains at the Port. Plant modification and installation of additional equipment is underway as
planned and should be in place by mid-2012. Rail capacity is being increased to four trains by
June 2012. Regulatory approval for Houston is expected in early 2012. On 11 January
diamond drilling began with four holes at Parys Mountain in Anglesey. The aim is to identify the
extent of near-surface lacerations of the Engine Zone mineralisation. Assay results are
expected in several weeks.
Company description
Anglesey has a 33.0% interest in
Labrador Iron Mines and 100% of the
Parys Mountain deposit in North Wales
with an historical resource in excess of
7Mt at over 9% combined copper, lead
and zinc.
INDUSTRY OUTLOOK
Iron ore prices continue to fluctuate. The current price is around $140/t. On 15 February
another Iron Ore Sales Agreement was signed with IOC for 2012. Details remain confidential.
The plant start-up for the 2012 operating season is planned for May.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.0
(0.3)
(0.6)
(0.4)
N/A
N/A
2011A
0.0
(0.5)
(1.7)
(1.1)
N/A
N/A
2012E
0.0
(0.5)
5.1
3.3
8.7
N/A
2013E
0.0
(0.5)
20.8
13.1
2.2
1.8
Price performance
%
Actual
Relative*
1m
(0.9)
(4.8)
Analyst
Anthony Wagg
23 February 2012
3m
(24.8)
(31.2)
12m
(59.4)
(58.0)
23
Edison Insight
Price:
Market cap:
Market
154.0p
£32m
3.4
N/A
AIM
Animalcare Group
(ANCR)
INVESTMENT SUMMARY
Animalcare's revenues fell by 10% to £5.4 during H112 largely because a supplier stopped
making the drug Buprecare (5.5% of FY11 sales) in July and there were weak pet identification
sales. This also led to an 18% fall in underlying operating profit to £1.2m. However, Animalcare
should return to growth in H212, despite the challenging market conditions. It has started
selling a new version of Buprecare, launched four new products in the last six months, has a
robust pipeline and has finished upgrading its database, which should increase cross-selling
opportunities from its identity chips. The company has a strong balance sheet (net cash of
£1.75m at H112) and has signalled its confidence by increasing its interim dividend by 50% to
1.5p.
Company description
Animalcare markets and sells licensed
veterinary pharmaceuticals, animal
identification products and animal
welfare goods for the companion animal
market across the UK. Its products are
sold in Europe through distributors.
INDUSTRY OUTLOOK
The companion animal market, which was previously growing at c 5% in the UK, is now flat.
Future market growth will probably depend on the development of innovative treatments and
products to offset the impact of the government's debt reduction measures.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
11.2
3.2
2.8
10.6
14.5
11.2
2011A
11.8
3.5
3.3
13.1
11.8
10.2
2012E
12.2
3.5
3.5
13.3
11.6
9.1
Analyst
Mick Cooper
2013E
13.1
3.9
3.9
14.7
10.5
8.6
Sector: Mining
Aquarius Platinum
Price performance
%
Actual
Relative*
1m
(1.3)
(5.2)
3m
(10.7)
(18.3)
12m
3.7
7.2
Price:
138.3p
Market cap:
£650m
125.0
N/A
Market
FULL
(AQP)
INVESTMENT SUMMARY
Aquarius released weak Q212 financial results afected by the decline in production and PGM
prices. The top line was down 25% q-o-q on the back of the marginally lower output (-4%) and
sharp decline in realised pricing (unit revenue fell 23% q-o-q). Despite the 13% q-o-q (9% in
unit US$ terms) drop in cash COGS, the company posted EBITDA loss of US$10m compared
to a positive EBITDA of US$14m in Q112. While the weak market conditions were the main
reason for the poor financial performance, the company cited continued operating challenges
as well as the safety stoppages as negatively affecting the results. Given the prevailing
weakness in PGM prices, unclear supply/demand situation and persisting cost pressures, we
expect Q312 to remain tough both for the industry and the company.
Company description
Aquarius is the world's fourth largest
PGM producer, with five mines in
southern Africa: Kroondal (50%),
Marikana (50%), Blue Ridge (50%)
Everest (100%) and Mimosa (50%) as
well as tailings retreatment operations
and exploration projects.
INDUSTRY OUTLOOK
PGM prices to remain volatile in the short term on the back of the uncertain global
macroeconomic situation.
Y/E Jun
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2010A
457.9
135.9
110.9
16.8
13.0
8.2
2011A
682.9
215.8
123.3
32.2
6.8
5.4
2012E
758.2
195.8
156.6
24.2
9.0
5.7
2013E
819.0
207.4
163.6
25.4
8.6
4.9
Price performance
%
Actual
Relative*
1m
(22.9)
(26.0)
Analyst
Andrey Litvin
24
3m
(22.5)
(29.1)
12m
(65.9)
(64.7)
23 February 2012
Edison Insight
Arbuthnot Banking Group
Sector: Financials
Price:
Market cap:
Market
430.0p
£64m
N/A
N/A
AIM
(ARBB)
INVESTMENT SUMMARY
Arbuthnot Banking Group's (ABG) 75.5% majority holding in Secure Trust has risen in value
over the past month from just over £80m to nearly £110m. This compares with ABG's own
market cap of c £62m creating a significant valuation anomaly. In our recent initiation on
Secure Trust we highlighted the significant growth opportunities, both organic and inorganic,
this unit has in both personal lending and current/budget accounts. In addition to its holding in
Secure Trust, ABG also has a profitable private bank and a 6.42% holding in Westhouse
Holdings (current market value in excess of £0.5m). ABG has an attractive dividend yield (c
5.3% on our 2012e) covered by normalised earnings.
INDUSTRY OUTLOOK
Company description
Arbuthnot Banking Group is engaged in
retail, investment and private banking
and other financial services.
For those like ABG with good funding and strong capital ratios, it is an excellent time to lend as
weaker competition has expanded lending margins and opened new opportunities. Private
banking remains competitive with low interest rates limiting the value of deposits.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
37.8
N/A
3.1
9.3
46.2
N/A
2010A
40.5
N/A
4.1
17.9
24.0
N/A
2011E
46.9
N/A
5.6
18.3
23.5
N/A
Analyst
Mark Thomas
2012E
56.1
N/A
9.6
32.6
13.2
N/A
Sector: Mining
Arian Silver
Price performance
%
Actual
Relative*
1m
22.0
17.1
3m
11.7
2.2
12m
4.9
8.4
Price:
23.6p
Market cap:
£71m
6.0
N/A
Market
AIM, TSX
(AGQ)
INVESTMENT SUMMARY
Further to the release of drilling results last October, Arian has released assay results of an
additional 15 holes and an IP survey that we estimate is consistent with the potential for an
additional 55.6Moz of silver – a 63% increase on its current JORC-compliant resource.
Assuming the 55.6Moz are categorised in the same proportion as existing resources, we
estimate their value (at sector average valuations) to be c US$148m, or US$0.49/£0.32 per
share. At Arian’s currently discounted valuation of US$0.733 per ounce, a resource increase of
55.6Moz would equate to a valuation uplift of US$41m, or US$0.14/£0.09 per share.
INDUSTRY OUTLOOK
At a conservative, long-term silver price of US$24.63/oz, we estimate mining operations at the
Company description
Listed on AIM and the TSX, Arian Silver
specialises in Mexican silver deposit
exploration and development. Its San
Jose mine started production in
October 2010. Its other projects are
Calicanto and San Celso, located in
Zacatecas.
San José mine to be worth at least 29.3p over the next four years (including the value of
residual resources). Adding new resource potential we recognise US$0.14 (or 9p) as having
been crystallised with the potential to add up to an additional US$2.97 (or 194p) per share.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
(2.0)
(2.1)
(0.8)
N/A
N/A
2010A
0.2
(2.0)
(1.7)
(0.7)
N/A
N/A
2011E
8.3
(11.0)
(11.5)
(3.6)
N/A
N/A
2012E
17.5
6.4
6.3
1.9
19.6
22.4
Price performance
%
Actual
Relative*
1m
45.4
39.5
Analyst
Charles Gibson
23 February 2012
3m
21.9
11.6
12m
(45.2)
(43.4)
25
Edison Insight
Ariana Resources
Sector: Mining
Price:
Market cap:
Market
4.2p
£11m
0.6
N/A
AIM
(AAU)
INVESTMENT SUMMARY
Ariana has updated the market on the status of its Red Rabbit JV. Main highlights include
compilation of remaining components of the detailed feasibility study, including feasibility works
and design of the tailings storage facility. After receiving all necessary permits, construction will
start (expected H212) with production projected for 2013. Initial drilling between Arzu
South/Arzu North has returned 2.03g/t over 8.7m at 15m depth. Acquisition of strategic land
near Arzu South is also taking place, a key hurdle to commissioning the mine. On the financing
side, Ariana has arranged a US$2m loan agreement completed with YA Global Master
(advised by Yorkville Advisors), made in two tranches, US$0.75m paid in 10 instalments, with
final payment in January 2013. The second will be paid on repayment of the first, subject to
mutual agreements. The money will be used to develop Red Rabbit.
Company description
Ariana is a gold exploration company
focused on exploration and
development projects in the Republic of
Turkey.
INDUSTRY OUTLOOK
We continue to use long-term gold and silver prices of US$1,350/oz and US$25/oz,
respectively.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
0.0
(0.4)
(0.4)
(0.3)
N/A
N/A
2010A
0.3
(0.5)
(0.5)
(0.3)
N/A
N/A
2011E
0.0
(0.8)
(0.8)
(0.1)
N/A
N/A
Analyst
Tom Hayes
2012E
3.5
1.1
(0.2)
0.0
N/A
7.4
Ark Therapeutics
Price performance
%
Actual
Relative*
1m
(8.1)
(11.8)
3m
(12.8)
(20.2)
Price:
Market cap:
Market
12m
(15.0)
(12.1)
3.5p
£7m
8.3
N/A
FULL
(AKT)
INVESTMENT SUMMARY
Ark Therapeutics is making steady progress in executing its three-step business
transformation strategy. In 2011 it achieved two strategic objectives: securing new
manufacturing contracts (with PsiOxus Therapeutics and the University of Glasgow’s Institute
of Cardiovascular and Medical Sciences) and selling the woundcare business. The focus is
now on securing further long-term contracts for its Finnish GMP manufacturing facility and
partners for its R&D pipeline. The first programme expected to be partnered is Ark's small
molecule NRP-1 antagonist: Ark recently received a Notice of Allowance from the US PTO
connected to this (formal grant is expected in two months). FY11 results report 12 March.
INDUSTRY OUTLOOK
Company description
Ark Therapeutics specialises in
developing products for treating
vascular disease, cancer and wound
care. The company is a leader in the
field of gene-based therapies, and has
in-house manufacturing capabilities.
Competitors to EG011 for refractory angina are mainly stem-cell therapies, while EG016 is a
novel approach in peripheral vascular disease. Interest in FGR (EG013) is shown by the
ongoing Phase II/III sildenafil trial. The sole clinical-stage NRP-1 Roche's RG7347 (MNRP1685)
antibody has been discontinued.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
3.0
(18.3)
(19.8)
(9.0)
N/A
N/A
2010A
3.1
(13.2)
(15.1)
(6.7)
N/A
N/A
2011E
8.0
(2.9)
(4.5)
(1.5)
N/A
N/A
2012E
2.5
(9.1)
(10.5)
(4.5)
N/A
N/A
Price performance
%
Actual
Relative*
1m
4.4
0.2
Analyst
Lala Gregorek
26
3m
(9.6)
(17.2)
12m
(21.1)
(18.4)
23 February 2012
Edison Insight
Armour Group
Sector: Electrical Equipment
Price:
Market cap:
Market
7.0p
£7m
7.0
25.0
AIM
(AMR)
INVESTMENT SUMMARY
A major reversal in the group's Home division contributed to Armour delivering underlying
pre-tax losses of £2.1m last year. Management has cut the cost-base by £2.5m, but has
sustained the flow of new innovative products, which is the lifeblood of the business. Several
new recent introductions and others in the pipeline point to a more positive outlook, despite
the challenging UK consumer goods market. The balance sheet remains under tight control,
with gearing of 24%. The recent AGM confirmed the group is on course for better results in the
current year.
INDUSTRY OUTLOOK
The macro environment remains fragile, with consumers holding back on expenditure because
Company description
Armour Home designs and distributes a
comprehensive upmarket range of
home entertainment products, and
Armour Auto supplies in-car
communications and entertainment
components and systems.
of fears about government spending cuts. Experience shows businesses that invest in
innovation and quality consistently outperform their peers, despite the short-term impact on
the bottom line. We continue to support Armour's investment strategy, which should ultimately
drive recovery, but the short-term outlook across the sector remains difficult.
Y/E Aug
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
56.6
2.8
1.0
1.38
5.1
2.5
2011A
42.3
(1.4)
(2.1)
(1.74)
N/A
N/A
2012E
40.0
1.7
(0.3)
(0.26)
N/A
4.0
Analyst
Nigel Harrison
2013E
43.0
2.5
0.2
0.17
41.2
3.4
Sector: Construction & Blding Mat.
Ashley House
Price performance
%
Actual
Relative*
1m
21.7
16.9
3m
115.4
97.2
Price:
Market cap:
Market
12m
(25.3)
(22.8)
14.5p
£8m
0.1
0.0
AIM
(ASH)
INVESTMENT SUMMARY
A number of key messages emerged from the interims. The first was that new revenue
streams are gaining momentum and will compensate for what we expect to be a temporary
gap in demand for new primary care, due to delayed NHS reforms. These new sources, such
as extra care social housing schemes, contributed 18% of H112 revenue (FY11: 2%). More
such projects should be secured shortly, as well as the first scheme for a private sector health
provider. The pipeline of NHS-derived work fell to £115m (FY11: £131m) but should pick up in
FY13 after resolution of healthcare reforms.
INDUSTRY OUTLOOK
The interim statement anticipates full recovery in NHS-led revenues over the medium term, as
Company description
Ashley House supplies project
management and consultancy services.
These are primarily allied to the delivery
of new medical facilities for NHS-led
primary care, the management of assets
and clinical services.
reforms should encourage demand for modern healthcare facilities and see renewed
commitments from clients. Although the pick-up has been delayed by the debate, the group
still has a substantial (design-and-build value) pipeline of schemes where it is already working
or expects to recognise revenues over the next two years.
Y/E Apr
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
24.9
4.2
4.1
7.0
2.1
N/A
2011A
27.5
3.0
2.9
5.7
2.5
2.5
2012E
29.0
2.2
2.0
1.7
8.5
8.4
2013E
30.0
2.4
2.2
3.8
3.8
6.0
Price performance
%
Actual
Relative*
1m
(4.9)
(8.7)
Analyst
Roger Leboff
23 February 2012
3m
(10.8)
(18.3)
12m
(50.0)
(48.3)
27
Edison Insight
Price:
US$2.01
Market cap:
US$66m
125.7
N/A
Market
NASDAQ
Astex Pharmaceuticals
(ASTX)
INVESTMENT SUMMARY
Astex Pharmaceuticals is a focused oncology drug discovery and development company. The
US/EU regulatory reviews of Dacogen in AML represent a key near-term catalyst. Despite a
negative ODAC ruling on Dacogen, the FDA might take a broader view on a lack of alternatives
in AML, but the probability of US approval is now potentially lower. We ascribe a fair value of
$606m to Astex on the basis Dacogen is approved in both territories and $384m on the failure
to receive approval in both. Therefore, there is significant upside given the current valuation,
even on the worst-case scenario.
INDUSTRY OUTLOOK
Astex offers a low-risk, oncology play with multiple study readouts in 2012. Although the
Company description
The newly renamed Astex
Pharmaceuticals was formed by the
merger of SuperGen and Astex earlier
this year. The company is now a UK-US
focused oncology drug discovery and
development company.
potential approval of Dacogen in AML offers a material near-term catalyst, we see the
investment case in the longer term and being centred on Astex’s ability to exploit its strong
financial position (cash, royalties etc) to generate value from its R&D pipeline and
fragment-based discovery technology.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
41.3
5.4
6.1
11.8
17.0
23.4
2010A
53.0
18.6
17.9
29.2
6.9
6.7
2011E
66.5
10.1
8.3
13.3
15.1
12.1
Analyst
Robin Davison
2012E
68.1
11.9
9.5
10.2
19.7
15.4
Sector: Support Services
Augean
Price performance
%
Actual
Relative*
1m
(8.6)
(8.5)
3m
(7.0)
(5.9)
Price:
Market cap:
Market
12m
(1.9)
15.4
31.2p
£31m
4.0
8.0
AIM
(AUG)
INVESTMENT SUMMARY
Augean’s pre-close statement has both reassured and excited us. The core underlying
performance is in line with expectations despite the economic climate and stiff competition,
while the potential volumes in Low Level Waste (LLW) and the progress achieved on other
strategic opportunities hint at the step-change to come. In our view, 2011 was a year full of
preparation, positioning and restructuring for the future, both in organisational structure and
market focus. We believe 2012 will be the year this groundwork begins to translate to a
significant potential performance uplift that could well accelerate in the years beyond.
INDUSTRY OUTLOOK
There is an increasing trend towards treatment, recovery and recycling within the waste
Company description
Augean manages hazardous waste
streams through three divisions: Land
Resources; Waste Network and Oil &
Gas. The group provides its services at
10 locations across the UK.
hierarchy as highlighted in the government's Strategy for Hazardous Waste Management.
While new regulations since 2004 initially caused confusion, we believe that, as the industry
understands what is required and enforcement improves, volumes will become increasingly
predictable.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
2009A
31.5
6.0
1.3
2010A
34.1
5.2
0.4
2011E
36.1
5.9
2012E
37.2
6.4
Price performance
%
Actual
Relative*
1m
11.6
7.1
Analyst
Roger Johnston
28
3m
13.6
4.0
12m
14.7
18.5
P/E
(x)
P/CF
(x)
1.8
17.3
5.7
0.2
156.0
5.3
1.0
0.8
39.0
6.9
1.6
1.3
24.0
4.8
23 February 2012
Edison Insight
Aureus Mining
Sector: Mining
Price:
Market cap:
Market
83.5p
£98m
32.2
N/A
AIM
(AUE)
INVESTMENT SUMMARY
Aureus has released a maiden reserve at its 100% owned New Liberty deposit in Liberia
containing 873,000oz of Au (both proven and probable categories) on the back of a NI 43-101
compliant technical study. Resources were also updated to 1.1Moz of contained Au in the
measured and indicated categories based on 8.7Mt grading at 3.1 g/t. The resource and
reserve estimates are part of a bankable feasibility study due 31 March 2012, which will
include more information on mine planning, economic parameters and capital requirements.
Our forecasts and valuation are under review.
INDUSTRY OUTLOOK
The project has an updated pre-tax NPV of US$260m using an 8% discount rate and a
Company description
TSX- and AIM-listed Aureus Mining is a
West African-focused gold developer/
explorer. Its flagship project is the
1.5Moz New Liberty gold project in
Liberia.
long-term gold price of US$1,350/oz. Using these parameters the project has an internal rate
of return of 62%. Aureus estimates initial capital forecasts at New Liberty of US$113.1m
including the cost of pre-stripping 11Mt of waste at US$24.3m. Additional sustaining capex,
fleet leasing and mine closure costs total US$48.6m.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
N/A
N/A
N/A
N/A
N/A
N/A
2010A
N/A
N/A
N/A
N/A
N/A
N/A
2011E
0.0
(8.4)
(8.5)
(7.9)
N/A
N/A
Analyst
Charles Gibson
2012E
0.0
(3.3)
(3.2)
(2.5)
N/A
N/A
Sector: Mining
Aurizon Mines
Price performance
%
Actual
Relative*
1m
5.7
1.4
3m
35.8
24.3
12m
N/A
N/A
Price:
C$5.12
Market cap:
C$835m
Forecast net cash (C$m)
191.0
N/A
Market
TSX
Share price graph (C$)
(ARZ)
INVESTMENT SUMMARY
Aurizon achieved record gold production of 163,845oz in 2011, 42,995oz of which was
produced in Q4 at an average grade of 9.1g/t. Average recovery for the year stood at 91.3%
and the company estimates total cash costs per oz will be below forecasts of US$535. 2011
also represented a period of record exploration expenditure; C$9.4m was spent on 88,000m
of drilling at Casa Berardi, C$3.6m on 24,500m at Joanna’s Heva deposit and C$9.7m on
47,000m at other properties. Looking to 2012 the company forecasts total production of
155-160,000oz. Aurizon forecasts an average 7.5g/t ore grade, 6% lower than the 2011
average grade of 8g/t, attributable to mine sequencing.
INDUSTRY OUTLOOK
Company description
Aurizon Mines is a Canadian gold
company with two major assets in the
Abitibi region of Canada, namely Casa
Berardi and Joanna plus options over a
range of other properties.
Using Aurizon’s forecast cash position of C$210m (ie C$1.29 per share) as at 31 December
2011, its EV/EBITDA multiple of 5.63x is at a 32.4% discount to the equivalent multiple for the
Gold BUGS index (HUI) of 8.34x in FY11.
Y/E Dec
Revenue
(C$m)
EBITDA
(C$m)
PBT
(C$m)
EPS (fd)
(c)
P/E
(x)
2009A
175.6
91.9
54.9
21.6
23.7
8.1
2010A
178.7
68.6
33.2
11.7
43.8
12.8
2011E
255.8
123.5
84.9
27.4
18.7
7.0
2012E
286.9
170.8
125.0
45.9
11.2
5.0
Price performance
%
Actual
Relative*
1m
(3.0)
(4.8)
Analyst
Charles Gibson
23 February 2012
3m
(11.9)
(15.7)
12m
(31.1)
(21.8)
P/CF
(x)
29
Edison Insight
Sector: Media & Entertainment
Price:
Market cap:
Market
156.0p
£40m
21.0
54.0
AIM
Avesco
(AVS)
INVESTMENT SUMMARY
On 12 January Avesco reported better than expected FY11 results and a hefty dividend
increase. FY12 should be a bumper year, with the usual 'even-year' effect boosted by the
Olympics. The next update will be Q1 results in mid-March. We expect some dip in the
'odd-year' FY13 but our numbers could prove conservative as operational actions drive
underlying margin improvements. The valuation remains firmly underpinned by the prospect of
a 2013 windfall from the Celador/Disney court case, worth US$60m or 135p net per share.
INDUSTRY OUTLOOK
Avesco's key exposures are to corporate spending on events and exhibitions (itself a function
of marketing spend) and to broadcaster spending, notably on sport. It is benefiting from
Company description
Avesco is an international media
services group, providing broadcast and
audio-visual equipment and services to
the corporate, entertainment, sports
and broadcast markets worldwide.
growth in the number, size and complexity of live events. Recent market trends have been
positive and while current economic uncertainties give grounds for caution, the 2012
'even-year' effect will be bolstered by the Olympics, UEFA Euro 2012, Queen's Diamond
Jubilee and UAE 40th anniversary events.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
117.2
19.7
(0.1)
(1.2)
N/A
1.9
2011A
125.5
20.3
0.9
2.6
60.0
2.0
2012E
135.0
25.4
4.0
12.0
13.0
2.1
Analyst
Jane Anscombe
2013E
130.0
24.0
3.2
9.4
16.6
1.7
Sector: Engineering
Avingtrans
Price performance
%
Actual
Relative*
1m
(0.6)
(4.6)
3m
16.9
7.0
Price:
Market cap:
Market
12m
52.9
58.1
61.0p
£16m
9.0
37.0
AIM
(AVG)
INVESTMENT SUMMARY
Avingtrans's interims demonstrated the benefits of targeting growth markets through global
OEMs. With revenues increased across the board, bar UK-focused Crown, Avingtrans is now
building for the visible opportunity ahead in terms of capex, working capital and through the
acquisition of Composites Engineering Group. This takes Avingtrans into structural growth
aerospace composites and allows it to provide an integrated composite and metal component
offering. With good order flow highlighting deepening customer relationships, we feel
Avingtrans is well placed to deliver its global ambitions.
INDUSTRY OUTLOOK
The focus on areas such as aerospace, energy and medical ensures the group addresses
Company description
Avingtrans is a supplier of highly
engineered components and services to
the energy, medical, scientific and
research communities, traffic
management, automation and
aerospace industries worldwide.
long-term structural growth markets. This supports strategic contracting and provides a base
on which incremental revenue can be layered. The key to the group's potential is developing
its global supply-chain offering with European design and manufacturing capability, allied with
manufacturing facilities in China.
Y/E May
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
28.6
2.3
0.6
3.0
20.3
4.1
2011A
36.3
3.1
1.6
5.5
11.1
5.2
2012E
42.9
4.0
2.1
6.2
9.8
6.5
2013E
50.3
5.2
2.9
8.5
7.2
3.5
Price performance
%
Actual
Relative*
1m
13.0
8.4
Analyst
Roger Johnston
30
3m
7.0
(2.0)
12m
8.9
12.6
23 February 2012
Edison Insight
Avnel Gold Mining
Sector: Mining
Price:
C$0.46
Market cap:
C$89m
9.6
N/A
Market
TSX
(AVK)
INVESTMENT SUMMARY
With a feasibility study due in August 2012, Avnel Gold Mining's and its JV partner IAMGOLD
Corporation's drill program continues its aim to delineate an NI 43-101 resource of at least 2m
ounces of gold. By spending at least US$11m on exploration activity over three years and
delivering a resource of 2m oz gold or more, IAMGOLD holds an option to earn an initial 51%
interest in Avnel’s share of the Kalana project. Assay results received from 35,000m of drilling
in September 2011 show that 35 drill holes at Kalana 1 North contain a significant mineralised
zone that could be potentially be suitable for bulk mining.
INDUSTRY OUTLOOK
Gold has risen significantly this month as the precious metal tends to enjoy the prospects for a
Company description
Avnel Gold owns an 80% interest in the
Kalana exploitation permit in
south-western Malia. In addition, the
company has a 90% interest in the
adjacent Fougadian exploration permit.
lower dollar and central bank liquidity injections. At US$1,700/oz, it continues to find favour.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
19.4
1.0
(6.8)
(10.0)
N/A
11.6
2010A
13.7
(0.1)
(2.3)
(2.4)
N/A
N/A
2011E
9.5
(2.6)
(4.3)
(3.2)
N/A
N/A
Analyst
Rory Draper
2012E
6.4
(2.7)
(4.1)
(2.1)
N/A
N/A
Sector: Aerospace & Defence
Avon Rubber
Price performance
%
Actual
Relative*
1m
16.2
14.2
3m
(8.8)
(12.8)
Price:
Market cap:
Market
12m
0.0
13.5
308.0p
£95m
8.5
30.0
FULL
(AVON)
INVESTMENT SUMMARY
Avon’s IMS not only shows that the business continues to deliver despite the wider climate,
but that the strategy to expand product lines and end markets is showing through in both
divisions. With 2012 mask revenues already covered by orders, Avon is less susceptible to
order delays than many, while substantial filter wins and Milk-Rite success secure the
long-term future of the business. While a competitor has protested the recent filter contract,
we believe this should simply result in a slight delivery delay to the first order, producing a
stronger H2 weighting.
INDUSTRY OUTLOOK
Despite pressured budgets, the protective nature of Avon's products provides resilience,
Company description
Avon Rubber designs, develops and
manufactures products in the
respiratory protection, defence (72% of
2011 sales) and dairy (28%) sectors. Its
major contracts are with national
security and safety organisations such
as the DoD.
supported by the long-term US DoD contract providing a base to target other security and
safety agencies and international militaries. While timing of such inroads is difficult to predict,
the emerging portfolio effect should enable continued growth, while Dairy expansion in the
BRICs provides a further long-term opportunity.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
2010A
117.6
2011A
107.6
2012E
2013E
Price performance
%
Actual
Relative*
1m
2.7
(1.5)
Analyst
Roger Johnston
23 February 2012
3m
(3.8)
(11.9)
12m
32.2
36.6
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
13.6
7.1
15.3
20.1
7.3
15.7
10.2
25.2
12.2
7.8
115.6
17.1
11.5
27.8
11.1
6.0
124.0
19.1
13.2
31.1
9.9
5.9
31
Edison Insight
Price:
744.5p
Market cap:
£2674m
617.8
55.0
Market
FULL
Babcock
(BAB)
INVESTMENT SUMMARY
Babcock’s late January IMS was consistent with expectations. With the full benefit of the VT
acquisition showing through, combined with organic delivery performance, we believe
Babcock is now positioned to benefit from converting its £12bn order book and £10bn
pipeline into revenue with £2bn of bids won since the half year that will convert into the order
book as they transfer into into operational contracts. The opportunities to expand addressable
markets in adjacencies (eg, Lafarge mobile asset management) and geographies (evolving
position in Canada/Australia) are supported by a track record of cost saving and partnership
that chimes with the current environment.
INDUSTRY OUTLOOK
Company description
Babcock is a primarily UK-based
support service company with
operations in marine (34%), defence
(18%), support services (33%) and
international (15%).
The UK defence market is set to undergo a period of pressure with budget cuts and a strict
focus on supporting operations. However, this provides opportunities for outsourcing and,
when combined with growth in international and recovery in non-defence markets, leaves
Babcock well placed to benefit.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
1923.4
187.0
145.2
51.4
14.5
10.0
2011A
2894.5
318.1
228.2
55.0
13.5
7.8
2012E
3432.5
384.2
286.6
61.3
12.1
8.6
Analyst
Roger Johnston
2013E
3565.8
392.8
307.5
67.5
11.0
7.9
BAE Systems
Price performance
%
Actual
Relative*
1m
(1.8)
(5.7)
3m
8.2
(0.9)
12m
34.3
38.8
Price:
324.4p
Market cap:
£10501m
N/A
N/A
Market
FULL
(BA.)
INVESTMENT SUMMARY
BAE's results highlighted the impact of the adverse downturn in US Land & Armaments sales,
the UK's Strategic Defence and Security Review changes and delays on the Salam contract
while enhanced programme and escalation changes are being negotiated. These combined to
drive sales down 14% to £19.2bn. As a result of substantial cost cutting and including several
charges and benefits related to programmes, underlying EBITA was down 7% to £2.0bn. As a
result of lower net finance charges and better than forecast underlying tax charge, EPS
increased by 15% to 45.6p; excluding the 5.9p benefit of UK R&D tax credit settlement EPS
was down marginally to 39.7p. We are reviewing our forecasts.
INDUSTRY OUTLOOK
Company description
BAE Systems is a global defence
company with activities spanning
production and support across air, land,
sea and security markets. The group
has operations in the UK, US, Kingdom
of Saudi Arabia, Sweden, Australia and
now India.
The UK's Strategic Defence and Security Review re-prioritised BAE's programmes, including
cancelling Nimrod MRA4, retiring the Harrier fleet and decommissioning HMS Ark Royal.
However, this has been largely offset by the positives of the confirmation of the aircraft carrier
and a full complement of seven Astute submarines.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
22275.0
2553.0
1988.0
39.8
8.2
7.2
2011A
20701.0
2442.0
1882.0
40.0
8.1
5.9
2012E
N/A
N/A
N/A
N/A
N/A
N/A
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
6.2
1.9
Analyst
Roger Johnston
32
3m
17.9
7.9
12m
(4.8)
(1.6)
23 February 2012
Edison Insight
Baobab Resources
Sector: Mining
Price:
Market cap:
Market
13.1p
£25m
1.8
N/A
AIM
(BAO)
INVESTMENT SUMMARY
Drilling at the Tenge prospect has returned an average grade of 36% Fe from the first eight drill
holes. A further 15 holes are undergoing analysis with a Tenge resource estimate due by the
end of March. The news follows Baobab's scoping study on its Tete project
(iron/titanium/vanadium). The study modelled the Ruoni North inferred resource comprising
93Mt of the 267Mt resource inventory. The most compelling economics from the scenarios
assessed were obtained from scenario B, which has an initial capex estimate of US$690m.
INDUSTRY OUTLOOK
The stated NPV of Scenario B (at a 10% discount rate) of US$892m is equivalent to US$4.72
(£3.02) per Baobab share, currently. In our experience, companies at the scoping study stage
Company description
Baobab Resources is focused on
developing its Tete
iron-vanadium-titanium open-pit project
in central-western Mozambique. A
Pre-Feasibility Study is expected to
commence in Q411.
of a project typically trade at a discount of between 76% and 91% to NPV, on which basis we
would expect Baobab’s market value to lie in the range US$147m (±US$68m), or £0.496
(±0.227) per share.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.0
(2.0)
(2.0)
(1.4)
N/A
N/A
2011A
0.0
(6.1)
(6.1)
(3.6)
N/A
N/A
2012E
0.0
(2.5)
(2.4)
(1.3)
N/A
N/A
Analyst
Charles Gibson
2013E
0.0
(2.5)
(2.5)
(1.0)
N/A
N/A
Sector: Financials
Beazley
Price performance
%
Actual
Relative*
1m
(7.1)
(10.8)
3m
(9.5)
(17.1)
Price:
Market cap:
Market
12m
(34.4)
(32.2)
147.6p
£765m
N/A
N/A
FULL
(BEZ)
INVESTMENT SUMMARY
Beazley's business mix, with a high share of more stable medium-tail speciality lines, protected
it from the worst impacts of record natural-catastrophe losses in for the industry in 2011. It
reported a small underwriting profit, which we think will compare well with peers. Reserve
releases made a healthy contribution but reserve strength remains strong. Management sees
room for growth, both organically and inorganically, and has the capital resources to support
this.
INDUSTRY OUTLOOK
Company description
Beazley is the parent company of a
global specialist insurance business with
operations in the UK, US, France,
Norway, Germany, Ireland, Hong Kong,
Singapore and Australia.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
2010A
1470.8
N/A
221.4
2011A
1452.4
N/A
62.7
2012E
1519.6
N/A
2013E
1606.8
N/A
Price performance
%
Actual
Relative*
1m
8.4
4.0
Analyst
Martyn King
23 February 2012
3m
11.7
2.3
12m
9.2
12.8
P/E
(x)
P/CF
(x)
35.5
6.6
N/A
12.4
18.8
N/A
181.9
28.9
8.0
N/A
217.6
34.4
6.8
N/A
33
Edison Insight
Bellzone Mining
Sector: Mining
Price:
Market cap:
Market
28.5p
£211m
112.7
N/A
AIM
(BZM)
INVESTMENT SUMMARY
Bellzone has released an update on the Forécariah JV and given its initial internal resource
estimate for the project. Out of the overall identified resource of 146m tonnes, c 2m tonnes
represent a high grade oxide cap (55% Fe), which is expected to provide a 58% crush and
screen product in the first year after the project's launch. The company continues drilling to
define the resource that will be used to support production from Q412, adding to already
announced internal resource estimate. More drilling results are expected in Q112. On the
project side, the company appears on track to deliver its first production in Q112 with all key
equipment set to arrive at port before year-end. The management guides average product
impurities and c 85% recovery for oxides.
Company description
Bellzone Mining is focused on
developing its Kalia and Forécariah iron
assets in Guinea. It has an attributable
JORC resource of 6.2bt of magnetite,
upgradable to 68% Fe, and 111Mt of
oxide and supergene BIF upgradeable
to 127mt of 58% Fe.
INDUSTRY OUTLOOK
We believe further short- to medium-term weakness in the iron ore price is possible as steel
mills are cutting production on the back of the deteriorated end-user demand.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
(11.4)
(13.0)
(2.7)
N/A
N/A
2010A
0.0
(21.7)
(24.1)
(4.5)
N/A
N/A
2011E
0.0
(23.6)
(32.0)
(6.8)
N/A
N/A
Analyst
Andrey Litvin
2012E
120.0
60.5
49.1
5.9
7.6
6.4
Sector: Mining
Bezant Resources
Price performance
%
Actual
Relative*
1m
(7.3)
(11.0)
3m
(9.5)
(17.2)
Price:
Market cap:
Market
12m
(64.2)
(62.9)
29.0p
£19m
6.0
N/A
AIM
(BZT)
INVESTMENT SUMMARY
Bezant Resources has announced that it has secured ownership of 100% of the Eureka
Project in Argentina and amended the option terms to reduce the acquisition payment by
33%. The terms allow Bezant to reduce the acquisition cost of US$3.9m to US$2.6m by
accelerating the schedule of payments. Bezant's share price has followed January's good
news, rising from lows of 25p to c 31p.
INDUSTRY OUTLOOK
Copper is trading at a four-month high of US$3.85/oz, well above our long-term price of
US$2.75/oz, while gold is trading at near historic highs of US$1,700/oz.
Company description
BZT has a 40% stake in the Mankayan
copper-gold project in the Philippines
and an option to acquire the remainder
for ~US$40,000. It has a 46% stake in a
JV with AngloGold Ashanti in Tanzania
and has acquired the Eureka
copper/gold project in Argentina.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.0
(1.6)
(1.6)
(3.7)
N/A
N/A
2011A
0.0
(1.5)
(1.5)
(2.9)
N/A
N/A
2012E
0.0
(1.5)
(1.4)
(3.4)
N/A
6.3
2013E
0.0
(1.5)
(1.3)
(2.1)
N/A
N/A
Price performance
%
Actual
Relative*
1m
(3.3)
(7.2)
Analyst
Rory Draper
34
3m
5.5
(3.5)
12m
(44.2)
(42.4)
23 February 2012
Edison Insight
BioInvent International
Price:
SEK15.50
Market cap:
SEK1042m
Forecast net cash (SEKm)
2.0
N/A
Market
NASDAQ OMX Mid Cap
Share price graph (SEK)
(BINV)
INVESTMENT SUMMARY
BioInvent will have an extensive newsflow in 2012 with TB-402 (Phase II hip surgery, Q2),
BI-204 (Phase II for atherosclerosis, Q3), and BI-505 (Phase I multiple myeloma, Q2) all
reporting. The PlGF antibody (TB-403) with Roche for glioblastoma reports in H213. BioInvent
has recurring research income and n-CoDeR antibody library fees. Cash was SEK174m before
a proposed SEK105m rights issue intended to act as a strategic funding before two possible
major partnering deals in 2013.
INDUSTRY OUTLOOK
TB-402 vs Xarelto in hip surgery reports in Q2 and could lead to a lucrative 2013 global
partnering, a key event. Phase II knee data showed superiority over Lovenox, but there are
Company description
BioInvent is a human therapeutic
antibody company based in southern
Sweden. It has four clinical candidates:
two cardiovascular and two cancer.
three strong oral competitors in the market. BI-204 is a novel antibody with Genentech
targeting atherosclerotic plaque. In Q2, imaging data might demonstrate reduced inflation;
partnering outside north America is still open, allowing a potentially lucrative deal. BI-505 is a
major value source as BioInvent could market it directly.
Y/E Dec
Revenue
(SEKm)
EBITDA
(SEKm)
PBT
(SEKm)
EPS (fd)
(öre)
P/E
(x)
P/CF
(x)
2010A
83.0
(135.0)
(124.0)
(207.82)
N/A
N/A
2011A
125.0
(66.0)
(67.0)
(100.02)
N/A
N/A
2012E
21.0
(174.0)
(176.0)
(261.31)
N/A
N/A
Analyst
John Savin
2013E
91.1
(107.0)
(109.0)
(162.09)
N/A
N/A
Sector: Basic Industries
Biome Technologies
Price performance
%
Actual
Relative*
1m
(6.6)
(13.2)
3m
(1.3)
(15.6)
Price:
Market cap:
Market
12m
(45.6)
(44.4)
0.1p
£8m
2.1
N/A
AIM
(BIOM)
INVESTMENT SUMMARY
A year end trading update confirmed that FY11 ended in line with management expectations
with a significantly reduced operating loss. Biome Bioplastics' revenue growth was robust
throughout the year, while that for Biotec experienced more variability due to market factors.
RF activities performed well in the year and the Durapipe contract brings greater visibility here.
Net cash of £2.4m was better than anticipated. FY results are scheduled for 29 March.
INDUSTRY OUTLOOK
Around Europe, plants with capacities between 5-60mt are now in place as the consumer and
regulatory drive to move away from petroleum-based plastics gathers momentum. Bioplastics
are still more expensive than petroleum-based products. However, growth is being achieved
Company description
Biome's main activity is bioplastics,
developing and supplying natural rather
than oil-based resins that are
biodegradable and from sustainable
sources, for use in producing plastics. A
radio frequency application operation is
also part of the group.
by targeting niches where packaging is a small proportion of the overall cost of a product, and
the consumer appeal of being eco-friendly adds enough differentiation. A range of third-party
estimates indicates CAGRs of 12-20% in the coming years for the industry.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
17.9
(1.7)
(2.7)
(0.1)
N/A
N/A
2010A
13.4
(1.3)
(1.8)
0.0
N/A
N/A
2011E
20.8
(0.6)
(1.0)
0.0
N/A
N/A
2012E
23.9
0.1
(0.4)
0.0
N/A
N/A
Price performance
%
Actual
Relative*
1m
(12.5)
(16.0)
Analyst
Toby Thorrington
23 February 2012
3m
(12.5)
(19.9)
12m
(46.1)
(44.3)
35
Edison Insight
Price:
A$0.47
Market cap:
A$162m
10.0
N/A
Market
ASX, NASDAQ
Bionomics
(BNO)
INVESTMENT SUMMARY
The recent worldwide licensing deal with Ironwood Pharmaceuticals for the anti-anxiety
compound, BNC210, allows Bionomics to focus its development and commercial resources
on the anticancer agent BNC105 and enhance its ability to capture value from this drug.
BNC105 is in a Phase II study for renal cell carcinoma and will shortly enter a Phase II trial for
ovarian cancer. Meanwhile, the commercially attractive terms of the BNC210 deal – worth up
to US$345m plus royalties – prompt a modest increase in our rNPV-based valuation to
A$275m.
INDUSTRY OUTLOOK
BNC105 is one of the leading agents in the putative vascular disrupting agent class, while the
Company description
Bionomics is an Australian biotech
company focused on developing small
molecule products for cancer, anxiety,
epilepsy and multiple sclerosis. Its lead
programmes are a VDA and an
anxiolytic compound.
anti-anxiety drug BNC210 has an attractive profile with advantages over existing treatments in
terms of speed of onset, absence of sedative, memory or motor impairment and risk of
habituation.
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2010A
3.4
(7.2)
(7.4)
(2.5)
N/A
N/A
2011A
4.5
(7.9)
(7.7)
(2.4)
N/A
N/A
2012E
4.1
(10.1)
(9.8)
(2.8)
N/A
N/A
Analyst
Robin Davison
2013E
4.1
(10.1)
(10.1)
(2.9)
N/A
N/A
Biotie Therapies
Price performance
%
Actual
Relative*
1m
(6.0)
(5.9)
3m
11.9
13.2
Price:
Market cap:
Market
12m
23.7
45.5
€0.49
€190m
9.9
15.0
OMX
(BTH1V)
INVESTMENT SUMMARY
Biotie is focused on progressing its clinical pipeline of differentiated CNS drugs and on
business development. Pipeline progress could trigger significant milestones and royalties from
partners – including Lundbeck (Selincro, formerly nalmefene), UCB (tozadenant) and Roche
(SYN120 rights) – which should catalyse its share price. The key 2012 catalyst is EU approval
of Selincro for alcohol dependence, potentially by year-end; launch would trigger an
undisclosed milestone. Potential out-licensing of unencumbered assets may also unlock value,
while late-stage in-licensing/M&A is critical to achieving Biotie’s strategic growth objectives.
FY11 results are due on 24 February, with detailed Phase III Selincro data presentations at the
European Congress of Psychiatry (3-5 March).
Company description
Biotie Therapies is a Finnish/US biotech
company with a focus on clinical
programmes in CNS and niche
inflammatory diseases. Its lead project
nalmefene, for the treatment of alcohol
dependency, is partnered with
Lundbeck. UCB is a strategic partner.
INDUSTRY OUTLOOK
Biotie’s focus is on neurodegenerative and psychiatric diseases, and niche inflammation
indications. It is an active consolidator; it completed the €94m purchase of private company
Synosia in February 2011.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
5.6
(11.8)
(12.5)
(7.3)
N/A
N/A
2010A
2.0
(7.3)
(8.5)
(5.2)
N/A
N/A
2011E
1.0
(27.9)
(25.9)
(5.9)
N/A
N/A
2012E
0.4
(23.9)
(25.0)
(5.4)
N/A
N/A
Price performance
%
Actual
Relative*
1m
(2.0)
(8.4)
Analyst
Lala Gregorek
36
3m
(3.9)
(14.7)
12m
(9.3)
11.2
23 February 2012
Edison Insight
Brady
Sector: Technology
Price:
Market cap:
Market
82.0p
£45m
10.9
N/A
AIM
(BRY)
INVESTMENT SUMMARY
In its largest acquisition to date, Brady is purchasing Navita Systems for £17.1m. It is also
raising £16.7m (net) through a share placement with institutions to fund the acquisition. The
deal, which is conditional on regulatory and shareholder approval, boosts Brady’s annual
revenues by c 50% and highlights the support from institutional investors. We view Navita as
another excellent fit, further strengthening the group’s ECTRM standing, broadening the
solutions it can offer clients in the energy vertical, and boosting the customer base to c 250.
Brady has also acquired syseca for up to £1.2m. On a cash-adjusted basis the rating looks
attractive, at c 12x FY12 earnings falling to c 11x in FY11. Finals are expected on 12 March.
INDUSTRY OUTLOOK
Company description
Brady provides trading and risk
management software for global
commodity markets. It has more than
20 years of expertise and more than
500 users worldwide, including some of
the largest financial institutions and
mining corporations.
Brady provides trading, risk and connectivity software solutions to the global commodity and
energy market – mining and oil companies, fabricators, traders, banks etc. Key operational
drivers are that the target market is under-invested in IT and auditors, and regulators are
seeking increased reporting and accountability across the industry.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
8.2
1.5
1.3
4.8
17.1
24.8
2010A
11.1
2.2
1.9
6.3
13.0
20.5
2011E
18.8
3.7
3.2
4.8
17.1
13.6
Analyst
Richard Jeans
2012E
20.5
4.2
3.8
5.4
15.2
9.8
BrainJuicer
Price performance
%
Actual
Relative*
1m
0.9
(3.1)
3m
4.5
(4.4)
Price:
Market cap:
Market
12m
(1.8)
1.5
292.5p
£37m
3.5
N/A
AIM
(BJU)
INVESTMENT SUMMARY
BrainJuicer’s normal seasonality makes Q4 trading crucial to delivering market expectations.
January’s trading update confirmed another good Q4 performance, driven by strong progress
in the crucial US market and our forecasts were unchanged. The group generates good cash
flows and the £3.6m cash at the December year end (with no debt) allows for continuing
investment in growing out geographical exposure. Management’s record of delivering
innovative solutions generating growth well ahead of the sector justifies the premium rating.
INDUSTRY OUTLOOK
Forecasts for overall ad spend continue to be pared back, but the largest buyers of MR,
FMCG groups, still require large volumes of genuine insight about their brands, products and
Company description
BrainJuicer carries out quantitative
online research using innovative,
bespoke software to produce insightful
market research for large, multinational
companies.
markets, increasingly on a global basis. The industry broadly divides between large integrated
providers (mostly quant-based) and smaller, innovative providers (often qual-based). The most
recent trading news has generally been favourable, with industry majors GfK and Nielsen
reporting 6 and 8% FY11 revenue growth respectively.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
2009A
11.8
1.9
2010A
16.4
2.4
2011E
20.8
2012E
26.4
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
3m
(2.0)
(10.3)
Analyst
Fiona Orford-Williams
23 February 2012
12m
33.9
38.4
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
1.7
9.0
32.5
22.9
2.2
11.3
25.9
10.4
2.9
2.5
13.1
22.3
12.8
3.6
3.2
16.8
17.4
10.0
37
Edison Insight
Brewin Dolphin
Sector: Financials
Price:
Market cap:
Market
152.5p
£378m
127.1
76.0
FULL
(BRW)
INVESTMENT SUMMARY
Brewin Dolphin (BD) offers focused geared equity-market exposure to the long-term,
high-growth wealth management in the UK and Ireland. While near-term market conditions
have been variable, BD has consistently grown FUM faster than benchmarks by attracting
teams, selectively opening new offices and having specialist charities and IFA teams. Its
strategic review should better cross-sell financial planning and improve efficiency, targeting
increasing the operating margin to 20%+, up a third, over next 2.5 years. The IMS on 1
February confirmed these trends. The shares trade on c 11x 2013 P/E for long-term mid-teens
growth and a current yield of c 4.7%.
INDUSTRY OUTLOOK
Company description
Brewin Dolphin is one of the largest
independent private client investment
managers in the UK and manages
around £25bn. It provides a complete
service for private investors, charities
and pensions and has an investment
banking division.
We believe the wealth management market is a very attractive over the long term. It offers a
superior growth market driven by increasing personal wealth, the timing of wealth transfers,
demographics, personal provision provision for retirement, tax and regulatory changes and the
expected decline in IFAs from 2012/13.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
240.0
N/A
37.1
12.5
12.2
N/A
2011A
264.0
N/A
39.4
11.3
13.5
N/A
2012E
282.3
N/A
40.9
11.6
13.1
N/A
Analyst
Mark Thomas
2013E
303.2
N/A
48.4
13.6
11.2
N/A
Sector: Financials
Brightside Group
Price performance
%
Actual
Relative*
1m
8.1
3.7
3m
20.1
9.9
Price:
Market cap:
Market
12m
(16.8)
(13.9)
20.0p
£91m
N/A
N/A
AIM
(BRT)
INVESTMENT SUMMARY
The underwriting capacity constrained motor broking growth in H2, with some knock-on
effects to premium finance growth eased by the announced capacity expansion deal at
external insurer, Southern Rock. The acquisitions of ESystems and eDevelopment were
successfully completed in December, a move that progresses management's aim of
consolidating the founding shareholder-controlled assets into a single integrated insurance
distribution and ancillary service business (while continuing to avoid volatile underwriting risk).
Our forecasts are under review.
INDUSTRY OUTLOOK
Rising premium rates are supporting revenues in broking and premium finance, in addition to
Company description
Brightside Group's principal activities
are insurance broking; the provision of
premium finance and medical reports;
lead generation; and the provision of
debt management solutions.
volume expansion.
Y/E Dec
Price performance
%
Actual
Relative*
1m
15.1
10.5
Analyst
Martyn King
38
3m
(14.9)
(22.1)
12m
(43.7)
(41.8)
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
44.7
9.7
8.2
1.77
11.3
3.6
2010A
66.2
13.5
12.3
1.85
10.8
N/A
2011E
N/A
N/A
N/A
N/A
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
23 February 2012
Edison Insight
British Polythene Industries
Price:
Market cap:
Market
361.0p
£96m
43.4
59.0
FULL
(BPI)
INVESTMENT SUMMARY
BPI rounded off its trading year with an update pointing to a PBT outcome slightly above our
estimate. Ongoing investment across the group coupled with site consolidation in the UK
appears to have been the right combination to both capture higher added value and manage
costs in what remain difficult general trading conditions. Further gains from business
investment undertaken are expected in the new FY and we would expect this to be the
cornerstone for further outperformance. FY results are due on 5 March.
INDUSTRY OUTLOOK
Market polymer prices (input costs) saw increases in all grades in the first half of 2011. Some
easing has been seen during H2, mirroring lower oil prices to some extent. This trend has
Company description
BPI is the largest manufacturer of
polythene film products in Europe. It is
also Europe's largest recycler of waste
polythene film.
reversed more recently, and we are mindful of potential implications of this in 2012.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
424.7
32.5
16.3
43.7
8.3
2.2
2010A
477.7
30.5
15.8
45.4
8.0
4.2
2011E
521.2
34.2
18.2
49.6
7.3
3.5
Analyst
Toby Thorrington
2012E
538.2
35.4
19.1
52.0
6.9
3.0
BTG
Price performance
%
Actual
Relative*
1m
2.9
(1.3)
3m
7.8
(1.4)
12m
53.6
58.8
Price:
343.3p
Market cap:
£1124m
64.4
N/A
Market
FULL
(BGC)
INVESTMENT SUMMARY
Positive results in VANISH-2, the first of three Phase III studies of Varisolve to report, support a
de-risking of the programme and contribute to a substantial (c 33%) increase in our valuation.
This study read-out is the first of a number of important catalysts for BTG this year, most
involving its partnered programmes. Others include the results of a second Phase III study with
Zytiga and a Phase II study with CytoFab. We have revised our valuation to £1,438m or 439p
per share - £60m of the £363m increase is a result of the higher probability attached to
Varisolve.
INDUSTRY OUTLOOK
BTG presents a defensive growth business, whose valuation is largely underpinned by the DCF
Company description
BTG is a UK-based biopharmaceutical
company with a direct commercial
presence in US acute care medicine
and interventional oncology. It has a
number of internal and partnered R&D
programmes.
valuation of its core US speciality pharma and interventional activities, its cash and predictable
royalty streams. Some 60% (or £870m) of the valuation is underpinned by the DCF value of
BTG’s core business (US speciality pharma/interventional oncology activities, royalties on
approved products and cash).
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
2010A
98.5
13.8
2011A
111.4
16.2
2012E
165.0
2013E
166.6
Price performance
%
Actual
Relative*
1m
7.0
2.6
Analyst
Robin Davison
23 February 2012
3m
17.1
7.2
12m
55.2
60.4
EPS
(p)
P/E
(x)
P/CF
(x)
18.6
8.1
42.4
114.1
16.6
13.6
25.2
N/A
24.1
26.3
10.1
34.0
131.8
34.6
33.8
10.7
32.1
55.0
39
Edison Insight
Byotrol
Price:
Market cap:
Market
10.2p
£15m
1.2
N/A
AIM
(BYOT)
INVESTMENT SUMMARY
A combination of recently-announced licence agreements and others in the pipeline points to
rapid revenue growth over the next two to three years. However, as indicated in last month's
trading update, the difficult global consumer climate has delayed the introduction of certain key
customer products, holding back the immediate performance. Last year's £2.5m fund-raising
should provide sufficient liquid resources to take the group through to cash positive trading,
hopefully in the year to March 2014.
INDUSTRY OUTLOOK
The global market for specialist antimicrobial technology is enormous, as awareness of new
infections and diseases continues to increase. While many products tend to promise chemical
Company description
Byotrol has developed and controls
patents for a unique technology to
facilitate the safe eradication of harmful
microbes. These include several high
profile infections, such as MRSA,
c.difficile and swine flu.
solutions (sometimes solving one problem to create another), a product that can damage the
reproductive capacity of various types of bacteria offers considerable attractions to the user.
The main challenge for such innovators is to convince major industry players of the efficacy of
their technology.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
3.1
(1.5)
(1.5)
(1.8)
N/A
N/A
2011A
1.9
(2.2)
(2.3)
(2.3)
N/A
N/A
2012E
2.0
(2.2)
(2.3)
(1.8)
N/A
N/A
Analyst
Nigel Harrison
2013E
6.0
(0.2)
(0.3)
(0.2)
N/A
N/A
Sector: Mining
Caledonia Mining
Price performance
%
Actual
Relative*
1m
20.6
15.7
3m
26.1
15.5
Price:
Market cap:
Market
12m
(19.6)
(16.9)
7.5p
£38m
13.9
N/A
AIM
(CMCL)
INVESTMENT SUMMARY
CMCL's update and 2012 outlook released in January indicated a continued improvement in
production figures at its Blanket gold mine. Production for Q411 of 10,533oz Au represents a
8.1% increase over Q311 (9,473oz Au) and a 69% on increase on Q310 (6,227oz). Total gold
production for 2011 was 35,826oz, a 102% increase over 2010 total production (17,707oz).
Targeted gold production for 2012 is 40,000oz, which appears from Blanket’s performance
over 2011 more than achievable. CMCL is undertaking further refurbishment of key
underground haulage routes to sustain and aid increased production and have also
undertaken numerous maintenance projects across the mine's infrastructure to prevent down
time.
Company description
Caledonia mines gold at its main
operating asset, the Blanket Gold Mine,
in southern Zimbabwe. It holds
large-scale mining licences for base
metals (primarily copper and cobalt) and
exploration licences for PGEs, nickel
and copper.
INDUSTRY OUTLOOK
We forecast full year net income of C$15.7m, or earnings of 3.1 cents per share, placing the
company of a very low P/E of c 4x, despite good operational performance, indicating the
heavy discount Zimbabwean miners face in light of ongoing indigenisation discussions.
Y/E Dec
Revenue
(C$m)
EBITDA
(C$m)
PBT
(C$m)
EPS
(c)
2009A
11.6
3.4
(3.1)
2010A
22.4
8.8
3.7
2011E
54.8
32.8
2012E
61.4
38.1
Price performance
%
Actual
Relative*
1m
7.1
2.8
Analyst
Tom Hayes
40
3m
3.5
(5.3)
12m
(11.8)
(8.8)
P/E
(x)
P/CF
(x)
(0.9)
N/A
N/A
0.3
39.4
9.0
21.1
3.1
3.8
2.3
26.2
3.8
3.1
2.3
23 February 2012
Edison Insight
Carador Income Fund
Sector: Financials
Price:
US$0.86
Market cap:
US$267m
0.0
N/A
Market
FULL
(CIFU)
INVESTMENT SUMMARY
Carador Income Fund (CIFU), managed by GSO Capital Partners (of the Blackstone Group), is
exposed to mainly US corporate senior secured loans via investments in CLO structures.
Loans have gained investor interest for their attractive risk-adjusted returns, performance
through the economic crisis and protection against rising interest rates, and CLOs provide
cheaper exposure. CIFU’s US CLO income notes (c 60% of the portfolio) are producing cash
income returns of around 40% pa, providing considerable protection against any increase in
future loan defaults. For December, NAV total return was 0.71%, making 19.21% for 2011 as
a whole. The Q4 dividend (1.57x covered by cash income to the fund) annualises at a yield of
around 15%.
Company description
Carador Income Fund is an
Ireland-registered closed-ended
investment company, launched in April
2006 and listed on the LSE. It targets
regular dividends with low volatility
relative to equity markets.
INDUSTRY OUTLOOK
Overall, US corporates are experiencing strong profitability and robust balance sheets, with
cash levels the highest since the 1960s. The CLO market has proved the most resilient of the
structured debt markets.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2011A
N/A
N/A
N/A
N/A
N/A
N/A
2012A
N/A
N/A
N/A
N/A
N/A
N/A
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Martyn King
2014E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Financials
Catlin Group
Price performance
%
Actual
Relative*
1m
2.4
(1.7)
3m
4.6
(4.3)
12m
(0.6)
2.8
Price:
421.7p
Market cap:
£1522m
N/A
N/A
Market
FULL
(CGL)
INVESTMENT SUMMARY
Catlin's own reinsurance protection gave considerable relief from H2 industry catastrophe
losses for the recently reported 2011 year. Underlying claims experience was favourable,
again, and the investment return was very creditable in the current environment. The company
is at the optimistic end of opinion on current market pricing trends and expects further growth
opportunities. Earnings retention in H2 and capital efficiency measures provide capital support
for these growth ambitions. The stock has re-rated in recent months leaving future
performance more sector dependent.
INDUSTRY OUTLOOK
Company description
Catlin Group is a specialist
insurer/reinsurer domiciled in Bermuda.
It operates six underwriting hubs in
London, Bermuda, the US, Asia Pacific,
Europe and Canada. The London hub
includes the Catlin Syndicate at Lloyd’s
and Catlin Insurance (UK).
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
2010A
3411.0
N/A
406.0
2011A
3864.0
N/A
71.0
2012E
4263.0
N/A
2013E
4789.0
N/A
Price performance
%
Actual
Relative*
1m
4.2
0.0
Analyst
Martyn King
23 February 2012
3m
7.5
(1.6)
12m
7.4
11.1
P/E
(x)
P/CF
(x)
92.8
7.2
N/A
10.6
62.7
N/A
401.0
88.3
7.5
N/A
429.0
95.4
7.0
N/A
41
Edison Insight
Cenkos Securities
Sector: Financials
Price:
Market cap:
Market
77.0p
£53m
26.3
104.0
AIM
(CNKS)
INVESTMENT SUMMARY
Cenkos Securities is a corporate-finance specialist focusing on raising finance for
already-quoted growth companies, resources and investment funds. It has a modest
institutional stock-broking operation and a primarily-offshore wealth management business. In
its chosen niches it is highly regarded, has manageable competition, and generates high and
relatively stable returns (we estimate 2012 ROE 23%). The remuneration and capital
management policies are key differentiators from other small brokers and the dividend is a
major attraction, especially to retail investors.
INDUSTRY OUTLOOK
Near-term market volatility/weakness is unhelpful to both market making and corporate
Company description
Cenkos is an institutional securities
group focused on UK growth
companies, resources and investment
funds. Its main activities are corporate
finance and broking, institutional
equities, market making and high
net-worth private client stockbroking.
activity, although further capital raisings on AIM (the company's core) has been more robust
than IPOs. Industry trends are squeezing commission margins especially for smaller brokers.
However, these trends are also seeing weaker competitors exit the market, and much of the
company's business is too specialist for bulge bracket players.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
46.2
10.9
11.3
11.40
6.8
1.9
2010A
60.3
7.3
12.4
10.90
7.1
3.5
2011E
48.3
6.7
6.6
6.29
12.2
12.0
Analyst
Mark Thomas
2012E
54.0
8.5
8.3
7.58
10.2
7.8
Centaur Media
Price performance
%
Actual
Relative*
1m
9.2
4.8
3m
23.2
12.8
Price:
Market cap:
Market
12m
(29.0)
(26.6)
39.2p
£55m
1.2
N/A
FULL
(CAU)
INVESTMENT SUMMARY
The H112 trading statement (13 January) reported a rise in EBITDA margins from 4.5% to
6.5% on a 4% rise in underlying revenue and confirmed full year forecasts. Profits are still very
H2 weighted (at the adjusted PBT level we expect breakeven for H1 and £8.5m for FY12.
Disposals and restructuring are raising the underlying operating performance. We expect EPS
to rise 60% between FY11 and FY13. We target net cash of £1.2m at the end of FY12 after
acquisition and restructuring costs. We expect Centaur to be rerated as the restructuring story
unfolds.
INDUSTRY OUTLOOK
Centaur is engaged in a radical restructuring programme and specific performance targets
Company description
Centaur is a business publishing, events
and information group, with leading
positions in law, marketing, engineering,
construction, financial services and
business information.
have been set. Centaur aims for EBITDA margins of over 25% within three years; and plans to
spend £50m on acquisitions as disposals continue. It will focus on accelerating migration to
digital and on developing its most profitable communities, scaling up the business, increasing
group profitability and raising longer-term growth potential.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
59.9
6.6
3.7
2.0
19.6
8.8
2011A
68.3
9.9
6.5
3.3
11.9
5.8
2012E
67.0
12.0
8.5
4.3
9.1
5.3
2013E
73.6
14.0
10.3
5.3
7.4
3.5
Price performance
%
Actual
Relative*
1m
11.3
6.9
Analyst
Derek Terrington
42
3m
0.0
(8.5)
12m
(45.5)
(43.6)
23 February 2012
Edison Insight
Central Asia Metals
Sector: Mining
Price:
Market cap:
Market
98.0p
£84m
0.0
0.0
AIM
(CAML)
INVESTMENT SUMMARY
SaryArka has sold its 40% interest in the Kounrad copper project in Kazakhstan to JSC SAT &
Company, which in turn has an agreement to sell the interest to Central Asia Metals (CAML) for
8.62m CAML shares (9.1% of the company's enlarged share capital). On completion CAML
will hold a 100% interest in the project. The company is now moving towards cold
commissioning the plant in Q112 with first copper production in Q212, reaching annualised
production levels of 10kt per year of copper cathode in late 2012. Exploration is focused on a
JORC-compliant resource statement for all of the Kounrad dumps and is expected to be
completed by the end of 2012. Exploration work is also occurring at the Handgait project in
Mongolia where a six drill-hole programme has been completed; results are expected soon.
Company description
Central Asia Metals owns, via its wholly
owned subsidiary Sary Kazna, 60% of
the Kounrad copper project with
state-owned Kazakh partner Saryarka
taking 40% on a free-carried basis. It
also explores for copper and precious
metals at its projects in Mongolia.
INDUSTRY OUTLOOK
The current copper price of US$8,350/t, or roughly US$3.79/lb still outweighs the LOM price
of US$3.00/lb used for valuation.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
1.1
(14.3)
(14.9)
(4.55)
N/A
N/A
2010A
1.4
(5.5)
(5.8)
(1.13)
N/A
N/A
2011E
1.4
(6.4)
(8.2)
(0.96)
N/A
N/A
Analyst
Tom Hayes
2012E
49.6
35.6
33.8
1.75
88.3
4.3
Chemring Group
Price performance
%
Actual
Relative*
1m
62.0
55.5
3m
47.4
34.9
Price:
Market cap:
Market
12m
5.4
8.9
431.4p
£834m
N/A
N/A
FULL
(CHG)
INVESTMENT SUMMARY
Chemring's FY11 results were broadly in line with our revised forecasts after November's
pre-close and implicit downgrade, with revenue up 25% to £745m (9% organic), underlying
PBT up 6% to £125.6m and EPS up 5% to 52.1p. While there is encouragement from an
order book that now stands at £980m, the prospect of sluggish orders from the US and
Europe provide ongoing challenges. But with over 44% of the order book now in non-Nato
markets, Chemring is reducing its dependence on these traditional customers. Of more
concern was an unexpected squeeze on margins that saw a 4% decrease in group operating
margins that are largely set to persist. We are reviewing our forecasts.
INDUSTRY OUTLOOK
Company description
Chemring Group is a global leader in
aircraft and naval countermeasures and
other energetic materials for military use
in training, peacekeeping and conflict. It
has activities in the US, UK, Italy and
Australia, primarily supplying home
governments and NATO forces.
Many investors still view Chemring as a pure war stock. We believe there are counters to such
an argument: difficulty in predicting withdrawal, continuing global unrest, the group’s balance
between front-line and training, and acquisitions providing new opportunities.
Y/E Oct
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
597.1
149.1
118.7
49.7
8.7
6.4
2011A
745.3
159.0
125.6
51.6
8.4
7.2
2012E
N/A
N/A
N/A
N/A
N/A
N/A
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
(0.8)
(4.8)
Analyst
Roger Johnston
23 February 2012
3m
(10.9)
(18.4)
12m
(37.6)
(35.5)
43
Edison Insight
Price:
Market cap:
Market
A$0.52
A$24m
10.7
N/A
ASX
Circadian Technologies
(CIR)
INVESTMENT SUMMARY
Circadian Technologies crossed an important threshold in January with the dosing of the first
patient in the US Phase I VGX-100 study. It now has two clinical-stage oncology products.
VGX-100 is a VEGF-C inhibitory monoclonal. Phase II studies in glioblastoma (GBM) and in
colorectal cancer as an adjuvant to Avastin could follow in 2013/14. Preclinical data suggests
a strong synergistic action with Avastin. VGX-100 has also shown efficacy in dry eye disease,
an immune-system condition, in preclinical models. The other lead product, IMC-3C5, is in
Phase I licensed to ImClone (Lilly). On 31 December 2011 Circadian had A$18.3m cash.
INDUSTRY OUTLOOK
Circadian has a strong IP position attractive to any major pharma company starting VEGF-C
Company description
Circadian's focus is on its VEGF-C and
VEGF-D portfolio, with a receptor
blocking antibody (IMC-3C5) in Phase I
trials with ImClone (Lilly), and a VEGF-C
targeting antibody (VGX-100) due to
enter glioblastoma trials in late 2011.
projects. GBM is a crowded development area with a high attrition rate. The two competing
candidates in Phase III are trabedersen from AntiSense Pharma and cilengitide from Merck
KGaA. ASCO biomarker data showed that VEGF-C is a marker of colorectal cancer
progression.
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
0.6
(10.2)
(8.5)
(19.1)
N/A
N/A
2011A
0.4
(11.5)
(10.1)
(20.9)
N/A
N/A
2012E
0.8
(12.3)
(11.6)
(25.1)
N/A
N/A
Analyst
John Savin
2013E
1.1
(13.5)
(13.2)
(28.4)
N/A
N/A
Sector: Mining
Cluff Gold
Price performance
%
Actual
Relative*
1m
(5.5)
(5.4)
3m
4.0
5.2
12m
(25.7)
(12.6)
Price:
93.8p
Market cap:
£124m
28.9
N/A
Market
AIM, TSX
(CLF)
INVESTMENT SUMMARY
Cluff has signed a conditional sale and purchase agreement with Orezone Gold Corporation
for the acquisition of the Sega Gold Project, Burkina Faso, located 20km by road from Cluff's
Kalsaka project. Consideration for the project is 11m new Cluff shares and US$15m in cash.
The project has an NI 43-101 compliant resource of 0.45Moz in the indicated category and
0.15Moz in the inferred category. A preliminary economic assessment is to commence
immediately confirming the feasibility of a heap leach operation further to Orezone's
metallurgical test work, which gave indicated heap leach recoveries of 85%.
INDUSTRY OUTLOOK
Assuming a two-year mine life at Kalsaka and no material impact on the Baomahun mine plan,
Company description
Dual-listed on AIM and the TSX, Cluff
has one producing mine (Kalsaka in
Burkino Faso – 78% ownership), one
development project (Baomahun in
Sierra Leone, 100%) and one operation
on care and maintenance (Angovia in
Côte d’Ivoire, 90%).
we estimate a current value to investors from future dividends of US$1.60 (£1.05) per share
after exploration expenditure (at a long-term gold price of US$1,350/oz and a discount rate of
10% to reflect general equity risk). This rises to US$2.51 (£1.64) at a gold price of
US$1,600/oz.
Y/E Dec
Price performance
%
Actual
Relative*
1m
17.6
12.8
Analyst
Charles Gibson
44
3m
11.6
2.2
12m
(23.5)
(20.9)
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
39.7
(5.1)
(13.6)
(10.9)
N/A
N/A
2010A
115.8
20.3
(1.0)
(4.6)
N/A
8.0
2011E
113.8
31.1
15.5
5.0
29.6
5.2
2012E
98.7
39.0
18.2
7.6
19.5
5.1
23 February 2012
Edison Insight
CML Microsystems
Sector: Technology
Price:
Market cap:
Market
258.5p
£41m
4.4
N/A
FULL
(CML)
INVESTMENT SUMMARY
CML’s IMS confirmed that trading has remained firm. Importantly, the drive to commercialise
SATA flash storage products remains on track. Products are sampling with key customers and
are schedule to add incremental sales in 2013. Other than increasing Y/E net cash by £440k
to reflect a property sale, our estimates are unchanged. However, we see economic and
execution risk as having reduced and the possibility of upgrades is now more likely.
INDUSTRY OUTLOOK
Having negotiated a period in which many chip peers downgraded, we feel that market risk is
reducing, with execution risk on the SATA opportunity also starting to do so. Longer-term
fundamentals for the company's storage products look very positive, driven by the
Company description
CML Microsystems supplies
semiconductors into specialist
communications and embedded flash
memory storage applications.
replacement of hard drives with flash memory, and CML's expansion into serial interface
products, to complement its established strength in parallel interface.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
18.0
3.9
(0.8)
(4.1)
N/A
8.5
2011A
22.1
6.2
2.4
11.6
22.3
5.1
2012E
24.2
6.6
3.3
15.2
17.0
6.1
Analyst
Dan Ridsdale
2013E
26.5
7.2
4.1
18.6
13.9
6.1
Sector: Mining
Coal of Africa
Price performance
%
Actual
Relative*
1m
15.4
10.8
3m
13.1
3.5
12m
24.6
28.8
Price:
62.2p
Market cap:
£412m
62.8
N/A
Market
AIM, ASX, JSE
(CZA)
INVESTMENT SUMMARY
Coal of Africa announced the sale of its ferroalloy business NiMag to the company’s
management for an overall consideration of US$6.6m. The deal value roughly translates into
1.0x EV/NAV for NiMag, which is more or less in line with the company’s previous guidance on
the sale price. The deal will be partly financed with a four-year interest-bearing loan from Coal
of Africa (c US$2.6m or 40% of the total deal value), which, in our view, does not look very
beneficial for CoAL. In FY10/11, NiMag generated US$30.8m in revenue (12% of company's
total) and US$1.5m in gross profit. While NiMag is clearly a non-core asset for CoAL and its
divestment would be a natural move for the company, our impression is that the sale price
might not fully reflect the non-commodity/niche nature of NiMag business. Having said that, it
allows the company to focus on its core business and reduce its exposure to nickel.
Company description
CZA's Mooiplaats Mine began
production in 2008. Earlier in 2010, CZA
acquired NuCoal's producing mines for
ZAR650m. It is also developing its Vele
and Makhado coking coal projects.
INDUSTRY OUTLOOK
Given the weak economic backdrop, downward correction in thermal coal prices may persist.
Y/E Jun
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
98.4
(75.1)
(124.7)
(24.9)
N/A
N/A
2011A
261.4
(11.9)
(120.7)
(22.9)
N/A
N/A
2012E
417.2
142.6
108.4
12.3
8.0
4.1
2013E
364.7
97.8
66.9
7.6
12.9
5.3
Price performance
%
Actual
Relative*
1m
(1.2)
(5.2)
Analyst
Andrey Litvin
23 February 2012
3m
25.8
15.1
12m
(32.3)
(30.1)
45
Edison Insight
Price:
191.0p
Market cap:
£2060m
420.0
44.0
Market
FULL
Cobham
(COB)
INVESTMENT SUMMARY
Cobham’s IMS did not contain much fresh news and provided plenty of cautionary words
about US defence spending, which makes up 42% of its sales. However, we believe Cobham
is doing all it can to ensure it is focused on those areas of greatest resilience and, through the
operational excellence programme, it is best positioned to respond competitively once greater
clarity is achieved. While corporate activity has continued with the acquisition of Trivac-Avant
and disposal of Analytic Solutions, completed in December, there has also been an
accumulation of contracts. The departure of CEO, Andy Stevens, due to a back complaint has
however come at an unfortunate time for the group. Results are due 7 March.
INDUSTRY OUTLOOK
Company description
Cobham is an international aerospace &
defence equipment supplier with
businesses across aerospace &
security, defence systems, mission
systems and aviation services.
With 72% of Cobham’s business related to defence and security and over 55% derived from
the US, we feel the business will manage slowing defence spend, although timing of orders is
slow and active portfolio management is being undertaken to refocus the group.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
1880.0
389.0
295.0
18.7
10.2
5.9
2010A
1902.0
408.0
306.0
19.6
9.7
7.4
2011E
1879.0
416.0
315.0
20.8
9.2
5.6
Analyst
Roger Johnston
2012E
1752.0
414.0
309.0
21.1
9.1
5.4
Cohort
Price performance
%
Actual
Relative*
1m
1.0
(3.0)
3m
7.3
(1.8)
Price:
Market cap:
Market
12m
(14.4)
(11.5)
111.5p
£45m
9.0
N/A
AIM
(CHRT)
INVESTMENT SUMMARY
Cohort's interims demonstrated the group is now heading back on the right track, regaining
control in all three divisions despite a challenging market environment with revenue up 14%,
operating profit up 69% and EPS up 66%. This has been achieved through a combination of
cost reduction, improving flexibility and new management at SEA. With these changes starting
to impact results, the operational outlook for the group is much improved and places Cohort in
a position to drive further improvement. FY results are underpinned by an order book of
£107m, of which £31m is deliverable in H2.
INDUSTRY OUTLOOK
With 73% of revenues derived from the UK MoD, we remain wary of the eventual impact of
Company description
Cohort is a UK-based provider of
services and products into the defence
industry. The business operates through
three divisions: SCS (34% of FY10
sales); Mass (27%); and SEA (39%).
cuts. While management has indicated 40% of its MoD revenue is not subject to spending
constraints, 60% is still left under pressure. With a growing focus on export and non-defence
opportunities across space and transportation, there are signs of hope; however, this
diversification may have contributed to the SEA issues.
Y/E Apr
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
2010A
78.2
4.7
2011A
65.1
5.7
2012E
69.7
2013E
71.2
Price performance
%
Actual
Relative*
1m
1.8
(2.3)
Analyst
Roger Johnston
46
3m
25.3
14.7
12m
64.0
69.5
EPS
(p)
P/E
(x)
P/CF
(x)
4.0
7.7
14.5
10.3
4.9
10.7
10.4
6.7
6.8
5.9
11.8
9.4
7.7
7.8
6.9
14.1
7.9
6.8
23 February 2012
Edison Insight
Communisis
Price:
Market cap:
Market
37.5p
£52m
N/A
N/A
FULL
(CMS)
INVESTMENT SUMMARY
In its full year trading statement (25 January) Communisis confirmed that its 2011 performance
had been in line with expectations. After a very good H1 (operating profit up 27%, based on
sustained investment in the business, cost cutting, restructuring and contributions from new
business wins)the group saw a 'strong' H2, during which it won major new contracts, notably
from Nationwide. This progress through the year on the cost, investment and new business
fronts will underpin further advances in profits and margins in 2012.
INDUSTRY OUTLOOK
Communisis has redefined itself as an integrated, data-driven marketing services provider and
offers a broadening and deepening range of services to customers through print and electronic
Company description
Communisis is a data led marketing
services provider delivering targeted
communications across multiple
platforms.
channels. It is winning new customers as well as selling more to the existing customer base.
This digitally led transformation of the business, its products and cost base continues and we
expect a steady increase in future profits and margins despite economic headwinds.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
190.2
14.2
6.8
3.7
10.1
10.6
2010A
193.2
14.7
6.2
3.2
11.7
5.7
2011E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Derek Terrington
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Technology
Comptel
Price performance
%
Actual
Relative*
1m
40.2
34.5
3m
41.5
29.5
Price:
Market cap:
Market
12m
21.0
25.1
€0.61
€65m
4.0
N/A
OMX
(CTL1V)
INVESTMENT SUMMARY
Comptel supplies operations support system software to communications service providers
globally. It is one year into a turnaround plan involving an overhaul of the product set, a revised
sales structure and a drive to grow service sales. Investment in growth is suppressing margins
at present, but progress in Q4, when the company won 10 new customers, the order backlog
grew by 39% year-on-year and service revenues by 62.5%, was encouraging. The company is
on a recovery rating, but if growth can be maintained then margins should expand well beyond
our forecasts, implying substantial earnings upside.
INDUSTRY OUTLOOK
The competitive landscape in OSS is crowded, populated by major players, such as Oracle
Company description
Comptel is a leading independent
supplier of operations support software
to telecommunications service
providers.
and CSG, and a large number of smaller-focused vendors, of which Comptel is one of the best
established. Market analysts forecast 3-7% growth for the overall OSS market. Comptel is
exposed to some of the higher-growth areas and, if the strategy gains traction, it has the
potential to gain market share.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS (fd)
(c)
P/E
(x)
2010A
77.9
14.4
8.1
4.01
15.2
4.0
2011A
76.8
7.7
2.0
0.90
67.8
N/A
2012E
87.9
9.6
4.0
2.52
24.2
7.8
2013E
94.9
13.0
7.0
4.38
13.9
5.0
Price performance
%
Actual
Relative*
1m
7.0
0.0
Analyst
Dan Ridsdale
23 February 2012
3m
(11.6)
(21.5)
12m
(15.3)
3.8
P/CF
(x)
47
Edison Insight
Price:
Market cap:
Market
573.0p
£166m
43.6
50.0
FULL
Consort Medical
(CSRT)
INVESTMENT SUMMARY
Bespak revenue growth (strong valve and Diskus volumes) offset expected weaker King
performance leading to a 5% increase in H112 revenue to £68.8m. Consort Medical remains
strongly cash generative at the operating level and is targeting double-digit profit growth in the
medium term. It intends to achieve this via organic growth (new products, diversification and
moving up the value chain) in its existing cash-generative business, and through exploiting
selective M&A/investment opportunities. Its record interim results showed evidence of delivery
on its growth strategy, supported by a strong market position (particularly at Bespak),
operational investment and pipeline expansion/progress. This strategy should ensure that
Consort remains an attractive and defensive growth opportunity for investors.
Company description
Consort Medical is an international
medical devices company. It operates
through two divisions: Bespak
(inhalation and injection technologies)
and King Systems (airway management
products).
INDUSTRY OUTLOOK
Consort designs, develops and manufactures high-margin disposable medical devices through
its Bespak (drug delivery technologies) and King Systems (airway management) divisions.
These have leading positions in strong defensive, but relatively fragmented, markets.
Y/E Apr
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
118.6
25.4
16.9
41.7
13.7
7.9
2011A
126.8
26.6
17.4
44.7
12.8
7.7
2012E
134.4
27.9
18.8
48.9
11.7
7.2
Analyst
Lala Gregorek
2013E
140.3
29.4
20.6
52.0
11.0
5.7
Sector: Mining
Continental Coal
Price performance
%
Actual
Relative*
1m
7.1
2.8
3m
13.0
3.5
12m
10.7
14.5
Price:
A$0.26
Market cap:
A$106m
Forecast net debt (A$m)
N/A
N/A
Market
ASX
(CCC)
INVESTMENT SUMMARY
Continental Coal continues to grow its export thermal coal sales with another set of stellar
quarterly results showing a double-digit increase to end-December. According to the
preliminary data, Conticoal's Ferreira mine has seen a 30% increase in export sales over the
record June 2011 quarter, which means the company's Q411 export sales were likely to reach
c 177k tonnes (+35% q-o-q). Further, the company guides a 35% and 70% increase in
unaudited revenue and EBITDA compared to the September quarter. The company has also
updated on the progress of its Penumbra mine, awarding the completion of the development
of declines at the mine to Murray and Roberts, South Africa's leading engineering, contracting
and construction services company.
Company description
Continental Coal is a thermal coal
producer with a portfolio of mines and
development projects in South Africa.
The most advanced of these,
Vlakvarkfontein, commenced production
in Q210.
INDUSTRY OUTLOOK
While downward correction in thermal coal prices may continue, resource equities have
already overshot the commodities by a wide margin, which limits the downside.
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2010A
0.0
(13.1)
(25.5)
(2.2)
N/A
48.1
2011A
50.8
(8.8)
(23.7)
(0.9)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
39.5
39.6
Analyst
Andrey Litvin
48
3m
8.2
9.4
12m
(65.1)
(59.0)
23 February 2012
Edison Insight
Cupid
Sector: Travel & Leisure
Price:
Market cap:
Market
220.0p
£178m
8.8
N/A
AIM
(CUP)
INVESTMENT SUMMARY
Cupid has agreed a long-term license with Brightsolid to operate the Friends Reunited dating
site for a £0.6m upfront cost, with a further £0.2m payment conditional on performance. The
deal should be earnings enhancing in the current financial year. Prelims are scheduled for 6
March. Top-line growth as depicted in our forecast model can only be achieved by turning up
the marketing tap, which was done in FY11 with an increase of c £3m in spend in H2 over H1.
The company cash balances are enough to fund both this scale of marketing spend and to
allow for further geographic expansion to be considered.
INDUSTRY OUTLOOK
Marketing spend is the industry's lifeblood (a higher degree of churn from successful
Company description
Cupid is a leading provider of online
dating services. It has over 23m
members in 39 countries (those
countries with >1,000 members), with a
growing proportion of members coming
from outside of the UK.
introductions represents a positive result for the customer). High spend is needed simply to
maintain subscriber numbers; to grow market share requires more. Mobile delivery continues
to expand rapidly, but the industry is still experimenting with techniques such as geolocation.
Given the cash requirements, we expect continuing consolidation in the sector.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
8.5
1.2
1.2
1.4
157.1
41.7
2010A
25.7
5.6
5.5
6.4
34.4
35.8
2011E
52.6
10.8
10.7
9.8
22.4
29.0
Analyst
2012E
68.9
15.7
15.6
13.9
15.8
13.7
Sector: Technology
Cyan Holdings
Price performance
%
Actual
Relative*
1m
3.8
(0.4)
3m
18.3
8.3
Price:
Market cap:
Market
12m
93.0
99.5
0.4p
£7m
0.9
N/A
AIM
(CYAN)
INVESTMENT SUMMARY
Cyan has won another initial lighting order in China, which could lead to follow-on orders
through 2012. It has more than 40 prospective and active lighting customers in China that
could lead to substantial volume orders as trials move from pilot to full-scale installations. The
new initial lighting order for 5,000 units (already shipped) is for an end-customer that expects
to start installing the units after Chinese New Year. The project’s maximum requirement is for
160,000 units, of which 60,000 are due for installation in 2012. The recent fund-raising
provides Cyan with working capital to support product development and a ramp-up in orders.
INDUSTRY OUTLOOK
Cyan designs solutions for the smart metering and street lighting control markets. Demand for
Company description
Cyan Holdings is a system supplier to
the wireless utility metering and street
lighting control markets.
its products, particularly in developing markets, is driven by several factors: growing demand
for energy, rising energy prices, insufficient generation capacity, growing environmental
awareness and the need to stem revenue losses from the theft of energy.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
0.1
(3.0)
(3.0)
(0.5)
N/A
N/A
2010A
0.1
(2.8)
(2.9)
(0.3)
N/A
N/A
2011E
0.6
(2.9)
(3.0)
(0.3)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
(4.4)
(8.2)
3m
(24.4)
(30.8)
Analyst
Katherine Thompson
23 February 2012
12m
(66.5)
(65.4)
49
Edison Insight
Daisy Group
Sector: Technology
Price:
Market cap:
Market
105.0p
£280m
59.7
40.0
AIM
(DAY)
INVESTMENT SUMMARY
Since Daisy’s H1 interim results the company's shareprice has eased and then recovered. Its
results implied positive underlying organic growth and impressive margin resilience, given the
unarguable deterioration in the UK macro backdrop. The results in particular showed
management is once again delivering consistent execution in integrating new businesses - a
bugbear previously for the market and for the stock’s valuation. A declining exposure to voice
(now just 17%) is another boon for investors.
INDUSTRY OUTLOOK
The UK SME telecom market is highly fragmented and ripe for consolidation. Although
notoriously deflationary, especially on the fixed-line side, there have been some tentative signs
Company description
Daisy provides unified communications
to the SME and mid-market sectors and
offers a full suite of network services,
mobile, systems services and data
solutions. It does not own any network
infrastructure and resells services over
other operators’ networks.
that mobile data might be quelling UK mobile deflationary trends. With a strong execution
record so far, Daisy is well positioned to benefit from both trends. The company itself sees an
incremental £500m opportunity to cross-sell additional services to its existing base.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
134.4
11.0
9.8
4.1
25.6
N/A
2011A
266.3
40.7
32.6
8.5
12.4
9.0
2012E
352.1
58.3
48.1
12.7
8.3
5.1
Analyst
Edwin Lloyd
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Technology
DDD
Price performance
%
Actual
Relative*
1m
4.7
0.5
3m
(0.9)
(9.3)
Price:
Market cap:
Market
12m
4.0
7.5
27.5p
£37m
3.1
N/A
AIM
(DDD)
INVESTMENT SUMMARY
In its FY11 trading update, management indicated that FY11 revenues are expected to be c
$5.5m, in line with our estimate. With products incorporating DDD’s TriDef 2D to 3D solution
now being shipped by TV, PC and mobile phone manufacturers, the group’s revenue mix is
more balanced versus FY10 when revenues from the TV market were predominant. In FY11, c
9.1m royalty-bearing units were shipped by licensees, up 250% over FY10. This brings the
total TriDef 3D products shipped to over 12m. The balance sheet is robust with $3.1m FY11
year-end net cash.
INDUSTRY OUTLOOK
IHS iSuppli has forecast that 3D TV shipments will reach over 100m in 2014, while
Company description
DDD Group develops and licenses
software and hardware IP and
technologies in the TV, PC and mobile
markets for converting 2D content to 3D
and supplying originally made 3D
content.
DisplaySearch has forecast shipments in 2018 to be 10m 3D-ready monitors, 17.7m 3D
notebook PCs, and 71m mobile phones with 3D capability. Jon Peddie Research is more
optimistic, saying that the 3D market for PCs alone could reach 75m by 2014, based on
gaming as the primary driver in this segment.
Y/E Dec
Price performance
%
Actual
Relative*
1m
(5.2)
(9.0)
Analyst
Martin Lister
50
3m
(13.4)
(20.7)
12m
(0.9)
2.4
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
N/A
N/A
N/A
N/A
N/A
N/A
2010A
2.0
(0.5)
(1.0)
(1.1)
N/A
59.3
2011E
5.5
1.4
0.3
(0.6)
N/A
19.5
2012E
8.0
2.8
1.6
0.1
433.4
N/A
23 February 2012
Edison Insight
Deinove
Sector: Alternative Energy
Price:
€10.07
Market cap:
€49m
N/A
N/A
Market
Alternext
(ALDEI)
INVESTMENT SUMMARY
Deinove is seeking to develop a commercial method of producing second-generation biofuel
using Deinococci bacteria. The company identified a particular strain from which to develop its
biofuel project during H1 last year, for which it received grant funding. We expect additional
funding in H112 when the lab scale pilot plant is due to be completed. Despite
higher-than-expected costs, the H1 net financial position of £11.1m appears comfortable, and
we believe Deinove has enough cash to last until 2013. Our discounted cash-flow analysis
(using a 20% discount factor) suggests the market is assuming c 30% probability of success
for Deinove’s project.
INDUSTRY OUTLOOK
Company description
Environmentalism and security of energy supply will continue to underpin support for
Deinove designs and develops
technologies in biofuels and
biochemicals by harnessing the
properties of the Deinococcus
bacterium.
renewable technology. We believe second-generation biofuels will grow rapidly in the next 20
years.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
0.6
(2.4)
(2.5)
N/A
N/A
N/A
2011A
0.6
(3.8)
(3.9)
(67.3)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Graeme Moyse
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Deltex Medical Group
Price performance
%
Actual
Relative*
1m
23.1
16.6
3m
62.4
41.6
Price:
Market cap:
Market
12m
76.0
107.8
21.2p
£30m
1.2
99.0
AIM
2010A
(DEMG)
INVESTMENT SUMMARY
Deltex anticipates a transitional 2012 and 2013 as the NHS executive starts to use financial
incentives to make modern surgical fluid management a routine procedure. As the only NICE
recommended product, CardioQ will see strong sales growth from April 2012 onwards. NHS
growth is already 20%. In the US, awareness about CardioQ is rising. France could start to
develop into a major market. However, for 2011, the trading statement showed a mixed
pattern and flat sales with £0.8m cash.
INDUSTRY OUTLOOK
Both NICE and ministers are pushing the NHS hard to adopt cost-effective innovations. The
NHS executive has stated it "will launch a national drive to get full implementation of
Company description
Deltex is a UK medical device company
that manufactures and sells the
CardioQ-oesophageal Doppler monitor
and disposable probes for
haemodynamic monitoring to reduce
recovery times after high-risk and major
surgery.
ODM...into...the NHS". Only CardioQ has been NICE evaluated with adequate evidence. NICE
estimates CardioQ could save £1,062 per patient. The NHS will drive this by the big stick of a
possible loss of 2.5% of quality target income in FY13 rather than any hard cash in FY12.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
5.6
(0.5)
(0.7)
(0.53)
N/A
N/A
2010A
6.3
(0.7)
(1.0)
(0.72)
N/A
N/A
2011E
6.3
(0.4)
(0.6)
(0.44)
N/A
N/A
2012E
7.1
0.0
(0.2)
(0.14)
N/A
N/A
Price performance
%
Actual
Relative*
1m
(7.1)
(10.8)
Analyst
John Savin
23 February 2012
3m
10.4
1.1
12m
14.9
18.7
51
Edison Insight
DEO Petroleum
Sector: Oil & Gas
Price:
Market cap:
Market
28.0p
£12m
2.6
N/A
AIM
(DEO)
INVESTMENT SUMMARY
An updated competent persons report performed at the end of 2011 by TRACS increased
chances of success from 60% to 85% for phase 1, which led to an increase in our risked
resource estimate of the Perth field to 20.2mmboe. An environmental study was submitted in
January and DEO believes FDP approval should be obtained by May/June. Funding remains
the main priority and DEO is in discussions with lending banks. Of the £112m capex required,
DEO is seeking to raise at least 40% through debt with the rest raised through equity and
other sources of finance. Assuming outstanding equity is raised at current prices, we would
estimate a core NAV of 27p meaning exploration upside from Perth North and Spaniards are in
for free in our RENAV of 37p.
Company description
DEO Petroleum is an oil and gas
development and production company
with assets in the Central North Sea.
INDUSTRY OUTLOOK
Capital markets are still under pressure and many North Sea players may find sourcing
affordable funding challenging, however, with a good funding package developments will
progress in 2012.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
0.0
(0.1)
(0.1)
(65.1)
N/A
N/A
2010A
0.0
(0.8)
(0.8)
(6.0)
N/A
N/A
2011E
0.0
(0.2)
(0.2)
(0.1)
N/A
N/A
Analyst
Ian McLelland
2012E
0.0
(0.3)
(0.1)
0.0
N/A
N/A
Sector: Technology
Dillistone Group
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
3m
1.8
(6.8)
Price:
Market cap:
Market
12m
(52.1)
(50.5)
72.5p
£13m
1.6
N/A
AIM
(DSG)
INVESTMENT SUMMARY
Dillistone released an in-line trading update early this month, despite the weak economic
backdrop. Voyager is being integrated and the group is starting to see the benefits. Hence, we
believe the company remains on track to generate £8m of revenues in FY12, c 90% higher
than that achieved in FY10. Dillistone finished the year with £1.6m cash - £0.3m better than
we expected - and the group retains no debt. In our view, the shares look attractive, trading on
13.5x our FY11 earnings falling to 11.7x in FY12. We anticipate final results in mid-April.
INDUSTRY OUTLOOK
Dillistone is a developer and vendor of software to the recruiting industry. It has two subsidiary
companies: Dillistone Systems, which targets the executive search sector, and Voyager,
Company description
Dillistone is a developer and vendor of
software and services to the recruitment
market.
acquired in September 2011, which is focused on other recruitment markets. The group has a
very strong following among the largest executive recruitment firms across the globe and while
market conditions softened towards the end of FY11, a series of larger than average order
wins, including one with a FTSE 100 firm, helped the group meet targets.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
3.7
1.2
1.1
4.6
15.8
15.1
2010A
4.3
1.4
1.2
4.8
15.1
7.8
2011E
5.2
1.6
1.3
5.3
13.7
9.2
2012E
8.0
1.9
1.6
6.1
11.9
8.9
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
Analyst
Richard Jeans
52
3m
(2.7)
(10.9)
12m
19.2
23.2
23 February 2012
Edison Insight
Dolphin Capital Investors
Sector: Property
Price:
Market cap:
Market
20.9p
£139m
402.0
36.0
AIM
(DCI)
INVESTMENT SUMMARY
Dolphin Capital's strategy is to complete the initial phases of four advanced schemes in
Cyprus, Panama, Dominican Republic and Greece. It aims to create leisure destinations that
attract purchasers, JV partners and investors, and generate positive cash flows as soon as
practicable. Finance is in place to complete at least two of the first phases. End Q3 group debt
was c 25% of total assets. At 13% of underlying 164p NAV/share, the shares are an option on
its ability to convert assets into cash over the medium term. PBT/EPS figures exclude
non-cash property adjustments and intangible/exceptional items.
INDUSTRY OUTLOOK
The portfolio is well placed to leverage increased appetite for luxury goods and holidays from
Company description
Dolphin Capital Investors is a leading
developer of high-end integrated leisure
and residential property developments
in the eastern Mediterranean and the
Americas (Panama and the Dominican
Republic)
increasingly wealthy emerging markets (China, Russia, India, Brazil). Recent economic turmoil
has affected the group's core markets, but purchaser appetites for leisure property should pick
up with a more settled economic environment and benefit from increased project maturity over
the next few months.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
90.8
(71.3)
(93.0)
(13.2)
N/A
N/A
2010A
69.9
(37.1)
(53.5)
(7.6)
N/A
N/A
2011E
50.0
(49.5)
(78.5)
(11.2)
N/A
N/A
Analyst
Roger Leboff
2012E
N/A
N/A
N/A
N/A
N/A
N/A
DouglasBay Capital
Price performance
%
Actual
Relative*
1m
(6.2)
(9.9)
3m
(29.2)
(35.2)
Price:
Market cap:
Market
12m
(44.9)
(43.0)
15.5p
£26m
N/A
N/A
AIM
(DBAY)
INVESTMENT SUMMARY
The group has established a strong template; news is awaited on further investment. The first
half saw the sale of TDG for £208m (at a 30% IRR) and a £198m share buy-back. At the
mid-year there was £15.1m of net cash, supplemented by property sales in the second half,
so there is seed capital for further investments, a number of which are under consideration.
Any further funding required beyond that will be drawn from sources including majority
shareholder Laxey Partners and, potentially, new external investors.
INDUSTRY OUTLOOK
Group assets are largely cash and one minority (£1.3m) investment in a US social media
business. We will resume forecasts in due course, as DouglasBay rebuilds its investment
Company description
DouglasBay Capital (formerly LIT) is a
holding company for investments in
quoted and unquoted small to
medium-sized businesses.
portfolio. It is reviewing several prospects suitable for its brand of opportunistic investment and
hands-on, active operational and asset management. The TDG investment/sale represents the
precedent for future acquisitions, fund-raisings and gradual increase in equity liquidity.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
662.1
39.0
13.7
1.0
15.5
22.8
2010A
678.3
38.7
18.9
1.7
9.1
9.3
2011E
N/A
N/A
N/A
N/A
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
Analyst
Roger Leboff
23 February 2012
3m
0.0
(8.5)
12m
26.5
30.8
53
Edison Insight
Price:
Market cap:
Market
29.0p
£40m
12.5
N/A
AIM
e-Therapeutics
(ETX)
INVESTMENT SUMMARY
e-Therapeutics has a proprietary network pharmacology discovery platform and a core pipeline
of four assets. New clinical trials will initiate in each quarter of 2012. End-July cash of £15.3m
provides funds through 2013 to exploit its platform fully and build a broader in-house pipeline
of NCEs and repositioned drugs. The company has strengthened its board (electing Celgene
executive Dr Raj Chopra as NED), and its discovery capabilities, by creating a new
Oxford-based discovery hub. This should put the company in a better position to secure
out-licensing deals and strategic discovery collaborations with large/mid-tier pharma partners.
INDUSTRY OUTLOOK
Network pharmacology could potentially revolutionise drug discovery and, in the process,
Company description
e-Therapeutics is a drug discovery and
development company with a
proprietary network pharmacology drug
discovery platform and a clinical pipeline
(potentially to be out-licensed
post-Phase II).
shorten the path to market by minimising technical risks (failure on safety or efficacy grounds)
and drug development costs. e-Therapeutics is well positioned with limited direct competition
and growing industry acceptance of, and interest in, systems biology-based multi-target
approaches to drug discovery.
Y/E Jan
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.0
(2.1)
(2.3)
(3.0)
N/A
N/A
2011A
0.0
(2.5)
(2.7)
(3.5)
N/A
N/A
2012E
0.0
(4.3)
(4.1)
(2.7)
N/A
N/A
Analyst
Lala Gregorek
2013E
0.0
(6.2)
(6.1)
(4.0)
N/A
N/A
Sector: Mining
Eastern Platinum
Price performance
%
Actual
Relative*
1m
13.7
9.2
3m
(0.8)
(9.2)
12m
(15.9)
(13.1)
Price:
32.6p
Market cap:
£303m
78.1
N/A
Market
AIM, JSE, TSX
(ELR)
INVESTMENT SUMMARY
Eastplats reported weak production numbers for Q411 with the overall PGM output of 19,854
oz (-26% q-o-q) sliding back to the levels seen in Q211. These results were negatively affected
by the strike action at the company's main contractor as well as a shutdown of operations
after the fatality at CRM. As we believe both events were one-offs, we expect the company's
production to recover in Q112 and FY12. Thus, the company guides FY12 PGM production of
125,000oz, which would imply a 35% increases y-o-y. All in all, despite weaker-than-expected
FY11 performance, we continue to view Eastplats as an attractive turnaround and growth
story, with the large cash cushion providing additional support.
INDUSTRY OUTLOOK
Company description
Eastern Platinum is a mid-tier producer
of platinum. It has an 87.5% interest in
the Crocodile River Mine in South Africa.
It also has four development projects
Mareesburg (75.5%), Spitzkop (93.4%),
DGV (87.5%) and Kennedy’s Vale
(87.5%).
The PGM market looks fairly balanced and prices show some resilience to the recent market
turmoil. Having said that, rising energy/staff costs and strong rand represent the major risk to
PGM producers' performance in the medium to long term.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
2009A
111.4
2010A
155.0
2011E
2012E
Price performance
%
Actual
Relative*
1m
(14.1)
(17.6)
Analyst
Andrey Litvin
54
3m
(16.9)
(23.9)
12m
(69.5)
(68.5)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
18.0
0.2
0.9
57.1
N/A
33.0
10.3
1.9
27.0
13.4
141.5
0.5
(14.8)
(0.9)
N/A
N/A
253.9
55.9
38.7
2.3
22.3
18.0
23 February 2012
Edison Insight
Price:
Market cap:
Market
85.0p
£50m
7.1
19.0
AIM
Ebiquity
(EBQ)
INVESTMENT SUMMARY
Ebiquity’s strategy of building a worldwide marketing performance management business is
reaping benefits, with the group reporting strong FY12 interim results last month. Normalised
diluted EPS rose 75% on 19% higher continuing operations revenue, benefiting significantly
from cost synergies achieved from the Platform division’s April 2010 Xtreme acquisition. The
2011 acquisitions build geographic reach and new client offerings in the Analytics division.
Based on the full-year benefit from the recent acquisitions and anticipated synergies, we
initiated FY13 estimates of £58.3m group revenue (up 9%), £9.1m normalised pre-tax profit
(up 21%) and 8.5p EPS (up 14.2%).
INDUSTRY OUTLOOK
Company description
Ebiquity is a leading provider of a range
of business critical data, analysis and
consultancy services to advertisers,
media owners and PR professionals,
both in the UK and internationally.
Advertisers continue to focus on achieving better returns on their marketing investment. IDC
estimates that business analytics could see 7% annual growth between 2009 and 2014. The
growing influence of social media is changing the way that marketing departments’ view the
overall media arena, especially regarding non-paid social media.
Y/E Apr
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
21.2
1.5
2.5
5.6
15.2
N/A
2011A
44.2
2.5
4.8
6.0
14.2
N/A
2012E
53.5
8.7
7.5
7.4
11.5
N/A
Analyst
Martin Lister
2013E
58.3
10.9
9.1
8.5
10.0
N/A
Sector: Technology
Eckoh
Price performance
%
Actual
Relative*
1m
17.2
12.5
3m
15.7
5.9
Price:
Market cap:
Market
12m
(17.9)
(15.1)
11.0p
£22m
6.0
N/A
AIM
(ECK)
INVESTMENT SUMMARY
H112 results confirmed that Eckoh continues to generate strong revenue and operating profit
growth (+19% and 163% y-o-y respectively), as recently signed contracts added to the
existing base of contracted revenues, and customers renewed several major contracts.
Investment in broadening the product range is paying off, as shown by the recent three-year
EckohPAY deal with VFS, the imminent installation of EckohASSIST at a UK-based transport
organisation and the launch of the new EckohPROTECT service for agent-assisted credit card
payments (which keeps credit card details confidential from the agent).
INDUSTRY OUTLOOK
Eckoh’s customer base consists of consumer-facing companies that typically offer
Company description
Eckoh provides a hosted speech
recognition platform for the customer
contact centre market. Eckoh also
provides web, mobile and smartphone
self-service applications.
phone-based services to customers to enable them to buy products or services, pay bills or
find out information. Eckoh's hosted services help companies to make their call centres more
efficient while providing an automated process to aid customers with more routine enquiries or
services.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
2010A
7.9
0.8
0.5
0.25
44.0
N/A
2011A
9.0
1.4
0.8
0.54
20.4
25.9
2012E
10.3
2.0
1.2
0.60
18.3
21.8
2013E
11.5
2.6
1.9
0.92
12.0
9.4
Price performance
%
Actual
Relative*
1m
14.3
9.7
Analyst
Katherine Thompson
23 February 2012
3m
7.3
(1.8)
12m
57.1
62.4
P/CF
(x)
55
Edison Insight
Eco City Vehicles
Price:
Market cap:
Market
2.1p
£6m
4.1
526.0
AIM
(ECV)
INVESTMENT SUMMARY
Disappointing interim figures reflected a sharp drop in registrations of the Mercedes Benz Vito
taxi, awaiting delivery of the Euro 5 version of the vehicle. Encouraging indications from
management on second-half trading have yet to be recognised in SMMT figures. Meanwhile,
the group has extended its aftermarket business to include Mercedes light CVs. It has also
acquired a controlling interest in One80, which owns key engineering patents, and transferred
the taxi conversion responsibility to Mercedes Benz.
INDUSTRY OUTLOOK
London's 22,000 licensed taxis carry 1.8 million people every week. The recession and price
competition continue to undermine the market for new vehicles in the short term, but there is a
Company description
Eco City Vehicles has exclusive
distribution rights to the Mercedes Vito
in the London market. The group
provides a one-stop new car, used car
and after sales service through its
subsidiary KPM Taxis in the London
market.
growing pent-up medium-term demand related to environmental/political pressures and
preparation for the Olympics. Moves into adjacent markets will involve a combination of
accurately assessing market needs and sustaining relationships with Mercedes Benz, the
group's key OEM partner.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
24.7
0.2
(0.1)
(0.03)
N/A
4.8
2010A
24.7
0.3
(0.1)
(0.03)
N/A
N/A
2011E
21.0
(0.3)
(0.8)
(0.23)
N/A
N/A
Analyst
Nigel Harrison
2012E
25.5
0.6
0.2
0.0
N/A
9.8
Sector: Mining
ECR Minerals
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
3m
(15.0)
(22.2)
Price:
Market cap:
Market
12m
(61.4)
(60.1)
1.1p
£7m
2.6
23.0
AIM
(ECR)
INVESTMENT SUMMARY
ECR has reported assay and initial metallurgical testwork results from Sierra de las Minas, La
Rioja Province, Argentina. Of the four 20kg samples assessed, two from El Abra gave assays
of between 0.2-37.8g/t while Maestro Aguero and Casas Viejas varied between 4.6-7.6g/t and
0.05-0.06g/t. The variation in the samples suggests the gold present is coarse in nature.
Cyanidation leach testwork gave positive gold extraction results from the samples, with three
of the four exceeding 95% recovery. Elsewhere, ECR has elected not to exercise its purchase
option over a 70% interest in the Unchime Iron Ore project, Salta Province uncertain the
project could provide a saleable product in the long term.
INDUSTRY OUTLOOK
Company description
ECR Minerals is a mineral development
company with a substantial interest in
THEMAC Resources Group, which is
developing the Copper Flat copper
project in New Mexico, and holdings in
Silver Swan Group, ACS Asia and Paniai
Gold.
ECR Minerals' fully diluted market cap is at a significant discount to our sum-of-the-parts
valuation of £11.7m. If THEMAC re-rates to the NPV of discounted dividend flows from Copper
Flat, we calculate that group NAV could rise to £21.4m and NAV (excluding future equity
dilution) to 3.7p per share.
Y/E Jun / Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
4.1
(1.4)
(2.0)
(3.0)
N/A
N/A
2010A
4.8
(1.7)
(2.2)
(1.0)
N/A
N/A
2011E
4.8
(2.1)
(2.5)
(0.9)
N/A
N/A
2012E
4.9
(1.6)
(2.0)
(0.4)
N/A
N/A
Price performance
%
Actual
Relative*
1m
2.9
(1.2)
Analyst
Charles Gibson
56
3m
(1.9)
(10.2)
12m
(24.6)
(22.1)
23 February 2012
Edison Insight
EMED Mining
Sector: Mining
Price:
Market cap:
Market
13.1p
£112m
58.7
239.0
AIM
(EMED)
INVESTMENT SUMMARY
EMED recently announced that one of its subsidiaries has entered into agreements with
cornerstone customer Yanggu Xiangguang Copper. It is for a funding package of US$30m
(half in share capital and half as a future standby debt facility) in exchange for a 10% ordinary
equity position in EMED Mining and the grant of limited off-take rights over the Rio Tinto mine's
copper production. The off-take rights constitute over 25% of current reported copper
reserves, at market prices. This funding agreement together with the Junta de Andalucia public
policy statements further confirm support for the plans to restart the Rio Tinto mine.
INDUSTRY OUTLOOK
Risk appetite is to the fore, with commodities in demand – copper is up to a four-month high
Company description
EMED Mining aims to restart copper
production at its 100% owned Rio Tinto
Mine (PRT) in Spain. In Slovakia, the
company has discovered a 1.1Moz
(JORC) gold deposit. The company also
has a 20% stake in Kefi Minerals.
of $3.85/lb. This still outweighs the LOM price of US$2.75/lb used for valuation. Gold is
trading c $US1,700/oz, near historic highs.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
(8.9)
(9.9)
(3.4)
N/A
N/A
2010A
0.0
(10.0)
(11.3)
(2.4)
N/A
N/A
2011E
0.0
(10.0)
(16.9)
(2.2)
N/A
N/A
Analyst
Rory Draper
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Empresaria
Price performance
%
Actual
Relative*
1m
45.8
40.0
3m
84.2
68.6
Price:
Market cap:
Market
12m
(19.2)
(16.5)
28.5p
£13m
6.9
24.0
AIM
(EMR)
INVESTMENT SUMMARY
The group’s trading January update outlined an improved H211 performance and full year
trading broadly aligned to market expectations. We nevertheless made a further adjustment to
our figures to bring them in line, following the trim we made to our sector estimates in
December. The uncertainty that beset Empresaria in 2011 with regard to the German labour
laws is clearing and we would expect to hear an in-depth appraisal of the ongoing group
strategy with the prelims in March; the first under newly-appointed CEO, Joost Kreulen. The
shares remain at a deep discount.
INDUSTRY OUTLOOK
With mature market GDP growth forecasts still retrenching, particularly in the eurozone,
Company description
Empresaria is a multi-disciplined
international specialist staffing group,
operating in 18 countries with an
investment focus on developing staffing
markets and emerging economies.
recruiters’ plans are subdued. In the UK, the weak economic background was reflected in the
stuttering reported in the latest REC/KPMG Report on Jobs for January, which related the first
decline in temp billings since July 2009 and the third successive month of a slight fall back in
permanent placements. Ex-Europe, markets vary by specialism, but are generally stronger.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
190.5
5.1
3.8
3.9
7.3
2.9
2010A
215.1
8.4
6.9
6.5
4.4
1.4
2011E
208.0
6.2
4.5
4.0
7.1
2.8
2012E
215.1
7.4
5.7
5.2
5.5
1.7
Price performance
%
Actual
Relative*
1m
37.4
31.8
3m
32.6
21.3
Analyst
23 February 2012
12m
(57.0)
(55.5)
57
Edison Insight
Endace
Sector: Technology
Price:
550.0p
Market cap:
£84m
5.5
N/A
Market
AIM
(EDA)
INVESTMENT SUMMARY
Endace’s financial performance over the past year reflects both the strength of its position in
data capture and a successful migration up the value chain. The company is not immune from
near term budget squeezes, but longer term fundamentals remain positive, backed by an
ambitious strategy for expanding further up the value chain and into new verticals. The rating
factors in strong growth prospects and obvious bid potential, but one has to look hard within
the small-cap listed sphere to find such evident potential to scale up significantly.
INDUSTRY OUTLOOK
The apparent lack of a US telco budget flush is likely to have made for a less fertile trading
environment in Q3 (calendar Q4). Longer term, network security and monitoring is high on the
Company description
Endace supplies high-end network
traffic monitoring and analysis
technology, with a fundamental
competence and ability to capture all of
the packets flowing through high-speed
data networks.
priority list when it comes to corporate and homeland security capex. Given the levels of M&A,
and the premiums being paid within this segment, Endace’s strategic value should also not be
ignored.
Y/E Mar
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
31.0
5.5
1.7
13.7
63.3
26.4
2011A
38.4
7.5
2.9
15.8
54.9
13.3
2012E
46.0
8.2
2.4
9.8
88.5
33.7
Analyst
Dan Ridsdale
2013E
57.6
10.8
4.4
19.3
44.9
17.3
Entertainment One
Price performance
%
Actual
Relative*
1m
(3.1)
(7.0)
3m
(6.1)
(14.1)
Price:
Market cap:
Market
12m
46.7
51.6
161.8p
£298m
45.0
22.0
FULL
(ETO)
INVESTMENT SUMMARY
eOne released its Q3 IMS and strategic update on 13 February. The IMS guided towards
unchanged full year profit estimates. We expect about 17% EPS growth despite the tough
economic backdrop. Film and TV continue to perform strongly, offsetting a slightly
disappointing Christmas for Distribution. The board's refusal to accept bid proposals that 'do
not adequately reflect the company's value' can be taken as a sign of confidence. The share
price looks good value, having retreated back to pre-September levels.
INDUSTRY OUTLOOK
The industry barometer, the US box office, dipped by 4% in 2011 but the UK market held up
well, benfiting from the absence of a World Cup. Digital channels are growing rapidly and
Company description
Entertainment One is a leading
international entertainment company
specialising in the acquisition,
production and distribution of film and
television content rights across all media
worldwide.
beginning to be effectively monetised, as eOne's deal with LOVEFiLM illustrates. DVD markets
are in structural decline, as expected, and not helped by the retail environment. eOne
continues to benfit from Twilight but also has a very broad slew of film, television and children's
content for international exploitation.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
419.0
35.3
23.2
11.9
13.6
2.8
2011A
469.7
42.5
32.3
13.0
12.4
2.7
2012E
500.0
52.5
43.4
15.3
10.6
2.3
2013E
520.0
55.5
47.0
16.6
9.7
1.8
Price performance
%
Actual
Relative*
1m
(19.1)
(22.4)
Analyst
Jane Anscombe
58
3m
(20.3)
(27.1)
12m
(1.4)
1.9
23 February 2012
Edison Insight
Sector: Industrial Support Services
Price:
C$1.60
Market cap:
C$116m
8.1
N/A
Market
TSX
EnWave Corporation
(ENW)
INVESTMENT SUMMARY
EnWave develops technologies used to dry foods, bulk liquids and biopharmaceuticals. Its
technology is a direct alternative to the freeze, spray and air drying methods currently used. Its
strategy is to license the use of its technology to partners, targeting multinational
pharmaceutical or FMCG companies with at least a 25% market share in their product or
region. Recent success in the scale-up of its quantaREV technology should provide comfort to
investors.
INDUSTRY OUTLOOK
Globally, approximately $400bn of products are manufactured each year using some kind of
drying technology. The market for fruit, vegetables, meats and other foods is estimated at
Company description
EnWave is an industrial technology
company that licenses the rights to
proprietary technology that allows foods
and pharmaceuticals to be dried faster
and cheaper than freeze drying, with
better quality than air or spray drying.
$140bn. The current strategy is to license its technology, and EnWave is gaining traction by
signing licensees and establishing partnerships with global manufacturers including Nestlé,
Merck and Kellogg. Successful conversion of trials-to-contracts would secure royalty streams
and provide the base for potential significant valuation uplift.
Y/E Sep
Revenue
(C$m)
EBITDA
(C$m)
PBT
(C$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
0.1
(2.6)
(2.6)
(4.3)
N/A
N/A
2011A
0.2
(3.5)
(3.5)
(5.2)
N/A
N/A
2012E
1.1
(3.6)
(3.6)
(5.1)
N/A
N/A
Analyst
Edwin Lloyd
2013E
2.8
(2.4)
(2.5)
(3.4)
N/A
N/A
EpiCept
Price performance
%
Actual
Relative*
1m
(3.0)
(4.8)
3m
3.2
(1.3)
12m
(22.7)
(12.3)
Price:
US$0.24
Market cap:
US$18m
5.5
N/A
Market
OMX, OTCQX US
(EPCT)
INVESTMENT SUMMARY
EpiCept’s investment case is based on the FDA SPA approval and EU sales growth of lead
product Ceplene, the FDA SPA approval and the licensing of AmiKet and the relicensing of
Azixa. Ceplene is being launched in Europe by Meda for acute myeloid leukaemia, AmiKet
completed Phase II trials for peripheral neuropathy with positive results, Azixa had encouraging
interim Phase II data for glioblastoma multiforme and Crolibulin is in Phase I/II trials for
anaplastic thyroid cancer. EpiCept has a current market cap of c $20m and cash of $10.6m as
at 30 September 2011 resulting in an EV of $9.4m. In comparison, we calculate a
risk-adjusted NPV of $81m based on prudent assumptions of the four products’ probability of
success in each indication.
Company description
EpiCept is a specialty pharmaceutical
company focused on the development
and commercialisation of
pharmaceutical products for cancer
treatment and pain management.
INDUSTRY OUTLOOK
There are many products in clinical development for AML induction therapy; the main direct
rivals for maintenance of remission and prevention of relapse include clofarabine and IL-2
monotherapy, although the IL-2 monotherapy has not been shown to be effective to date.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.4
(18.7)
(18.7)
(46.7)
N/A
N/A
2010A
1.0
(15.4)
(15.4)
(32.1)
N/A
N/A
2011E
0.5
(7.7)
(8.6)
(12.1)
N/A
N/A
2012E
1.4
(8.2)
(9.3)
(10.6)
N/A
N/A
Price performance
%
Actual
Relative*
1m
(2.0)
(6.9)
Analyst
Wang Chong
23 February 2012
3m
(22.6)
(30.8)
12m
(62.8)
(63.4)
59
Edison Insight
Price:
Market cap:
Market
€3.00
€26m
12.7
N/A
FRA
Epigenomics
(ECX)
INVESTMENT SUMMARY
Epigenomics' share price has started to recover since disappointing data were reported from a
US pivotal study of the blood-based colorectal cancer diagnostic, Epi proColon. This trial
involved a selection of blood samples from the existing cohort of 7,940 used in the earlier
PRESEPT study, and showed 68% sensitivity at 80% specificity, as against 67%/88%
reported in the PRESEPT analysis. The first module of a US PMA has just been filed.
Meanwhile, a prospective clinical trial of 228 bronchial washings, analysed with Epigenomics'
Epi proLung assay plus cytology, indicated a 98% sensitivity at a 92% specificity.
INDUSTRY OUTLOOK
Epi proColon offers patients a simple and convenient alternative to faecal occult blood testing,
Company description
Epigenomics is a German molecular
diagnostics company focused on early
detection of cancer. Its main product is
Epi proColon, a blood-based DNA test
for colorectal cancer that uses a
sophisticated PCR assay to detect
methylated copies of the septin9 gene.
and should increase compliance for colorectal screening by addressing those individuals who
currently do not participate in screening programmes. Epi proLung is an aid in the diagnosis of
lung cancer from bronchial lavage using the SHOX2 biomarker.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
4.3
(9.3)
(9.4)
(164.6)
N/A
N/A
2010A
1.8
(10.0)
(10.3)
(127.5)
N/A
N/A
2011E
1.6
(10.6)
(10.9)
(124.8)
N/A
N/A
Analyst
Jacob Plieth
2012E
2.0
(8.0)
(8.3)
(94.8)
N/A
N/A
Epistem Holdings
Price performance
%
Actual
Relative*
1m
134.0
116.4
3m
(33.6)
(43.3)
Price:
Market cap:
Market
12m
(65.1)
(62.2)
397.5p
£35m
2.6
N/A
AIM
(EHP)
INVESTMENT SUMMARY
Epistem reported a profit of £0.4m after capitalising c £1m of Genedrive R&D. Cash outflow
was £1.75m. A fund-raising in November at 350p raised £2.8m before expenses; cash on 30
June 2011 was £3.6m. The new funds will be used to help Genedrive development. Ongoing
FY11 contract research sales were flat at £2.7m but the division gained £0.3m from a US
bio-defence contract taking sales to £3m. Biomarkers increased core revenues to £0.9m plus
c £0.25m of new Sanofi business, a $4m three-year contract started in April. FY12 revenues
will dip unless new deals are signed as £1.6m of Novartis revenue drops out.
INDUSTRY OUTLOOK
Epistem believes Genedrive (a portable DNA-based diagnostic system for a point-of-care use)
Company description
Epistem has a profitable contract
services business and an emerging
clinical biomarker technology with
Sanofi as a big client. Novel
Therapeutics is partnered with Novartis
although the active collaboration has
now ended.
will change the shape of the DNA diagnostics market. Preliminary 45-sample test data on
tuberculosis was presented. Excluding purified DNA, specificity was low at 86% but sensitivity
(10 samples) was 100%. No cancer test was shown. Crime scene DNA fingerprinting on
Genedrive needs legal validation.
Y/E Jun
Price performance
%
Actual
Relative*
1m
9.7
5.2
Analyst
John Savin
60
3m
8.2
(1.0)
12m
4.6
8.1
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
5.7
0.5
0.4
3.8
104.6
N/A
2011A
5.8
(0.4)
(0.6)
(7.0)
N/A
N/A
2012E
5.3
(1.0)
(1.1)
(14.1)
N/A
N/A
2013E
5.6
(1.0)
(1.1)
(13.9)
N/A
N/A
23 February 2012
Edison Insight
Price:
CHF0.53
Market cap:
CHF87m
Forecast net cash (CHFm)
13.9
N/A
Market
Swiss Stock Exchange
Share price graph (CHF)
Evolva
(EVE)
INVESTMENT SUMMARY
Evolva has developed an innovative, synthetic biology platform to create drugs and new
production methods for nutritional and consumer health products. It has formed alliances with
many partners, including Roche, BASF and IFF. It recently formed a new one with Roquette
and will probably form more alliances this year. Its lead pharmaceutical product EV-077 is in a
Phase IIa trial for complications associated with diabetes and could be partnered following its
completion in mid-2012. Also the vanilla and stevia programmes are around the scale-up
stage of development and are ready for partnering. It had cash of CHF30m at H111 and has a
CHF30m equity line so it can operate into 2014.
INDUSTRY OUTLOOK
Company description
Evolva is an international synthetic
biology company. It has developed a
technology platform which it uses to
create both novel drugs and new
methods of making nutritional and
consumer health products.
The pharmaceutical industry is continually searching for novel treatments, and manufacturers
of nutritional and consumer health products for cheaper production methods and foods with
health benefits. Evolva's platform has already created several first-in-class drug candidates
and has the potential to reduce manufacturing costs significantly.
Y/E Dec
Revenue
(CHFm)
EBITDA
(CHFm)
PBT
(CHFm)
EPS
(CHFc)
P/E
(x)
P/CF
(x)
2009A
18.9
(6.8)
(9.1)
(14.7)
N/A
N/A
2010A
18.6
(20.7)
(23.5)
(16.7)
N/A
N/A
2011E
10.6
(26.0)
(29.2)
(18.5)
N/A
N/A
Analyst
Mick Cooper
2012E
6.9
(26.6)
(29.5)
(17.1)
N/A
N/A
Evotec
Price performance
%
Actual
Relative*
1m
(1.9)
(4.7)
3m
(8.6)
(17.3)
Price:
Market cap:
Market
12m
(66.9)
(64.4)
€2.76
€327m
50.1
N/A
FRA
(EVT)
INVESTMENT SUMMARY
Evotec reported the first profit in its 17-year history in FY10 after sales grew by 29%. During
the first nine months of 2011, sales have grown by 54% and profits should increase in FY11.
This year it has formed one new alliance with Roche and two with UCB. Evotec suffered a
setback when Roche returned the rights to EVT 101, but it has since out-licensed EVT 302 for
Alzheimer's disease in a $830m deal to Roche. Its Type 1 diabetes drug, DiaPep277
(partnered with Andromeda), has also successfully completed its first Phase III trial, which
could result in a milestone payment. Evotec had a net cash position of €49.0m at Q311, and
its focus on drug discovery alliances gives it a lower risk profile than most biotech companies.
INDUSTRY OUTLOOK
Company description
Evotec is a drug discovery business that
provides outsourcing solutions to
pharmaceutical companies, including
Boehringer Ingelheim, Pfizer and Roche.
It has operations in Germany, India, UK
and US.
Pharmaceutical companies are outsourcing their drug discovery activities as they look to
improve their productivity and decrease the fixed costs associated with them. In this
expanding market, Evotec's growth depends on it being able to provide a high-quality
integrated service that cheaper service providers are unable to deliver.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
2009A
42.7
(15.5)
(21.7)
(20.6)
N/A
N/A
2010A
55.3
6.5
4.5
3.8
72.6
171.0
2011E
78.8
29.4
10.6
7.9
34.9
23.3
2012E
86.0
15.7
11.5
9.2
30.0
17.4
Price performance
%
Actual
Relative*
1m
16.3
7.6
Analyst
Mick Cooper
23 February 2012
3m
13.3
(3.2)
12m
(13.1)
(6.0)
P/E
(x)
P/CF
(x)
61
Edison Insight
Ferrexpo
Sector: Mining
Price:
330.4p
Market cap:
£1945m
22.1
N/A
Market
FULL
(FXPO)
INVESTMENT SUMMARY
Ferrexpo is on track to deliver on its expansion programme, bringing overall pellet production
to 12Mtpa (from 10Mtpa) over the medium term, with further output growth to 20Mtpa under
consideration. On top of this, the company plans to improve pellet quality to 65% Fe, increase
its Poltava mine life to 2038 and achieve first production at the Yeristovo mine by the end of
2013. Expansion capex of $647m has already been fully funded. Ferrexpo is well positioned on
the global cost curve, with C1 unit cash cost of only $40/t in 2010. The company’s EBITDA
grew by 324% year-on-year in 2010 and we expect further strong growth when its FY11
results are announced.
INDUSTRY OUTLOOK
Company description
Ferrexpo is involved in producing and
exporting iron ore pellets to the global
steel industry. Backed by one of the
largest iron ore resources in the world, it
aims to realise the potential of its unique
resource and to be a globally
recognised iron ore pellet supplier.
Following a sharp decline driven by the destocking, iron ore prices have gained some support
as steel mills resume buying. In the medium term, downside risk prevails as underlying
demand remains weak and impact from the destocking will likely to be muted.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
648.7
133.4
81.4
12.2
42.7
25.8
2010A
1294.9
579.8
509.2
73.6
7.1
6.8
2011E
1364.0
652.9
576.7
82.8
6.3
4.8
Analyst
Andrey Litvin
2012E
1174.3
564.7
517.4
74.3
7.0
5.4
Fiberweb
Price performance
%
Actual
Relative*
1m
(0.1)
(4.1)
3m
23.0
12.6
Price:
Market cap:
Market
12m
(22.5)
(19.9)
60.2p
£105m
18.0
N/A
FULL
(FWEB)
INVESTMENT SUMMARY
Following a material disposal, Fiberweb's investment proposition is now more clearly growth
oriented, although the rating for the ongoing businesses is yet to reflect this. While end
markets may not recover rapidly in the near term, we do expect a sizeable profit rebound in
FY12, not least due to positive y-o-y plant consolidation effects, a more appropriate level of
central costs and slashed interest expenses. Greater detail on trading and management’s
medium-term aspirations should emerge with FY results but the current rating has clear value
attractions. FY results are to be announced on 1 March.
INDUSTRY OUTLOOK
Volume growth within Industrials activities is expected to come from product and sector
Company description
Fiberweb is engaged in the
development, manufacture and supply
of nonwoven fabrics. Nonwovens are
used in a range of products such as
babies’ nappies, fabric softeners, filters
construction products and protective
clothing.
innovation together with complementary bolt-on acquisitions in this area. Fiberweb now has an
ungeared balance sheet and is expected to apply this increased financial flexibility to raise
margins and investment returns.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
454.2
50.2
14.2
10.9
5.5
1.4
2010A
463.2
48.5
15.1
10.7
5.6
1.9
2011E
281.6
23.8
(4.1)
(0.7)
N/A
18.3
2012E
295.0
29.5
15.7
6.6
9.1
5.4
Price performance
%
Actual
Relative*
1m
13.7
9.1
Analyst
Toby Thorrington
62
3m
15.3
5.5
12m
(38.2)
(36.1)
23 February 2012
Edison Insight
Forum Energy
Sector: Oil & Gas
Price:
Market cap:
Market
72.5p
£24m
1.9
4.0
AIM
(FEP)
INVESTMENT SUMMARY
Forum Energy recently provided a progress update on its key SC72 block. 2D and 3D seismic
acquired in 2011 has been processed and is being interpreted externally with a final report due
in mid-2012. With mean gas in place of 3.4tcf and 20tcf upside the Sampaguita gas field on
SC72 is a potential company maker. Forum plans to use its 3D seismic to identify optimal drill
locations on Sampaguita, while 2D will target new prospects on SC72. A minor stake in the
Galoc oil field adds useful revenues of around $1m per month, although Galoc will not be
producing for three months from November 2011 to accomodate work to the FPSO. Galoc
and a second gas field, Libertad, form a small part of our valuation. However, the main driver is
the 70% interest in SC72. We currently carry Sampaguita at 126p within our RENAV of 145p.
Company description
Forum Energy, focused exclusively on
the Philippines, is an AIM-quoted
company developing oil and gas assets.
INDUSTRY OUTLOOK
The SC72 Sampaguita field is a potential company maker for Forum. In the context of the UK
sector of the North Sea, a 3tcf find would be one of the largest in the last 25 years.
Y/E Dec
Price performance
%
Actual
Relative*
1m
15.1
10.4
3m
28.3
17.5
12m
45.0
49.9
2009A
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
1.8
(1.3)
(2.2)
(11.5)
N/A
N/A
2010A
6.1
2.1
(0.6)
(2.0)
N/A
19.8
2011E
17.1
11.2
8.7
26.0
4.4
4.5
Analyst
Ian McLelland
2012E
15.4
9.9
6.8
19.2
6.0
3.8
Sector: Engineering
Fulcrum Utility Services
Price:
Market cap:
Market
19.0p
£29m
4.8
N/A
AIM
(FCRM)
INVESTMENT SUMMARY
While delays in negotiating terms with contractors affected the first half of the current financial
year, delaying the company's sales push and depressing revenue, Fulcrum’s interim figures
nevertheless demonstrated an improvement in the gross margin and a reduction in the loss at
the underlying EBITDA level. New contractor relationships concluded since the half year should
provide a robust platform for growth and margin expansion and we expect a break even
performance in H2. We believe Fulcrum’s current market rating stands at a discount to other
utility infrastructure providers and utility companies and fails to take account of the recovery
potential.
INDUSTRY OUTLOOK
Company description
Fulcrum Utility Services is a provider of
gas connection services to the
residential, commercial and industrial
market in the UK.
We expect the market for gas connection services will remain flat. However, connections
currently provided by distribution network operators and suppliers could be outsourced to a
credible independent operators such as Fulcrum.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
2010A
37.6
(13.5)
(13.5)
2011A
37.0
(9.3)
N/A
2012E
44.9
(2.5)
(3.1)
2013E
58.4
7.0
6.0
Price performance
%
Actual
Relative*
1m
13.4
8.9
Analyst
Graeme Moyse
23 February 2012
3m
1.3
(7.2)
12m
2.7
6.2
EPS
(p)
P/E
(x)
P/CF
(x)
N/A
N/A
N/A
N/A
N/A
N/A
(2.0)
N/A
N/A
3.9
4.9
N/A
63
Edison Insight
Gasol
Sector: Oil & Gas
Price:
Market cap:
Market
0.4p
£6m
1.9
228.0
AIM
(GAS)
INVESTMENT SUMMARY
Gasol's strategy is aimed at the monetisation of stranded gas reserves in Sub-Saharan Africa.
The strategy is to work along the LNG value chain and sell LNG into high-value gas to power
markets in West Africa, where there is a significant price arbitrage between more expensive
liquid fuels (such as diesel) and gas. If successful, this would allow Gasol to generate healthy
returns relative to exporting LNG internationally.
INDUSTRY OUTLOOK
Gasol is a conceptual development company with, as yet, no secured assets either in the form
of tangible equipment or intangible agreements. Gasol can be considered an investment in
management that can provide a potentially low-cost, early-stage entry into West African gas
Company description
Gasol is an African-focused gas
independent. The company's prime
focus is on the monetisation of gas
reserves in Sub-Saharan Africa by its
aggregation, liquefaction and shipment
to high-value markets worldwide.
infrastructure development. The company has key strategic relationships with partners that
can assist with gas supply while its 2011 option agreement with Moni Pulo to purchase gas
from OML 114 shows that the team can secure deals that may ultimately lead to a
development project.
Y/E Feb / Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.0
(4.4)
(5.1)
(0.5)
N/A
N/A
2011A
0.0
(1.6)
(2.1)
(0.2)
N/A
N/A
2012E
0.0
(1.7)
(2.0)
(0.1)
N/A
N/A
Analyst
Krisztina Kovacs
2013E
0.0
(1.7)
(2.1)
(0.1)
N/A
N/A
Sector: Technology
GB Group
Price performance
%
Actual
Relative*
1m
(5.6)
(9.3)
3m
(10.5)
(18.1)
Price:
Market cap:
Market
12m
(55.3)
(53.8)
55.5p
£59m
1.7
N/A
AIM
(GBG)
INVESTMENT SUMMARY
Last month, GB released a positive statement for the nine months to 31 December 2011. With
the aid of acquisitions (made between June and November 2011), group revenues grew 20%,
including 7% organic growth. Benefiting from significant economies of scale, operating profit
for the nine months doubled to £2.4m and 84% on an organic basis. This data provides solid
comfort for the group to meet our FY12 estimates, with a good opportunity to surpass. The
group’s balance sheet remains robust with £2.5m cash at 31 December 2011.
INDUSTRY OUTLOOK
Growth in internet trading, regulatory pressure and the need for money-laundering checks, age
checks and anti-fraud checks are behind growing interest in increasingly complex and
Company description
GB Group has complementary identity
management offerings of verification,
capture, maintenance and analysis,
enabling companies to identify and
understand their customers.
comprehensive verification of personal data. More and more companies are switching to
electronic verification from historic (and expensive) manual methods.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
22.2
1.8
1.4
1.9
29.2
18.8
2011A
24.4
2.4
2.0
2.7
20.6
28.0
2012E
31.4
3.4
2.9
3.0
18.5
17.2
2013E
39.1
5.4
4.8
4.0
13.9
10.2
Price performance
%
Actual
Relative*
1m
14.7
10.1
Analyst
Martin Lister
64
3m
31.4
20.2
12m
49.5
54.5
23 February 2012
Edison Insight
Gemfields
Sector: Mining
Price:
Market cap:
Market
22.8p
£74m
38.0
N/A
AIM
(GEM)
INVESTMENT SUMMARY
Results from regular emerald auction programmes continue to reflect the success of
Gemfields' innovative marketing strategy, establishing the company as a benchmark for the
sector and enhancing the quality status of Zambia's ethical emeralds. Total revenue to date for
FY12 of US$42.6m for two auctions already exceeds that for all three auctions in FY11. The
high-wall push back at the Chama pit in Kagem set to open larger areas for future ore
production. Once this capital programme is completed, management expects an overall
increase in operating performance, which will help establish operation longevity in conjunction
with the development of new open pits and underground production.
INDUSTRY OUTLOOK
Company description
Gemfields mines and markets emeralds
from Zambia and has several interests in
gemstone projects in Zambia and
Madagascar.
Management has indicated that the current inventory may support be two further emerald
auctions in FY12, with the next high grade auction scheduled for March. The operational
update for the quarter to December 2011 will reflect progress during the current period of high
levels of waste rock removal.
Y/E Jun
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
19.9
2.0
(2.0)
(0.4)
N/A
71.5
2011A
40.2
22.3
19.6
5.0
7.2
6.7
2012E
77.4
52.3
44.8
7.7
4.7
2.4
Analyst
Julian Emery
2013E
82.3
54.0
39.4
5.8
6.2
2.2
Sector: Mining
Gold One
Price performance
%
Actual
Relative*
1m
(4.7)
(8.5)
3m
(7.6)
(15.4)
12m
50.4
55.5
Price:
A$0.50
Market cap:
A$701m
N/A
N/A
Market
ASX
(GDO)
INVESTMENT SUMMARY
Our recent visit to GDO's projects in South Africa coincided with its Q4 report. Due to simple
geology, shallow depth and the easily identifiable Black Reef and Buckshot Pyrite Leader Zone
(with up to 14.9g/t Au), GDO produced 121,518oz from Modder East. GDO expects the
recently completed Rand Uranium acquisition and the Jintu transaction to provide the assets
and financial resources necessary to produce 300,000oz in 2012. Our previous forecasts were
generated before closure of these transactions, revised forecasts and valuations will be
published shortly.
INDUSTRY OUTLOOK
Although threats remain over the state of the European and world economies, actions taken by
Company description
Formed from the takeover of Aflease by
BMA Gold in 2009, Gold One is an
emerging mid-tier gold producer with
significant assets in the Witwatersrand
basin and growing assets outside.
the Federal Reserve suggest the official response is still tilted towards a loosening bias,
creating an environment in which the monetary properties of gold as an investment become
pre-eminent. While our long-term price for gold remains a (conservative) US$1,350/oz, in the
short to medium term, we perceive the opportunity to be to the upside.
Y/E Dec
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS (fd)
(c)
2009A
8.9
(18.3)
(30.8)
2010A
89.3
39.4
19.3
2011E
N/A
N/A
2012E
N/A
N/A
Price performance
%
Actual
Relative*
1m
(1.0)
(0.9)
Analyst
Charles Gibson
23 February 2012
3m
(8.3)
(7.2)
12m
50.0
76.4
P/E
(x)
P/CF
(x)
(4.0)
N/A
N/A
1.8
27.8
9.8
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
65
Edison Insight
Goldplat
Sector: Mining
Price:
Market cap:
Market
14.5p
£24m
0.3
1.0
AIM
(GDP)
INVESTMENT SUMMARY
Goldplat announced this month that it has signed an agreement with Central Rand Gold Ltd’s
wholly owned subsidiary Ferreira Estates and Investment Company Ltd, to recommence gold
mining at the Crown East and CMR Bird Reef mines in the West Rand area in South Africa.
This project is in line with Goldplats’s business model of low-cost gold production from
recovery operations, with both parties believing significant recoverable ore remains to be
mined. Subject to due diligence, Goldplat’s aim is to reclaim the high-grade pillars left at these
mines in return for a 5% net smelter royalty. The agreement has the potential to add another
10,000oz per annum and raise Goldplat’s annual gold production target to 60,000oz.
INDUSTRY OUTLOOK
Company description
Goldplat is a gold producer focused on
Africa with three primary assets:
Goldplat Recovery (Pty) - South African
gold recovery plant, Gold Recovery
Ghana - Ghanaian gold recovery plant,
and Kilimapesa Gold - mining project,
Kenya.
When using a long-term gold price of US$1,350/oz and assuming stockpiles are not renewed,
we value Goldplat at 18.2p. Goldplat’s shares are trading at a small (9%) discount to net asset
value and at one of the lowest P/E multiples in the sector compared to the FTSE/JSE Africa
Gold Mining Index’s multiple of 17.3x.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
10.7
2.5
2.2
1.58
9.2
11.4
2011A
19.6
3.4
3.1
1.63
8.9
26.1
2012E
25.4
5.5
5.2
2.51
5.8
36.4
Analyst
Rory Draper
2013E
25.9
6.1
5.7
2.62
5.5
5.1
Sector: Oil & Gas
Green Dragon Gas
Price performance
%
Actual
Relative*
1m
34.9
29.5
3m
18.4
8.3
12m
26.1
30.3
Price:
US$10.13
Market cap:
US$1382m
13.6
N/A
Market
AIM
(GDG)
INVESTMENT SUMMARY
GDG's operational update in January pointed to sharply increased drilling activity between the
first and second halves of 2011 with the number of wells drilled up from 20 to 47. The 2011
exit CBM production rate of 1.68 bcf was 32% above end 2010 but only marginally ahead of
the 1.66 bcf of end June 2011. We would expect the lagged impact of rising drilling activity in
late 2011, along with anticipated increases in the coming months as the GDL rig fleet expands,
to substantially boost production in 2012. We see volume growth at GDG to be independent
of any conceivable slowdown in the Chinese economy in the coming months.
INDUSTRY OUTLOOK
The Chinese government is promoting the use of natural gas as a low carbon fossil fuel. It is
Company description
Green Dragon Gas is a China-focused
vertically integrated gas production and
distribution company that also has
significant pipeline and manufacturing
interests. The upstream operations are
based on six CBM projects in
east-central and southern China.
also attempting to reduce dependence on imported energy sources. The key objective is to
raise the weighting of natural gas in the energy mix to 10% by 2020. CBM is expected to
account for about 10% of natural gas production.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
46.9
(1.7)
(26.4)
(25.1)
N/A
N/A
2010A
49.7
(0.2)
(11.9)
(10.2)
N/A
N/A
Price performance
%
Actual
Relative*
1m
20.9
16.0
Analyst
Peter Dupont
66
3m
42.6
30.5
12m
(33.3)
(31.1)
2011E
79.1
3.0
(5.7)
(4.3)
N/A
N/A
2012E
105.9
23.8
9.4
6.9
146.8
77.1
23 February 2012
Edison Insight
Price:
Market cap:
Market
48.2p
£48m
N/A
N/A
AIM
Greenwich Loan Income Fund
(GLIF)
INVESTMENT SUMMARY
GLIF is a closed-ended investment vehicle in the US mid-corporate senior secured loan
market. Pro-active portfolio management (potentially with modest diversification from here),
further deals and a focus on shareholder value, are the key strategic messages. In Q411 it
generated increased cash flows allowing the company to raise its dividend earlier than
expected. GLIF has also negotiated a substantial cut in its management fees starting Q112.
The annualised Q4 dividend means the yield is a highly attractive c 9.5%. The franchise value
at end December was c 56.8p, c 20% above the current price.
INDUSTRY OUTLOOK
The US corporate middle market is less well covered than major corporate debt, creating more
Company description
GLIF is an authorised closed-ended
investment company. It aims to produce
a predictable dividend yield and
long-term preservation of net asset
value. It invests in senior, secured loans,
primarily to the US mid-corporate
market.
opportunities, with higher risk more than matched by higher reward. This can generate
excellent long-term returns. Critically, the US mid-corporate market offers investors more credit
risk control than major corporate situations. Recent trends in pricing and credit have been
favourable.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
6.9
2.0
2.0
3.90
12.4
N/A
2010A
17.1
11.1
11.1
12.70
3.8
N/A
2011E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Mark Thomas
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Oil & Gas
Greka Drilling
Price performance
%
Actual
Relative*
1m
12.2
7.7
3m
20.2
10.1
Price:
Market cap:
Market
12m
26.1
30.4
37.5p
£149m
12.3
N/A
AIM
(GDL)
INVESTMENT SUMMARY
GDL's rig fleet expansion first announced in April 2011 is now well underway. The original
order for 25 high-performance Drillmec rigs is scheduled to be filled by May which will take the
fleet to 32. Exercising an option for 125 rigs is a very real possibility in the coming months
which would give GDL one of the world's larger land rig fleets. As the fleet expands, non
GDG-related business is likely to materialise. Excellent business opportunities exist in China
and South-East Asia in the CBM and shale gas spheres. Earnings should surge in 2012 as the
new fleet comes fully on-stream.
INDUSTRY OUTLOOK
The Chinese government is promoting the use of natural gas as a low carbon fuel. It is also
Company description
Greka Drilling, headquartered
operationally in Zhengzhou, is a provider
of specialised drilling services to the
unconventional gas sector in China.
Presently it is focused on the
commercial development of GDG’s
CBM operations in Shanxi Province.
attempting to reduce dependence on imported energy. The key objective is to raise the
weighting of natural gas in the energy mix from 4% presently to 10% by 2020. CBM is
expected to account for about 10% of natural gas production. In early August Shell announced
a JV with Henan CBM to develop unconventional gas.
Y/E Dec
Price performance
%
Actual
Relative*
1m
11.9
7.4
Analyst
Peter Dupont
23 February 2012
3m
33.9
22.6
12m
N/A
N/A
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
9.9
2.1
(0.1)
N/A
N/A
N/A
2010A
24.3
5.1
2.8
N/A
N/A
30.3
2011E
54.9
12.3
9.0
1.6
36.9
N/A
2012E
227.4
65.6
59.6
11.2
5.3
3.6
67
Edison Insight
Gulfsands Petroleum
Sector: Oil & Gas
Price:
Market cap:
Market
171.0p
£201m
N/A
N/A
AIM
(GPX)
INVESTMENT SUMMARY
In compliance with EU sanctions, Gulfsands declared force majeure (FM) in December 2011
for its production activities in Syria. Production continues via state oil company SPC, although
Gulfsands will not see any revenues from this until FM is lifted. We understand the company's
PSCs remain binding but investors must wait for Syria resolution before this can be clarified. In
the meantime, tGulfsands is looking to put its considerable cash reserves of $115m to good
use in developing a non-Syria leg to its business. We expect news on this in the coming
months. Despite the Syria problems, the share price has received support in recent months
from sustained Russian investment. Our models remain under review pending updated
reserves to be announced in April and further news on non-Syrian developments.
Company description
Gulfsands Petroleum is involved in the
production, exploration and
development of oil and gas reserves in
the US, Syria and Iraq. It recently
agreed to acquire working interest
positions in two exploration permits in
Tunisia and Southern Italy.
INDUSTRY OUTLOOK
With an experienced management team, considerable cash and a number of acquisitions in
sight, Gulfsands is well placed to grow a non-Syria leg to its business.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
84.4
48.4
36.9
29.7
9.1
7.7
2010A
115.6
73.3
56.5
44.5
6.1
4.7
2011E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Ian McLelland
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Mining
Gunson Resources
Price performance
%
Actual
Relative*
1m
(2.7)
(6.6)
3m
(7.6)
(15.4)
Price:
Market cap:
Market
12m
(48.0)
(46.3)
A$0.20
A$43m
87.2
535.0
ASX
(GUN)
INVESTMENT SUMMARY
Conversion of the non-binding agreement, with a major East Asian industrial group, to a formal
joint venture in the near future will represent a definitive step forward in the development of the
Coburn zircon-rich mineral sands project in Western Australia.The partner will earn a large
minority stake and will contribute its share of development costs plus additional earn-in value,
together with funding assistance. Gunson is to be the project manager and mine construction
will take 85 weeks to complete. Negotiations for off-take contracts are also well advanced. The
Coburn DFS model shows a robust project and metallurgical tests confirmed recovery
assumptions. A recent equity placement supports immediate capital requirements.
INDUSTRY OUTLOOK
Company description
Gunson Resources is a mining
exploration and development company.
Its major heavy mineral sands project is
construction ready. It has projects in
copper and nickel in South Australia and
gold in the Northern Territory.
Confirmation of the binding joint venture, together with completion of the required capital
funding and product off-take agreements will establish Gunson as a force in the mineral sands
sector as Coburn is one of the few significant advanced projects in the sector.
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2010A
0.2
(0.4)
(0.4)
(0.2)
N/A
N/A
2011A
0.1
(1.7)
(1.7)
(0.9)
N/A
N/A
2012E
0.0
(0.1)
(9.0)
(4.3)
N/A
72.4
2013E
0.0
(0.1)
(15.0)
(7.2)
N/A
N/A
Price performance
%
Actual
Relative*
1m
(9.3)
(9.2)
Analyst
Julian Emery
68
3m
39.3
40.9
12m
(25.0)
(11.8)
23 February 2012
Edison Insight
Price:
Market cap:
Market
90.8p
£121m
18.2
N/A
AIM
GW Pharmaceuticals
(GWP)
INVESTMENT SUMMARY
GW Pharmaceuticals is an attractive lower-risk speciality pharma investment opportunity,
which can be considered in three parts: Sativex commercial, Sativex R&D and Pipeline R&D.
Sativex Commercial is already profitable, reflecting GW’s transition to a commercial business
following EU approvals and launches of Sativex in multiple sclerosis spasticity. Further EU
approvals/launches and ex-EU regulatory filings are expected in 2012. The two R&D segments
provide significant further upside, especially from Sativex R&D where Phase III cancer pain
data is expected by end-2013 and should open up the US market opportunity. A number of
non-Sativex clinical trials are also ongoing or planned in metabolic or inflammatory indications.
INDUSTRY OUTLOOK
Company description
GW Pharmaceuticals is a UK speciality
pharma company focused on
developing cannabinoids as
pharmaceuticals. Lead product Sativex
is marketed in a number of European
countries for multiple
sclerosis-associated spasticity.
GW Pharmaceuticals is a leader in the cannabinoid field (>70 in cannabis). These have the
potential to become novel therapies for a broad range of diseases. We estimate that Sativex
will achieve 5-10% market share in indications in which it has been approved (MS spasticity in
various EU countries, Canada and NZ; neuropathic pain in MS in Canada only).
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
30.7
5.9
5.2
4.1
22.1
30.0
2011A
29.6
3.7
3.3
2.7
33.6
56.1
2012E
25.1
(5.4)
(6.2)
(3.5)
N/A
N/A
Analyst
Lala Gregorek
2013E
32.4
(0.1)
(1.0)
0.0
N/A
N/A
HR Owen
Price performance
%
Actual
Relative*
1m
5.5
1.3
3m
(7.0)
(14.9)
Price:
Market cap:
Market
12m
(22.0)
(19.4)
61.0p
£14m
23.7
175.0
FULL
(HRO)
INVESTMENT SUMMARY
The appointment of Joe Doyle as CEO involved a seamless change, implementing the
strategic review of operations published in mid-2011. Recent positive developments include
the new atelier with Ferrari at the Berkeley Hotel and the acquisition of a regional business
comprising three Bentley and one Aston Martin dealerships. We edged our targets lower after
a cautious autumn IMS; the absence of a further trading update at the year-end suggests that
results for 2011 will be in line with City estimates. The trading climate remains challenging.
INDUSTRY OUTLOOK
City sentiment towards the motor distribution sector remains cautious. Fears about current
year trading remain, overshadowing the action taken by leading retailers to build their
Company description
Following major restructuring, HR Owen
principally comprises its luxury cars
business involving franchises for
Bentley, Rolls-Royce, Ferrari, Maserati,
Lamborghini, Bugatti and Pagani. It also
operates aftersales franchises for Audi,
BMW/Mini and Lotus.
downstream activities. SMMT forecasts suggest little change new vehicle registrations,
although the retail content is falling to the detriment of dealership margins. Profits continue
under pressure in the short term, but this also provides acquisition opportunities for the larger
groups.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
2009A
125.4
0.1
(1.3)
(4.4)
N/A
0.8
2010A
154.0
3.6
1.7
5.5
11.1
N/A
2011E
193.0
3.6
1.5
4.6
13.3
N/A
2012E
225.0
3.8
1.5
4.6
13.3
5.0
Price performance
%
Actual
Relative*
1m
(3.2)
(7.1)
Analyst
Nigel Harrison
23 February 2012
3m
(13.5)
(20.8)
12m
(34.0)
(31.8)
P/E
(x)
P/CF
(x)
69
Edison Insight
Hambledon Mining
Sector: Mining
Price:
Market cap:
Market
3.3p
£24m
2.8
9.0
AIM
(HMB)
INVESTMENT SUMMARY
Hambledon intends to raise up to US$9.06m (US$8.56m net of expenses) through issuing
177.5m new ordinary shares at 3.25p/share. A recent operational update at the Sekisovskoye
gold mine in Kazakhstan showed production from the new underground mine phase (initiated
in December 2011) has increased the overall processed gold grade by 22% (Q311: 1.05g/t Au
vs Q411: 1.28g/t Au). This has allowed the company to decrease the effect of the plant
shut-down in November and record a 5% improvement in FY11 tonnages processed vs FY10.
Production for Q411 was 5,446oz Au with total 2011 production at 21,029ozs, 3.4% higher
than our 2011 forecast of 20,338oz. The 19 January drilling update indicates more positive
gold grades ranging (over 1m assayed intervals) 1.4g/t to 9.7g/t Au. Highlights included 9m at
4.86g/t, 2m at 3.50g/t and 4m at 2.62g/t gold.
Company description
Hambledon Mining is a gold mining and
exploration company, which operates
the Sekisovskoye gold mine close to
Ust Kamenogorsk in East Kazakhstan.
INDUSTRY OUTLOOK
We have used an Au price of US$1,350/oz in our valuation. Our forecasts are under review.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
12.8
3.1
(0.1)
0.0
N/A
17.5
2010A
18.8
5.9
2.3
0.4
8.3
5.9
2011E
20.2
3.5
(1.3)
(0.2)
N/A
16.7
Analyst
Tom Hayes
2012E
32.7
10.2
4.6
0.4
8.3
4.8
Hampson Industries
Price performance
%
Actual
Relative*
1m
(12.7)
(16.2)
3m
(18.1)
(25.1)
Price:
Market cap:
Market
12m
(46.3)
(44.5)
4.0p
£11m
41.1
17.0
FULL
(HAMP)
INVESTMENT SUMMARY
Hampson's IMS and announcement it has begun a formal sale process for the group comes
on the back of a precarious financial position that saw a warning on potential covenant
breaches. While renegotiating its banking facilities, discussions will have not been made any
easier with the news that the group's largest tooling contract on the Boeing 787 had suffered
testing and customer acceptance delays, which is likely to slip deliveries into FY13. With
management unable to comment on the impact of these delays as yet, we are reviewing our
forecasts and the question remains whether a willing buyer can be found.
INDUSTRY OUTLOOK
Since 2004, Hampson has built up the leading player in the fragmented composite tooling
Company description
Hampson is the largest manufacturer of
composite tooling and assembly
systems for global aerospace. It
manufactures highly engineered
components and assemblies for
airframe and engine applications using
advanced lightweight materials.
market through acquisitions. This market is set to grow significantly once production of the
B787 and A350 truly start and we believe Hampson was unlucky with timing rather than
strategic direction. However, the acquisitions left the group overexposed to high debt as
delays began to bite.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
169.1
37.3
25.2
10.7
0.4
0.3
2011A
197.5
21.9
10.8
6.0
0.7
2.1
2012E
162.6
13.2
1.9
0.6
6.7
0.7
2013E
173.9
16.2
7.7
2.2
1.8
0.8
Price performance
%
Actual
Relative*
1m
(20.0)
(23.2)
Analyst
Roger Johnston
70
3m
6.7
(2.4)
12m
(88.9)
(88.5)
23 February 2012
Edison Insight
Hardy Underwriting Bermuda
Sector: Financials
Price:
Market cap:
Market
202.6p
£104m
N/A
N/A
FULL
(HDU)
INVESTMENT SUMMARY
Despite a satisfactory non-catastrophe underwriting performance, the unusual concentration of
international (non-US) catastrophe losses has continued to affect Hardy's results through
2011. Exposure to flooding in Thailand was put at £10-25m in early December; it remains a
key area of risk. The group has announced a strategic review that will include a consideration
of whether it may be in shareholders' best interests to seek a buyer or strategic partner.
Hardy's core business has a strong track record and has attractive past interest.
INDUSTRY OUTLOOK
Company description
Hardy Underwriting Bermuda is a
specialist insurer/reinsurer operating in
London and Bermuda. It writes mainly
shorter-tail risks across a range of
classes with recent strong growth in
property insurance and reinsurance.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
182.6
N/A
30.5
55.8
3.6
N/A
2010A
196.0
N/A
9.1
16.2
12.5
N/A
2011E
214.9
N/A
(33.1)
(55.8)
N/A
N/A
Analyst
Martyn King
2012E
207.8
N/A
16.7
30.0
6.8
N/A
Helius Energy
Price performance
%
Actual
Relative*
1m
8.1
3.7
3m
6.1
(2.9)
Price:
Market cap:
Market
12m
(28.5)
(26.1)
13.0p
£17m
8.4
N/A
AIM
(HEGY)
INVESTMENT SUMMARY
Helius's 2010/11 net income of £72k was ahead of our forecast loss of £1.8m. However, the
figures were boosted by a fair value gain of £2.5m on the sale of equity in the CoRDe project.
Once adjustments are made for CoRDe and the Stallingborough earn-out (-£0.7m), both
non-cash items, the results were in line with expectations. Overall 2011 was a year in which
Helius reshaped its business, reducing costs and strengthening the balance sheet. 2012
should see a move towards commercial operation of Rothes and the financial close of
Avonmouth. If Helius successfully generates a profit relating to development fees from
Avonmouth, it could translate into significant upside for the shares as this is not being valued
by the market.
Company description
Helius Energy identifies, develops, owns
and builds biomass generation projects
in the UK.
INDUSTRY OUTLOOK
The UK has a significant requirement for renewable energy and we expect biomass to play an
important part in helping the UK meet its renewable targets.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
2010A
0.0
(7.3)
(6.2)
2011A
0.1
(0.7)
0.1
2012E
0.2
2.4
3.2
2.6
5.0
7.9
2013E
0.0
(2.5)
(1.7)
(0.8)
N/A
N/A
Price performance
%
Actual
Relative*
1m
20.4
15.5
Analyst
Graeme Moyse
23 February 2012
3m
5.0
(3.8)
12m
(28.3)
(25.9)
P/E
(x)
P/CF
(x)
(7.2)
N/A
N/A
0.1
130.0
N/A
71
Edison Insight
Hiscox
Sector: Financials
Price:
415.0p
Market cap:
£1612m
N/A
N/A
Market
FULL
(HSX)
INVESTMENT SUMMARY
Hiscox last communicated in its 7 November IMS. Underwriting discipline was restricting
premium (-3% over nine months, investment returns were difficult, and upwards creep in
catastrophe loss estimates was largely covered by reinsurance. At that stage it was too early
to estimate Thai flooding loss exposure, but industry loss estimates have subsequently moved
up materially. Hiscox has a track record of successfully managing the balance between volatile
catastrophe reinsurance business and more steady regional and local insurance business.
Awaiting an insurance-rate-hardening loss event, we like Hiscox for its balanced portfolio,
good track record and balance sheet strength and think a premium to the sector is justified.
INDUSTRY OUTLOOK
Company description
Hiscox is an international specialist
insurer/reinsurer domiciled in Bermuda.
Its strategy is characterised by the
balancing of higher margin but more
volatile catastrophe exposed business
with less volatile local speciality
insurance.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
1301.0
N/A
374.0
84.4
4.9
N/A
2010A
1253.0
N/A
209.0
45.0
9.2
N/A
2011E
1200.0
N/A
(1.0)
1.4
296.4
N/A
Analyst
Martyn King
2012E
1240.0
N/A
175.0
39.1
10.6
N/A
Hogg Robinson Group
Price performance
%
Actual
Relative*
1m
7.5
3.2
3m
7.5
(1.6)
Price:
Market cap:
Market
12m
6.5
10.1
63.2p
£196m
50.0
169.0
FULL
(HRG)
INVESTMENT SUMMARY
IMS confirmation of second-half trading resilience should come as no surprise as HRG proved
its mettle in the recession thanks to its predominantly managed contract income and strict
cost control. However, the news is no less welcome, as is management confidence in
sustained margin gain even in an economic slowdown. The company is on course to meet
current year expectations. A slowing in constant currency revenue in the four months to
January (flat against +6% in the first half) should not be a concern as management has a
proven ability to adjust costs effectively in line with changes in demand. There is no clear
downward trend over the period and the company has avoided chasing low-margin revenue.
INDUSTRY OUTLOOK
Company description
Hogg Robinson is a major global player
in corporate travel services.
Improved business confidence in December and January has led IATA to forecast a
stabilisation in air passenger travel in coming months after a marked slowdown in Q411
(international traffic +5.0% against +7.5% in the nine months to September). Global lodging
RevPAR forecasts remain cautiously positive.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
326.8
44.5
28.4
6.33
10.0
5.3
2011A
358.0
51.6
32.9
7.28
8.7
4.1
2012E
378.0
57.9
36.6
8.03
7.9
3.9
2013E
386.0
61.2
39.5
8.65
7.3
3.6
Price performance
%
Actual
Relative*
1m
11.9
7.5
Analyst
Richard Finch
72
3m
21.6
11.3
12m
36.0
40.6
23 February 2012
Edison Insight
Price:
€1.38
Market cap:
€20m
1.4
N/A
Market
Euronext Paris
Hybrigenics
(ALHYG)
INVESTMENT SUMMARY
Hybrigenics is developing an analogue of vitamin D3, inecalcitol, for treating prostate cancer
and severe psoriasis. The drug could be launched in 2017 and generate revenues of c $4bn
across these two major indications. A Phase IIa trial in castrate-resistant prostate cancer with
inecalcitol in combination with docetaxel (Taxotere) demonstrated its potential in this indication.
A Phase II study in 60 patients with severe psoriasis has recently completed recruitment and
data should be reported in mid-2012, and could lead to the out-licensing of inecalcitol. The
company has also formed a €4m new drug discovery collaboration with Servier and initiated
pre-clinical studies of inecalcitol in chronic lymphocytic leukaemia. Its revenues, up 45% in
2011, and €8.8m equity line with Yorkville could fund its operations until the end of FY14.
Company description
Hybrigenics is a French drug
development company that also
provides yeast two-hybrid services to
companies and academic institutions.
Its lead drug, inecalcitol, is in Phase II
and is being developed for prostate
cancer and severe psoriasis.
INDUSTRY OUTLOOK
Inecalcitol is being developed in three major indications and faces much competition from
existing drugs and those in development. However, its good safety profile could give it an
advantage and allow its use in combination with other established therapies.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
4.6
(4.1)
(4.6)
(35.8)
N/A
N/A
2010A
4.6
(4.0)
(4.6)
(34.5)
N/A
N/A
2011E
6.3
(2.6)
(2.9)
(18.8)
N/A
N/A
Analyst
Mick Cooper
2012E
5.6
(4.1)
(4.3)
(24.7)
N/A
N/A
i-design
Price performance
%
Actual
Relative*
1m
46.8
39.1
3m
32.7
15.7
Price:
Market cap:
Market
12m
(8.0)
8.6
46.5p
£7m
0.9
N/A
AIM
(IDG)
INVESTMENT SUMMARY
At its AGM last month, i-design said that trading in the first three months of FY12 is in line with
management expectations, with software sales showing a strong performance. In November
2011, through channel partner IBM Canada, i-design secured a multi-year joono licence
agreement with a large bank in Canada covering this bank’s entire ATM estate. Management
are optimistic of signing further new joono contracts during FY12, and we believe that the
group has significant growth opportunities, is well positioned to continue to enlarge its banking
customer base, as well as expand revenues from third party advertising sales.
INDUSTRY OUTLOOK
i-design is establishing a strong footprint within the UK’s c 60,000 ATM market, and is making
Company description
i-design is a specialist provider, via its
propriety solution, joono, of software
and marketing services for banks and
ATM network owners worldwide to run
both internal marketing campaigns and
third-party advertising.
inroads overseas. US-based market research publisher Global Industry Analysts is predicting
that the worldwide installed base of ATMs will reach 3.1m by 2015, up from an estimated
2.2m in 2009.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
2010A
2.2
(0.9)
(0.9)
(5.0)
N/A
N/A
2011A
3.5
0.1
0.1
1.0
46.5
40.7
Price performance
%
Actual
Relative*
1m
2.2
(1.9)
Analyst
Martin Lister
23 February 2012
3m
(24.4)
(30.8)
12m
66.1
71.7
P/E
(x)
P/CF
(x)
2012E
4.0
0.1
0.1
1.1
42.3
N/A
2013E
N/A
N/A
N/A
N/A
N/A
N/A
73
Edison Insight
IFG Group
Sector: Financials
Price:
€1.19
Market cap:
€150m
39.6
40.0
Market FULL, Irish Stock Exchange
(IFG)
INVESTMENT SUMMARY
IFG is the largest provider of UK bespoke SIPPs and has a profitable fee-based UK IFA
operation. It acquired James Hay in 2010 and it is now fully integrated. On company numbers
and, despite age-related attrition in SIPPs, the return on this investment should be over 20%.
The UK IFA business continues to grow strongly. IFG has an international trustee business
where trading conditions have been tough, affected by both market weakness and increasingly
aggressive approaches by tax authorities. An increase in the holding by private equity house
Fiordland, reported end January, may see some bid speculation recur.
INDUSTRY OUTLOOK
The UK SIPP market is expected to deliver mid-teens growth with an ageing population,
Company description
IFG provides financial services
comprising a pension administration
and personal advisory business
operating in the UK, Ireland and
international corporate and trustee
administration services.
greater self-provision, and higher tax rates encouraging tax-efficient saving. The international
trustee and corporate services division is primarily driven by regulatory and tax management
opportunities and, while currently challenging, should be a double-digit growth market over the
long term.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
N/A
N/A
N/A
N/A
N/A
38.2
2010A
103.5
16.8
20.9
16.11
6.2
4.9
2011E
113.4
23.2
22.7
15.33
6.5
5.0
Analyst
Mark Thomas
2012E
116.8
24.8
24.5
15.43
6.4
N/A
Ilika
Price performance
%
Actual
Relative*
1m
21.4
12.6
3m
13.3
(5.8)
Price:
Market cap:
Market
12m
(6.3)
(12.5)
55.0p
£20m
0.7
N/A
AIM
(IKA)
INVESTMENT SUMMARY
The real value in Ilika will come from discoveries of new materials where the company gets to
keep the intellectual property. If these new materials are commercialised and sell in volumes,
then Ilika can look forward to a long flow of royalties. An exciting example is the proposed new
man-portable power supply the company is developing using IP jointly-held with Toyota. We
value the business at 92p/share using aggressive assumptions that include zero growth from
five years out. We estimate that each additional discovery could add 10p to the share price.
Meanwhile, its technology would make an attractive acquisition to a number of materials
companies.
INDUSTRY OUTLOOK
Company description
Ilika searches for new materials in the
renewable and clean energy space. It is
unique in that it has patented
technology that allows it to discover
new materials much faster than
conventional methods.
Ilika finds new materials for renewable and clean energy applications that improve or enable
future technologies such as batteries for electric cars or fuel cells. Its unique and patented
technology allows new materials to be discovered and tested 10 to 100 times faster than
traditional methods.
Y/E Apr
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
1.3
(2.5)
(3.2)
(18.6)
N/A
N/A
2011A
1.9
(2.4)
(3.1)
(5.3)
N/A
N/A
2012E
2.9
(2.2)
(2.7)
(4.6)
N/A
N/A
2013E
4.8
(0.7)
(1.2)
(2.2)
N/A
N/A
Price performance
%
Actual
Relative*
1m
11.1
6.7
Analyst
Edwin Lloyd
74
3m
19.6
9.4
12m
(7.6)
(4.5)
23 February 2012
Edison Insight
Price:
Market cap:
Market
77.0p
£63m
11.4
N/A
AIM
ImmuPharma
(IMM)
INVESTMENT SUMMARY
ImmuPharma has reclaimed Lupuzor, the lupus candidate, from Cephalon, following
Cephalon's acquisition by Teva. Teva has returned all product rights and relevant
development/regulatory material. The FDA has agreed an SPA for a Phase III programme,
based on the original ImmuPharma Phase IIb study, and granted fast-track status.
ImmuPharma therefore has a Phase III-ready project available for immediate partnering. A deal
will ideally be concluded in 2012. The Phase I/IIa escalating-dose study of N6L in cancer has
completed and results are due in H112. A more potent nano-formulation is expected to enter
clinical trials in 2012.
INDUSTRY OUTLOOK
Company description
ImmuPharma is a UK drug development
company linked to the leading French
research organisation (CNRS). The lead
project, Lupuzor for lupus, has
completed a Phase IIb trial and a
development partner is being sought.
GSK/HGSI Q4 sales of Benlysta were $25.7m - a slower than expected sales uptake due to
high price and reimbursement issues.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
22.1
11.8
11.9
14.0
5.5
4.3
2010A
0.0
(4.1)
(4.1)
(4.5)
N/A
N/A
2011E
0.0
(3.1)
(3.1)
(3.8)
N/A
N/A
Analyst
John Savin
2012E
0.0
(3.0)
(3.0)
(3.7)
N/A
N/A
Sector: Technology
Innovation Group
Price performance
%
Actual
Relative*
1m
(3.1)
(7.0)
3m
(16.8)
(23.8)
Price:
Market cap:
Market
12m
(1.3)
2.0
19.5p
£184m
36.2
N/A
FULL
(TIG)
INVESTMENT SUMMARY
Deal flow in FY11 and early FY12 should underpin the expectation of robust growth and the
recent IMS confirmed that trading is in line. The recent launch of a new analytics product
should support software sales growth, both through stand-alone sales and cross-selling. With
a healthy pipeline the company looks in good shape to continue performing well in 2012 and
beyond. A continuation of incremental sales and earnings growth should support a forward
12/13x ex-cash multiple, implying a fair value of 21-23p. Further visibility on the margin uplift
gained from Enterprise deployment and licensing deal flow are the key catalysts for a more
aggressive margin recovery to become priced in.
INDUSTRY OUTLOOK
Company description
Innovation Group is one of the leading
solution providers to the global
insurance industry through the
development of a flexible combination of
business process outsourcing, supply
chain management and technology
solutions.
Innovation's solutions add much needed efficiency and flexibility to an insurance industry being
shaken up by the entry of consumer brands and comparison engines. Economic weakness is
likely to prolong decision cycles and is reducing claims volumes, to which Innovation's BPO
sales are tied.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
2010A
162.1
2011A
175.9
2012E
2013E
Price performance
%
Actual
Relative*
1m
(3.1)
(7.0)
Analyst
Dan Ridsdale
23 February 2012
3m
5.4
(3.5)
12m
18.2
22.2
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
15.5
9.4
0.57
34.2
12.7
21.2
15.0
1.01
19.3
8.9
200.6
27.1
17.6
1.06
18.4
6.8
218.1
32.3
22.9
1.41
13.8
5.7
75
Edison Insight
IQE
Sector: Technology
Price:
Market cap:
Market
25.8p
£146m
3.9
7.0
AIM
(IQE)
INVESTMENT SUMMARY
IQE’s full-year trading update signalled that profit would be slightly ahead of downgraded
forecasts with much better cash retention. Wireless demand stabilisation and positive progress
with new customer qualifications should drive a recovery in wireless market share into H2. The
strategic investment and partnership with Solar Junction(funded by a £10.4m raise at 24p)
secures an exclusive supply agreement and an equity stake in a promising company supplying
into a market that could be poised to take off. The deal is not dilutive and risks appear to be
well mitigated.
INDUSTRY OUTLOOK
Reports from IQE and its peers suggest that the inventory correction which hit in H2 is now
Company description
IQE has established itself as a one-stop
shop for the compound semiconductor
wafer needs of the world’s leading
semiconductor device manufacturers.
starting to correct. Long term fundamentals for wireless are good, with demand for 3G and 4G
likely to support double digit growth. Opto-electronics is a more fragmented market, but has
the potential to grow event faster. The timescale and uptake of CPV solar is difficult to predict,
but could add significant incremental revenues.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
N/A
N/A
N/A
N/A
N/A
11.6
2010A
72.7
13.1
7.6
1.5
17.2
11.9
2011E
75.2
13.7
8.0
1.4
18.4
14.0
Analyst
Dan Ridsdale
2012E
81.7
15.7
8.7
1.4
18.4
N/A
Sector: Financials
Is Private Equity
Price performance
%
Actual
Relative*
1m
9.6
5.2
3m
35.5
24.1
12m
(53.2)
(51.6)
Price:
TRY2.29
Market cap:
TRY115m
Forecast net debt (TRYm)
N/A
N/A
Market
IS
Share price graph (TRY)
(ISGSY)
INVESTMENT SUMMARY
Is PE is a leading private equity firm in Turkey. It has made 13 investments since launch in
2000 and so far has successfully completed seven exits, with the eighth, ODE, yet to close. It
states the completed exits have achieved an average IRR of 23.2% (based on US dollars),
which represents an average exit price of 1.91x the initial investment. The balance sheet is
strong, with minimal debt and around 60% invested in liquid assets, yet the discount to
reported NAV remains attractively large.
INDUSTRY OUTLOOK
The Turkish current account deficit for 2011 came in at 10% of GDP and just 17% was
financed by foreign investment. Inflation is well above the 5% target for 2012 but the current
Company description
Is Private Equity was established in
2000 to provide investment funds and
advice to Turkey's rapidly growing SME
sector.
strength of the lira should ease price pressure. The weak economic situation may well create
new opportunities for investment, using IS Private Equity's strong balance sheet.
Y/E Dec
Revenue
(TRYm)
EBITDA
(TRYm)
2009A
8.2
(2.5)
2010A
17.1
0.8
2011E
N/A
N/A
2012E
N/A
N/A
Price performance
%
Actual
Relative*
1m
18.0
3.4
Analyst
Martyn King
76
3m
3.1
(7.0)
12m
7.0
15.5
PBT
(TRYm)
EPS
(Kr)
P/E
(x)
P/CF
(x)
8.7
17.3
13.2
N/A
12.6
24.8
9.2
15.2
N/A
N/A
N/A
N/A
N/A
N/A
N/A
N/A
23 February 2012
Edison Insight
IS Solutions
Sector: Technology
Price:
Market cap:
Market
39.5p
£10m
0.0
N/A
AIM
(ISL)
INVESTMENT SUMMARY
In a trading update in early February, ISL said FY11 results are expected to be in line with
expectations. The switch in business mix continued as expected into H2, with further growth
in managed service and project revenues combining with a decline in product revenues. This
has resulted in a continued margin improvement. Cash and cash equivalents finished above
£1m, implying net debt was roughly neutral, which is in line with our forecasts. We are
maintaining our forecasts, which we will review again with the finals expected in late March.
INDUSTRY OUTLOOK
ISL has carved out a niche as a specialist systems integrator, offering software products,
projects and managed services to support organisations' internet infrastructures. Demand is
Company description
IS Solutions is a systems integrator
focused on the internet. The group
offers software products, specialist
projects and managed services across
three key areas – portals,
content/document management and
analytics.
supported by the increasing complexity of IT infrastructure and the requirement to integrate
many continually evolving technologies. ISL has established an interesting position in analytics,
which is used by organisations to better understand their online customers. In our view, the
outlook for internet/e-commerce is strong vs the overall IT market.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
9.8
0.8
0.7
2.6
15.2
11.6
2010A
11.0
0.9
0.7
2.7
14.6
15.0
2011E
9.4
1.1
0.9
3.3
12.0
6.9
Analyst
Richard Jeans
2012E
10.9
1.2
1.1
3.7
10.7
7.5
Is Yatirim
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
3m
4.0
(4.8)
12m
(1.2)
2.1
Price:
TRY1.64
Market cap:
TRY426m
0
N/A
Market
IS
(ISMEN)
INVESTMENT SUMMARY
On 14 February Is Yatirim announced FY11 net profit of TRY48.5m. This was only down 9%
y-o-y despite the turbulent markets of 2011. Full consolidated results will be announced by 13
April 2012. The stock currently trades on a 2011e P/E of c 7x, and a 2011e yield of c 4%.
INDUSTRY OUTLOOK
The Turkish current account deficit for 2011 came in at $77bn or 10% of GDP. Total foreign
investment at $13.4bn financed only 17% of the deficit. Inflation was 10.45% (y-o-y) at the end
of 2011, well above the 5% target for 2012. However, the Central Bank Governor explained
that 5% of the 2011 annual inflation came from the weak lira. The current strength of the lira,
should help the fall in inflation, expected through 2012.
Company description
Is Yatirim Menkul Degerler (also known
as Is Investment) offers brokerage,
corporate finance, investment advisory
services and portfolio management
services. It also advises on IPOs.
Y/E Dec
Revenue
(TRYm)
EBITDA
(TRYm)
PBT
(TRYm)
EPS
(Kr)
P/E
(x)
P/CF
(x)
2009A
N/A
N/A
127.4
26.0
6.3
N/A
2010A
N/A
N/A
112.7
24.7
6.6
N/A
2011E
N/A
N/A
79.0
21.8
7.5
N/A
2012E
N/A
N/A
88.5
23.8
6.9
N/A
Price performance
%
Actual
Relative*
1m
18.8
4.1
Analyst
Maana Ruia
23 February 2012
3m
13.1
2.0
12m
(21.0)
(14.8)
77
Edison Insight
Ithaca Energy
Sector: Oil & Gas
Price:
181.5p
Market cap:
£470m
83.6
N/A
Market
AIM
(IAE)
INVESTMENT SUMMARY
Ithaca is set to double production in the coming months with first oil from its Athena field, with
a further step change expected in 2013 from the Greater Stella Area development. Fully
funded for all its developments, and with a $200m UK tax loss pool, the company has offered
investors good value access to low risk reserves in the UK North Sea. This has clearly not
gone unnoticed by the industry with an announcement in January 2012 that Ithaca is in early
stage confidential non-binding acquisition discussions. With a 30% gain following the
acquisition announcement, the shares now trade ahead of our risked valuation of 168p.
INDUSTRY OUTLOOK
Ithaca's acquisition discussions could lead to a second significant takeover of a North Sea
Company description
Ithaca Energy is a Canadian
independent oil and gas company with
exploration, development and
production assets in the UK North Sea.
player in recent months (following Premier Oil's move for EnCore). A 2011 bear market has left
value on the table for investors and we would not be surprised to see further consolidation,
especially among companies seeking/ selling strong tax loss positions.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
101.3
57.5
3.9
2.3
124.4
22.6
2010A
132.4
93.9
43.7
29.5
9.7
6.2
2011E
153.3
101.4
76.8
29.7
9.6
11.7
Analyst
Ian McLelland
2012E
340.2
270.4
226.3
87.6
3.3
8.1
Sector: Financials
Japan Residential Investment Co.
Price performance
%
Actual
Relative*
1m
29.6
24.4
3m
32.5
21.3
Price:
Market cap:
Market
12m
4.4
7.9
60.5p
£113m
115.0
95.0
AIM
(JRIC)
INVESTMENT SUMMARY
Actual portfolio occupancy at end January was 94.6% and the average for the prior 12 months
was 94.8%, vs 93.3% for the equivalent period last year (c 95% is near full occupancy allowing
for typical tenant turnover). The 9% H2 increase in NAV/share was mainly forex driven, but
there was consistent improvement in underlying operational performance. Post recent
refinancing, the weighted average interest cost of JRIC's £133m debt (46% gearing) is 1.91%.
The shares are supported by a c 6% prospective yield and 64.4p mid-year NAV/share. Full
year results are due on 5 March.
INDUSTRY OUTLOOK
The scarcity of new condo supply has seen prices recover to pre-crisis levels and underpin the
Company description
JRIC is a specialist investor in rented
Japanese residential property. It owns a
freehold portfolio of 2,200 apartments,
comprising 51 mainly newer buildings
located in major metropolitan areas
close to train or subway stations.
demand dynamics for mid-range apartments. The asset manager estimates Greater Tokyo
new condo supply at c 41,000 units in 2011, around half the annual supply rate 10 years ago.
October saw a 4.9% y-o-y increase in second-hand condo transactions, while land
transactions were 3.9% ahead (Real Estate Information Network System).
Y/E Nov
Price performance
%
Actual
Relative*
1m
5.2
1.0
Analyst
Roger Leboff
78
3m
14.2
4.5
12m
23.8
28.0
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
17.5
9.4
5.0
4.6
13.2
5.9
2010A
18.1
10.0
5.4
3.7
16.4
7.8
2011E
20.0
11.4
7.9
4.3
14.1
10.6
2012E
N/A
N/A
N/A
N/A
N/A
N/A
23 February 2012
Edison Insight
K3 Business Technology Group
Sector: Technology
Price:
Market cap:
Market
154.0p
£44m
N/A
N/A
AIM
(KBT)
INVESTMENT SUMMARY
The board of K3 has confirmed that it would not be recommending PJ Claesson's (19.5%
shareholder and non-executive director) approach to its shareholders, and consequently he
confirmed that he would not be making an offer for the company. Management has stated that
it continues to undertake a strategic review of the company. The recent AGM statement
confirmed that the board is confident of management meeting expectations for the full year.
NB: FY10 is an 18-month period.
INDUSTRY OUTLOOK
K3 is Microsoft's biggest Dynamics partner in the UK, supplying the retail, distribution and
manufacturing sectors. The provision of solutions with a growing proportion of K3's own IP
Company description
K3 provides Microsoft Dynamics-based,
Sage and SYSPRO ERP solutions and
managed services to SMEs in the retail,
distribution and manufacturing sectors.
differentiates it from other IT service companies and resellers. While the retail and
manufacturing markets are expected to be tough in 2012, K3's Managed Services business is
well positioned to benefit from the growing demand for cloud computing.
Y/E Dec / Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
59.8
10.3
7.6
23.4
6.6
5.2
2011A
52.8
10.6
8.7
27.0
5.7
7.0
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Katherine Thompson
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Technology
KBC Advanced Technologies
Price performance
%
Actual
Relative*
1m
(7.8)
(11.5)
3m
15.8
6.0
Price:
Market cap:
Market
12m
(20.4)
(17.7)
79.0p
£44m
5.5
N/A
AIM
(KBC)
INVESTMENT SUMMARY
KBC’s full-year trading statement confirmed strong ongoing progress in consulting but
slippage of a couple of software deals will result in 2011 EPS being somewhat below
expectations. The litigation certainly did not help, but now that this has been resolved in KBC’s
favour, developing the software business is likely to move higher up the company’s agenda.
Estimates for 2012 are largely unchanged. On these the rating is undemanding, with visibility
on the company’s ability to diversify and replace the Pemex revenues key to securing a
material rerating upwards.
INDUSTRY OUTLOOK
KBC is an independent provider of consultancy services and software tools to the energy and
Company description
KBC is a leading independent
consulting and technology group
delivering competitive advantage to
owners and operators in the oil refining,
petrochemical, and other processing
industries worldwide.
refining industry. While political volatility in the Middle East and North Africa clearly presents
some difficulties, oil price volatility and customer M&A activity should support consulting
activities. The launch of Petro-SIM V4 is helping to drive software sales and associated
consultancy activity.
Y/E Dec / Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
52.6
6.6
5.7
6.5
12.2
17.3
2010A
53.1
6.0
4.9
5.5
14.4
7.5
2011E
56.1
7.6
6.1
6.8
11.6
9.4
2012E
61.0
8.7
6.9
7.4
10.7
4.3
Price performance
%
Actual
Relative*
1m
9.7
5.3
Analyst
Dan Ridsdale
23 February 2012
3m
15.8
6.0
12m
12.9
16.7
79
Edison Insight
KCOM Group
Sector: Technology
Price:
Market cap:
Market
70.0p
£362m
74.5
84.0
FULL
(KCOM)
INVESTMENT SUMMARY
With KCOM’s transformation plan complete, management can focus on delivering organic
growth to the business. Confidence in the outlook is shown by the company’s increased
dividend policy. Our revised estimates imply a DCF valuation of 88p, supported by a good
dividend yield. Interim results showed a few spots of revenue weakness, although the secular
changes causing these also result in stronger EBITDA margins.
INDUSTRY OUTLOOK
Two trends are occurring within the UK fixed-line telecoms industry. First, call volumes among
domestic customers continue their secular decline, driven by a range of competing services.
Second, there remains strong growth potential on the corporate side, as the managed
Company description
KCOM group provides a range of
integrated IT and communications
services to businesses, and internet and
telecommunications services to
selected consumer markets, within the
UK.
services market continues to expand. Growth is being driven by corporate cost-savings plans
and an increasing appetite for simple and flexible solutions. The company has now announced
the build out of a fibre-optic network to facilitate the increase of broadband speeds in the
future.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
412.8
69.8
42.4
7.8
9.0
5.6
2011A
395.4
76.0
50.1
7.5
9.3
3.8
2012E
397.8
77.5
51.6
7.3
9.6
5.5
Analyst
Edwin Lloyd
2013E
405.6
79.6
54.8
7.5
9.3
4.5
Sector: Mining
Kopy Goldfields
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
3m
(6.0)
(14.0)
12m
10.7
14.4
Price:
SEK6.00
Market cap:
SEK56m
Forecast net cash (SEKm)
12.3
N/A
Market NASDAQ OMX First North
Share price graph (SEK)
(KOPY)
INVESTMENT SUMMARY
Kopy has completed an additional 600m of drilling at its Kransy deposit, with grades of up to
8.33g/t over 1m reported. Mineralised zones of 86m at an average 1.5g/t and 39m at an
average 2.45g/t were encountered. A further 2,200m of drilling across 6-7 holes has recently
begun at Krasny. Kopy maintains its long-term ambition of achieving production by 2013. Last
year the company completed a 2.7m share placement to Eldorado Gold Corporation for
SEK29m, giving Eldorado a 29% interest in Kopy. Since Eldorado now sits on Kopy’s technical
committee, we anticipate the expertise of a mid-tier producer to add considerable value to the
company’s long-term ambition of developing 5Moz to support long-term gold production.
INDUSTRY OUTLOOK
Company description
Kopy Goldfields is a gold exploration
of its seven licences in Russia. Together
these cover 255 sq km and have C1,
C2 and P1 reserves/resources of
2.0Moz. The company has JORC
resources of 117koz.
Gold continues to demonstrate its role as a safe-haven investment and store of value at times
of financial turmoil.
Y/E Dec
Revenue
(SEKm)
EBITDA
(SEKm)
2009A
0.5
(4.5)
2010A
0.4
(9.8)
2011E
1.7
(16.9)
2012E
1.7
(16.9)
Price performance
%
Actual
Relative*
1m
9.1
1.5
Analyst
Charles Gibson
80
3m
(26.8)
(37.5)
12m
(68.9)
(68.2)
PBT
(SEKm)
EPS
(öre)
P/E
(x)
P/CF
(x)
(5.6)
(16.2)
N/A
N/A
(13.2)
(284.7)
N/A
N/A
(89.8)
(1387.8)
N/A
N/A
(17.6)
(189.0)
N/A
N/A
23 February 2012
Edison Insight
Lancashire Holdings
Sector: Financials
Price:
785.0p
Market cap:
£1241m
N/A
N/A
Market
FULL
(LRE)
INVESTMENT SUMMARY
Lancashire’s business model differs considerably from that of UK peers. It is very focused on
ROE/RONTA and highly selective in the generally short-tail, low-probability but high-severity
risks that it accepts. Despite a record year of industry catastrophe losses we fully expect
Lancashire to report a good level of return on capital and very solid underwriting profit. Net
losses on Thai flooding of $24-28m and an increase in the Tohoku earthquake loss have been
reported. This continues an an excellent record of controlling risk and exploiting market
opportunities, but share price progress versus more diversified peers with larger balance
sheets and yield support may be difficult.
INDUSTRY OUTLOOK
Company description
Lancashire Holdings is a global specialty
insurance and reinsurance company,
domiciled in Bermuda. It also operates
in London and has a marketing
operation in Dubai.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
678.0
N/A
389.0
205.2
6.0
N/A
2010A
701.0
N/A
340.0
187.0
6.6
N/A
2011E
631.0
N/A
198.0
112.0
11.0
N/A
Analyst
Martyn King
2012E
623.0
N/A
267.0
149.9
8.3
N/A
Lifeline Scientific
Price performance
%
Actual
Relative*
1m
9.7
5.3
3m
1.9
(6.7)
Price:
Market cap:
Market
12m
32.0
36.5
157.5p
£11m
N/A
N/A
AIM
(LSI)
INVESTMENT SUMMARY
In its trading update Lifeline Scientific reports it sold 49 LifePort kidney devices last year
(versus 47 sold in 2010), bringing the total worldwide installed base to 441. In 2012 the
company expects to make investments to expand geographically and develop the liver
transporter, and says operating and product development costs could be well above the 2011
levels and materially higher than expected. After a moderate sales progression over 2011/12,
an acceleration is possible in 2013 thanks to new products and the effect of new business in
the EU, Brazil and maybe China. Our forecasts are under review.
INDUSTRY OUTLOOK
The 2009 machine perfusion study showed improved clinical outcomes from the use of the
Company description
Lifeline Scientific is a US medical
technology company that sells LifePort
units for kidney graft preservation and
transport, plus consumables and
preservation solutions. The business is
US focused, and expansion in the EU,
Brazil and China is under way.
LifePort kidney transporter, and other papers have shown overall cost savings. Lifeline has a
high share of the organ static preservation market with its SPS-1 solution.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
18.3
3.3
3.0
19.7
12.6
26.0
2010A
23.2
5.0
2.7
13.5
18.4
10.3
2011E
N/A
N/A
N/A
N/A
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
(10.8)
(14.3)
Analyst
Jacob Plieth
23 February 2012
3m
(12.5)
(19.9)
12m
(33.7)
(31.4)
81
Edison Insight
Lo-Q
Sector: Technology
Price:
Market cap:
Market
242.5p
£42m
8.5
N/A
AIM
(LOQ)
INVESTMENT SUMMARY
Since joining in October 2010, CEO Tom Burnet has injected new life into Lo-Q. Q-bots were
installed in several additional theme parks in 2011, Legoland Deutschland has signed up and a
new contract with Six Flags underpins revenues for six years. A new market has been
established in water parks and the deal with Splish Splash highlights the interest beyond Six
Flags. MasterCard provides Lo-Q with a strong partner in cashless payments and should
strengthen the appeal of Lo-Q’s solutions. Hence, the stock looks attractive, with good
potential for upgrades, trading on 17x our FY12 earnings, falling to 15x in FY13.
INDUSTRY OUTLOOK
Lo-Q designs, installs and operates virtual queuing systems, which are deployed on a
Company description
Lo-Q is a technology provider to
operators of theme parks, water parks
and other leisure attractions. The group
designs, installs and operates virtual
queuing systems that allow guests
make reservations for rides and shows
without waiting in a physical queue.
revenue-share basis with theme parks and other attractions. Some 14 years have been spent
developing these technologies, many of which are patent protected. The group’s Q-bot
products are used by four of the 10 largest theme park operators globally, while the newer
Q-band is opening up new markets, including water parks.
Y/E Oct
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
20.3
2.5
2.4
12.0
20.2
13.0
2011A
24.5
3.1
2.8
12.1
20.0
14.1
2012E
30.4
4.2
3.4
14.0
17.3
9.3
Analyst
Richard Jeans
2013E
34.1
4.7
3.7
15.2
16.0
9.0
Sector: Oil & Gas
Lochard Energy
Price performance
%
Actual
Relative*
1m
18.9
14.1
3m
31.4
20.3
12m
67.8
73.5
Price:
10.9p
Market cap:
£30m
N/A
N/A
Market
AIM, ASX
(LHD)
INVESTMENT SUMMARY
Lochard recently raised £3.38m after it lost a court case with Senergy in December 2011 that
could cost it $3.5-12.2m. Meanwhile, delays with the FPSO have pushed out Athena first oil to
April 2012. However, Athena's first oil is still a significant milestone and ramping production up
will be the focus for 2012. The data room for Thunderball was closed in December 2011 with
Lochard looking to farm out c 50% of its working interest. Once farmed out, Lochard hopes to
drill the prospect this year. It is also looking to open a data room for its Moby prospect in
March with expectations of a farm out for an appraisal well in 2013. Our forecasts are under
review pending greater visibility of the Senergy court decision.
INDUSTRY OUTLOOK
Company description
Lochard Energy Group is an oil and gas
exploration, appraisal and development
company with assets in the North Sea.
Its development portfolio comprises oil
in the Outer Moray Firth with additional
exploration assets along the UKCS.
With Athena coming on stream in H112 and assuming Thunderball and Moby are farmed out,
we would expect Lochard to be well positioned in 2012 to execute its strategy free of the
funding constraints that some other North Sea operators are under.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
0.0
(3.6)
(5.6)
(2.3)
N/A
N/A
2011A
0.0
(4.3)
(4.4)
(1.7)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
20.8
16.0
Analyst
Ian McLelland
82
3m
(8.4)
(16.2)
12m
(22.3)
(19.7)
23 February 2012
Edison Insight
Price:
Market cap:
Market
0.9p
£38m
7.7
N/A
AIM
Lombard Medical Technologies
(LMT)
INVESTMENT SUMMARY
Lombard Medical is focusing on the final stages of the US approval process for Aorfix, its
abdominal aortic aneurysm (AAA) device, which could be approved in the US by the end of Q3
of 2012. Data presented at the International Symposium on Endovascular Therapy on a
62-patient roll-in group from the US PYTHAGORAS regulatory study showed no leakage, no
graft migration or fracture, and sac shrinkage (or no change in sac growth). Most neck
angulations were above 45º - a "challenging" aneurysm anatomy - and the data support the
use of Aorfix in a wider patient population than competing devices. In January Ian Ardill was
named CFO.
INDUSTRY OUTLOOK
Company description
Lombard Medical Technologies is a
manufacturer and supplier of
cardiovascular implants. The principal
product, Aorfix, is a flexible
endovascular stent graft for the
treatment of abdominal aortic aneurysm
(AAA).
Lombard will compete with larger US corporations to achieve further penetration in the $1.1bn
global AAA market on the basis of US FDA approval for Aorfix. The unique high-angle (60-90º)
claim and clinical evidence provide a potentially competitive edge for Aorfix in the endovascular
aneurysm repair-receptive US market.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
2.4
(7.4)
(7.8)
(0.8)
N/A
N/A
2010A
3.0
(8.4)
(8.4)
(0.4)
N/A
N/A
2011E
4.1
(10.4)
(10.4)
(0.3)
N/A
N/A
Analyst
Jacob Plieth
2012E
6.0
(11.8)
(11.9)
(0.3)
N/A
N/A
Lookers
Price performance
%
Actual
Relative*
1m
22.6
17.6
3m
69.6
55.3
Price:
Market cap:
Market
12m
(41.5)
(39.6)
57.5p
£221m
32.1
15.0
FULL
(LOOK)
INVESTMENT SUMMARY
Lookers is expected to have sustained profits in 2011, despite the reduction in UK retail
registrations and challenging consumer market. We still look for increased underlying profits,
stemming from increased market share and increased efficiency. Management has been
strengthened in recent years, while negotiations have been concluded with the group's
bankers, reducing borrowing costs in 2012. The group's above-average involvement with the
after-market sector (61% of gross profits) justifies an above-average sector rating.
INDUSTRY OUTLOOK
City sentiment towards the motor distribution sector remains cautious. Fears about
current-year trading remain, overshadowing the action taken by leading retailers to build their
Company description
Lookers is one of the leading UK motor
vehicle distributors operating 111
outlets covering 28 marques.
Management is ambitious and the
group is set to grow strongly over the
medium term.
downstream activities. SMMT forecasts suggest little change in new vehicle registrations,
although the retail content is falling to the detriment of dealership margins. Profits are under
continued pressure in the short term, but this provides acquisition opportunities for the larger
groups.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
1749.0
53.4
28.3
7.1
8.1
8.2
2010A
1884.0
54.7
33.6
6.5
8.8
4.5
2011E
1950.0
55.5
34.5
6.7
8.6
3.9
2012E
2000.0
54.5
35.0
6.8
8.5
4.5
Price performance
%
Actual
Relative*
1m
16.2
11.5
Analyst
Nigel Harrison
23 February 2012
3m
12.8
3.2
12m
(8.7)
(5.7)
83
Edison Insight
Sector: Construction & Blding Mat.
Price:
Market cap:
Market
61.8p
£178m
75.7
40.0
AIM
Low & Bonar
(LWB)
INVESTMENT SUMMARY
FY11 results reflected previous management comments. Four of the six sectors served grew
revenues in the 14-20% range with Leisure (especially artificial grass yarns) providing the only
minor drag. Higher polymer prices took longer to recover in Technical Coated Fabrics but
margins moved ahead in Performance Technical Textiles and for the group as a whole during
the year. Plans to become a more global player in performance materials are progressing and
further investment in group infrastructure is being made to sustain the product development
pipeline and extend business reach.
INDUSTRY OUTLOOK
Management aims to double earnings within four years to 2013, representing organic growth
Company description
Low & Bonar produces yarns and
fabrics for a variety of end markets by
combining polymers with specialty
additives and pigments. It operates as
two divisions: Performance Technical
Textiles (70% FY10 revenues) and
Technical Coated Fabrics (30%).
of c 15% pa, derived from a flagged 10% return on sales and a revenue uplift in excess of
GDP growth. With sector diversity, some of this will come from the cycle and company
initiatives with new products and markets are also expected to be key drivers.
Y/E Nov
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
344.6
39.8
20.9
5.2
11.9
5.3
2011A
388.7
43.8
24.6
6.7
9.2
6.8
2012E
403.9
47.5
27.4
7.1
8.7
3.9
Analyst
Toby Thorrington
2013E
427.5
50.3
30.4
7.9
7.8
4.3
Sector: Property
LSL Property Services
Price performance
%
Actual
Relative*
1m
40.3
34.7
3m
41.1
29.2
Price:
Market cap:
Market
12m
(2.4)
0.9
242.5p
£253m
51.5
78.0
FULL
(LSL)
INVESTMENT SUMMARY
Q3 trading was satisfactory. Estate agency benefited from upgraded branch management and
the call centre and there were strong increases in lettings, financial services income and new
private buyer surveys. The Marsh & Parsons acquisition adds important London coverage to
the estate agency network and an ambitious management team incentivised to continue to
grow profits. The fit looks highly complementary on purchase terms expected to enhance
earnings in FY12. In December LSL confirmed that its surveying contract with Barclays Bank
had been renewed until mid 2014. Results are due 1 March.
INDUSTRY OUTLOOK
LSL's England & Wales house price index for January 2012 revealed a 1.4% y-o-y fall in
Company description
LSL Property Services is one of the
UK's leading residential property
services companies and its second
biggest estate agency chain. It provides
a broad range of services to corporate
(mortgage lenders) and retail clients.
prices, offset by a 5.1% increase in transaction levels and 20% y-o-y growth in aggregate
mortgage lending. Mortgage approvals in January were 58,610, 29% ahead of January 2011.
That reflects growth in high loan-to-value loans for first-time buyers, plus activity ahead of the
end of the stamp duty holiday in March.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
2009A
158.2
29.7
26.2
20.7
11.7
8.1
2010A
208.3
33.7
30.2
20.5
11.8
14.6
2011E
210.8
32.6
29.1
19.8
12.2
8.7
2012E
247.9
40.5
34.2
23.2
10.5
4.8
Price performance
%
Actual
Relative*
1m
(3.2)
(7.1)
Analyst
Roger Leboff
84
3m
7.8
(1.3)
12m
(6.1)
(3.0)
P/CF
(x)
23 February 2012
Edison Insight
Madagascar Oil
Sector: Oil & Gas
Price:
Market cap:
Market
29.1p
£56m
41.7
N/A
AIM
(MOIL)
INVESTMENT SUMMARY
Madagascar Oil's share price remains depressed despite resource estimates of 1.1bn barrels
from its Tsimiroro field and a recent $26.5m fund raise, leaving the company fully funded
through to August 2014. Even with highly conservative economic assumptions, we see a 10x
current share price core valuation of 276p based on development of Tsimiroro. At the heart of
the valuation disconnect is a lingering hangover from a licence dispute that saw 60% of MOIL's
share price wiped out, and general market unease as to commerciality of Tsimiroro. With the
Tsimiroro licence issue now resolved, the key value driver is the 2012 steam-flooding pilot to
prove commerciality for what could be a truly transformational investment, albeit with
significant execution risk.
Company description
Madagascar Oil holds the largest
position in onshore exploration and
development in Madagascar.
INDUSTRY OUTLOOK
Steam flooding, although common in the US, remains largely untested in other regions.
Success with the Tsimiroro pilot could not only unlock value for MOIL shareholders but open
up heavy oil plays in other parts of Africa and beyond.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
(3.4)
(3.6)
(3.0)
N/A
N/A
2010A
0.0
(10.7)
(11.3)
(8.2)
N/A
N/A
2011E
0.0
(11.6)
(11.9)
(6.1)
N/A
N/A
Analyst
Ian McLelland
2012E
0.0
(12.3)
(11.0)
(5.6)
N/A
N/A
Marti Otel Isletmeleri
Price performance
%
Actual
Relative*
1m
9.9
5.5
3m
16.5
6.6
12m
(60.6)
(59.3)
Price:
TRY0.78
Market cap:
TRY68m
N/A
N/A
Market
IS
(MARTI)
INVESTMENT SUMMARY
While core resort hotels delivered bumper returns (EBITDA up over 50% on RevPAR up by a
third) in the key summer half, higher than expected financial expenses (notably, foreign
exchange losses), central costs and low-season losses will weigh on the full-year out-turn, as
will delays in real estate gains (we are reviewing our forecasts). Early evidence of earnings and
project slips does not derail Marti Otel’s investment case but caution may be justified until
there is clearer sight of key new ventures (particularly Istanbul), which are driving the forecast
step-change in hotel profits next year.
INDUSTRY OUTLOOK
Turkey is proving to be a strong beneficiary of the re-shaping of programmes by tour operators
Company description
Marti Otel is a long-established owner
and operator of resort hotels and a
marina on Turkey's south-west coast.
Its 48%-held subsidiary Marti REIT is
developing a major residential park near
Istanbul. The company has ambitious
growth plans.
in response to the unrest in North Africa. This development complements the tour operators’
strategic move away from the mature commodity package to higher margin
differentiated/unique holidays for which Turkey, and indeed Marti, with its upscale offering, are
well suited. Foreign visitors to Turkey were up by 10% in 2011.
Y/E Mar
Price performance
%
Actual
Relative*
1m
14.7
0.5
Analyst
Richard Finch
23 February 2012
3m
(4.9)
(14.2)
12m
(32.8)
(27.4)
Revenue
(TRYm)
EBITDA
(TRYm)
PBT
(TRYm)
EPS (fd)
(Kr)
P/E
(x)
P/CF
(x)
2010A
45.6
7.0
5.4
3.90
20.0
5.3
2011A
55.8
(0.4)
(3.3)
(6.20)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
2013E
N/A
N/A
N/A
N/A
N/A
N/A
85
Edison Insight
Marti REIT
Sector: Property
Price:
TRY0.71
Market cap:
TRY78m
Forecast net cash (TRYm)
5.9
N/A
Market
IS
(MRGYO)
INVESTMENT SUMMARY
We are reviewing forecasts to reflect the Q3 results and construction delays that will push back
revenues for both hotel operation and residential sales. The core proposition, however,
remains intact. Underlying hotel performance has been solid and the first nine months saw
progress towards Marti REIT's medium-term target of 4,000 bed capacity/US$20m pa rental
income hotel portfolio, and in securing later phases of the Narin Park housing project in
Çerkezköy, outside Istanbul. The group has engaged architects for phases two and three of
this project and plans to start marketing phase two in Q4.
INDUSTRY OUTLOOK
The portfolio (operating and planned) is diversified between hotel ownership and residential
Company description
Marti REIT (GYO) owns an investment
and development portfolio of hotels in
some of Turkey's most popular tourist
destinations, and a residential
development scheme in Çerkezköy, a
suburb of Istanbul.
development. The part renovation of Myra was behind increases in room rates in 2011, with
another 200 rooms ready for summer 2012. The hotels are in areas (Antalya) popular with
Russians (last summer 43% of visitors were from Russia against just 6% from the UK).
Y/E Mar
Revenue
(TRYm)
EBITDA
(TRYm)
PBT
(TRYm)
EPS
(Kr)
P/E
(x)
P/CF
(x)
2009A
7.8
3.1
3.3
6.0
11.8
N/A
2010A
10.0
2.1
1.8
3.3
21.5
3.7
2011E
19.1
7.1
7.5
8.9
8.0
N/A
Analyst
Roger Leboff
2012E
39.4
7.2
6.6
6.0
11.8
4.7
Matchtech Group
Price performance
%
Actual
Relative*
1m
20.3
5.4
3m
2.9
(7.2)
Price:
Market cap:
Market
12m
(35.5)
(30.3)
207.5p
£49m
16.0
60.0
AIM
(MTEC)
INVESTMENT SUMMARY
Matchtech’s H112 trading update outlined NFI up 25% over H111, with the associated higher
headcount in place for the full half. With the trading environment remaining uncertain, we
lowered our sights on permanent recruitment prospects and edged our profit numbers down
by 8%. Matchtech has paid £0.4m for some of the recruitment arm of XChanging, allowing for
closer links and giving scope to broaden sales. The statement indicates other modest
expansion opportunities, particularly overseas. The shares are on a relatively modest rating
with premium, and safe, yield.
INDUSTRY OUTLOOK
The economic background remains weak, as is reflected in the stuttering reported in the latest
Company description
Matchtech Group has grown into one of
the UK's leading technical, professional
and outsourcing recruitment groups.
Split into four business units, each a
solutions specialist in its area of
recruitment in providing contract,
temporary and permanent staff.
REC/KPMG Report on Jobs for January, which relates the first decline in temp billings since
July 2009 and the third successive month of a slight fall back in permanent placements.
Demand for highly skilled individuals continues to outstrip supply, with engineering the
strongest performing category in the Monster UK Employment Index over the course of 2011.
Y/E Jul
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
2010A
264.4
9.3
8.6
2011A
301.8
7.3
6.4
2012E
336.3
9.4
2013E
353.1
10.4
Price performance
%
Actual
Relative*
1m
(1.7)
(5.6)
3m
(3.5)
(11.7)
Analyst
86
12m
(4.2)
(0.9)
P/E
(x)
P/CF
(x)
25.4
8.2
12.6
20.2
10.3
N/A
8.3
25.8
8.0
6.7
9.3
29.1
7.1
5.4
23 February 2012
Edison Insight
MCB Finance Group
Sector: Financials
Price:
Market cap:
Market
69.0p
£12m
3.4
24.0
AIM
(MCRB)
INVESTMENT SUMMARY
MCB Finance Group (MCB) has survived the credit crunch and was profitable throughout in all
countries except Latvia. Its internet-based loan offering in the Fenno-Baltic region is delivering
strong growth and operational gearing. As well as good GDP growth in the region, the product
is under-penetrated and MCB can grow by geography, product and retailer distribution. Credit
controls have been enhanced and there are no lead signs of deterioration in the book. Funding
has been secured until March 2014. The 2011 results saw estimates upgraded further. MCB's
P/E is less than half of peers, unjustified by its growth opportunities.
INDUSTRY OUTLOOK
After GDP falls in 2009, ranging from 8% in Finland to 18% in Latvia, economic growth is now
Company description
MCB Finance Group is a leading online
provider of short- and medium-term
loans to customers in Finland, Estonia,
Latvia and Lithuania using the Credit24
brand.
forecast (IMF 2011 estimates are c 3-6% regional real GDP growth, and c 2-3% falls in
unemployment). The crisis led to more rational market-lending practices, especially in Latvia.
These conditions are highly favourable to statistically-modelled lenders.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
11.1
0.6
0.5
1.24
66.7
13.1
2011A
17.0
3.6
3.6
17.26
4.8
N/A
2012E
23.2
5.0
4.9
20.95
3.9
N/A
Analyst
Mark Thomas
2013E
26.2
5.7
5.7
24.08
3.4
N/A
Sector: Mining
MDM Engineering
Price performance
%
Actual
Relative*
1m
26.6
21.5
3m
72.5
57.9
Price:
Market cap:
Market
12m
193.6
203.5
96.5p
£36m
15.4
N/A
AIM
(MDM)
INVESTMENT SUMMARY
MDM’s return to profitability over the last 12 months comes on the back of seven execution
projects representing c US$600m of confirmed contract value work with leading mining
industry names. Management points to a pipeline of potential projects valued at c
US$1.5-2.0bn that are in different stages of development. This will allow resources to be
efficiently deployed and will ensure a steady workload over the next 18 months. MDM is now
working with an increasingly blue-chip client base, including companies such as ENRC,
Metorex, Gold Fields and African Barrick Gold, which all have projects in Africa and beyond.
INDUSTRY OUTLOOK
Copper, one of the mining sector's bellwethers, has rallied 16% in the last six weeks and
Company description
MDM Engineering is a metallurgical
engineering company established in
February 2006. It undertakes mineral
resources projects of varying size and
concentrates on the gold, base metals,
industrial metals and diamond sectors.
recently touched a four month peak of $3.85/lb. Given that MDM's market ultimately depends
on the capital expenditure by mining companies, this increased bullishness in the commodities
market only provides more good news.
Y/E Dec / Mar
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
Analyst
Rory Draper
23 February 2012
3m
1.1
(7.5)
12m
(13.1)
(10.1)
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
33.2
4.2
5.0
9.2
16.5
N/A
2011A
20.8
(2.3)
(2.3)
(3.6)
N/A
7.1
2012E
70.3
5.5
5.6
12.8
11.9
144.0
2013E
44.7
5.8
5.9
11.9
12.8
5.6
87
Edison Insight
Price:
Market cap:
Market
€2.20
€21m
8.8
69.0
MAB
Medcom Tech
(MED)
INVESTMENT SUMMARY
Revenues grew by 20% to €12.3m in H111. This marked a rapid return to growth after sales
fell by 8% in H210 and despite the market shrinking by over 10%. The growth was driven by
an increase in its salesforce and the quality of its portfolio. Its growth prospects have also been
expanded by the formation of Italian and Portuguese subsidiaries. However, deteriorating
payment terms with hospitals and associated working capital constraints will affect its growth
rate in the short term. Medcom Tech is now only promoting new products to hospitals that pay
within 120 days, which account for c 60% of its sales. It is also reducing its inventory levels
after implementing a SAP system to improve its working capital efficiency.
INDUSTRY OUTLOOK
Company description
Medcom Tech distributes a wide range
of innovative orthopaedic products
across Spain, Portugal and Italy. Its
portfolio includes knee and hip implants,
plates and screws to repair bone and
spine fractures, and advanced types of
bone cement.
The Spanish orthopaedic market was estimated to be worth €350m in 2008. The market was
growing c 5% each year, but it is currently falling by over 10% because deficit reduction
measures. The growth drivers offsetting budget constraints are the ageing population, political
pressure and technical innovations.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
10.1
2.8
2.1
23.9
9.2
N/A
2010A
12.3
2.5
1.8
16.3
13.5
N/A
2011E
14.8
1.8
0.8
8.8
25.0
N/A
Analyst
Mick Cooper
2012E
17.9
3.7
2.5
20.2
10.9
9.1
Sector: Property
MedicX Fund Limited
Price performance
%
Actual
Relative*
1m
N/A
N/A
3m
N/A
N/A
Price:
Market cap:
Market
12m
N/A
N/A
72.0p
£139m
124.0
82.0
FULL
(MXF)
INVESTMENT SUMMARY
January's IMS confirmed further acquisitions and new construction in Q1. The end December
2011 portfolio valuation was £246.7m, a 5.87% net initial yield and £0.9m underlying increase
over the quarter. MedicX has resources to fund further growth ie £15m of cash/£30m of
undrawn debt and at end Q1, agreed terms on a new £50m 20-year facility with Aviva. It has
an £86.5m pipeline of investment opportunities, £29.8m already approved. A c £45m open
offer, placing and offer for subscription is underway, with dealings due to start towards end
February. We will revise forecasts then.
INDUSTRY OUTLOOK
The Health & Social Care Bill seeks to transfer budget responsibility from PCTs to GPs over the
Company description
MedicX Fund is a specialist investor in
primary care infrastructure. It holds a
portfolio of 58 properties (including six
under construction and two due to get
underway this year), let mainly to
government funded (NHS) tenants and
pharmacies.
next two years and pressure on the NHS to extract better returns from a finite budget should
prompt further modernisation of the primary care estate, positive news for sector investors
such as MedicX. A March 2010 BMA report stated that 60% of GPs still work from unsuitable
premises, with 75% unhappy with their premises.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
11.1
7.7
2.7
2.2
32.7
12.5
2011A
12.5
9.0
4.1
2.4
30.0
13.9
2012E
15.0
11.4
6.0
2.8
25.7
17.2
2013E
16.9
14.0
6.5
2.7
26.7
12.0
Price performance
%
Actual
Relative*
1m
(3.8)
(7.7)
Analyst
Roger Leboff
88
3m
(3.0)
(11.2)
12m
(0.2)
3.2
23 February 2012
Edison Insight
Price:
€1.28
Market cap:
€48m
11.6
N/A
Market
Deutsche Borse
MediGene
(MDG)
INVESTMENT SUMMARY
The upside for MediGene hinges on a successful partnering deal for EndoTAG-1 and perhaps
RhuDex, its principal R&D assets. Because of legacy issues partnering EndoTAG-1 has been
played down, but this should not detract from recently published Phase II study data, which
demonstrated a positive effect on median overall survival in triple-negative breast cancer.
Meanwhile, a dynamically designed clinical formulation study of RhuDex, a rheumatoid arthritis
project, began recently and should yield data around the middle of this year.
INDUSTRY OUTLOOK
MediGene is well funded, with a revenue line from Eligard (hormone-resistant prostate cancer)
and Veregen (genital warts), two projects it developed and licensed out for marketing.
Company description
MediGene is a German biotech
company with a focus on cancer and
autoimmune diseases. It was floated in
2000, and has two marketed products:
Eligard, for treating prostate cancer, and
Veregen, for genital warts.
Partnering, the launch of Veregen in another 17 European markets and the use of cash for
licensing activity or M&A underscores the investment case.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
2.8
(24.1)
(26.3)
(77.0)
N/A
N/A
2010A
2.3
(17.3)
(17.3)
(47.2)
N/A
N/A
2011E
4.1
(11.4)
(13.4)
(33.3)
N/A
7.4
Analyst
Jacob Plieth
2012E
5.0
(11.8)
(12.2)
(30.1)
N/A
N/A
Meggitt
Price performance
%
Actual
Relative*
1m
24.3
14.9
3m
28.5
9.8
12m
(49.5)
(45.4)
Price:
386.3p
Market cap:
£3008m
N/A
N/A
Market
FULL
(MGGT)
INVESTMENT SUMMARY
Meggitt’s IMS demonstrated that the main drivers witnessed at the interims have continued,
with good order intake and revenue progression. The core organic growth across the group
and contribution of PSA provides an engine to deliver double-digit revenue growth through to
2012. While there is an increased headwind as a result of the strength in the Swiss franc and
margin erosion caused by a higher OE mix, we believe the on-track synergies from PSA
partially mitigate this. As a result, we feel confident our two-year EPS CAGR forecast of c 11%
per year is achievable. Prelims are due 6 March.
INDUSTRY OUTLOOK
The resumption of growth is now in train with all Meggitt's end-markets. In particular, we
Company description
Meggitt is a leading international
company specialising in high
performance components and
sub-systems for aerospace, defence
and energy markets.
highlight management's expectations for the higher margin civil aftermarket to grow at a
compound rate of 8-9% over the next five years. The lower growth areas are in military, but
Meggitt feels it is well positioned for individual platforms.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
1151.0
340.0
234.0
25.3
15.3
8.2
2010A
1162.0
333.0
256.0
27.5
14.0
8.5
2011E
N/A
N/A
N/A
N/A
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
2.9
(1.3)
Analyst
Roger Johnston
23 February 2012
3m
(0.8)
(9.2)
12m
11.5
15.2
89
Edison Insight
Minera IRL
Sector: Mining
Price:
71.0p
Market cap:
£85m
6.5
N/A
Market
AIM, BVL, TSX
(MIRL)
INVESTMENT SUMMARY
A feasibility study at the Don Nicholas project forecasts commencement of production from an
open pit operation in Q413. Treatment of 350,000 tpa is expected to produce 52,400oz Au
and 56,000oz Ag per annum over 3.6 years. Cash costs per oz are US$528/oz net of silver
credits. At a gold price of US$1,250/oz and discount rate of 5% the project has a Net Present
Value of US$44.7m pre-tax and US$25.1m post-tax. This rises to US$82.2m pre-tax and
US$48m post-tax at a higher gold price of US$1,500/oz. A 12,000m RC drilling campaign
beginning at the Martinetas district in March has the potential to extend the project’s mine life.
A study assessing potential for heap leach treatment of low grade ore is due for completion in
H212.
Company description
Minera IRL is a gold producer and
explorer with assets in Peru and
Argentina. Its flagship project is the
2.6Moz Ollachea gold project in Peru,
which is anticipated to produce at rate
of c 120,000oz from late 2014.
INDUSTRY OUTLOOK
Assuming that Corihuarmi continues to produce through to 2015 and Ollachea comes on line
in 2014, we estimate a current value to Minera IRL’s investors of £0.94 (C$1.48) per share at
our long-term gold price of US$1,350/oz and using a discount rate of 10%.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
31.9
6.4
6.0
4.7
23.8
4.8
2010A
41.1
10.0
9.4
5.2
21.5
10.9
2011E
51.7
15.5
15.2
6.8
16.5
6.0
Analyst
Charles Gibson
2012E
43.0
10.3
10.4
5.6
20.0
7.7
Sector: Engineering
Molins
Price performance
%
Actual
Relative*
1m
4.4
0.2
3m
2.2
(6.5)
Price:
Market cap:
Market
12m
(11.2)
(8.3)
115.0p
£23m
7.1
N/A
FULL
(MLIN)
INVESTMENT SUMMARY
The October IMS reinforced the positive interim statement, showing doubled underlying
pre-tax profits and an increased order intake. Satisfactory margins were reported on the new
orders. Current management action has the propensity to lift returns further over the medium
term, despite the continuing challenging trading climate. A rating less than half that of leading
UK-based global capital goods manufacturers recognises the obvious differences in size and
the trading record, but ignores an above-average yield and an asset value of 248p per share,
including 30p cash.
INDUSTRY OUTLOOK
The UK capital goods market has changed materially in the past few years, with the more
Company description
Molins is a specialist engineering group
supplying processing and packaging
machinery, and scientific services to the
global tobacco, pharmaceutical and
FMCG industries.
successful businesses anticipating and responding to specific customer problems. Many
companies, including Molins, have transferred their manufacturing operations to lower-cost
countries in an attempt to maintain competitiveness. The tobacco products industry is under
political pressure in many developed markets, but worldwide consumption continues to rise.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
83.8
6.6
3.4
10.6
10.8
2.7
2010A
86.4
7.0
3.6
13.1
8.8
1.8
2011E
89.0
7.8
4.3
15.4
7.5
3.9
2012E
90.0
8.0
4.3
15.4
7.5
2.6
Price performance
%
Actual
Relative*
1m
16.8
12.1
Analyst
Nigel Harrison
90
3m
22.3
12.0
12m
55.4
60.6
23 February 2012
Edison Insight
Price:
€2.48
Market cap:
€11m
13.4
72.0
Market
Milan Stock Exchange
Mondo TV
(MTVI)
INVESTMENT SUMMARY
Mondo TV made good progress both operationally and financially in 2011, but economic
headwinds prompted management to announce a revised business plan for 2012-13 on 25
January. We reduced our EBITDA numbers in line with the new plan (skewed to 2013) while
PBT also depends on amortisations. The timeline of deliveries still points to a big payback in
2013. The proposed capital increase of €11.3m, partially guaranteed by the major shareholder,
will strengthen the balance sheet but overhangs the shares until resolved. Final results are on
27 March.
INDUSTRY OUTLOOK
The traditional animation business model based on TV sales has become extremely difficult
Company description
Mondo TV is a leading Italian producer
and distributor of animated TV series
and feature-length cartoons. It also
licenses and merchandises its rights
through home video, music, multimedia
productions and publishing.
due to pressure on broadcaster budgets, and this also affects high-margin library sales.
Successful cartoons have enormous global licensing appeal, although the present retail
environment is very tough. Mondo TV is partnering large and successful toy companies, such
as Giochi Preziosi and MEG, who are keen to promote new toys and characters with cartoons.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
10.3
2.2
(1.1)
(24.1)
N/A
1.7
2010A
16.5
4.1
(0.2)
8.0
31.0
6.7
2011E
20.0
9.5
0.8
14.5
17.1
2.0
Analyst
Jane Anscombe
2012E
19.0
7.2
0.2
3.4
72.9
1.7
Sector: Technology
Monitise
(MONI)
Price performance
%
Actual
Relative*
1m
7.0
(1.4)
3m
(27.1)
(33.5)
Price:
Market cap:
Market
12m
(61.7)
(48.2)
39.0p
£315m
24.9
N/A
AIM
INVESTMENT SUMMARY
Monitise reported strong H112 revenues, gross margins and order intake driving raised FY12
revenue guidance (from £28m to £34m). The company recently hit several milestones that
move it closer to user generated revenues from key contracts (Visa DPS service launched,
RBS/Natwest business user app launched). Monitise is using revenue upside, growing profits
from Live Operations and cash from equity investments to accelerate investment in the
fast-moving mobile money market. Until profitability is reached (FY14 target), we expect the
share price to move with the achievement of key milestones that drive or demonstrate user
adoption.
INDUSTRY OUTLOOK
Company description
Monitise provides a mass market
technology platform that enables banks,
card schemes and other financial
providers to offer mobile banking and
payment services.
With over five billion mobile phone connections globally, handset-based services such as
mobile banking continue to show strong growth. For example, mobile banking in the UK is
showing fast adoption, with over five million users. Further growth is likely from the use of
mobile phones for retail payments and as mobile wallets for those without bank accounts.
Y/E Jun
Price performance
%
Actual
Relative*
1m
38.0
32.5
Analyst
Katherine Thompson
23 February 2012
3m
7.6
(1.5)
12m
44.4
49.3
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
6.0
(13.2)
(14.0)
(3.0)
N/A
N/A
2011A
14.0
(14.8)
(15.2)
(1.8)
N/A
N/A
2012E
34.0
(14.0)
(15.9)
(2.1)
N/A
N/A
2013E
46.9
(5.1)
(7.2)
(0.9)
N/A
N/A
91
Edison Insight
Price:
Market cap:
Market
€18.40
€424m
132.8
N/A
FRA
MorphoSys
(MOR)
INVESTMENT SUMMARY
MorphoSys is a profitable biotechnology company with a broad portfolio of products and
partnerships based on its HuCAL antibody platform. It earns c €40m pa from its 10-year
collaboration with Novartis. MorphoSys has also launched a new antibody platform, Ylanthia,
so it could form major new alliances. It has 18 products in clinical studies, three of which are
proprietary (MOR202 started a Phase I/II study in relapsed or refractory multiple myeloma in
Q211), and c 60 more programmes in discovery and preclinical development. Data from a
Phase II study in rheumatoid arthritis with its lead unpartnered product, MOR103, in H112
could lead to the product being out-licensed. MorphoSys had cash of €143m at the end of
Q311.
Company description
MorphoSys is a German biotechnology
company. It uses its proprietary
technologies to develop human
antibodies for therapeutic use across a
range of indications. It also develops
diagnostic antibodies and sells
antibodies for use in research.
INDUSTRY OUTLOOK
The pharmaceutical industry is out-licensing more drug discovery and developing more
biological products, as it looks to increase R&D productivity and to create better products that
are more resistant to generic competition. Both trends should benefit MorphoSys.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
81.0
16.8
17.1
56.5
32.6
N/A
2010A
87.0
16.0
17.9
59.2
31.1
91.4
2011E
103.0
18.2
18.7
55.4
33.2
13.6
Analyst
Mick Cooper
2012E
77.5
6.0
6.4
25.2
73.0
77.2
Motive Television
Price performance
%
Actual
Relative*
1m
(4.3)
(11.5)
3m
11.2
(5.0)
Price:
Market cap:
Market
12m
(5.9)
1.8
0.2p
£6m
2.8
136.0
AIM
2009A
(MTV)
INVESTMENT SUMMARY
In its trading update (16 January) Motive confirmed that it would meet 2011 market forecasts.
In 2012 there will be further pilots, tests and development projects with major broadcasters.
Digiturk, its second potential customer (after Mediaset) has begun integrated system
acceptance testing and should be ready for launch soon, but for now, prospects are better in
the USA than Europe.
INDUSTRY OUTLOOK
Motive is a global TV technology, software and services provider. It combines two technologies
into a single platform branded as Television Anytime Anywhere. Television Anytime offers the
global broadcasting industry a technology for distributing and managing content on a
Company description
Motive Television is a digital TV,
technology software and services
provider, offering TV broadcasters a
‘Television Anytime Anywhere’ platform
as a basis for earning new revenues
from existing and new content.
non-linear basis, with no need for the internet. Television Anywhere allows any mobile or
internet connected device to connect to an STB or internet-connected TV from any location.
Video2Go, launched in November, allows programmes to be watched on an iPad without the
need for an internet connection, opening up a new (industrial) market.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
1.0
(0.7)
(0.7)
(0.15)
N/A
N/A
2010A
1.3
(1.0)
(1.2)
(0.09)
N/A
N/A
2011E
2.3
(2.4)
(3.1)
(0.07)
N/A
N/A
2012E
6.8
(0.4)
(1.1)
(0.01)
N/A
N/A
Price performance
%
Actual
Relative*
1m
55.5
49.3
Analyst
Derek Terrington
92
3m
20.0
9.8
12m
(74.5)
(73.7)
23 February 2012
Edison Insight
Nautical Petroleum
Sector: Oil & Gas
Price:
Market cap:
Market
334.5p
£294m
50.2
N/A
AIM
(NPE)
INVESTMENT SUMMARY
Nautical has secured the crucial non-equity funding it needs to potentially see it through to first
oil from Kraken with the sale of a 25% interest to EnQuest for a carry of up to $240m. With
EnQuest assuming operatorship, Kraken has been considerably derisked commercially for all
parties. We are expecting a CPR on Kraken in the next month while front-end engineering and
design work is in hand to prepare for FDP submission in H212. We continue to expect the
potential sale of Nautical's 6% interest in Mariner and, if reasonable debt terms can be
secured, we believe this could ensure funding of both Kraken and Catcher developments with
no additional equity dilution.
INDUSTRY OUTLOOK
Company description
Nautical Petroleum was established in
2005 to secure, develop and add value
to heavy oil discoveries, initially on the
UKCS and continental Europe.
By preserving shareholder value Nautical is one of a select few North Sea developers that
offers significant upside with ever-diminishing execution risk. The company has successfully
transformed itself from an exploration-led junior to a commanding position as mid-cap
exploration and development play.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.1
(1.8)
(1.8)
(2.6)
N/A
N/A
2011A
0.2
(4.2)
(3.5)
(3.3)
N/A
N/A
2012E
0.2
(4.7)
(3.7)
(4.2)
N/A
N/A
Analyst
Ian McLelland
2013E
0.3
(5.2)
(4.2)
(4.8)
N/A
N/A
Newmark Security
Price performance
%
Actual
Relative*
1m
6.2
1.9
3m
27.7
16.9
Price:
Market cap:
Market
12m
(22.6)
(20.0)
0.8p
£4m
1.5
14.0
AIM
(NWT)
INVESTMENT SUMMARY
Newmark continued to be affected by tough trading conditions in H1 but sees scope for a
stronger second half. The long-awaited SATEON has been launched and has won its first
competitive tender, and the new Grosvenor subsidiary in the US has developed partnerships
with key customers, paving the way for stronger sales in FY13. We have revised down our
FY12 and FY13 revenue estimates, and reduced our profitability expectations to reflect price
pressure, mix shift towards lower margin products and the lower level of sales. A sustained
revenue recovery will be the trigger for share price appreciation.
INDUSTRY OUTLOOK
The demand for Safetell’s security screens is typically driven by risk assessments or branch
Company description
Newmark Security is a leading provider
of electronic and physical security
systems that focus on personal security
and the safety of assets.
remodelling. The main customers are banks, building societies, the Post Office and, to a lesser
extent, public sector organisations. Grosvenor benefits from the need for businesses to track
assets and monitor employee time and attendance and demand typically moves in line with
general economic activity.
Y/E Apr
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
13.8
2.3
1.7
0.32
2.5
2.0
2011A
12.7
1.5
0.7
0.13
6.2
3.0
2012E
13.3
1.1
0.2
0.04
20.0
3.3
2013E
14.6
1.6
0.6
0.11
7.3
2.2
Price performance
%
Actual
Relative*
1m
(3.0)
(6.9)
3m
(8.6)
(16.3)
Analyst
Katherine Thompson
23 February 2012
12m
(42.9)
(40.9)
93
Edison Insight
NewRiver Retail
Sector: Property
Price:
Market cap:
Market
217.5p
£68m
128.5
158.0
AIM
(NRR)
INVESTMENT SUMMARY
A portfolio update in early February provided evidence of the group's ability to extract strong
returns from its investments despite the tough UK retail market. A disposal in Great Yarmouth
returned a 43.2% IRR in just five months. Lease renewals/extensions in Newcastle upon Tyne
have enhanced asset values, while the acquisition of a long leasehold in Skegness (at a 9.5%
NIY) opens up redevelopment opportunities and releases capital value. The shares are
attractive, supported by a 7% prospective yield, substantial asset backing and potential for
medium-term growth.
INDUSTRY OUTLOOK
An investment focus on assets occupied by food and ‘value’ retailers underpins rental growth
Company description
NewRiver Retail is a specialist REIT
focused on the UK retail property
sector, targeting the food and value
sub-sectors. It is an opportunistic
acquirer of high-yielding assets, to
which it intends to add value via active
asset management and development.
prospects, visibility and resilience of future cash flows, as these are less discretionary areas of
consumer spending. In addition, we expect a dearth of UK retail development in recent years
and an empty pipeline to support demand for better placed second hand space, to the benefit
of selective investors/asset managers such as NRR.
Y/E Mar
Price performance
%
Actual
Relative*
1m
(1.1)
(5.1)
3m
(3.3)
(11.5)
12m
(10.7)
(7.7)
2010A
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
0.3
(0.8)
(0.8)
(8.2)
N/A
N/A
2011A
4.4
2.5
0.8
6.3
34.5
10.7
2012E
13.1
9.6
4.0
15.9
13.7
15.3
Analyst
Roger Leboff
2013E
15.4
11.9
5.6
18.0
12.1
5.1
Next Fifteen Communications
Price:
Market cap:
Market
92.5p
£53m
1.0
3.0
AIM
(NFC)
INVESTMENT SUMMARY
At last month’s AGM, Next Fifteen announced in its trading update that it has made a solid
start to the current financial year. Management expects FY12 interims, scheduled for release
on 24 April, to show growth in both revenue and profits, boosted in particular by a strong
performance from the group’s digital businesses and a modest strengthening of the US dollar.
While there is some volatility in markets affecting clients’ businesses, we are maintaining our
FY12 and FY13 estimates as the group appears to have a resilient business portfolio and is
benefiting from its digital expertise.
INDUSTRY OUTLOOK
Digital communications are increasing becoming the focus of all forms of marketing as
Company description
NFC is a worldwide digital marketing
communications and public relations
group serving clients in the technology
and consumer sectors, with
autonomous PR, research, digital,
investor relations and policy
communications subsidiaries.
companies grapple with the shift away from traditional media towards social networks, social
media, and the growing consumption of web-based content. This is creating a great
opportunity for agency groups like Next Fifteen that have developed expertise in this area.
Y/E Jul
Price performance
%
Actual
Relative*
1m
2.2
(1.9)
Analyst
Martin Lister
94
3m
9.1
(0.1)
12m
13.5
17.3
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
91.2
8.4
6.6
7.5
12.3
7.7
2011A
105.2
10.7
8.4
8.7
10.6
4.3
2012E
112.0
13.2
9.5
9.5
9.7
4.3
2013E
119.0
14.4
10.7
10.6
8.7
3.9
23 February 2012
Edison Insight
Nighthawk Energy
Sector: Oil & Gas
Price:
Market cap:
Market
4.2p
£31m
2.8
N/A
AIM
(HAWK)
INVESTMENT SUMMARY
Nighthawk has recently announced a $7.5m workover and drilling programme in 2012 for its
75% owned Jolly Ranch shale oil project in Colorado. Workovers will apply to 15 existing wells
and will focus on remedial measures, re-perforations and flow stimulation. The $6.75m drilling
programme is expected to commence early in the second half of 2012 and will involve five new
wells. Significantly, one will target the Niobrara formation which has attracted a great deal of
interest of late by the likes of Anadarko in the north of the Denver Basin. The work programme
is expected to substantially boost production and is well underpinned by the recent
fundraising.
INDUSTRY OUTLOOK
Company description
Nighthawk Energy is a UK registered oil
and gas junior. Following a divestment
programme in November 2010 it is now
focused on the Jolly Ranch project in
eastern Colorado.
Interest in US shale oil remains red hot and this does not just apply to the Bakken. Rapidly
gaining attention are the Eagle Ford play in Texas and the Niobrara in Colorado/Wyoming.
Interest in the Niobrara is now focused in the northern Denver Basin. Anadarko recently
announced that its Niobrara play could contain reserves of 1.5bn boe.
Y/E Jun
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.5
(2.5)
(2.1)
(0.7)
N/A
N/A
2010A
2.1
(1.6)
(1.4)
(0.4)
N/A
N/A
2011E
1.8
(2.0)
(2.0)
(0.6)
N/A
N/A
Analyst
Peter Dupont
2012E
1.3
(2.4)
(2.5)
(0.7)
N/A
N/A
Sector: Oil & Gas
Northern Petroleum
Price performance
%
Actual
Relative*
1m
60.2
53.8
3m
42.0
30.0
Price:
Market cap:
Market
12m
(52.9)
(51.3)
71.0p
£66m
12.7
N/A
AIM
(NOP)
INVESTMENT SUMMARY
Northern's 2012 strategy announcement this week highlights an expected uptick in activity
across its portfolio. 3D seismic and a possible two wells are planned in French Guyane
following the recent Zaedyus discovery. In the Netherlands an extended well test at Ottoland
has paved the way for production to begin in late 2012 or 2013, although a €10m work
programme will be required to reverse a near 35% y-o-y drop in gas production. Well testing at
Markwells Wood in the UK is also ongoing with Baxters Copse a possible 2012 development
target. The major upside, though, comes from Italy where NOP has completed a 2D seismic
shoot in the Southern Adriatic with two further 3D surveys planned in 2012 to better define
both its 53mmbbls of 2P reserves and two additional large structures.
Company description
Northern Petroleum is an oil and gas
production, development, exploration
and asset trading company with a
political exposure limited to countries in
the European Union.
INDUSTRY OUTLOOK
With strong industry partners, Northern Petroleum is well placed to offer investors both value
and growth. Strong Netherlands gas prices underpin excellent production margins, while Italy
and Guyane both offer exploration upside.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
5.1
(2.3)
(3.6)
(2.7)
N/A
6.1
2010A
15.0
4.9
0.0
(1.3)
N/A
6.7
2011E
22.5
11.4
10.2
7.7
11.1
8.5
2012E
24.0
11.3
8.4
5.8
14.7
6.6
Price performance
%
Actual
Relative*
1m
(13.9)
(17.4)
Analyst
Ian McLelland
23 February 2012
3m
(11.4)
(18.9)
12m
(47.0)
(45.2)
95
Edison Insight
Novae
Sector: Financials
Price:
Market cap:
Market
356.0p
£230m
N/A
N/A
FULL
(NVA)
INVESTMENT SUMMARY
Novae has been very actively pursuing a number of initiatives designed to lift pre-tax return on
equity towards that of peers, improving capital use (capital return and underwriting growth) and
shifting towards better priced, shorter-tail property and reinsurance business. Catastrophe
losses have affected 2011 in common with peers: management suggests c £90m for the year
(H1 £50m). Assuming more normal cat losses in 2012, returns should improve materially but
we estimate will still be lower than many peers, largely due to scale. Still, Novae is well
managed and the discount to NAV gives no credit for management efforts to make further
progress in the medium term.
INDUSTRY OUTLOOK
Company description
Novae Group is a London-based
specialist insurer/reinsurer that
underwrites entirely through Lloyd’s.
The business’s operations are split
between insurance (around 65%) and
reinsurance (around 35%).
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
336.0
N/A
18.0
20.2
17.6
N/A
2010A
457.0
N/A
35.0
34.0
10.5
N/A
2011E
563.0
N/A
(10.0)
(11.7)
N/A
N/A
Analyst
Martyn King
2012E
586.0
N/A
37.0
43.4
8.2
N/A
Omega Diagnostics
Price performance
%
Actual
Relative*
1m
3.2
(0.9)
3m
14.0
4.4
Price:
Market cap:
Market
12m
(2.1)
1.2
10.8p
£9m
0.1
N/A
AIM
(ODX)
INVESTMENT SUMMARY
Omega reported H112 sales of £5.53m, giving a PBT of £427k; food intolerance testing
yielded £1.84m. Of this, Genarrayt sales were down marginally at £715k (down 6% from
£759k in FY10) but Food Detective sales were £513k, up 39%. Infectious disease testing grew
2% to £1.4m. The Allergy division acquired last year (plus autoimmune sales) added £2.28m.
Omega has strengthened its management team. An Indian subsidiary could replace the
current Indian distributor and will sell allergy tests from FY13. Progress in moving the 600
Allergozyme tests to the automated iSYS system is well advanced with a whole IgE test
already validated on the system. However, the initial, 50-100 core test menu will not be ready
until December 2012.
Company description
Omega is a UK-based company
focused on developing and marketing
in-vitro diagnostic products in infectious
and autoimmune diseases and for food
intolerance. Intolerance tests account
for over 40% of revenues.
INDUSTRY OUTLOOK
Omega’s allergy division tests for IgE, the clinical basis of allergy, rather than IgG, the basis of
its food intolerance tests. The allergy test market is worth c $600m and dominated by Phadia,
sold to Thermo-Fisher for €2.47bn in May 2011.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
6.2
0.7
0.6
2.9
3.7
9.8
2011A
7.9
0.9
0.7
1.7
6.4
5.4
2012E
11.5
1.2
0.9
0.9
12.0
18.5
2013E
13.0
1.6
1.4
1.3
8.3
6.5
Price performance
%
Actual
Relative*
1m
8.9
4.5
Analyst
John Savin
96
3m
(25.9)
(32.1)
12m
(25.9)
(23.4)
23 February 2012
Edison Insight
Omega Insurance
Sector: Financials
Price:
Market cap:
Market
53.2p
£130m
N/A
N/A
FULL
(OIH)
INVESTMENT SUMMARY
The partial tender offer for 25% of Omega from Haverford (Bermuda) was withdrawn
somewhat controversially following Omega's weaker H2 trading update. Full year results are
due 6 March 2011. We expect management to update on the group's strategy at that point
and confirmation of the year-end financial position should also be a trigger for any continuing
suitors to come forwards. Standalone we expect Omega to continue its existing strategy of
concentrating on the group's traditional underwriting strengths, risk management
improvement, and more effective capital allocation.
INDUSTRY OUTLOOK
Company description
Omega Insurance Holdings is domiciled
in Bermuda and listed on the London
Stock Exchange. It is an international
insurer/reinsurer with a focus on
short-tail, property-oriented classes.
catastrophe reinsurance rates even more so. This is feeding through into modest increases
primary insurance rates.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
228.2
N/A
50.7
19.2
4.4
N/A
2010A
261.4
N/A
(40.7)
(16.5)
N/A
N/A
2011E
262.0
N/A
(88.4)
(34.1)
N/A
N/A
Analyst
Martyn King
2012E
279.0
N/A
7.0
2.7
31.1
N/A
OncoGenex Pharmaceuticals
Price performance
%
Actual
Relative*
1m
7.6
3.2
3m
(22.6)
(29.1)
12m
(50.2)
(48.6)
Price:
US$14.28
Market cap:
US$139m
60.3
N/A
Market
NASDAQ
(OGXI)
INVESTMENT SUMMARY
OncoGenex has two promising antisense therapies in clinical trials, both with the potential to
treat many cancers. Its lead product, custirsen, is in two Phase III trials, SYNERGY and
SATURN, in castration resistant prostate cancer (CRPC); both studies should report data in
Q413 and a third Phase III trial in non-small cell lung cancer should start in 2012. In a Phase II
study in CRPC, custirsen increased median overall survival by 41% to 23.8 months, and was
well tolerated in all clinical trials. Custirsen was out-licensed to Teva in 2009 in a deal worth
$430m (Oncogenex has co-promotion rights in Canada and US). Its second clinical drug
OGX-427 demonstrated promising anti-tumour activity in a Phase II in CRPC and Phase I in
bladder cancer and was well tolerated. It had a net cash of $68m at Q311.
Company description
OncoGenex is a drug discovery and
development company creating novel
treatments for various cancers. Its
leading products are antisense
therapies which promote the
programmed cell death of tumour cells.
INDUSTRY OUTLOOK
There remains a significant unmet need for efficacious oncology products, in particular for
those which do not impair a patient's quality of life. Both OncoGenex's products appear to be
highly efficacious and have limited side effects.
Y/E Dec
Price performance
%
Actual
Relative*
1m
10.7
5.2
Analyst
Mick Cooper
23 February 2012
3m
22.7
9.6
12m
(10.5)
(11.8)
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
25.5
1.4
1.5
25.9
55.1
2.4
2010A
13.6
(10.7)
(11.5)
(164.2)
N/A
N/A
2011E
6.4
(20.5)
(11.3)
(115.7)
N/A
N/A
2012E
8.5
(19.5)
(19.5)
(198.7)
N/A
N/A
97
Edison Insight
Price:
C$4.94
Market cap:
C$377m
40.7
N/A
Market
NASDAQ, TSX
Oncolytics Biotech
(ONC)
INVESTMENT SUMMARY
Oncolytics Biotech’s investment case hinges on the outcome of Reolysin’s pivotal Phase III trial
in squamous cell carcinoma of the head and neck (SCCHN). Oncolytics has 12 ongoing clinical
trials including Phase II trials in non-small cell lung, pancreatic, melanoma and ovarian cancers
and a Phase I trial in colorectal cancer. Interim data from the pivotal Phase III trial in SCCHN,
expected in Q212, could be the trigger to attract a major pharmaceutical licensing partnership
that would be required for pivotal studies in the major cancer indications.
INDUSTRY OUTLOOK
Oncolytics’s current rivals are the companies developing oncology products in the same
therapeutic areas, but there are some interesting viral oncolytic companies, including
Company description
Oncolytics Biotech is a Canadian
company focused on developing
Reolysin, a pharmaceutical formulation
of the oncolytic reovirus, for the
treatment of a wide variety of human
cancers (Phase III trial in head and neck
cancer).
Jennerex, Genelux and Viralytics, suggesting a new era in cancer treatment. Oncolytics is one
of the two leaders in the area, with Amgen the other after its acquisition of BioViex for up to
US$1bn.
Y/E Dec
Revenue
(C$m)
EBITDA
(C$m)
PBT
(C$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
(16.0)
(16.0)
(26.1)
N/A
N/A
2010A
0.0
(20.0)
(20.0)
(29.5)
N/A
N/A
2011E
0.0
(30.8)
(30.7)
(41.9)
N/A
N/A
Analyst
Wang Chong
2012E
0.0
(29.2)
(29.2)
(36.2)
N/A
N/A
Sector: Mining
Oracle Coalfields
Price performance
%
Actual
Relative*
1m
16.0
13.9
3m
15.4
10.4
Price:
Market cap:
Market
12m
(22.2)
(11.7)
6.0p
£13m
6.0
N/A
AIM
(ORCP)
INVESTMENT SUMMARY
Oracle Coalfields has announced results from a technical feasibility study on its Block VI coal
deposit located within the Thar coalfield in SE Pakistan. The property is held by Oracle’s
80%-owned subsidiary, Sindh Carbon Energy which submitted an application to convert the
current exploration licence to a mining licence. Resource estimates within the mining area
(20sqkm) contain 529Mwt of lignite with a gross calorific value (CV) of 3,128k calories per wet
kg, 5.89% ash and 0.9% sulphur. Reserve estimates are 113Mwt with a gross CV of
2,831kcal/wkg, 11.5% ash and 0.8% sulphur. The company is targeting development with an
annual production rate of 5Mwt at a cost of $42.21 per wet tonne and a $610m capital
investment supporting a 23 year mine life. A BFS will be completed in 2012.
Company description
Oracle Coalfields plc is a coal
exploration and development company.
Block VI, its main project, has total
measured resources (JORC) of 1.4bn
tonnes of lignite coal and is located in
southern Pakistan’s Thar coalfield.
INDUSTRY OUTLOOK
The Pakistan government continues to support the development of the Thar coalfield as part of
its strategy to meet growing domestic demand for low-cost energy via the replacement of oil
and gas with coal energy.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
0.0
(0.2)
(0.2)
(0.2)
N/A
N/A
2010A
0.0
(0.2)
(0.2)
(0.2)
N/A
N/A
2011E
0.0
(0.4)
(0.4)
(0.2)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
Analyst
Sheldon Modeland
98
3m
(29.4)
(35.4)
12m
(40.0)
(38.0)
23 February 2012
Edison Insight
Price:
Market cap:
Market
2.9p
£27m
17.6
N/A
FULL
Oxford BioMedica
(OXB)
INVESTMENT SUMMARY
Oxford BioMedica’s investment case rests on partnering Parkinson's disease gene therapy,
ProSavin, and successful development of its ocular assets, leading to Sanofi opting in to its
development and commercialisation licence. DMC review of all four Phase I/II ProSavin dose
cohorts confirmed long-term efficacy and safety; six-month data are expected in H112.
However, a new construct facilitating higher dosing is being evaluated, delaying its
development timeline and potentially partnering. Three ocular projects are in the clinic and
Phase II TroVax trial starts are imminent. Last reported cash of £17.5m (unaudited) provides
funds into Q113, when the ProSavin Phase IIa/b should initiate. A capital raise will be needed if
significant milestones from Sanofi and/or an upfront on ProSavin do not materialise this year.
Company description
Oxford BioMedica is a UK-based
company with a leading position in
cancer immunotherapy and gene-based
products. It is focusing its efforts on
ProSavin, TroVax and its ocular
collaboration with Sanofi. It has four
products in clinical development.
INDUSTRY OUTLOOK
Gene therapy can correct dysfunctional cells and/or create endogenous therapeutic protein
factories. Neurologix's Phase II PD therapy NLX-101 uses a similar approach, but ocular
disease is a novel area of unmet need.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
19.1
(0.5)
(0.2)
0.3
9.7
17.3
2010A
11.2
(6.5)
(6.6)
(0.9)
N/A
N/A
2011E
10.2
(8.8)
(8.8)
(0.8)
N/A
N/A
Analyst
Lala Gregorek
2012E
6.4
(11.2)
(12.0)
(1.1)
N/A
N/A
Oxford Catalysts Group
Price performance
%
Actual
Relative*
1m
(5.7)
(9.5)
3m
(43.1)
(48.0)
Price:
Market cap:
Market
12m
(58.5)
(57.1)
48.5p
£44m
17.0
N/A
AIM
(OCG)
INVESTMENT SUMMARY
Shares rallied 5% on the back of a positive trading statement mid-February. Oxford Catalysts
(OCG) continues to see record interest in its synthetic fuel technologies given both the
expectations of an oil price spike later this year and continued legislative support for alternative
fuels. While it moves from development to commercialisation, the group is seeing lower
revenues. However, with cash balances healthy at £17m, the market is focused on the
sizeable market opportunity that is looking increasingly more attractive and achievable for
OCG.
INDUSTRY OUTLOOK
The issues at the Fukushima-1 nuclear plant and subsequent policy response, including
Company description
Oxford Catalysts is developing and
commercialising catalysed microchannel
reactor technology, initially targeted at
the synthetic oil market. By intensifying
the chemical process, the company
allows for localised production and
distribution of alternative fuels.
Germany planning to shut all nuclear reactors by 2022, has only heightened the need to look
at alternative fuels. A successful small-scale GTL offering is likely to attract even more interest
as a result. Oxford Catalysts continues to receive high levels of interest in its technology, which
allows it to pursue a selective partnering programme.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
2009A
8.7
(4.7)
2010A
7.7
(6.9)
Price performance
%
Actual
Relative*
1m
(13.0)
(16.5)
Analyst
Neil Shah
23 February 2012
3m
(5.4)
(13.4)
12m
(43.6)
(41.7)
EPS
(p)
P/E
(x)
P/CF
(x)
(5.4)
(7.9)
N/A
N/A
(7.6)
(10.7)
N/A
N/A
2011E
7.8
(7.1)
(8.0)
(8.9)
N/A
N/A
2012E
12.0
(6.3)
(7.2)
(7.4)
N/A
N/A
99
Edison Insight
Price:
Market cap:
Market
€0.65
€17m
0.6
N/A
FRA
Paion
(PA8)
INVESTMENT SUMMARY
Paion remains focused on striking a licensing deal for remimazolam, and a recently announced
cost-cutting plan should enable current cash reserves to last an extra two or three quarters
until the second quarter of 2013. At this point Phase III data should have been generated by
Lundbeck from desmoteplase and milestones might be due; Lundbeck has confirmed that the
two Phase III studies of desmoteplase are proceeding as planned, with first filing planned for
2014. Paion expects to finish 2011 with gross cash of €7.5m (€0.7m net), although a €7m
subordinated loan becomes repayable in April 2013.
INDUSTRY OUTLOOK
Remimazolam has important advantages over competing products, including fast onset and
Company description
Paion is a biopharmaceutical company
specialising in the development of CNS
products. The company has five NCEs
in its R&D portfolio, with the lead
programme, desmoteplase, partnered
with Lundbeck.
offset of action and the fact that a reversal agent exists if there is oversedation.
Morphine-6-glucuronide has an interesting competitive profile, although reduced chances of
partnering the project will lead to a EUR6.1m impairment charge against 2011 financials.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
1.5
(12.7)
(13.1)
(51.8)
N/A
N/A
2010A
4.5
(7.7)
(8.4)
(32.1)
N/A
N/A
2011E
3.2
(6.0)
(6.6)
(25.0)
N/A
N/A
Analyst
Jacob Plieth
2012E
0.7
(2.5)
(3.3)
(11.7)
N/A
N/A
Sector: Mining
Pan African Resources
Price performance
%
Actual
Relative*
1m
(4.6)
(11.7)
3m
(43.3)
(51.6)
Price:
Market cap:
Market
12m
(69.1)
(66.5)
16.8p
£242m
18.2
N/A
AIM
(PAF)
INVESTMENT SUMMARY
Pan African has formed a partnership with Witwatersrand Consolidated Gold Resources to
acquire 100% of Evander Gold Mines from Harmony Gold Mining. The 50:50 venture is for a
total consideration of ZAR1.7bn. Evander operates in Mpumalanga, South Africa and has
expected future production of 85-95,000oz Au a year from its number 8 shaft, up to 28%
higher than its 2011 production of 74,000oz. Elsewhere, production has begun at Pan
African’s Phoenix platinum project with the company targeting 12,200oz PGM per year. A sale
of PGM agreement has also been signed with Western Platinum for five years. The company
plans to return production to c 100,000oz per year at Barberton, with an additional c
20-25,000oz from its Bramber tailings project.
Company description
Pan African Resources is a South
African mining company with gold mines
and a platinum project in South Africa.
The company produces 100koz of gold
annually and expects to be producing
PGMs by the end of 2011. It continues
to explore for gold in Mozambique.
INDUSTRY OUTLOOK
PAF intends to list its Manica gold project on an international exchange with a retained equity
stake. In May, we valued Manica at US$49m (or US$19.13/oz with 2.6Moz of resources) when
the gold price was US$1,500/oz.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
68.3
27.0
24.4
1.2
14.0
9.0
2011A
79.1
31.3
29.2
1.4
12.0
9.9
2012E
105.1
49.4
44.8
2.0
8.4
5.3
2013E
112.6
56.3
51.5
2.4
7.0
4.7
Price performance
%
Actual
Relative*
1m
11.7
7.2
Analyst
Charles Gibson
100
3m
6.3
(2.6)
12m
67.5
73.2
23 February 2012
Edison Insight
Panmure Gordon & Co.
Sector: Financials
Price:
Market cap:
Market
11.6p
£17m
N/A
N/A
AIM
(PMR)
INVESTMENT SUMMARY
Panmure Gordon & Co provides corporate and institutional investment banking and
stockbroking services primarily in the UK (Panmure Gordon UK) and US (ThinkEquity). It has an
office in Switzerland, an arrangement with Ambit for Indian research, an office in Singapore
and a new US distribution deal; an unusual global positioning among mid-cap investment
banks. Market conditions have been challenging, deferring deal completion in both the US and
UK. The company announced this would lead to a further loss in H211. The CEO has
announced the intent to leave his post during 2012.
INDUSTRY OUTLOOK
Short-term trading conditions have remained tough, reflecting market macro uncertainty and,
Company description
Panmure Gordon provides corporate
and institutional investment banking and
stockbroking services in the UK
(Panmure Gordon UK) and US
(ThinkEquity), and has a representative
office in Switzerland.
with it, less client activity. One relatively bright spot has been interest in US tech. Over the
longer term, AIM IPO and US deal activity is well below historic levels. Normalisation would see
material profit upside, although the structural outlook is challenging for small brokers.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
50.0
(12.7)
(3.1)
(1.2)
N/A
N/A
2010A
40.9
(6.4)
(4.3)
(2.2)
N/A
N/A
2011E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Mark Thomas
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Financials
Park Group
Price performance
%
Actual
Relative*
1m
8.1
3.8
3m
(17.0)
(24.0)
Price:
Market cap:
Market
12m
(62.5)
(61.2)
54.0p
£91m
8.8
N/A
AIM
(PKG)
INVESTMENT SUMMARY
Park is a financial services group and leader in the multi-redemption gift voucher market. H1
results to 30 September 2011 showed the normal seasonal loss (slightly exaggerated by the
timing of some business that we are confident was only deferred into H2), but very
encouraging trends for the full year. Corporate customer numbers were up 8% and Christmas
savings for 2012 have started well (by that stage, Christmas 2011 is largely known to the
company). The flexecah pre-paid card continues to grow, supported by a string of product
innovations. Cash balances peaked for the current trading year at £152m and finance income
was ahead by 28% despite the low interest rate environment.
INDUSTRY OUTLOOK
Company description
Park Group is a financial services
business. It is the UK's leading
multi-redemption voucher business,
focused on the corporate gift voucher
and Christmas savings markets. Sales
are generated through agents, a direct
sales force and the internet.
Park has so far continued to win corporate customers through challenging economic
conditions, and flexecash should support the continuation of this trend. Consumer customers
are up despite pressure on disposable income, especially at the lower end.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
263.2
5.2
5.5
2.2
24.5
N/A
2011A
279.9
6.8
7.3
3.1
17.4
N/A
2012E
292.9
8.1
8.7
3.7
14.6
N/A
2013E
291.5
9.1
9.7
4.2
12.9
N/A
Price performance
%
Actual
Relative*
1m
8.0
3.7
Analyst
Martyn King
23 February 2012
3m
10.2
0.9
12m
62.4
67.9
101
Edison Insight
Park Plaza Hotels
Price:
Market cap:
Market
227.5p
£93m
364.0
185.0
FULL
(PPH)
INVESTMENT SUMMARY
Park Plaza has impressively bucked industry slowdown with maintained like-for-like
double-digit RevPAR growth in Q4. Consequently, full-year results (due early March) are likely
to be better than expected although only slightly we believe, so no change in our forecasts at
this stage. 2012 should benefit from further underlying growth, driven by room rate on
historically high occupancy, strict cost control and improved returns from recent investments.
The company is proposing to change its name to PPHE Hotel Group.
INDUSTRY OUTLOOK
Unpromising macro indicators and inherent low earnings visibility dictate caution but recent
industry news gives grounds for optimism. Despite its sharp downgrade, STR Global is still
Company description
Park Plaza Hotels is an integrated
owner and operator of four-star, deluxe
and boutique hotels in gateway cities
and regional centres predominantly in
Europe.
expecting growth (2%) in London RevPAR in 2012 (we have assumed 3% for Park Plaza) while
Starwood has seen no deterioration in European trading since Q4. Accor is notably positive
about pricing in view of occupancy strength and the Olympic opportunity, even if still early
days.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
80.3
16.2
(7.2)
(17.8)
N/A
N/A
2010A
139.8
37.6
5.5
16.5
16.5
3.1
2011E
198.0
61.0
9.0
21.6
12.6
2.0
Analyst
Richard Finch
2012E
208.0
64.0
15.0
36.6
7.4
1.8
Sector: Mining
Petropavlovsk
Price performance
%
Actual
Relative*
1m
3.4
(0.8)
3m
(6.2)
(14.1)
12m
50.2
55.2
Price:
698.5p
Market cap:
£1312m
347.5
18.0
Market
FULL
(POG)
INVESTMENT SUMMARY
Fourth quarter production figures note increased performance from the company’s flagship
Pioneer mine, which produced 124,800oz, a 6% increase on Q3. For the full year the company
produced 630,100oz exceeding its target by 5% and representing a 24% increase over 2010.
Overall, the full-year figures represent a 7.3% increase in our 2011 forecasts. The average
realised gold price in the year was US$1,693/oz.
INDUSTRY OUTLOOK
Petropavlovsk has commissioned its fourth open-pit gold mine, Albyn, which will use
resin-in-pulp extraction treatment. The first phase was commissioned ahead of schedule and
has a design capacity of 1.8Mtpa. Commissioning of the second phase is also expected to be
Company description
Petropavlovsk's principal assets are in
the Amur region of Russia, comprising
the Pokrovskiy mine and associated
operations, Pioneer and Malomir. The
company was founded in 1994 and
listed on AIM in 2002.
brought forward from 2014 to Q412. Once both processing lines are in operation total
capacity is anticipated to be 3.6Mtpa. With its first gold pour in December, Albyn produced
1,100 oz to the end of the year. A fourth processing line at Pioneer has similarly been brought
forward from 2014 to Q312 due to an increase in the resource base at the deposit.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
2009A
472.3
201.5
198.2
98.2
11.2
8.6
2010A
612.0
201.6
94.5
24.5
44.9
25.1
2011E
1225.9
474.1
311.9
111.6
9.9
3.5
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
2.5
(1.6)
Analyst
Charles Gibson
102
3m
0.9
(7.6)
12m
(32.6)
(30.3)
EPS
(c)
P/E
(x)
P/CF
(x)
23 February 2012
Edison Insight
Price:
Market cap:
Market
€0.08
€43m
6.2
123.0
AMS
Pharming Group
(PHARM)
INVESTMENT SUMMARY
The Q3 results showed YTD revenue of €2.3m mainly from recognition of 2010 income from
license partners. Sobi disclosed end-user sales YTD of SEK1m. Operating costs were €15.1m,
in line with 2010 ongoing expenses after discontinued DNage costs. The loss was €13.3m.
Cash was €9.8m giving funding into Q212. The deal with Sobi was restructured during August,
with more territories added. As reimbursement is agreed with individual EU countries and
Holland has been added, sales of Ruconest should steadily develop. The FDA-required Phase
III Rhucin trial is underway for a H212 reporting date. This could trigger a 2012 $10m
milestone plus a $5m fee on FDA acceptance of the BLA, probably Q113.
INDUSTRY OUTLOOK
Company description
Pharming, a Dutch company listed on
Euronext, has focused on Ruconest/
Rhucin for angioedema, a rare
hereditary disease. Ruconest is now EU
approved and will be marketed by Sobi
and Esteve. US kidney rejection trials
have started.
Cinryze has approval for a combined acute and prophylactic use is being EU marketed. US
prophylaxis sales in 2011 will be $260m. Dyax's Kalbitor US sales YTD were $15.9m with
$24m expected for 2011. Shire's Firazyr sold $11m in the EU, up 88%, and was given FDA
approval in 25 August.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
1.1
(26.7)
(31.1)
(27.0)
N/A
N/A
2010A
1.8
(3.7)
(20.7)
(3.9)
N/A
N/A
2011E
8.4
(15.1)
(15.7)
(3.4)
N/A
N/A
Analyst
John Savin
2012E
9.6
(14.9)
(15.6)
(3.4)
N/A
N/A
Phylogica
Price performance
%
Actual
Relative*
1m
14.3
10.0
3m
(13.0)
(23.0)
Price:
Market cap:
Market
12m
(58.8)
(53.1)
A$0.04
A$16m
5.9
N/A
ASX
(PYC)
INVESTMENT SUMMARY
Phylogica’s fourth drug discovery alliance is a multi-target collaboration and option deal with
Janssen Biotech. It is focused on identifying new cell-penetrating Phylomer peptides and could
cover up to 11 products. Phylogica will receive an undisclosed upfront and committed funding
for 18 months, with terms for downstream progress under discussion. This cash inflow, the
recent Pfizer milestone and A$2m equity raise, bolster Phylogica’s financials and should help
to achieve targeted cash sustainability in 2012/2013. Key to Phylogica's future success is the
monetisation of its proprietary discovery platform by regularly signing up new partners and
achieving milestones under its four current collaborations.
INDUSTRY OUTLOOK
Company description
Phylogica is a drug discovery company
with a proprietary technology platform
based on naturally derived Phylomer
peptides. Its business model centres on
drug discovery collaborations with large
pharma partners, including Roche,
MedImmune, Pfizer and Janssen.
Peptides have some advantages of small molecules (stability, formulation flexibility and COGS)
and the binding specificity of antibodies, but their key benefit is the ability to address
intractable intracellular targets. Phylomer libraries are a source of novel peptide drug leads;
which due to their diversity yield better quality and quantity hits vs random peptide libraries.
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2010A
0.6
(4.1)
(4.1)
(18.21)
N/A
N/A
2011A
2.4
(3.5)
(3.5)
(12.06)
N/A
N/A
2012E
5.2
(0.9)
(0.9)
(1.96)
N/A
N/A
2013E
5.7
(0.6)
(0.6)
(0.32)
N/A
N/A
Price performance
%
Actual
Relative*
1m
(5.3)
(5.2)
Analyst
Lala Gregorek
23 February 2012
3m
(35.7)
(35.0)
12m
(52.6)
(44.3)
103
Edison Insight
Price:
Market cap:
Market
9.1p
£32m
9.9
N/A
FULL
Phytopharm
(PYM)
INVESTMENT SUMMARY
Positive preliminary data with Cogane in an amyotrophic lateral sclerosis model should
increase confidence in Phytopharm’s strategy to position the chemically related Cogane and
Myogane as two projects that can be licensed out separately. The company believes if it can
establish evidence of efficacy in two different models, this would support licensing activity
separately for neurodegenerative diseases and glaucoma. A 400-patient Phase II study
(CONFIDENT-PD) in Parkinson’s disease, Cogane's primary indication, is 75% recruited and
should yield data around the end of 2012.
INDUSTRY OUTLOOK
Potential partners could quickly advance the development of Cogane, an orally active agent,
Company description
Phytopharm is a UK biotech company
principally focused on the development
of drugs for neurodegenerative disease.
for neurodegenerative indications based on existing supportive data packages. Meanwhile,
Myogane could be licensed out separately based on the outcome of a preclinical study in
glaucoma, which is due to read out in April 2012.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.7
(4.3)
(4.1)
(1.3)
N/A
N/A
2011A
0.1
(8.4)
(8.0)
(2.2)
N/A
N/A
2012E
0.0
(8.9)
(8.7)
(2.3)
N/A
N/A
Analyst
Jacob Plieth
2013E
0.0
(9.3)
(9.2)
(2.4)
N/A
N/A
Sector: General Industrials
Powerflute
Price performance
%
Actual
Relative*
1m
(1.9)
(5.9)
3m
42.6
30.5
Price:
Market cap:
Market
12m
7.3
11.0
21.5p
£62m
14.4
N/A
AIM
(POWR)
INVESTMENT SUMMARY
The FY11 update (19 January) highlighted improved profitability at Savon Sellu in H2, although
market pricing became more competitive in Q4. Slightly higher volumes and average pricing
plus plant maintenance benefits resulted in underlying EBITDA well ahead of that achieved in
H1. Savon Sellu is a profitable, cash generative business that has performed solidly in FY11;
Powerflute also has a strong net cash position. Robust trading and any deal activity should
both serve to regain investor attention.
INDUSTRY OUTLOOK
Powerflute aims to build a portfolio of niche paper and packaging businesses. It has
demonstrated financial and operational judgement in transactions so far and now needs to
Company description
Powerflute is a holding company
established to acquire and improve
underperforming businesses and assets
in the broadly defined international
paper and packaging sector. It operates
a niche packaging papers producer
based in Finland.
take the group to the next level. Typical target companies will have turnover ranging
€150-200m and/or produce in excess of 300,000 tonnes of product. At any one time, the
portfolio is unlikely to exceed five businesses to maintain the operational focus overseen by the
executive board.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
253.7
13.4
(0.4)
0.5
51.5
4.0
2010A
310.6
12.4
(0.8)
0.5
51.5
2.8
2011E
120.5
17.5
12.0
3.2
8.1
4.8
2012E
122.4
18.5
14.0
3.7
7.0
4.1
Price performance
%
Actual
Relative*
1m
1.2
(2.9)
Analyst
Toby Thorrington
104
3m
0.6
(7.9)
12m
25.6
29.8
23 February 2012
Edison Insight
Primary Health Properties
Sector: Property
Price:
Market cap:
Market
324.0p
£221m
N/A
N/A
FULL
(PHP)
INVESTMENT SUMMARY
FY11 revenue growth comprised 3% annualised increases on rent reviews concluded during
the year, plus net contributions from recent acquisitions. In the last 12 months Primary Health
Properties has refinanced £175m of short-term debt and secured £125m of new facilities. That
should fund earnings enhancing portfolio growth this year. The shares are underpinned by a
5.7% prospective yield and DCF value of c 390p/share. Forecasts are under review as the
group reported as we went to press.
INDUSTRY OUTLOOK
Industry drivers are positive despite the ongoing debate over NHS reform, with considerable
unmet demand for modern specialist primary care premises. The Health & Social Care Bill
Company description
PHP invests in primary healthcare
property, which is let to GPs, PCTs and
other NHS entities backed by the UK
government. This tenant profile provides
an exceptionally secure rental outlook.
should in due course enhance the GP’s role and we believe, unlock demand for new facilities
over the medium term. Changes to the UK-REIT regime confirmed in December are designed
to encourage new REITs and institutional investment. Abolition of the 2% entry charge for new
entrants should increase the attractions of corporate acquisitions.
Y/E Jun / Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
26.9
21.9
9.1
14.7
22.0
8.8
2011A
30.7
25.1
9.7
14.6
22.2
9.0
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Roger Leboff
2013E
N/A
N/A
N/A
N/A
N/A
N/A
ProMetic Life Sciences
Price performance
%
Actual
Relative*
1m
1.7
(2.4)
3m
6.4
(2.6)
Price:
Market cap:
Forecast net debt (C$m)
Market
12m
1.9
5.3
C$0.13
C$50m
4.1
185.0
TSX
(PLI)
INVESTMENT SUMMARY
Confirmed purchase orders/service revenues from key clients has improved ProMetic's
visibility on near-term revenues. The investment case remains geared to deriving greater value
from proprietary ligand enabling technologies by moving up the value chain via production
scale up and developing higher-value/less-commoditised technologies. Prometic is emerging
from a period with a gap in major orders and expects 2012 to be a stronger year for revenues.
A recent secured loan restructuring (one-year deferral for repayment of $4m) and $1m
strategic equity investment has improved funding. Business focus is on NewCo validation
(plasma-derived therapies manufacturing subsidiary), boosting bio-separation and prion
reduction resin sales, and securing further partners for its novel oral small molecule drugs.
Company description
ProMetic Life Sciences is an
international biopharmaceutical
business, comprised of a group of
companies focused on developing
ligand-based technologies and
therapeutics.
INDUSTRY OUTLOOK
Other catalysts with the potential to boost revenues and sentiment include progress with
product development partnerships, European commercialisation of the P-Capt prion reduction
filter, and securing its funding base.
Y/E Dec
Revenue
(C$m)
EBITDA
(C$m)
2009A
13.6
2010A
11.4
2011E
2012E
Price performance
%
Actual
Relative*
1m
(13.8)
(15.3)
Analyst
Lala Gregorek
23 February 2012
3m
13.6
8.7
12m
(13.8)
(2.2)
PBT
(C$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
(6.3)
(8.9)
(2.9)
N/A
N/A
(8.4)
(10.4)
(3.2)
N/A
N/A
18.7
0.2
(0.9)
(0.6)
N/A
N/A
26.3
2.1
1.5
0.2
65.0
16.4
105
Edison Insight
Psion
Price:
Market cap:
Market
49.5p
£70m
23.8
N/A
FULL
(PON)
INVESTMENT SUMMARY
Psion’s full-year update indicated sales were weaker than we had forecast, but earnings were
in line. Nevertheless, we see the improvement in H2 performance, with 5% y-o-y growth and a
swing back into profit as a sign that the company is starting to put its structural issues behind
it. Market conditions will be tough, but with more competitive products, strengthened channels
and further cost reductions, the company is looking in better shape to weather the storm. The
company is on a recovery multiple, but our earnings are struck on a 1.4% normalised
operating margin. With a geared model, only a modicum of growth would drive very significant
earnings expansion.
INDUSTRY OUTLOOK
Company description
Psion designs and sells ruggedized
mobile computers, which are used by
field workers and in supply chain and
logistics functions.
The market for rugged mobile computers is estimated to be worth $2.1bn, and VDC believes it
is growing at 8-10% per year. Psion holds c 7% market share, but plans to expand this
substantially. These plans revolve around the move towards a modular product architecture
and leveraging a network of partners to drive product innovation.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
170.0
12.3
4.1
2.0
24.8
3.8
2010A
174.5
10.7
(1.9)
(0.9)
N/A
N/A
2011E
176.0
12.2
(0.3)
(0.1)
N/A
N/A
Analyst
Dan Ridsdale
2012E
180.4
15.7
2.5
1.4
35.4
36.7
Sector: Property
Public Service Properties Invest.
Price performance
%
Actual
Relative*
1m
10.0
5.6
3m
(4.8)
(12.9)
Price:
Market cap:
Market
12m
(47.9)
(46.1)
60.5p
£64m
138.2
112.0
AIM
(PSPI)
INVESTMENT SUMMARY
The year-end update focused on the strategic review. The first priority is the debt refinancing
due in September. However, a broad range of initiatives are under consideration including
group ownership, corporate and financing structures and the dividend policy, to establish a
more appropriate value for the equity in line with the steady, visible cash flows generated by its
care-home assets. There is potential for disposals of non core – German, Swiss and US –
assets in H112, subject to availability of debt in tighter credit markets.
INDUSTRY OUTLOOK
Public sector budget cuts have put pressure on occupancy and fee rates, but the outlook is
underpinned by demographics and broad public sector obligations to healthcare spending.
Company description
Public Service Properties Investments is
a specialist real estate investment and
financing company. Its main focus until
recently has been on the expansion of
its UK portfolio of care homes, which
make up the majority of the value of its
portfolio.
Portfolio performance has been helped by recent investment, which has upgraded UK tenant
European Care's portfolio and shifted its emphasis towards less discretionary - from local
authority budget perspectives - areas of acute care for children and patients with mental
disorders.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
20.6
16.6
9.0
10.6
5.7
2.8
2010A
21.9
17.6
8.1
12.0
5.0
4.3
2011E
19.9
14.0
7.3
10.5
5.8
4.7
2012E
20.9
15.1
7.9
11.0
5.5
4.2
Price performance
%
Actual
Relative*
1m
3.0
(1.2)
Analyst
Roger Leboff
106
3m
6.6
(2.4)
12m
(20.7)
(18.0)
23 February 2012
Edison Insight
Price:
Market cap:
Market
148.0p
£978m
178.8
34.0
FULL
QinetiQ Group
(QQ.)
INVESTMENT SUMMARY
QinetiQ's IMS highlighted the ongoing difficult conditions in US and UK defence services with
pressured budgets and uncertainties requiring continuing cost reduction activities. This was
aptly highlighted in November's interims where revenue was down 14% to £739.6m. Despite
this, underlying operating profit rose by 27% to £82.6m as UK cost-reduction benefits came
through and a significant mix benefit of spares in global products saw margins in that division
move from 8.5% to 20.5%, driving a 24% increase in 2012 non diluted EPS forecasts to
16.8p. Importantly, net debt reduced to give net debt:EBITDA of just 0.6x, successfully
demonstrating progress against this key target. Post-IMS, we have maintained our 2013 non
diluted EPS forecast at 14.1p due to limited visibility.
Company description
QinetiQ Group provides technical
advice, services and solutions to
customers in the aerospace, defence
and security markets, primarily in the UK
and US.
INDUSTRY OUTLOOK
The UK business is underpinned by some good long-term contracts such as the LTPA.
However, with MoD delays plaguing the wider business and the US suffering its own delays,
the services businesses remain under pressure.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
1625.4
166.7
85.7
11.1
13.3
5.7
2011A
1702.6
190.5
114.6
14.0
10.6
3.8
2012E
1474.4
207.4
140.4
16.6
8.9
6.0
Analyst
Roger Johnston
2013E
1372.7
185.3
119.8
14.0
10.6
7.5
Quadrise Fuels Int.
Price performance
%
Actual
Relative*
1m
9.6
5.2
3m
22.9
12.5
Price:
Market cap:
Market
12m
16.8
20.8
6.1p
£44m
3.6
N/A
AIM
(QFI)
INVESTMENT SUMMARY
Quadrise continues to deliver in its commercial development of multiphase superfine atomised
residue (MSAR) emulsion fuel. It last updated the market in December when it reported that
marine MSAR had been shipped from the Lithuanian refinery to Maersk's nominated vessel in
Rotterdam. The vessel is undergoing a performance evaluation, the results of which will be
announced in Q212. Progress was also announced from its Canadian associate companies,
with Optimal reporting encouraging results from its OCC enhanced oil recovery tests at the
Lloydminster field.
INDUSTRY OUTLOOK
Quadrise is involved in manufacturing and selling MSAR technology. MSAR is an emulsion fuel,
Company description
Quadrise Fuels International (QFI) has a
licence to manufacture and market
MSAR, an oil-in-water fuel emulsion that
is a low-cost substitute for heavy fuel oil
used in marine, power and other
industrial units.
which is a low-cost substitute for conventional heavy fuel oil produced by oil refiners and used
in power generation.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
0.0
(1.0)
(1.0)
(0.2)
N/A
N/A
2011A
0.0
(1.8)
(1.9)
(0.3)
N/A
N/A
2012E
0.0
(1.4)
(1.4)
(0.2)
N/A
N/A
2013E
1.4
(0.1)
0.0
0.0
N/A
N/A
Price performance
%
Actual
Relative*
1m
28.9
23.8
3m
(7.5)
(15.4)
Analyst
Anne Margaret Crow
23 February 2012
12m
(32.9)
(30.7)
107
Edison Insight
Price:
Market cap:
Market
146.0p
£29m
81.4
175.0
FULL
Quarto
(QRT)
INVESTMENT SUMMARY
Quarto’s preliminary figures were in line with forecasts – slightly better at the earnings level due
to a slightly lower tax charge. Underlying trading is steady in markets that have been dull at
best, which in itself is a good performance. The group has negotiated a new $95m
multi-currency revolving credit facility to April 2015, replacing a $115m facility that had been
due to expire in June. The additional interest cost and the recruitment of a new COO will affect
FY12 earnings, moving our forecast down, but we expect FY13 to progress. The rating
remains at a substantial discount to the market.
INDUSTRY OUTLOOK
Book retailing in the major English language markets has been undergoing a seismic shift, with
Company description
Quarto is an international publisher of
books produced under its own imprints
and licensed to other publishers.
major retail chains undergoing substantive change. Growth in eBooks in fiction is substantial,
but the trend is notably slower for other categories. While these issues are working through,
the publishers have, for the greater part, avoided highly damaging bad debts and are more
neutral to distribution channel than might previously have been appreciated.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
165.3
35.3
10.6
40.3
5.7
1.6
2010A
176.4
36.3
11.5
42.3
5.4
1.2
2011E
186.1
37.2
12.1
45.6
5.0
1.4
Analyst
2012E
190.5
38.2
11.6
43.1
5.3
1.3
Quercus Publishing
Price performance
%
Actual
Relative*
1m
5.0
0.8
3m
13.2
3.6
Price:
Market cap:
Market
12m
(4.6)
(1.4)
114.8p
£13m
4.9
N/A
PLUS
(QUPP)
INVESTMENT SUMMARY
Quercus’s January trading update showed rapid sales growth of both non-Stieg Larsson titles
and eBooks. Later than expected promotion for English language film The Girl with the Dragon
Tattoo delayed sales for the tie-in book, and we lowered our estimates around 10% for FY11
and FY12. The group has made remarkable progress in building a sustainable post-hit
business, attracting the calibre of editors and authors well above that implied by its size and
maturity, a factor yet to be reflected in the rating.
INDUSTRY OUTLOOK
While the market for printed books remains soft, sales of eBooks continue to build. There has
been widespread migration to digital platforms in the key fiction category, with The Bookseller
Company description
Quercus Publishing is an independent
publisher based in London. The
company was founded by Mark Smith
and Wayne Davies in May 2004.
estimating a UK market share of around 10% for FY11. This has two specific advantages for
publishers; it extends Christmas trading as people who have received eReaders purchase
content over the following weeks, further to those additional sales come without the risk of
stock return, lowering the inherent risk in the business model.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
2009A
19.1
1.3
2010A
31.8
7.7
2011E
26.7
2012E
31.7
Price performance
%
Actual
Relative*
1m
2.5
(1.6)
Analyst
108
3m
9.3
0.1
12m
(13.7)
(10.8)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
0.9
3.7
31.0
54.0
7.5
26.7
4.3
2.8
6.6
6.4
22.8
5.0
4.7
7.9
7.8
27.0
4.3
3.5
23 February 2012
Edison Insight
Range Resources
Sector: Oil & Gas
Price:
11.8p
Market cap:
£246m
15.9
N/A
Market
AIM, ASX
(RRL)
INVESTMENT SUMMARY
Near term Range is very much a play on the 20% owned Shabeel-1 well in Puntland. This was
spudded in late January. It is expected to take 90 days to drill and evaluate and is targeting
prospective resources of 300mm barrels. Shabeel North-1 will follow shortly after and will
target similar resources. Puntland could indeed be transformational for Range. In Trinidad and
Texas development activity continues apace reflecting a multi-well programme in the former
and the drilling of the Albrecht-1 well at NCR in the latter. Range recently announced a
potential JV with Leni Gas & Oil to develop their interests in the Eastern Fields area of Trinidad.
The deal could provide significant opportunities to boost near-term production.
INDUSTRY OUTLOOK
Company description
Range Resources is a dual ASX and
AIM-listed E&P junior with projects in
Puntland-Somalia, the Republic of
Georgia, Texas and Trinidad.
Range has high-impact exploration interests in Puntland. They comprise 20% stakes in two
onshore basins, Nogal and Dharoor, which are analogues of large hydrocarbon basins in the
Yemen. The operator of the projects is TSX-V listed Horn Petroleum (Africa Oil 51.4%).
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS
(c)
P/E
(x)
P/CF
(x)
0.7
(2.4)
(2.5)
(0.4)
N/A
N/A
2011A
3.5
(4.3)
(4.6)
(0.3)
N/A
N/A
2012E
28.4
4.7
1.5
0.1
174.1
106.1
Analyst
Peter Dupont
2013E
66.1
23.4
15.6
0.2
87.0
16.4
Sector: Mining
Red Rock Resources
Price performance
%
Actual
Relative*
1m
9.3
4.9
3m
33.3
22.0
Price:
Market cap:
Market
12m
(27.7)
(25.2)
2.7p
£21m
1.2
N/A
AIM
2010A
(RRR)
INVESTMENT SUMMARY
Red Rock has agreed to sell 50% of its 1.5% production royalty over the Mt Ida magnetite
project, Western Australia, to Anglo Pacific Group. Subject to due diligence, the sale will be
completed via a series of staged cash and share payments totalling US$14m. The first
comprises 0.3% of the royalty for US$6m and is payable on agreement of the terms of the
transaction. The second US$4m for 0.225% is payable following definitive feasibility study
(DFS) results, a formal decision to mine and the provision of 20% of pre-production capital and
DFS costs. The third US$4m for 0.225% will be paid on commencement of production.
INDUSTRY OUTLOOK
We have revised our low-end valuation, reducing Red Rock’s post-tax Mt Ida value to
Company description
Listed on AIM in July 2005, Red Rock
Resources is now a combination of a
junior gold explorer and a mineral
property investment company focused
on the discovery and development of
iron ore, manganese, uranium and gold,
primarily in Australia and Africa.
US$19.6m (assuming 30% tax). Our median and top-end scenarios feature Anglo Pacific’s
cash payments plus 50% of our previous values of Red Rock’s 1.5% Mt Ida production
royalty. Our low-end, median and top-end valuation scenarios are now 3.96p/share,
9.45p/share and 30.54p/share respectively.
Y/E Jun
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
2010A
0.0
(0.9)
(1.5)
2011A
0.9
(1.1)
(1.6)
Price performance
%
Actual
Relative*
1m
(4.6)
(8.4)
Analyst
Charles Gibson
23 February 2012
3m
(29.2)
(35.2)
12m
(76.6)
(75.8)
P/E
(x)
P/CF
(x)
(0.26)
N/A
N/A
0.01
270.0
N/A
2012E
4.7
0.4
(1.0)
(0.25)
N/A
5.9
2013E
N/A
N/A
N/A
N/A
N/A
N/A
109
Edison Insight
RedFlow
Sector: General Industrials
Price:
Market cap:
Market
A$0.77
A$49m
11.3
N/A
ASX
(RFX)
INVESTMENT SUMMARY
RedFlow has appointed cleantech energy advisory business Jane Capital Partners to assist
with the search for partners and customers in the US. This shows that management has an
eye on long-term strategy. Its global manufacturing partner, Jabil Circuit, is head-quartered in
the US but the initial outsourced production line is to be established in Singapore for cost
reasons. The continuing weak share price is unjustified and offers a good entry point for
investors.
INDUSTRY OUTLOOK
Electricity generation used to be designed to match demand. In future, demand is expected to
be met by renewable energy sources that are not generating power all the time. This makes
Company description
RedFlow designs and manufactures
high performance energy storage
systems, which include its proprietary
zinc bromine battery, the ZBM. These
are sold to electricity distribution
companies for large scale energy
storage.
technology that enables energy to be stored when it is generated and released when it is
demanded very important. RedFlow’s battery systems are well positioned to exploit this huge
potential growth of large-scale energy storage. There are competitor manufacturers and
technologies but RedFlow actually produces successfully-working systems.
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
1.0
(1.1)
(1.1)
(11.2)
N/A
N/A
2011A
2.3
(6.5)
(6.8)
(12.6)
N/A
N/A
2012E
9.0
(7.3)
(7.5)
(8.9)
N/A
N/A
Analyst
Edwin Lloyd
2013E
42.4
0.5
(0.8)
(0.9)
N/A
N/A
Sector: Mining
Regency Mines
Price performance
%
Actual
Relative*
1m
4.1
4.2
3m
(6.1)
(5.0)
Price:
Market cap:
Market
12m
(41.7)
(31.4)
2.5p
£16m
0.3
1.0
AIM
(RGM)
INVESTMENT SUMMARY
Q1 of the calendar year brings two significant developments for Regency. Following a recent
200 hole drill program at its 50% owned Mambare Nickel laterite project in Papua New
Guinea, a defined inferred resource is expected by the end of the quarter. Latest assay results
give best intercepts of 1.39% Ni over 16.55m and 2.19% Ni over 5.6m at the historically
under-explored Plateau area. Additionally, Regency's joint venture partner at the project, Direct
Nickel, is expected to commission a 1tpd pilot plant over the coming weeks, which will provide
verification of its pioneering processing technology.
INDUSTRY OUTLOOK
A global shortage of new, economically mineable nickel deposits has put Regency Mines in
Company description
Regency Mines is a multi-commodity
exploration and investment company
trading on AIM, Frankfurt and PLUS. Its
flagship assets are the large-scale
Mambare nickel laterite project in Papua
New Guinea and a 21% interest in Red
Rock Resources.
position to advance its Mambare nickel laterite project in Papua New Guinea. Traditionally,
nickel laterites such as Mambare have been difficult and expensive to process. However, at
cash costs of US$1.84/lb, Regency (using DNi technology) aims to be the world's lowest-cost
nickel laterite producer.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.0
(0.5)
0.4
0.1
25.0
N/A
2011A
0.2
(1.3)
0.8
0.2
12.5
N/A
2012E
0.0
(0.5)
5.9
0.7
3.6
N/A
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
40.4
34.8
Analyst
Charles Gibson
110
3m
36.1
24.6
12m
(49.0)
(47.2)
23 February 2012
Edison Insight
Renewable Energy
Price:
Market cap:
Market
50.5p
£52m
N/A
N/A
AIM
(WIND)
INVESTMENT SUMMARY
Recent announcements, including the purchase of three turbines for South Sharpley (due to
commence operation in autumn 2012); the completion of a second tranche or financing and
the singing of a PPA with Statkraft (covering 34.4MW of its total 41.25MW of capacity), show
that REG continues to develop the business. Despite DECC's proposed reduction in ROC
allocation (from 1.0 to 0.9 ROC from 2013), we expect continued growth in the market for
onshore wind power and we estimate that REG will more than double its operating capacity
over the next three years. REG as a whole could be worth over 70p/share based on a
valuation of operational capacity of £1.35m/MW (DECC estimate of the capital cost is
£1.1-1.5m/MW). Transaction multiples (£1.8m/MW) would increase the valuation to over
85p/share.
Company description
Renewable Energy Generation's core
business is the development and
operation of onshore wind farms in the
UK.
INDUSTRY OUTLOOK
According to the DECC, the UK has among the best wind resources in Europe and analysis
conducted by Arup indicates the potential for 13GW of onshore capacity by 2020.
Y/E Jun
Price performance
%
Actual
Relative*
1m
3.6
(0.6)
3m
2.0
(6.6)
12m
(6.0)
(2.9)
2010A
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
6.2
(0.9)
(2.4)
(1.8)
N/A
N/A
2011A
9.8
0.0
(2.3)
(1.9)
N/A
32.7
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Graeme Moyse
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Oil & Gas
Rockhopper Exploration
Price:
371.2p
Market cap:
£1055m
158.7
N/A
Market
AIM
(RKH)
INVESTMENT SUMMARY
A 20-month drill campaign has moved resource estimates for Rockhopper’s Sea Lion field to
nearly 400mmbbl of high-quality oil, with two further oil discoveries in Casper and Casper
South. Assets such as this do not go undeveloped and we firmly believe it is now a question of
who is going to develop it. Hugely robust economics point to a significant valuation gap to our
updated core NAV of 534p. With value crystallisation almost guaranteed through either
farm-out and development or acquisition, we think Rockhopper could be a rare low-risk,
two-way bet into one of the most exciting frontier plays around.
INDUSTRY OUTLOOK
Activity in the Falklands continues. Rockhopper's own drilling programme has ended but
Company description
Rockhopper Exploration is an oil and
gas exploration company focused on
the North Falkland Basin in the southern
Atlantic.
Borders and Southern spudded the first of two wells on 31 January 2012, starting a four-well
programme with Falkland Oil & Gas that will target nearly eight billion barrels of prospective
resources.
Y/E Mar
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
0.0
(7.2)
(7.1)
(6.1)
N/A
N/A
2011A
0.0
(2.6)
(1.5)
(0.7)
N/A
N/A
2012E
0.0
(7.4)
(3.6)
(1.5)
N/A
N/A
2013E
0.0
(7.8)
(6.5)
(2.3)
N/A
N/A
Price performance
%
Actual
Relative*
1m
17.3
12.6
Analyst
Ian McLelland
23 February 2012
3m
41.6
29.6
12m
37.5
42.1
111
Edison Insight
Price:
798.0p
Market cap:
£14941m
1454.0
N/A
Market
FULL
Rolls-Royce Group
(RR.)
INVESTMENT SUMMARY
Rolls-Royce’s 2011 results demonstrated the benefit of the inherent balance within the group,
with strong civil aerospace and robust defence results, offsetting OE weakness in marine and
energy. With substantial investment in new facilities, R&D, expansion of service centres and
programme ramp up preparations expected to continue into 2012, Rolls is utilising its strong
cash position to build the next leg of the long-term future. This is evidenced by the strategic
moves undertaken during the year including the investment in Tognum, proposed restructuring
of IAE and creation of a JV with Pratt & Whitney concentrating on next generation narrow body
engines.
INDUSTRY OUTLOOK
Company description
Rolls-Royce is a global power systems
business with activities in civil
aerospace, defence, marine and energy.
The business supplies both original
equipment (51%) and aftermarket
services (49%).
With the business well balanced across civil aerospace, defence, marine and energy markets,
Rolls-Royce's long-term future is driven by the recovery in the economic climate. With civil air
traffic recovering, new aircraft build rates set to increase and global defence expenditure
relatively stable, we view the outlook as encouraging.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
10866.0
1247.0
955.0
38.7
20.6
10.4
2011A
11277.0
1447.0
1157.0
48.5
16.5
9.8
2012E
13167.0
1779.0
1474.0
57.3
13.9
8.8
Analyst
Roger Johnston
2013E
15210.0
1969.0
1659.0
61.4
13.0
8.1
RPC Group
Price performance
%
Actual
Relative*
1m
4.6
0.4
3m
13.2
3.6
Price:
Market cap:
Market
12m
29.7
34.0
380.1p
£618m
190.0
66.0
FULL
(RPC)
INVESTMENT SUMMARY
Q3 profit was well up on levels of a year ago and in line with management expectations as
Superfos operations and associated synergies continue to feed in at healthy levels. Other small
portfolio adjustments are consistent with the increasing emphasis on higher value-added
product areas and, together with ongoing acquisition benefits, should sustain above-market
growth. The group remains very well positioned within its industry and is likely to remain a
progressive strategic player.
INDUSTRY OUTLOOK
Plastic is the fastest growing of the high-volume packaging segments owing to its innovation
potential and substitution effects compared with other materials. Industry data suggest global
Company description
RPC is Europe's leading supplier of rigid
plastic packaging through its activities
injection moulding (58% of FY12e
sales), blow moulding (16%) and
thermoforming (26%).
polymer supply is coming online at the fastest rate in more than five years, although recent
increases in oil prices do affect polymer input costs. RPC does, however, typically recover raw
material inflation with a three-month lag.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
719.9
79.0
39.1
23.2
16.4
5.3
2011A
819.2
87.9
54.1
32.0
11.9
6.2
2012E
1170.1
141.7
80.0
37.7
10.1
5.9
2013E
1219.0
155.0
90.5
42.7
8.9
4.1
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
Analyst
Toby Thorrington
112
3m
8.7
(0.5)
12m
33.4
37.9
23 February 2012
Edison Insight
SacOil Holdings
Sector: Oil & Gas
Price:
4.0p
Market cap:
£33m
Forecast net cash (ZARm)
4.4
N/A
Market
AIM, JSE
(SAC)
INVESTMENT SUMMARY
Sacoil successfully revised the terms of its farm-in agreement for the Nigerian OPL 281
licence. The farm-in fee is reduced by $8m and Sacoil does not have to carry the project to
first oil. Transcorp, the operator will pay 60% of capex to first production versus the previous
agreement where Sacoil and EER, each owning 20% of the licence, were funding 100%.
Phase 1 of the work programme costing $15m, borne proportionately by the partners,
includes a review of 3D seismic data and drilling of at least one well.
INDUSTRY OUTLOOK
Sacoil has short term funding needs and it has raised $0.4m from its SEDA with Yorkville
Advisers and issued 11m shares to Peregrine Securities raising ZAR5m ($0.7m) at the end of
Company description
SacOil Holdings is an independent
Pan-African upstream oil and gas
company, listed both on AIM and JSE
markets. Its portfolio includes offshore
and onshore appraisal projects in
Nigeria and an exploration project with
Total in the DRC.
January. Newsflow is continuously improving: a farm-out to Total in the DRC is approved and
Sacoil announced two senior appointments (Commercial and Technical/New Business) to its
management team. The share price has stabilised but a rerating is a function of
discovery/operating success in Nigeria or the DRC.
Y/E Dec
Revenue
(ZARm)
EBITDA
(ZARm)
PBT
(ZARm)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
31.7
4.2
6.8
3.2
15.2
119.9
2011A
35.1
0.8
1.4
0.3
162.6
N/A
2012E
38.5
(3.1)
5.6
3.3
14.8
N/A
Analyst
Krisztina Kovacs
2013E
301.3
217.9
195.2
10.0
4.9
1.7
Sarantel Group
Price performance
%
Actual
Relative*
1m
3.2
(0.9)
3m
(5.9)
(13.8)
Price:
Market cap:
Market
12m
N/A
N/A
0.6p
£5m
0.9
N/A
AIM
(SLG)
INVESTMENT SUMMARY
Sarantel announced it had won its largest order to date from a military radio manufacturer.
Under the contract Sarantel will supply its GeoHelix GPS antenna for use in a range of
products - this order, part of a multi-year supply contract, is due for delivery over the next 12
months and should have a material impact on revenues and cashflow in FY12. This is one of
several military contracts that should generate material revenues in FY12. The company also
noted that it is considering options for short and medium term financing, and would consider a
commercial loan. We note that the company has in place an equity financing facility of up to
£5m that could be used.
INDUSTRY OUTLOOK
Company description
Sarantel develops and manufactures the
world's most advanced miniature
filtering antennas for mobile, wireless
and hand-held devices.
The well-publicised iPhone4 antenna issues have focused attention on the impact of the
human body on radio performance. GPS penetration is growing in a number of consumer
products including digital cameras and smartphones. Other GPS products are showing
recovery after a period of weakness.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
2.8
(1.8)
(2.8)
(1.4)
N/A
N/A
2010A
2.9
(1.7)
(2.8)
(0.9)
N/A
N/A
2011E
2.2
(2.3)
(3.1)
(0.6)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Price performance
%
Actual
Relative*
1m
19.1
14.3
3m
(7.4)
(15.2)
Analyst
Katherine Thompson
23 February 2012
12m
157.7
166.4
113
Edison Insight
Sceptre Leisure
Price:
Market cap:
Market
15.5p
£9m
12.0
75.0
AIM
(SCEL)
INVESTMENT SUMMARY
Sceptre Leisure is working its asset base hard and cutting costs, reflected in a solid set of
interim results announced mid-December against a challenging market backdrop. It continues
to win new contracts and renewals. An agreement with Gauselmann and Blueprint gives
Sceptre a new digital machine offering, although pub migration away from analogue is likely to
be fairly slow. With capex and depreciation broadly in line, Sceptre is generating cash and we
expect organic growth to be augmented by earnings accretive acquisitions at some stage.
INDUSTRY OUTLOOK
The consumer environment remains very difficult and pub closures continue, although at a
lower rate. Rates for the new machine games duty (MGD) are due to be published in the
Company description
Sceptre Leisure is the second largest
supplier of amusement machines to the
UK pub sector. It also supplies lottery
vending machines and other gaming
products to UK social clubs.
Budget on 21 March. Theoretically the revenue-neutral structure could favour pubs' AWP
estates, but SWPs are also included (unhelpful for Sceptre's SWP machine base, which has
already suffered from a clampdown on permitted games) and irrecoverable VAT may also be
an issue.
Y/E Apr
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
42.8
13.1
2.5
3.4
4.6
0.9
2011A
38.6
12.2
2.0
3.0
5.2
0.6
2012E
36.4
11.4
2.2
3.0
5.2
0.8
Analyst
Jane Anscombe
2013E
37.0
11.5
2.5
3.3
4.7
0.8
Sector: Technology
SciSys
Price performance
%
Actual
Relative*
1m
(8.8)
(12.5)
3m
(20.5)
(27.2)
Price:
Market cap:
Market
12m
(26.2)
(23.7)
51.5p
£15m
0.0
N/A
AIM
(SSY)
INVESTMENT SUMMARY
SciSys released an in-line trading update in January. The group has recently announced
several contracts that help underpin our forecasts and its role in upgrading the British Army’s
Warrior AFV is potentially significant. SciSys continues to seek ways to reuse its software and
leverage its domain knowledge. It has a partnership with Google, offering geospatial
technologies to corporates, and is developing a low-cost automotive power solution with
partners including Raytheon and Tata. We are maintaining our EBIT forecasts and our margin
target continues to support a valuation north of 80p. Finals are expected on 22 March.
INDUSTRY OUTLOOK
SciSys is specialist provider of high-value IT solutions with a focus on four vertical markets
Company description
SciSys provides a range of professional
services in support of the planning,
development and use of computer
systems primarily in the space,
government and media/broadcast
sectors.
(space, government & defence, environment and media & broadcast). Its fifth division provides
application support across these markets. Space and government & defence divisions have
led the recent contract flow, while environment has suffered from the government spending
review. We note that many of the group’s public sector contracts are in key priority areas.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
41.7
2.3
1.6
5.0
10.3
5.6
2010A
43.6
2.8
2.0
5.0
10.3
3.8
2011E
43.3
3.2
2.2
6.0
8.6
7.0
2012E
45.6
3.7
2.4
6.6
7.8
4.4
Price performance
%
Actual
Relative*
1m
7.3
3.0
Analyst
Richard Jeans
114
3m
0.5
(8.0)
12m
5.1
8.7
23 February 2012
Edison Insight
SeaEnergy
Price:
Market cap:
Market
26.0p
£18m
21.8
N/A
AIM
(SEA)
INVESTMENT SUMMARY
Last summer's disposal of SeaEnergy Renewables has strengthened SeaEnergy's financial
position. The company has concluded that it should use part of this cash to build and acquire
complementary service businesses, including those servicing the offshore wind market, which
provide a sustainable and cash generative business model. However, the company is also
considering a return of capital to shareholders and will announce the conclusion of its
deliberations in April, at the time of its results. Prior to April we expect an announcement of the
appointment of a new Chief Executive to replace the recently departed Steve Remp. The
market currently values SeaEnergy at less than net cash and the value of its holding in
Lansdowne Oil & Gas (combined value of 46p/share).
Company description
SeaEnergy is a UK-based company with
a 25% stake in three of the largest scale
offshore wind projects in Scotland. The
majority partners are Scottish and
Southern Energy and EDPR.
INDUSTRY OUTLOOK
According to DECC, offshore wind has a critical role to play in delivering the UK's renewable
energy targets. Analysis performed by Arup, for DECC, suggests that installed capacity could
reach 23.5GW by 2020 and 52GW by 2030.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
0.0
(4.0)
(6.6)
(11.9)
N/A
N/A
2010A
0.0
(5.0)
(6.5)
(10.0)
N/A
N/A
2011E
0.0
(4.4)
(4.5)
(6.9)
N/A
N/A
Analyst
Graeme Moyse
2012E
0.0
(2.7)
(2.5)
(3.9)
N/A
N/A
Sector: Financials
Secure Trust Bank
Price performance
%
Actual
Relative*
1m
2.5
(1.7)
3m
(4.2)
(12.3)
12m
2.5
5.9
Price:
1005.0p
Market cap:
£142m
N/A
N/A
Market
AIM
(STB)
INVESTMENT SUMMARY
As a bank with strong capital ratios and excess deposit funding, Secure Trust Bank (STB) is
exploiting the vacuum created by the financial crisis across the UK personal market. The
near-complete withdrawal by competitors allows STB to profitably grow carefully-targeted
niche lending at exceptionally strong levels. Strategically, it is also building non-interest income
from current/budget accounts aiming to grow income from these businesses as fast as
lending. The current price modestly undervalues the existing businesses but gives no credit for
the opportunities that the IPO capital raising and strong funding allow; nor is inorganic growth
in our numbers.
INDUSTRY OUTLOOK
Company description
Secure Trust Bank is a well funded,
strongly-capitalised bank whose lending
is focused in several niches in the UK
personal market. It is also building
non-interest income from budget
accounts and current accounts.
Most banks face strategic challenges in funding, capitalisation and regulation. They have
withdrawn into core business with limited appetite to lend. In addition, there are a number of
product lines around current/budget accounts which have been underserved. Banks with
capital, funding and focus can grow strongly and profitably.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
21.7
N/A
8.1
46.4
21.7
N/A
2010A
24.2
N/A
8.7
50.0
20.1
N/A
2011E
26.8
N/A
5.9
34.0
29.6
N/A
2012E
31.3
N/A
10.9
57.7
17.4
N/A
Price performance
%
Actual
Relative*
1m
11.7
7.2
Analyst
Mark Thomas
23 February 2012
3m
32.2
21.1
12m
N/A
N/A
115
Edison Insight
Seeing Machines
Sector: Technology
Price:
Market cap:
Market
2.9p
£12m
N/A
N/A
AIM
(SEE)
INVESTMENT SUMMARY
FY11 revenue surged as SM rolled out its driver-monitoring product, the DSS, with customers,
particularly in North America. However, costs were also sharply higher as SM invested in DSS
development, sales & marketing and technical & field support. In July Ken Kroeger joined as
CEO. It has been an eventful six months for Mr Kroeger as he has sought to get to grips with
the business. Following meetings with clients, partners and prospects, Mr Kroeger is
increasingly buoyant about SM's potential. We note that several lumpy deals in the pipeline
could substantially transform the group’s financials. Interims are expected in March.
INDUSTRY OUTLOOK
SM has exposure to a number of industry sectors, including automotive and mining (DSS),
Company description
Seeing Machines is a technology
company focused on designing
vision-based human machine interfaces.
healthcare (TrueField Analyzer), and computer gaming/3D visualisation (faceAPI). While the
automotive fleet opportunity has been deferred by the weak US economy, the mining sector
deals have diversified the opportunity and we note the market size in both global road
transport and mining operations is substantial.
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS
(c)
P/E
(x)
P/CF
(x)
4.2
(1.7)
(1.7)
(0.5)
N/A
N/A
2011A
7.1
(2.0)
(2.0)
(0.5)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Richard Jeans
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Financials
Share plc
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
3m
4.5
(4.3)
Price:
Market cap:
Market
12m
0.0
3.4
22.0p
£32m
12.1
73.0
AIM
2010A
(SHRE)
INVESTMENT SUMMARY
Share plc has a multi-year record of market share gains in retail stockbroking, with many more
years of above-market growth to come from this business. There are several adjacent
businesses (for example in equity-related corporate services) that could provide further growth
with strong operational gearing. 2011 market share gains (up to last reported Q3) have
continued. Retail investors are currently cautious and this will be reflected in trading
commissions but Share plc is less dependent on them than many peers. The P/E is
undemanding and other valuation measures also have upside.
INDUSTRY OUTLOOK
We expect long-term market growth from the demographic, economic and social changes.
Company description
Share plc owns The Share Centre and
Sharefunds. The Share Centre is a
self-select retail stockbroker that also
offers share services for corporates and
employees. A high proportion of income
is derived from stable fee and
interest-based revenues.
The retail market may also see a huge step change when the government 'popularises' its
holdings in banks (especially if given away). Share plc has consistently taken market share in
normal trading conditions.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
14.1
2.2
2.7
1.28
17.2
16.4
2010A
15.6
3.2
3.7
1.71
12.9
11.2
2011E
14.6
1.9
2.4
1.18
18.6
17.6
2012E
15.9
2.6
2.9
1.49
14.8
13.1
Price performance
%
Actual
Relative*
1m
(2.2)
(6.2)
Analyst
Mark Thomas
116
3m
(2.2)
(10.5)
12m
(20.0)
(17.3)
23 February 2012
Edison Insight
Sector: Industrial Support Services
Price:
Market cap:
Market
11.9p
£21m
1.4
6.0
AIM
Silverdell
(SID)
INVESTMENT SUMMARY
Silverdell is already the largest specialist environmental support services company in the UK.
Its background lies in asbestos but its future lies in offering specialist industrial services to
companies that operate in high-hazard regulated environments (weapons research labs, oil
refineries etc). Its troubled history is now a fading memory. The full-year results showed that
the company is positioned to move forward with a strong balance sheet and a growing order
book of long term contracts. Our conservative DCF suggests a 20p/share fair value and there
is now the promise of a dividend (more news on this at the AGM).
INDUSTRY OUTLOOK
Silverdell’s business comes predominantly from public and private sector businesses. While
Company description
Silverdell offers industrial services in
regulated activities, operating as a prime
contractor or subcontractor to blue-chip
companies across the UK. Its core
activity is the remediation of asbestos.
direct contracts from the construction sector are low (just 6% of revenues), austerity measures
could reduce activity (in refurbishment, upgrades, and new build) in all business segments.
Increasing the range of services is the key to offsetting this effect.
Y/E Sep
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
56.7
3.9
2.6
0.9
13.2
9.3
2011A
59.7
4.1
3.0
1.3
9.2
78.8
2012E
64.5
5.3
4.2
1.4
8.5
3.3
Analyst
Edwin Lloyd
2013E
66.0
5.4
4.7
1.6
7.4
4.3
Sector: Oil & Gas
Simba Energy
Price performance
%
Actual
Relative*
1m
6.7
2.5
3m
4.4
(4.4)
Price:
Market cap:
Forecast net debt (C$m)
Market
12m
4.4
7.9
C$0.08
C$11m
7.1
4313.0
TSX
(SMB)
INVESTMENT SUMMARY
Simba recently started trading on OTCQX International, the premier tier of the US OTC market
in order to improve its access to investors. It also announced the appointment of Mr. Hassan
Hassan, the current managing director to the board of directors. The appointment emphasises
the importance of acquisitions and development of oil and gas assets in various countries
throughout Africa and the Middle East. Work on Kenya's Block 2A continued with
reprocessing and acquisition of data.
INDUSTRY OUTLOOK
With no defined resources or reserves the potential investment upside of Simba's shares lies in
management's ability to secure funding for exploration and ultimately from expected realisation
Company description
Simba Energy is a pan-African oil and
gas company focused on onshore
projects. It holds a PSC contract for
Block 2A in Kenya and has a 60%
interest in a PSC for Block 1 and 2
onshore Republic of Guinea.
of a company-transforming discovery. Simba operates in countries with limited or no
exploration activity but building a portfolio of assets mitigates risk and enhances the
company’s ability to attract partners. Finding a partner or funding within a year is vital to carry
these projects to exploration.
Y/E Dec
Revenue
(C$m)
EBITDA
(C$m)
PBT
(C$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
0.0
(1.4)
(1.4)
(3.0)
N/A
N/A
2011A
0.0
(6.1)
(4.9)
(4.4)
N/A
N/A
2012E
0.0
(4.0)
(3.1)
(2.2)
N/A
N/A
2013E
0.0
(4.1)
(3.6)
(2.6)
N/A
N/A
Price performance
%
Actual
Relative*
1m
0.0
(1.8)
Analyst
Krisztina Kovacs
23 February 2012
3m
(5.9)
(10.0)
12m
(48.4)
(41.4)
117
Edison Insight
Sirius Minerals
Sector: Mining
Price:
Market cap:
Market
20.5p
£275m
2.9
N/A
AIM
(SXX)
INVESTMENT SUMMARY
Sirius Minerals released preliminary results for hole SM2, targeting the Fordon polyhalite seam
at its York Potash Project. Based on the two polyhalite seams intersected (totalling 67.6m) and
applying the same valuation assumptions as our November 2011 update, we value the net
area of influence of both SM1 and SM2 at £0.62 (including £0.09/share for the implied
tonnages of the Boulby and Sneaton seams intersected in SM1; these were not recovered in
SM2 due to delays in drilling its upper part). This is a 129% uplift on our £0.27/share valuation
of SM1 alone (announced November 2011). Also, on 26 January Sirius announced it had
successfully raised £55m (305m shares at 0.25p), representing c 30% of the issued ordinary
share capital prior to the raising. Monies will be used to advance the YPP through to definitive
feasibility stage (and including a scoping study in March and maiden resource in April).
Company description
Sirius Minerals is a diversified mining
and exploration holding company with
salt and potash interests in the UK,
North America and Australia and
initiatives in compressed air energy
storage and carbon sequestration.
INDUSTRY OUTLOOK
One metric tonne of muriate of potash (potassium chloride) currently trades at US$470.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
0.0
(1.5)
(1.5)
(0.4)
N/A
N/A
2011A
0.0
(7.7)
(7.6)
(1.0)
N/A
N/A
2012E
0.0
(7.6)
(7.7)
(0.7)
N/A
N/A
Analyst
Tom Hayes
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Property
Sirius Real Estate
Price performance
%
Actual
Relative*
1m
(12.8)
(16.3)
3m
(26.8)
(33.0)
Price:
Market cap:
Market
12m
37.8
42.5
€0.23
€75m
286.0
152.0
AIM
(SRE)
INVESTMENT SUMMARY
We see potential for re-rating this year. A new, internalised management structure has been in
place since the end of January. The priority is now to roll out strategies, including asset
disposals, to improve short-term cash flow and address loan maturities. The underlying
investment case is sound, based on strong operational characteristics of a broad German
business park portfolio. H1 saw growth in occupancy, net lettings, rents/ERVs, new tenant
enquiry levels and lettings. As that story regains prominence, we expect the steep discount to
NAV to narrow.
INDUSTRY OUTLOOK
Sirius owns 38 large, mixed-use (offices, storage and light industrial space) business parks
Company description
Sirius Real Estate holds a portfolio of
large, mixed-use commercial property in
Germany, which it has progressively
upgraded to provide flexible workspace,
small to medium size offices, light
industrial, logistics, distribution and
storage space.
across Germany, which makes it the leading operator of branded business parks providing
flexible workspace to the German SME market. Much of the tenant base is drawn from the
German SME sector, a profile likely to make use of its other on-site services, such as
Smartspace flexible storage, conferencing and catering facilities.
Y/E Mar
Revenue
(€m)
EBITDA
(€m)
2010A
44.0
18.7
2011A
45.6
17.6
2012E
46.5
21.3
2013E
N/A
N/A
Price performance
%
Actual
Relative*
1m
10.6
6.1
Analyst
Roger Leboff
118
3m
3.3
(5.5)
12m
(19.7)
(16.9)
PBT
(€m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
0.7
0.54
42.6
6.1
(1.0)
(0.61)
N/A
2.8
2.5
0.74
31.1
3.3
N/A
N/A
N/A
N/A
23 February 2012
Edison Insight
Price:
Market cap:
Market
31.0p
£7m
102.2
124.0
FULL
SkyePharma
(SKP)
INVESTMENT SUMMARY
SkyePharma’s newly appointed CEO, the former finance chief Peter Grant, should be well
placed to negotiate the refinancing of the group’s £83m of convertible bonds. SkyePharma
remains focused on the EU approval of Flutiform, whose EU approval is to be determined by
arbitration at the CHMP after a 60-day referral failed to yield a unanimous decision; launch is
possible in late 2012. The earlier US approval of Pacira Pharmaceuticals’ post-surgical
analgesia treatment, Exparel, puts SkyePharma in line to receive a $10m launch milestone this
year, followed by deferred payments equal to 3% of Exparel's net sales.
INDUSTRY OUTLOOK
Company description
SkyePharma is a drug delivery specialist
that uses its technologies to develop
new formulations of established drugs,
bringing clinical and life cycle
management benefits.
The investment case for SkyePharma is centred on the EU approval of Flutiform and the
potential refinancing of its £83m of convertible bonds. Flutiform is an inhaled
corticosteroid/long-acting beta-agonist combination product of fluticasone and formoterol that
has been developed for treating asthma.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
55.9
19.4
1.9
6.0
5.2
0.4
2010A
58.1
18.9
8.3
33.8
0.9
0.3
2011E
47.5
10.6
(3.1)
(14.1)
N/A
0.7
Analyst
Jacob Plieth
2012E
66.2
22.6
9.0
36.3
0.9
0.3
Sector: Financials
Slater & Gordon
Price performance
%
Actual
Relative*
1m
(11.4)
(15.0)
3m
(33.0)
(38.6)
12m
(16.2)
(13.4)
Price:
A$1.58
Market cap:
A$240m
58.0
28.0
Market
ASX
(SGH)
INVESTMENT SUMMARY
Slater & Gordon (SGH) has announced its long-awaited entry into the UK consumer law
market, with the acquisition of Russell Jones & Walker (subject to regulatory approval) in a
£54m deal. The market opportunity in the UK is 4-5x larger than in Australia where SGH leads
already. H1 results to 31 December 2011 showed revenue weakness in the former Keddies
practice, acquired in 2010, and investment in growing SGH's smaller family law and private
client practices, as well as investment in group infrastructure ahead of the UK entry. We
anticipate a stronger H2 and better cash generation.
INDUSTRY OUTLOOK
Consumer law in both Australia and the UK has historically been relatively insensitive to the
Company description
Slater & Gordon is the leading
consumer law firm in Australia, also
active in family law and large project
litigation. Established in 1935, it was the
first law firm anywhere in the world to
list on the stock market (2007).
economy. PI continues to grow in Australia and we expect considerable industry shifts in
market share in the UK.
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
124.7
31.1
27.8
17.5
9.0
6.7
2011A
182.3
47.5
42.2
20.0
7.9
8.9
2012E
205.6
52.4
45.4
20.8
7.6
8.5
2013E
226.0
59.3
53.3
23.9
6.6
7.1
Price performance
%
Actual
Relative*
1m
(13.2)
(13.1)
Analyst
Martyn King
23 February 2012
3m
(12.9)
(11.9)
12m
(26.5)
(13.6)
119
Edison Insight
South American Silver Corp
Sector: Mining
Price:
C$1.74
Market cap:
C$178m
0.0
0.0
Market
TSX
(SACC)
INVESTMENT SUMMARY
South American Silver is a mineral exploration company focused on developing its
wholly-owned Malku Khota silver-indium-gallium project in Bolivia and its Escalones
copper-gold project in central Chile. Malku Khota has an NI 43-101 measured and indicated
resource of 230Moz of silver, 1,481t of indium and 1,082t of gallium, which enables the
company to take advantage of the rapidly growing high technology driven market. The project
is undergoing a pre-feasibility study to confirm the PEA estimates. Escalones is a
copper-gold-silver project in Chile’s premier copper mining district and has a NI 43-101
qualified inferred resource of 420.6Mt containing 3.8Bt Cu, 5.9Mlbs Mo, 610,000oz Au and
16.8Moz Ag (assuming 0.2% Cu eq. cut-off). The Escalones project is being explored in a
phase two drill programme in preparation for an updated resource expected in 2012.
Company description
South American Silver intends to
develop its wholly owned Malku Khota
silver-indium-gallium project in Bolivia
and explores for copper-gold-silver at its
wholly owned Escalones project in
Chile.
INDUSTRY OUTLOOK
Our long-term prices for Au, Ag and Cu are $1,350/oz, $24.63/oz and $2.75/oz, respectively.
Y/E Mar
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
(1.8)
(1.9)
(3.4)
N/A
N/A
2010A
0.0
(3.8)
(3.8)
(4.3)
N/A
N/A
2011E
0.0
(7.3)
(7.3)
(11.0)
N/A
N/A
Analyst
Tom Hayes
2012E
0.0
(5.0)
(1.8)
(1.8)
N/A
N/A
Sportingbet
Price performance
%
Actual
Relative*
1m
13.7
11.7
3m
6.8
2.1
Price:
Market cap:
Market
12m
(22.0)
(11.5)
44.5p
£297m
10.0
N/A
FULL
(SBT)
INVESTMENT SUMMARY
Q2 results are due on 29 February. We expect similar trends to Q1, with excellent growth in
Australia offset by weakness in Europe and new gambling taxes, plus the Turkey disposal from
21 November. We estimate H1 NGR of c £116m (£108m in FY11) and EBIT (including the
profit share from Turkey) of about £16m (£19.6m in FY11). Our Outlook report of 8 December
pointed to an SOTP significantly ahead of the current level, despite the recent bounce, and
confirmation of a rumoured US B2B deal would be very positive.
INDUSTRY OUTLOOK
Online sports-betting growth is driven by rising broadband penetration and new products such
as in-play and mobile. Moves towards national regulation continue across Europe with Spain
Company description
Sportingbet is a leading online sports
betting and gaming operator focused on
European and Australian markets
supplemented by a small but
fast-growing emerging markets
business.
now set to award licenses from end March. A US DoJ opinion at the end of December
unexpectedly clarified that the Wire Act applies only to sports, accelerating the likelihood of
state (or even federal) legislation for poker and other games, with new B2B opportunities for
European companies.
Y/E Jul
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
208.0
46.5
35.2
6.2
7.2
4.9
2011A
206.0
51.4
37.5
6.3
7.1
8.0
2012E
206.0
58.0
36.5
4.1
10.9
13.8
2013E
212.0
71.0
50.0
5.6
7.9
7.0
Price performance
%
Actual
Relative*
1m
23.6
18.6
Analyst
Jane Anscombe
120
3m
48.3
35.8
12m
(5.2)
(2.0)
23 February 2012
Edison Insight
StatPro Group
Sector: Technology
Price:
Market cap:
Market
80.5p
£49m
3.4
8.0
AIM
(SOG)
INVESTMENT SUMMARY
In January StatPro said FY11 adjusted EBITDA was in line, although year-end net debt at
£3.4m was £1.5m lower than we expected. The group has c 50 Revolution customers, many
of which have the potential to expand revenues significantly, given that pricing is based on
number of portfolios. StatPro plans to upgrade all clients to cloud technology over the next few
years and a replacement product for its hosted service, Seven, is under development. Hence
we have cut our forecasts for the traditional software business. Finals are due on 14 March.
INDUSTRY OUTLOOK
StatPro's products are targeted at the global wealth management industry. While this target
market has clearly suffered a fair amount of turmoil over the last few years, volatility and a
Company description
StatPro Group provides asset
management software and asset pricing
to the global investment industry.
lower interest rate environment should help underpin retail demand for equities and bonds, and
therefore the longer-term industry growth profile. In addition, competitive, cost and regulatory
pressures all require asset managers to maintain and upgrade their reporting and risk
management systems.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
31.6
8.6
6.9
9.0
8.9
4.7
2010A
33.1
8.5
6.6
8.3
9.7
4.6
2011E
31.7
6.2
4.7
5.9
13.6
5.1
Analyst
Richard Jeans
2012E
31.0
5.6
4.4
5.2
15.5
6.3
Stobart Group
Price performance
%
Actual
Relative*
1m
(6.9)
(10.7)
3m
(8.0)
(15.8)
Price:
Market cap:
Market
12m
(36.4)
(34.2)
124.2p
£433m
55.3
16.0
FULL
(STOB)
INVESTMENT SUMMARY
Stobart announced its proposed acquisition of the Moneypenny portfolio for £12.35m on 17
January, as expected after the May 2011 equity fund-raising and in line with the corporate
strategy. The group also released a trading update stating performance is expected to be in
line with expectations. We therefore maintain our current forecasts. The Moneypenny deal
received overwhelming shareholder approval on 13 February, following a vote held in
recognition of the related-party nature and sensitivities of the deal. Completion will take place
after the restatement agreement for the banking arrangements and the full benefits from the
combined opportunity can then begin.
INDUSTRY OUTLOOK
Company description
Stobart Group operates a multimodal
transport business, including Eddie
Stobart (road haulage, 82%), Stobart
Rail (14%), Stobart Ports (3%) and
Stobart Air (1%).
92% of the group's revenues continue to come from the core logistics business. We believe
this is in increasing demand due to the shared user operating model and a greater focus on
more environmental transportation options for customers, reducing costs and supporting
green targets.
Y/E Feb
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
447.7
57.4
36.0
10.8
11.5
12.3
2011A
500.4
57.2
34.5
9.7
12.8
79.9
2012E
588.9
60.4
38.8
8.8
14.1
14.0
2013E
637.3
71.8
48.8
10.3
12.1
12.6
Price performance
%
Actual
Relative*
1m
2.0
(2.0)
Analyst
Roger Johnston
23 February 2012
3m
4.8
(4.1)
12m
(18.8)
(16.1)
121
Edison Insight
Sumatra Copper & Gold
Sector: Mining
Price:
Market cap:
Market
A$0.12
A$23m
0.3
2.0
ASX
(SUM)
INVESTMENT SUMMARY
In January Sumatra Copper & Gold submitted an environmental impact assessment and
management plan at its wholly-owned flagship Tembang gold and silver project in central
Sumatra to the Department of Mines. The terms of reference have been approved, with
permitting expected in March. First production at Tembang is expected by 2013. AMC
Consultants' recent geotechnical testing provides support for developing an underground mine
at the project's high grade Belinau deposit. The analysis indicates fair to favourable ground
conditions near the mine entry and the results support conventional, low-cost underground
mining methods that will improve the economics of the project. Tembang has a total (across all
categories) resource of 0.96Moz Au and 12.79Moz Ag.
Company description
Sumatra Copper & Gold is an emerging
producer and explorer located on the
island of Sumatra in Indonesia. It owns
seven mining business permits (IUPs)
covering 3,219 sq km.
INDUSTRY OUTLOOK
Our base-case valuation for SUM is based only on its plans to develop its wholly owned
Tembang gold-silver project, planned for 2013 start-up, we value SUM at A$0.32/share (at
1,350/oz Au).
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
0.0
(1.8)
(1.9)
(1.4)
N/A
N/A
2010A
0.0
(1.3)
(1.2)
(0.5)
N/A
N/A
2011E
0.0
(1.1)
(1.1)
(0.6)
N/A
N/A
Analyst
Tom Hayes
2012E
0.0
(3.8)
(5.1)
(2.3)
N/A
N/A
Sunesis Pharmaceuticals
Price performance
%
Actual
Relative*
1m
(11.1)
(11.0)
3m
(29.4)
(28.6)
12m
(45.5)
(35.8)
Price:
US$1.82
Market cap:
US$85m
38.3
N/A
Market
NASDAQ
(SNSS)
INVESTMENT SUMMARY
Sunesis’s principal investigators and collaborators provided a reassuring endorsement of the
design and objectives of the VALOR study at recent investor conferences. This Phase III study,
which examines vosaroxin in relapsed/refractory acute myeloid leukaemia (AML), is critical to
the investment case. Meanwhile, Sunesis set up and drew down the first $10m of a new $25m
tranched loan facility that should provide it with adequate funding to reach the end of the study
if enrolment is expanded as a result of the interim analysis. Its Q3 cash position stood at
$41.8m. Our rNPV model for Sunesis considers vosaroxin only and yields a valuation of
$250m, of which $220m relates to the AML indication.
INDUSTRY OUTLOOK
Company description
Sunesis Pharmaceuticals is US biotech
of anticancer drugs. Its lead compound,
vosaroxin, is in a Phase III study for
relapsed/refractory AML.
Of the range of alternative treatments for AML, Dacogen is the most advanced - Eisai/J&J
received approval earlier this year for its NDA for the drug. Other programs will report in the
near term, including a 300-patient Phase II study of Astellas's Quiztarnib.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
3.8
(18.8)
(18.2)
(4773.7)
N/A
N/A
2010A
0.0
(21.3)
(24.6)
(593.4)
N/A
N/A
2011E
5.0
(24.5)
(17.6)
(39.6)
N/A
N/A
2012E
0.0
(28.6)
(26.6)
(57.0)
N/A
N/A
Price performance
%
Actual
Relative*
1m
45.6
38.4
Analyst
Robin Davison
122
3m
52.9
36.6
12m
(17.6)
(18.9)
23 February 2012
Edison Insight
Symphony Environmental Tech.
Price:
Market cap:
Market
8.1p
£10m
0.8
N/A
AIM
(SYM)
INVESTMENT SUMMARY
A January trading statement guided to flat revenues for 2011, with profitability materially below
2010 as a result of increased R&D and marketing spend costs in response to growing interest
in the groups products and supportive changes in the legislative environment. The flat sales for
the year looks more to be a timing issue, with sales picking up in the final quarter of the year
and the resolution of initiation issues in a number of new territories.
INDUSTRY OUTLOOK
Symphony's main activity is in overseas markets, where environmental conditions and
legislation are creating positive momentum. Products made with Symphony's d2w
eco-compatible technology can be found in many large brands. The d2w droplet logo can also
Company description
Symphony designs and globally markets
a special formulated additive that makes
polythene and polypropylene
oxo-biodegradable. The company also
sells oxo-biodegradable finished
product, such as carrier bags.
be found on many magazine covers at UK newsagents. BASF recently moved out of the
oxo-degradable market, leaving further market share opportunities for Symphony.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
7.0
0.9
0.6
0.8
10.1
16.6
2010A
8.5
1.3
1.0
0.9
9.0
18.0
2011E
8.5
0.6
0.4
0.4
20.3
17.2
Analyst
Neil Shah
2012E
9.3
0.8
0.6
0.5
16.2
16.8
Synta Pharmaceuticals
Price performance
%
Actual
Relative*
1m
62.5
56.0
3m
12.1
2.6
12m
(45.8)
(44.0)
Price:
US$5.46
Market cap:
US$308m
19.5
N/A
Market
NASDAQ
(SNTA)
INVESTMENT SUMMARY
Synta is planning to initiate registrational studies of ganetespib in ALK-positive non-small cell
lung cancer, breast cancer and acute myeloid leukaemia in 2012. These studies, some with
partners, will run in parallel with its registration-directed Phase IIb/III study in the NSCLC due to
report by Q2. Recent preclinical data support synergy between ganetespib and microtubule
agents. Synta is directing substantially all of its resources towards ganetespib, and we assume
it will now only initiate the planned Phase II study of elesclomol in NSCLC if partnered.
However, it continues to indicate a likelihood of it closing a global or regional partnership (on its
CRACM assets, now returned by Roche, or elesclomol) by early 2012. Q4 results are due in
February.
Company description
Synta Pharmaceuticals is a US
biopharmaceutical company focused on
developing small molecules for treating
cancer. It has two lead products:
ganetespib (Phase IIb/III) and elesclomol
(Phase II).
INDUSTRY OUTLOOK
Ganetespib will be one of around 10 new agents in or entering Phase III trials specifically for
second-line NSCLC. The most advanced are Pfizer's Dacomitinib and BI's Afatinib, which are
both due to render Phase III results in 2012.
Y/E Dec
Price performance
%
Actual
Relative*
1m
18.2
12.3
Analyst
Robin Davison
23 February 2012
3m
58.7
41.8
12m
5.8
4.2
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
144.2
83.3
80.3
237.0
2.3
N/A
2010A
14.8
(34.4)
(37.5)
(92.8)
N/A
N/A
2011E
5.6
(46.1)
(49.7)
(104.4)
N/A
N/A
2012E
4.4
(57.3)
(60.1)
(121.6)
N/A
N/A
123
Edison Insight
Price:
€0.67
Market cap:
€61m
10.5
N/A
Market
Euronext Brussels
TiGenix NV
(TIGB)
INVESTMENT SUMMARY
TiGenix’s adipose stem cell (ASC) therapy, Cx601, is entering Phase III to treat perianal fistulas.
About 60% of Crohn’s patients have few other treatment options; excellent Phase II data with
the earlier (autologous) product was obtained. TiGenix also has the only EMA approved cell
therapy, ChondroCelect (an autologous cell product) to repair damaged knee cartilage.
ChondroCelect produces higher-quality cartilage with five-year clinical superiority. An
exploratory Phase IIa in rheumatoid arthritis using ASCs is running. Subsequent studies will be
run in a focused condition.
INDUSTRY OUTLOOK
In cartilage repair, ATMP regulations within the EU might drive other products from the market
Company description
TiGenix produces cell therapeutics. Its
lead Phase III development candidate,
Cx601, treats perianal fistulas in Crohn's
disease. ChondroCelect is approved
and sold direct in the EU for knee
cartilage repair.
in 2013, but this is not certain. ChondroCelect sells for €18,000 per implant so 2,500
implantations a year (in 2011, 85) should take TiGenix to profit. In Crohn's disease, about
120,000 patients in the EU and US have fistulas. With direct EU sales from 2016 plus an
anticipated US parner, Cx601 could be highly lucrative.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
1.0
(11.5)
(11.8)
(46.3)
N/A
N/A
2010A
2.4
(13.1)
(13.2)
(41.5)
N/A
N/A
2011E
1.7
(18.8)
(19.6)
(28.6)
N/A
N/A
Analyst
John Savin
2012E
5.1
(16.1)
(17.1)
(19.4)
N/A
N/A
TopoTarget
Price performance
%
Actual
Relative*
1m
(6.9)
(12.0)
3m
1.5
(9.2)
12m
(52.7)
(42.6)
Price:
DKK2.67
Market cap:
DKK354m
Forecast net cash (DKKm) 112.8
N/A
Market
OMX
Share price graph (DKK)
(TOPO)
INVESTMENT SUMMARY
TopoTarget's prospects are closely tied to those of its lead drug, belinostat, which is partnered
with Spectrum Pharmaceuticals. It is in a pivotal Phase II trial, BELIEF, for peripheral T-cell
lymphoma (PTCL), which should render results in H112 (recruitment completed). If positive,
this could lead to the drug's approval in the US in 2013. The drug is also being developed for
cancer of unknown primary (CUP) and non-small cell lung cancer (NSCLC). Data from a Phase
II study in CUP are expected in H112 and two Phase II studies in NSCLC are underway.
TopoTarget's net cash position was DKK132m (c $24m) at Q311, which should enable the
company to operate into Q213 after its recently completed restructuring.
INDUSTRY OUTLOOK
Company description
TopoTarget is a Danish drug
development and marketing company
focused on the field of oncology. Its lead
product is belinostat and it has
out-licensed its North American and
India rights to Spectrum.
TopoTarget's belinostat belongs to the class of drugs called histone deacetylase inhibitors
(HDACi). Two such drugs have been approved and nine others are in clinical development.
However, belinostat has a favourable safety profile and could be the first HDACi approved for
the treatment of solid tumours in combination therapy.
Y/E Dec
Revenue
(DKKm)
EBITDA
(DKKm)
PBT
(DKKm)
EPS
(DKK)
2009A
44.0
(106.8)
(131.5)
2010A
129.0
(7.2)
(10.1)
2011E
81.6
(29.6)
2012E
18.8
(78.2)
Price performance
%
Actual
Relative*
1m
(5.0)
(14.3)
Analyst
Mick Cooper
124
3m
45.9
21.9
12m
(15.0)
(10.5)
P/E
(x)
P/CF
(x)
(1.30)
N/A
N/A
0.26
10.3
0.1
(34.3)
(0.26)
N/A
N/A
(80.8)
(0.61)
N/A
N/A
23 February 2012
Edison Insight
Tower Resources
Sector: Oil & Gas
Price:
Market cap:
Market
3.5p
£50m
2.3
N/A
AIM
(TRP)
INVESTMENT SUMMARY
The central issue surrounding Tower currently is the Mvule-1 well in Uganda. The well was
spudded on February 12 and is expected to take two to three weeks to drill and test. The
prospect's recoverable resource potential is put at 80mm barrels and the chances of success
are 20% to 25%. A discovery of anything like 80mm barrels would clearly be transformational
for Tower assuming a valuation basis of $5/barrel in line with the Tullow/Heritage deal. Based
on the latest company statement, drilling offshore Namibia is now unlikely before Q1 2013.
Significantly, Tower has indicated that it is looking at opportunities to increase its exposure to
Namibia. Following the recent £6m equity raise the balance sheet is in good shape. Post the
Mvule-1 well we estimate that the cash position will be about $4m.
Company description
Tower Resources is an AIM-listed,
London-based, independent oil and gas
exploration company with a regional
focus on sub-Saharan Africa.
INDUSTRY OUTLOOK
A wave of drilling activity is planned towards the end of 2011/early 2012 offshore Namibia. The
Brazilian independent, HRT, is scheduled to drill in 2012 and Petrobras/Chariot in Q411 and
Q112.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
(0.7)
(0.7)
(0.10)
N/A
N/A
2010A
0.0
(1.1)
(1.1)
(0.11)
N/A
N/A
2011E
0.0
(1.3)
(1.3)
(0.11)
N/A
N/A
Analyst
Peter Dupont
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Transgene
Price performance
%
Actual
Relative*
1m
21.6
16.7
3m
12.8
3.2
12m
(41.7)
(39.8)
Price:
€9.94
Market cap:
€315m
114.0
N/A
Market
Euronext Paris
(TNG)
INVESTMENT SUMMARY
Transgene has four immunotherapy products in Phase II clinical trials, which could lead to it to
becoming a fully-integrated pharmaceutical company in five years. Its lead product TG4010, a
therapeutic vaccine, is about to start a Phase IIb/III trial in non-small cell lung cancer, which
could lead to Novartis exercising its option to in-license the drug in 2013. Its second drug
JX594, an oncolytic virus, is in a Phase IIb study in hepatocellular carcinoma (HCC, data due in
Q113) after it significantly increased survival in a Phase II study in HCC. Initial Phase II data in
HCV with TG4040 showed promising levels of efficacy; further data is expected this year.
Phase II data with TG4001 in CIN (precursor to cervical cancer) is expected in the coming
months. It has sufficient cash to operate into H214.
Company description
Transgene is a French drug discovery
and development company focused on
the treatment of cancer and infectious
diseases with immunotherapies. It has
four products in Phase II development.
INDUSTRY OUTLOOK
There is currently considerable interest in immunotherapies, both therapeutic vaccines and
oncolytic viruses, especially for the treatment of cancers after the approval of Provenge and
Yervoy. They are generally well tolerated and are showing promising levels of efficacy.
Y/E Dec
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
11.8
(25.1)
(27.0)
(122.0)
N/A
N/A
2010A
14.1
(32.2)
(33.8)
(122.5)
N/A
N/A
2011E
14.6
(36.4)
(37.7)
(119.1)
N/A
N/A
2012E
13.3
(42.3)
(44.3)
(139.8)
N/A
N/A
Price performance
%
Actual
Relative*
1m
12.6
6.6
Analyst
Mick Cooper
23 February 2012
3m
20.2
4.8
12m
(32.6)
(20.4)
125
Edison Insight
Treasury China Trust
Sector: Property
Price:
S$1.44
Market cap:
S$365m
Forecast net debt (S$m)
845.0
67.0
Market
Singapore Exchange
Share price graph (S$)
(TCT)
INVESTMENT SUMMARY
The portfolio focus is prime cities (Shanghai and Beijing) and areas with significant growth
potential (Qingdao), some of the most consistently-performing segments of Chinese real
estate. The rating attributes little value to the portfolio’s solid trading record, potential upside
from asset management or well-located development projects. Risks are managed by avoiding
more speculative areas of commercial real estate and zero exposure to residential. TCT shares
offer an attractive dividend and the prospect of future income and NAV growth.
INDUSTRY OUTLOOK
The core, stabilised investment portfolio has produced three positive quarters of occupancy
and rental growth, which we attribute to TCT’s asset management rather than market-related
Company description
TCT's main objective is to maximise
capital growth from a portfolio of
properties in China. The focus is on
large-scale development opportunities
in the commercial sector and on
income-producing assets such as
office, logistics and retail properties.
assistance. China's economy grew by 8.9% in the quarter, reflecting proactive efforts to
dampen inflationary pressure and speculation on residential property, and boost domestic
consumption. In November, the government signalled the first monetary loosening for two
years.
Y/E Dec
Revenue
(S$m)
EBITDA
(S$m)
PBT
(S$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
N/A
N/A
N/A
N/A
N/A
29.4
2010A
39.6
6.1
(9.4)
(4.2)
N/A
7.2
2011E
96.0
42.0
2.0
0.4
360.0
5.7
Analyst
Roger Leboff
2012E
110.0
51.5
5.5
1.8
80.0
N/A
Sector: Engineering
Trifast
Price performance
%
Actual
Relative*
1m
0.0
(6.2)
3m
(9.4)
(16.1)
Price:
Market cap:
Market
12m
(18.2)
(15.9)
40.9p
£44m
10.4
20.0
FULL
(TRI)
INVESTMENT SUMMARY
The recent trading update confirmed the group to be on course to deliver City estimates;
moreover last year's £15m Malaysian acquisition is trading in line with expectations. Recovery
in the underlying business continues, despite the challenging trading climate. The group is still
building on last year's performances, securing important new contracts and lifting revenues,
without conceding margin. Tight control of working capital has ensured a strong balance sheet
to respond to recessionary challenges.
INDUSTRY OUTLOOK
The global industrial fasteners market is valued at more than £20bn. Successful manufacturers
and distributors responded to the shift in manufacturing capacity to lower-cost regions by
Company description
Trifast is a leading global manufacturer
and distributor of industrial fasteners.
Principal operations are in Europe and
South-East Asia, with a modest, but
growing presence in North America.
developing their own local facilities or supply routes. They have also created effective logistical
services and shifted the emphasis towards more complex products to increase value added.
The global recession has caused pain across the sector, but provides consolidation
opportunities for stronger businesses.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
2010A
85.9
2.1
0.9
0.68
60.1
8.9
2011A
106.1
5.3
3.8
3.23
12.7
N/A
2012E
115.0
6.4
4.8
3.54
11.6
8.1
2013E
130.0
8.6
6.7
4.30
9.5
6.5
Price performance
%
Actual
Relative*
1m
5.8
1.6
Analyst
Nigel Harrison
126
3m
3.5
(5.3)
12m
(4.1)
(0.9)
P/CF
(x)
23 February 2012
Edison Insight
Price:
1667.0p
Market cap:
£1150m
0.3
N/A
Market
FULL
Ultra Electronics
(ULE)
INVESTMENT SUMMARY
Ultra's IMS highlighted the continuing uncertainty and delays in UK and US defence budgets,
while civil aerospace remains strong. This, combined with Ultra's long-term strategic
approach, is driving its focus on key areas of ongoing spend, for example in cyber security as
demonstrated by its recent acquisitions of AEP Networks, SOTECH and ZU Industries, as well
as the cyber security strategy event in November. Ultra's revenues from cyber-related activities
are now approaching 20% and trading remains in line with expectations. Results are due 27
February.
INDUSTRY OUTLOOK
With end-markets across defence moving towards a greater demand for electronic equipment
Company description
Ultra Electronics is a global specialist
aerospace & defence electronics
company with operations across three
divisions: tactical & sonar systems (43%
2009 sales); aircraft & vehicle systems
(24%); and information & power
systems (33%).
and information management, Ultra is well positioned to benefit from the trend towards more
frequent upgrade cycles. In addition, we feel the key themes of IT and security to come out of
the UK's SDSR play to Ultra's strengths.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
651.0
105.0
89.4
96.1
17.3
9.4
2010A
710.0
118.7
102.7
107.3
15.5
9.3
2011E
726.6
130.0
115.5
119.9
13.9
9.4
Analyst
Roger Johnston
2012E
796.8
141.2
123.9
127.7
13.1
8.6
Umeco
Price performance
%
Actual
Relative*
1m
5.8
1.6
3m
8.3
(0.8)
Price:
Market cap:
Market
12m
(7.3)
(4.2)
337.5p
£163m
8.1
N/A
FULL
(UMC)
INVESTMENT SUMMARY
Umeco's IMS showed a robust performance in the four months to 31 January with revenue up
8.7% year-on-year. This was driven by strong growth in structural materials, up nearly 20% as
a result of the Foxhound contract and the expansion of European distribution in Finland and
France, while margins were higher than the comparative period. Growth in process materials
was slower at c 6% with good aerospace and defence revenues offset by continued weakness
in Chinese wind energy, while margins were similar to H1 due to a favourable sales mix. With
overall market indicators demonstrating the continued structural growth drivers, we still believe
Umeco provides an interesting play on that growth opportunity. We are reviewing our
forecasts.
Company description
Umeco is an international provider of
advanced composite materials to
aerospace & defence (34%), wind
energy (14%), recreation (17%),
automotive (7%) and other industrial
(28%).
INDUSTRY OUTLOOK
Umeco's core markers of aerospace, automotive and wind energy are moving into a recovery
mode. In addition, with the move towards an increasing use of composites, we view the timing
of the focus on this part of the business as positive.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
2010A
174.8
20.4
13.0
17.7
19.1
7.2
2011A
207.4
23.2
16.4
24.3
13.9
10.4
2012E
223.1
25.5
19.7
26.8
12.6
8.1
2013E
251.9
29.2
24.2
32.8
10.3
7.1
Price performance
%
Actual
Relative*
1m
(6.0)
(9.8)
Analyst
Roger Johnston
23 February 2012
3m
8.9
(0.3)
12m
(33.4)
(31.1)
P/CF
(x)
127
Edison Insight
Universal Coal
Sector: Mining
Price:
Market cap:
Market
A$0.23
A$38m
7.4
N/A
ASX
(UNV)
INVESTMENT SUMMARY
Universal Coal has reiterated that it continues to experience considerable interest in its coking
and thermal coal properties in the north of South Africa. Although it has not received a formal
offer from any party, it is looking to appoint a special adviser to assist in securing a strategic
investor. It is continuing discussions with various equity investors and industrial groups in the
steel and power generation sectors. The Berenice-Cygnus project has a gross in-situ resource
of 1.3Bt and is within the emerging Soutpansberg Coalfield. The project is 30km from a railway
siding linked to both Maputo and Richards Bay. The company also announced a second
phase of drilling scheduled to begin in early 2012.
INDUSTRY OUTLOOK
Company description
Universal Coal is a coal development
company with advanced thermal and
coking coal projects in South Africa. A
New Order Mining Right has been
awarded at the Kangala thermal coal
project where first production is
expected by the end of next year.
We expect further short- to medium-term weakness in thermal coal prices on the backdrop of
slowing economic growth.
Y/E Jun
Revenue
(A$m)
EBITDA
(A$m)
PBT
(A$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2010A
0.0
(5.1)
(5.2)
(9.9)
N/A
N/A
2011A
0.0
(10.6)
(10.2)
(5.6)
N/A
N/A
2012E
0.0
(5.2)
(4.7)
(2.0)
N/A
N/A
Analyst
Andrey Litvin
2013E
17.0
0.7
1.1
0.5
46.0
N/A
Vectura
Price performance
%
Actual
Relative*
1m
12.2
12.3
3m
(14.8)
(13.8)
Price:
Market cap:
Market
12m
(56.6)
(49.0)
58.0p
£192m
67.0
N/A
FULL
(VEC)
INVESTMENT SUMMARY
Vectura achieved important milestones in 2011 (NVA237 filing in Europe and Japan) and has a
solid financial base (£80.2m in cash, maiden interim profit). However its share price has been
impacted by regulatory concerns affecting the timeline and perceived approvability of its
branded drugs NVA237 and QVA149 in the US and generic VR315 in the EU. While there is
risk of further timeline slippage until FDA/EMA requirements become clearer, Vectura has a
sufficient financial buffer and potential for further deals (pipeline assets or its IP and technology
platforms). The current share price already discounts these concerns, representing a buying
opportunity, ahead of expected EU approval of NVA237 and Phase III data for QVA149 later in
the year. Interims report on 30 May.
Company description
Vectura is a UK speciality
pharmaceutical company developing a
range of inhaled therapies and
technologies, principally for the
treatment of respiratory diseases such
as asthma and COPD.
INDUSTRY OUTLOOK
Vectura offers exposure to potential generic ICS/LABA asthma combinations (despite US
regulatory complexity) and a novel LAMA (NVA237) and LABA/LAMA combination (QVA149),
which could become first-in-class therapies, at least ex-US, in the blockbuster COPD market.
Y/E Mar
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
2010A
40.1
(1.6)
(1.7)
0.6
96.7
N/A
2011A
42.9
3.0
1.7
1.9
30.5
69.9
2012E
31.2
(7.2)
(7.9)
(1.4)
N/A
N/A
2013E
24.4
(14.9)
(15.7)
(3.7)
N/A
N/A
Price performance
%
Actual
Relative*
1m
0.0
(4.0)
Analyst
Lala Gregorek
128
3m
(0.8)
(9.2)
12m
(25.6)
(23.1)
P/CF
(x)
23 February 2012
Edison Insight
Price:
Market cap:
Market
24.2p
£25m
23.5
N/A
FULL
Vernalis
(VER)
INVESTMENT SUMMARY
Vernalis's proposed £65.9m net equity raise and multi-product in-licensing deal for up to six
novel late-stage ER cough/cold drugs with Tris Pharma, is a significant step in its strategy to
become a diversified, profitable and sustainable speciality pharma company. While Vernalis
has made clinical pipeline progress and balanced investment in research (adding Genentech
and a third Servier deal to its collaborations in 2012), pipeline expansion via in-licensing was
always the most important facet of its transformation strategy. The scope of the Tris deal and
the size of the addressable market means that Vernalis is one step closer to its goal.
INDUSTRY OUTLOOK
The Tris deal provides Vernalis with a fast clinical and regulatory path into the large and
Company description
Vernalis is a revenue-generating UK
biotech with an early to mid-stage
development pipeline targeting
indications in CNS and cancer, and
significant expertise in fragment and
structure-based drug discovery.
valuable $2bn US prescription cough/cold market. First launch is potentially in 24-36 months.
2012 should also bring Phase I V18444 data(Parkinson's disease) and new trial starts: Phase
II/III tosedostat (AML/MDS), Phase II V158866 (pain), potential V85546 Phase II, and clinical
entry of V158411.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
13.0
(6.5)
(10.9)
(19.2)
N/A
N/A
2010A
14.2
(2.0)
(3.4)
(1.0)
N/A
N/A
2011E
11.2
(5.5)
(5.5)
(2.8)
N/A
N/A
Analyst
Lala Gregorek
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Vertu Motors
Price performance
%
Actual
Relative*
1m
24.4
19.4
3m
(6.7)
(14.6)
Price:
Market cap:
Market
12m
(45.0)
(43.2)
27.5p
£55m
14.4
N/A
AIM
(VTU)
INVESTMENT SUMMARY
A modest setback in profitability, reported in October, should be viewed in the context of the
challenging trading climate, especially in volume cars. Vertu raised its share of business in each
of the marques for which it acts, while used-car and aftermarket operations also perform well.
Vertu's strategy remains to develop regional clusters of volume franchises with chosen OEM
partners. It has a strong balance sheet, with substantial funds available to finance strategic
acquisitions. The potential from these deals is not recognised in the share price.
INDUSTRY OUTLOOK
City sentiment towards the motor distribution sector remains cautious. Fears about current
year trading remain, overshadowing the action taken by leading retailers to build their
Company description
Vertu was established to build a major
motor vehicle distribution group. This is
being achieved through the completion
and subsequent improved performance
of a series of acquisitions.
downstream activities. SMMT forecasts suggest little change in new vehicle registrations,
although the retail content is falling to the detriment of dealership margins. Profits continue
under pressure in the short term, but this also provides acquisition opportunities for the larger
groups.
Y/E Feb
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
818.9
10.5
6.9
3.20
8.6
2.9
2011A
998.9
12.1
8.4
3.23
8.5
5.0
2012E
1050.0
11.5
7.2
3.24
8.5
4.4
2013E
1100.0
12.2
7.7
3.07
9.0
4.1
Price performance
%
Actual
Relative*
1m
(6.0)
(9.8)
Analyst
Nigel Harrison
23 February 2012
3m
4.3
(4.6)
12m
(3.5)
(0.3)
129
Edison Insight
Victoria Oil & Gas
Sector: Oil & Gas
Price:
Market cap:
Market
3.8p
£96m
36.4
N/A
AIM
(VOG)
INVESTMENT SUMMARY
A little more than two years after spudding its first Cameroon well, Victoria Oil & Gas (VOG)
reached first commercial production from its Logbaba facility on 17 December 2011. This is
the first step in a phased development to increase production to 8mmscf/d by end 2012 and
then 44mmscf/d by end 2014. With a risked core NAV of 11p from developing 2P Logbaba
reserves, VOG continues to offer substantial upside for investors. Assuming Logbaba
expansion plans are delivered in 2012, we expect that continued operational newsflow should
reinforce the core NAV potential for investors. Meanwhile, a two-well drill programme in Russia
and development plans for 14.4mmboe of reserves should help clarify the RENAV potential for
the company.
Company description
Victoria Oil & Gas is an E&P company
with a focus on both Africa and the
Former Soviet Union.
INDUSTRY OUTLOOK
VOG is well placed to benefit from strong projected demand growth from its Logbaba
development. On-site gas-fired power generation, conventional gas to power and mini-LNG all
offer upside, with reduced risk due to phased drilling and rapid project paybacks.
Y/E May
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
0.0
(5.6)
(6.1)
(0.6)
N/A
N/A
2011A
0.0
(4.0)
(4.7)
(0.3)
N/A
N/A
2012E
21.2
7.7
6.9
0.3
20.0
5.7
Analyst
Ian McLelland
2013E
91.0
74.7
74.5
3.0
2.0
2.6
Volex
Price performance
%
Actual
Relative*
1m
3.0
(1.1)
3m
(6.0)
(14.0)
Price:
Market cap:
Market
12m
(27.0)
(24.6)
265.2p
£166m
5.0
12.0
FULL
2010A
(VLX)
INVESTMENT SUMMARY
New technical requirements on new product lines in a ramp-up phase have created
manufacturing challenges, although these should be bedded down by the year end.
Investment in more state-of-the-art injection moulding and ancillary equipment has been
undertaken and these actions should enhance market position. Flagged year end margin
targets are on track and we see long-term benefits from this strategic development. The Q3
update prompted some mix changes in our estimates though the headline numbers were
effectively unchanged.
INDUSTRY OUTLOOK
Investors have become very skittish on the general outlook for international GDP growth and
Company description
Volex is a leading global provider of
power products and interconnect cable
assemblies. It supplies to large OEMs of
consumer electrical and electronic
devices, data and telecom equipment
and healthcare and industrial products.
so the appetite for growth-oriented stocks has been changeable. Those companies with
demonstrable self-help programmes and initiatives that are clearly laid out and credible will be
the relative winners in this environment; Volex certainly fits that description.
Y/E Mar
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
2010A
365.4
25.3
16.4
23.9
17.5
9.4
2011A
490.0
29.5
23.3
33.4
12.5
11.5
2012E
522.0
35.2
27.7
39.7
10.5
8.5
2013E
551.9
41.5
34.4
48.7
8.6
7.2
Price performance
%
Actual
Relative*
1m
12.4
7.9
Analyst
Toby Thorrington
130
3m
(0.7)
(9.1)
12m
(14.3)
(11.4)
P/CF
(x)
23 February 2012
Edison Insight
Price:
US$0.28
Market cap:
US$16m
N/A
N/A
Market
OTC
WaferGen
(WGBS)
INVESTMENT SUMMARY
Q3 sales picked up marginally to $89k ($44k in Q2). This implies six months without any
system sales and low rates of SmartChip use. The operating loss YTD is $13.4m. After the
$30.4m May fund raising, cash on 30 September was $19.8m. There is an annualised cash
outflow of $18.1m before funding. The expected 30k SmartChip may help FY12 sales.
WaferGen urgently needs to boost its published applications to help generate sales. Good
H112 sales performance will help cut the burn otherwise the company will need to cut costs
urgently. The CEO has resigned but remains as chairman; a senior management team is
fulfilling the CEO duties until a new appointment. Key investors have now joined the board. We
have suspended our forecasts.
Company description
WaferGen Biosystems is a leader in the
development, manufacture and sale of
state-of-the-art systems for gene
expression, genotyping, cell biology and
stem cell research for life science and
pharmaceutical industries.
INDUSTRY OUTLOOK
In Q3, Bio-Rad paid $162m for QuantaLife to get its not-yet-launched digital PCR system.
Roche has bid $5.7bn for Illumina to gain a position in the increasingly important direct DNA
sequencing market. Fast benchtop sequencing is a fast-emerging technology.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
0.4
(9.5)
(10.0)
(37.0)
N/A
N/A
2010A
2.2
(12.0)
(12.5)
(35.6)
N/A
N/A
2011E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
John Savin
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Pcare and household prd
Walker Greenbank
Price performance
%
Actual
Relative*
1m
(16.4)
(17.9)
3m
(33.3)
(36.2)
Price:
Market cap:
Market
12m
(80.0)
(77.3)
56.5p
£33m
1.4
6.0
AIM
2009A
(WGB)
INVESTMENT SUMMARY
Walker Greenbank's brands continue to deliver progress from consistent investment in quality,
design and colour. The group's specialist manufacturing operations are benefiting from the
operational gearing after strategic capital investment. The year-end trading update reinforced
positive City estimates; UK sales progress has been supplemented by strong growth in
exports. With a sound balance sheet, the group is better placed than many of its competitors
to meet the challenges in the market place; this is not reflected in the share rating.
INDUSTRY OUTLOOK
The UK interior furnishing industry has experienced uncertainty for many years under the
influence of fashion changes. Many brands have failed to grow, while several specialist
Company description
Walker Greenbank is a luxury interior
furnishings group, combining specialist
design skills with high-quality upstream
manufacturing facilities. Leading brands
include Harlequin, Sanderson, William
Morris and Zoffany.
manufacturing facilities have closed down. Manufacture for the volume segment of the market
has largely moved overseas. However, success is being delivered by operators able to
differentiate themselves from competition by consistently offering innovative and high-quality
design and products.
Y/E Jan
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2010A
60.4
4.5
2.4
3.09
18.3
6.9
2011A
68.8
6.9
5.0
6.40
8.8
7.2
2012E
74.0
7.5
5.5
6.95
8.1
7.4
2013E
78.0
8.0
5.9
7.46
7.6
6.4
Price performance
%
Actual
Relative*
1m
17.1
12.4
Analyst
Nigel Harrison
23 February 2012
3m
15.3
5.5
12m
6.6
10.2
131
Edison Insight
Westminster Group
Price:
Market cap:
Market
15.0p
£4m
N/A
N/A
AIM
(WSG)
INVESTMENT SUMMARY
Following Westminster's trading update highlighting a substantial improvement in H2
performance, we view the recently announced 15-year, c $150m West African airport security
service contract as a defining moment to highlight the group's strategy. With a focus on
delivering greater recurring revenues and ensuring value-added services are delivered, the
airport contract demonstrates Westminster's increasing ability to deliver large-scale integrated
contracts. This, combined with the long-term visibility afforded by the contract, highlights the
substantial potential for the group. As such contracts are won and subsequently delivered, we
feel this opportunity will become increasingly apparent.
INDUSTRY OUTLOOK
Company description
Westminster is predominantly an
established niche player in the provision
of advanced technical security solutions,
along with close protection services and
training.
Westminster is a niche player providing advanced technical security solutions to UK and
overseas customers, representing two-thirds of turnover. The balance comprises the provision
of close protection services and training, as well as a 24/7 alarm receiving centre and control
room.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
7.9
0.2
0.1
0.8
18.8
N/A
2010A
3.8
(4.1)
(4.2)
(20.5)
N/A
N/A
2011E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Roger Johnston
2012E
N/A
N/A
N/A
N/A
N/A
N/A
WILEX
Price performance
%
Actual
Relative*
1m
30.4
25.2
3m
39.5
27.7
Price:
Market cap:
Market
12m
(25.9)
(23.4)
€3.40
€84m
6.6
45.0
FRA
2009A
(WL6)
INVESTMENT SUMMARY
Wilex’s rights issue has brought it an extra €10m of cash before costs, providing crucial funds
as a bridge to final data from the Phase III ARISER study of Rencarex. Moreover, the option to
receive EU commercial rights to an undisclosed marketed oncology product, which we believe
to be Proleukin, remains in play. Final data from ARISER – now due in late 2012 – is an
important investment trigger that could lead to filing in 2013. Separately, Wilex appointed Dr
Walter Carney as chief scientific officer and secured R&D funding of up to €2.6m from the
German Federal Ministry of Education and Research, to develop the PI3K inhibitor WX-037.
INDUSTRY OUTLOOK
Rencarex is targeted at adjuvant treatment of non-metastatic kidney cancer following surgical
Company description
Wilex develops therapeutic and
diagnostic products for cancer. Lead
development programmes are
Redectane (pre-registration), Rencarex
(Phase III for adjuvant treatment of renal
cancer) and Mesupron (Phase II for
pancreatic and breast cancers).
removal of the kidney in patients with a high risk of recurrence, and is the most advanced
product in development for this specific indication, for which no drugs are currently approved.
Wilex is also developing Redectane, a radio-labelled version of the same antibody used in
Rencarex, which could become a companion diagnostic.
Y/E Nov
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
2009A
13.0
(12.5)
2010A
1.3
(22.4)
2011E
10.9
2012E
15.5
Price performance
%
Actual
Relative*
1m
0.4
(7.1)
Analyst
Jacob Plieth
132
3m
2.3
(12.6)
12m
(10.7)
(3.5)
EPS
(c)
P/E
(x)
P/CF
(x)
(12.5)
(93.4)
N/A
N/A
(22.5)
(134.4)
N/A
N/A
(15.9)
(16.5)
(76.8)
N/A
N/A
(9.4)
(10.1)
(41.8)
N/A
N/A
23 February 2012
Edison Insight
Wits Gold
Sector: Mining
Price:
ZAR45.00
Market cap:
ZARm1552m
Forecast net debt (ZARm)
N/A
N/A
Market
JSE, TSX
Share price graph (ZAR)
(WGR)
INVESTMENT SUMMARY
The Evander acquisition gives Wits Gold 50% of an operating mine, cash flow and resource of
34.4moz Au at US$6.4/oz. In 2011 Harmony improved facilities at Evander, which should lead
to improved higher grade and lower costs. Of the ZAR1.4bn to be paid when due, possibly
end Q312, ZAR800m will come from a loan taken out by Evander and ZAR300m from Wits
Gold.
INDUSTRY OUTLOOK
On 10 January Wits Gold announced a revised resource model for DBM following the
completion of an 11-hole drilling programme. Indicated gold resource increased by 27% to
7.5Moz and its high-grade zone increased by 50% to 3.6Moz at an average grade of 8.1 g/t.
Company description
Wits Gold is a gold and uranium
exploration company in South Africa
with indicated resources of 23.5Moz,
including reserves of 5.4Moz. On 30
Jan an agreement to acquire Evander
Gold from Harmony for R1.7bn 50/50
with Pan African was announced.
This may lead to safer and more mechanised mining. The completion of the pre-feasibility
study is forecast for May 2012. The cautionary notice remains.
Y/E Feb
Revenue
(ZARm)
EBITDA
(ZARm)
PBT
(ZARm)
EPS
(c)
P/E
(x)
P/CF
(x)
0.0
(14.4)
(7.7)
(28.0)
N/A
N/A
2011A
0.0
(19.7)
(14.9)
(50.1)
N/A
N/A
2012E
N/A
N/A
N/A
N/A
N/A
N/A
Analyst
Anthony Wagg
2013E
N/A
N/A
N/A
N/A
N/A
N/A
Sector: Financials
WorldSpreads Group
Price performance
%
Actual
Relative*
1m
4.7
2.7
3m
12.5
7.1
Price:
Market cap:
Market
12m
(11.3)
(14.9)
40.5p
£16m
33.2
146.0
AIM
2010A
(WSPR)
INVESTMENT SUMMARY
WorldSpreads Group (WS) provides spread-betting services to the retail market. 2010 and
2011 were years of heavy investment across the group: in the UK it has invested in marketing
new partnerships and back-office infrastructure, and it has opened new international offices
including most recently Israel. While this investment has led to well-flagged losses (more
expected in H2), there has been strong franchise growth in both average daily trades and
active clients. Revenue growth is also driven by market volatility but this can lead to greater
hedging costs. The capital base and cash positions are both strong.
INDUSTRY OUTLOOK
Over the long term, economic, demographic, fiscal and social changes should all lead to
Company description
WorldSpreads Group is a retail
spread-betting financial services group
that has offices in Dublin, London, Kuala
Lumpur, Paris, Frankfurt, Madrid,
Lisbon, Stockholm, Copenhagen and
Cape Town.
greater wealth for the target customer base, while technology, tax, financial awareness and
less attractive returns on alternatives should increase their propensity to spread bet.
Y/E Mar
Price performance
%
Actual
Relative*
1m
(13.8)
(17.3)
Analyst
Mark Thomas
23 February 2012
3m
(5.8)
(13.8)
12m
(26.4)
(23.9)
Revenue
(€m)
EBITDA
(€m)
PBT
(€m)
EPS
(c)
P/E
(x)
P/CF
(x)
2010A
12.9
3.4
3.0
5.7
8.5
N/A
2011A
16.5
(0.8)
(0.8)
(1.7)
N/A
4.1
2012E
21.8
2.2
1.4
2.9
16.7
11.0
2013E
26.0
3.8
2.9
5.8
8.4
6.6
133
Edison Insight
Xaar
Sector: Technology
Price:
Market cap:
Market
255.0p
£186m
17.4
N/A
FULL
(XAR)
INVESTMENT SUMMARY
Xaar’s full year trading update flagged that strong demand from the ceramics market had once
again driven a better than expected sales performance. Year-end net cash was also
significantly ahead and the capacity build programme remains on track for completion in H1.
Less welcome was the news that all nine staff at its office in China have resigned, although we
do not expect a repeat of the significant disruptions witnessed in 2006 and 2008. Direct
exposure to China has now fallen to c 12% of sales and supply channels are not expected to
be affected.
INDUSTRY OUTLOOK
Opportunities for P3 products look significant. Demand from the ceramics market is the
Company description
Xaar designs and manufactures inkjet
printheads. Its Platform 1 products are
used primarily for outdoor advertising.
Platform 3 widens the addressable
market to include industrial, labelling
and other applications.
primary driver, where manufacturers are looking to invest in expanding their digital production
capacity. This opens up significant incremental revenue streams. The market for Xaar's P1
printheads, which are used in outdoor advertising and case coding, is starting to mature. With
the competition taking share in H1, the trajectory from here is hard to gauge.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2009A
40.1
6.8
2.1
3.4
75.0
22.8
2010A
54.7
10.4
5.6
6.3
40.5
23.6
2011E
69.0
16.7
10.5
10.5
24.3
14.8
Analyst
Dan Ridsdale
2012E
78.9
22.0
14.5
14.4
17.7
9.3
Sector: Oil & Gas
Xcite Energy
Price performance
%
Actual
Relative*
1m
1.6
(2.5)
3m
4.1
(4.7)
Price:
Market cap:
Market
12m
15.4
19.3
154.5p
£345m
69.9
N/A
AIM
(XEL)
INVESTMENT SUMMARY
Xcite has cleared the path to first oil from its 116mmbbl Bentley field with a redesigned
development plan that should see it achieve first production in H112. The 100% equity funded
pre-production well will test water movement in the reservoir ahead of anticipated FDP
confirmation later in 2012. The new development plan has received a letter of comfort from the
DECC that has helped independent consultant TRACS upgrade outstanding contingent
resources to reserves. Meanwhile, the Rowan Norway rig is being prepared to move out to
Bentley to begin drilling, which has pushed up the recent share price under volatile trading. At
current prices additional equity raises would suggest a core NAV of around 220p so there
remains upside for investors.
Company description
Xcite Energy is an oil appraisal and
development company focused on
heavy oil resources in the UK sector of
the North Sea. It has one project, the
Bentley field, in which it is has 100%
working interest.
INDUSTRY OUTLOOK
Xcite continues to retain a 100% interest in Bentley, although equity funding so far has incurred
significant shareholder dilution. However, success with Bentley could still make Xcite one of
the North Sea’s largest independents by reserves.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS
(p)
P/E
(x)
P/CF
(x)
2009A
0.0
(0.8)
(0.8)
(1.4)
N/A
N/A
2010A
0.0
(2.6)
(2.4)
(1.9)
N/A
9.4
Price performance
%
Actual
Relative*
1m
67.9
61.2
Analyst
Ian McLelland
134
3m
26.9
16.2
12m
(56.9)
(55.5)
2011E
0.0
(2.8)
(2.1)
(1.2)
N/A
N/A
2012E
25.1
16.1
17.5
7.2
21.5
38.5
23 February 2012
Edison Insight
XP Power
Price:
1028.0p
Market cap:
£198m
13.3
20.0
Market
FULL
(XPP)
INVESTMENT SUMMARY
XP reported FY11 results in line with its recent trading update: revenues +13% y-o-y, GM
+110bp to 49.1%, EPS 106.4p and FY11 dividend 45p. Weaker Q4 bookings drive a small
revenue decline in FY12 (-3.4%) but we forecast a return to growth in FY13 (+6.0%) as the
global economy recovers. XP continues to deliver on its strategy of growing its in-house design
and manufacturing and this will continue to drive margins over the forecast period (49.5% in
FY12e and 50.0% in FY13e). With much of the weaker trading environment factored into the
share price, we view the stock as undervalued versus peers.
INDUSTRY OUTLOOK
The three end-markets supplied by XP are growing at different rates. Healthcare equipment
Company description
XP Power is a developer and designer
of power control solutions with a
production facility in China and design,
service and sales teams across Europe,
the US and Asia.
manufacturers are reporting relatively stable bookings and revenue growth, with book-to-bill
ratios greater than 1. Technology customers are experiencing a period of weakness after
strong growth in 2010/11. The industrial sector recovered later than the technology sector and
continues to see stable demand.
Y/E Dec
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
91.8
21.6
18.7
83.7
12.3
15.3
2011A
103.6
27.5
24.3
106.4
9.7
9.3
2012E
100.0
25.7
22.3
94.6
10.9
7.9
Analyst
Katherine Thompson
2013E
106.0
28.8
25.4
108.1
9.5
6.8
YM BioSciences
Price performance
%
Actual
Relative*
1m
20.9
16.1
3m
4.9
(4.0)
12m
(30.8)
(28.5)
Price:
C$2.24
Market cap:
C$261m
60.0
N/A
Market
AMEX, TSX
(YM)
INVESTMENT SUMMARY
Data reported at the American Society of Hematology meeting in December confirms the
positive anaemia response from a Phase I/II trial of YM BioSciences' (YM) lead project,
CYT387, underscoring the JAK inhibitor’s competitive profile and pointing the way towards a
Phase III programme that should begin in mid-2012. The recent steady share price increase
likely reflects added confidence in this project and the prospects of it attracting a licensing
partner. YM finished its fiscal second quarter (December 2011) with a strong net cash position
of C$67.9m.
INDUSTRY OUTLOOK
CYT387 is one of the most advanced unpartnered JAK1/2 inhibitors in development, and has
Company description
YM BioSciences is an oncology-focused
business developing compounds
licensed from academia and acquired
through takeovers. Its stock is listed on
Amex and the Toronto Stock Exchange.
a potential efficacy advantage: there was 54% transfusion independence at 84 days, with
median duration of the transfusion-free period yet to be determined. Incyte/Novartis's
ruxolitinib (Jakafi) is the most advanced competing JAK inhibitor and has been approved in the
US for myelofibrosis.
Y/E Jun
Revenue
(C$m)
EBITDA
(C$m)
PBT
(C$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2010A
2.6
(17.3)
(17.3)
(26.8)
N/A
N/A
2011A
1.0
(24.4)
(24.0)
(25.7)
N/A
N/A
2012E
1.0
(31.7)
(31.5)
(26.2)
N/A
N/A
2013E
1.0
(35.7)
(35.6)
(28.7)
N/A
N/A
Price performance
%
Actual
Relative*
1m
35.8
33.3
Analyst
Jacob Plieth
23 February 2012
3m
31.0
25.3
12m
(6.7)
5.9
135
135
Edison Insight
Price:
Market cap:
Market
66.5p
£65m
8.5
N/A
AIM
YouGov
(YOU)
INVESTMENT SUMMARY
YouGov’s pre-close trading update indicates internal full year forecasts (to July) are in line with
market expectations. First-half revenue was ahead in double digits, all organic and well ahead
of the market. Margins will have dipped given the investments being made in new products
and markets, including a French office that opened at the end of October 2011. Results are
inherently H2 weighted and we would expect the current year to be no exception. Recent
share price strength has narrowed the discount with the quoted peers.
INDUSTRY OUTLOOK
Zenith Optimedia's forecasts for global ad spend are now at 3.5% for 2011 and 4.7% (5.3%)
for 2012. The MR sector tends to underperform the upswing and outperform the down and
Company description
YouGov is a professional research and
consulting organisation, pioneering the
use of the internet and information
technology to collect high quality,
in-depth data for market research and
stakeholder consultation.
industry bodies are anticipating global growth of 3% in 2011. Major MR players that have
already reported have been showing healthy revenue growth for 2011, with GfK (now under a
new CEO) up by 6.2%, Nielsen ahead by 8% and Forrester up by 13%.
Y/E Jul
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
44.2
4.4
4.0
2.5
26.6
13.3
2011A
56.1
5.9
5.8
4.53
14.7
11.2
2012E
63.9
6.3
6.1
4.73
14.1
10.2
Analyst
2013E
69.4
7.1
7.0
5.3
12.5
8.7
Sector: Mining
Yukon-Nevada Gold
Price performance
%
Actual
Relative*
1m
31.7
26.4
3m
35.7
24.2
12m
31.7
36.1
Price:
C$0.39
Market cap:
C$368m
192.2
N/A
Market
TSX
(YNG)
INVESTMENT SUMMARY
Last month YNG announced revised resources for Jerritt Canyon, totalling c 11Mt at
0.217oz/st (6.75g/t) for 2.39Moz Au. Measured resources total 1.07Moz Au and indicated
1.32Moz. This is a 21% increase over YNG’s 2007 resource numbers. To expand its resource
base within the Jerritt Canyon lease area, YNG continues with a number of surface and
underground drill campaigns. Recent results have highlighted numerous economic
intersections near existing underground infrastructure with intercepts of up to 18.86g/t over
29m. Reserves remain unchanged from its 28 June 2011 NI43-101 at 717koz Au. A
programme of plant/processing equipment refurbishment has just been completed, with
production now restarted at Jerritt Canyon. YNG has recently entered into a US$20m forward
Company description
gold purchase agreement with Deutsche Bank, which will provide working capital and
Yukon-Nevada Gold operates its Jerritt
Canyon mine and processing plant in
north Nevada, US. It also explores for
gold and base metals in the Yukon
Territory at its Ketza River project.
investment in the SSX-Steer mine and Starvation Canyon.
INDUSTRY OUTLOOK
We use a long-term Au price of US$1,350/oz in our valuation of Yukon-Nevada.
Y/E Dec
Price performance
%
Actual
Relative*
1m
58.0
55.1
Analyst
Tom Hayes
136
3m
23.4
18.1
12m
(50.0)
(43.3)
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS (fd)
(c)
P/E
(x)
P/CF
(x)
2009A
9.9
(32.7)
(41.4)
(12.2)
N/A
N/A
2010A
71.4
(18.4)
(84.3)
(8.6)
N/A
N/A
2011E
217.0
144.3
131.2
10.6
3.7
3.9
2012E
199.9
71.9
55.7
4.5
8.7
4.5
23 February 2012
Edison Insight
Zanaga Iron Ore
Sector: Mining
Price:
100.8p
Market cap:
£283m
46.5
N/A
Market
FULL
(ZIOC)
INVESTMENT SUMMARY
Zanaga Iron Ore owns a 50% less one share interest in the Zanaga iron ore project (ZIOP) in
the Congo (Brazzaville). ZIOP boasts 4.3bn tonnes of JORC resource and feasibility study (FS)
being undertaken by Xstrata, which gained full management control in Q111. While the FS is
underway, two development options – a 45mt railway and a 30mt slurry pipeline – were
identified, with capex estimates ranging from US$6.1bn to US$7.5bn. The project has capital
intensity in line with its peers and is expected to deliver a premium product similar to Brazilian
fines, with an Fe grade of at least 65% by 2017. With an estimated FOB cash cost below the
US$22/t level (including contingency), ZIOP will be positioned in the first quartile of the global
cash cost curve.
Company description
Zanaga Iron Ore Company manages its
50% less one share in the Zanaga iron
ore project located in Congo Brazzaville.
The project has JORC resources of
4.3bn tonnes at 33% Fe, is expected to
deliver first production in 2017 and is
managed by Xstrata.
INDUSTRY OUTLOOK
In the short term, we expect iron ore price to remain capped by the deteriorating macro and
steel industry environment.
Y/E Dec
Revenue
(US$m)
EBITDA
(US$m)
PBT
(US$m)
EPS
(c)
P/E
(x)
P/CF
(x)
2009A
0.0
(1.6)
(1.6)
(1.19)
N/A
1504.1
2010A
0.0
(13.9)
(13.9)
(5.38)
N/A
N/A
2011E
0.0
(3.7)
(3.5)
(1.28)
N/A
N/A
Analyst
Andrey Litvin
2012E
0.0
(3.5)
(3.3)
(1.19)
N/A
N/A
Sector: Food & Drink
Zetar
Price performance
%
Actual
Relative*
1m
3.6
(0.6)
3m
10.7
1.3
Price:
Market cap:
Market
12m
(42.1)
(40.1)
191.5p
£25m
9.1
19.0
AIM
(ZTR)
INVESTMENT SUMMARY
Zetar delivered a good H112 result with underlying sales growth of 7%. Further progress has
been made in laying the groundwork for a much improved quality of business; reducing
seasonality and replacing commodity business with licensed and third-party branded lines,
together with early moves towards building a meaningful European exposure. Background
trading conditions, though, are far from easy, with low consumer confidence affecting retailers’
willingness to place orders and, therefore, we have made a precautionary trim to our
estimates. The rating remains overly harsh.
INDUSTRY OUTLOOK
The beginning of H212 coincided with the intense media coverage of the eurozone crisis,
Company description
Zetar is a leading manufacturer of
confectionery and natural snacks, with a
reputation for quality and product
innovation. It has strong relationships
with all major UK food retailers and with
many global media brand licensors.
which in turn affected consumer spend. Christmas spending, although so late as to cause
suppliers' and retailers' stress levels to ratchet up, was not so weak as had been feared.
However, the understandable reluctance of retailers to risk being left with excess seasonal
stock is reducing normal visibility levels, particularly in the run up to Easter.
Y/E Apr
Revenue
(£m)
EBITDA
(£m)
PBT
(£m)
EPS (fd)
(p)
P/E
(x)
P/CF
(x)
2010A
131.9
9.6
6.4
35.4
5.4
2.7
2011A
135.0
9.8
6.7
38.5
5.0
7.1
2012E
131.0
9.9
6.6
38.2
5.0
2.0
2013E
139.0
10.6
7.4
43.1
4.4
2.6
Price performance
%
Actual
Relative*
1m
3.2
(0.9)
3m
(13.7)
(21.0)
Analyst
23 February 2012
12m
(5.4)
(2.2)
137
Edison Insight
Events diary
Listed below are the expected dates of forthcoming events from Monday 27 February 2012.
If you would like to attend an Edison investor event, please contact Kathy Boate on +44 (0)20 3077 5711.
Date
Company
Event
Monday 27 February
Bovis Homes
Cookson Group
Dialight
Hiscox
HSBC Holdings
Keller Group
Microgen
Pearson
PostNL
Senior
Staffline Group
Ultra Electronics Holdings
WSP Group
Finals
Netcall
Sareum Holdings
Interims
Aer Lingus Group
AZ Electronic Materials
CRH
GKN
Molins
Moneysupermarket.com Group
Perform Group
Persimmon
Promethean World
Provident Financial
Rotork
SDL
Serco Group
Finals
Craneware
Petra Diamonds
Tracsis
Waterman Group
Wilmington Group
Interims
International Biotechnology Trust
Edison Investor Access event (London)
Edison Investor Access event (Scotland)
Tuesday 28 February
138
23 February 2012
Edison Insight
Date
Company
Event
Wednesday 29 February
ANT
Capital & Counties Properties
Carillion
Glanbia
Globeop Financial Services
Henderson Group
International Consolidated Airlines Group
Interserve
ITV
Lavendon Group
National Express Group
Restaurant Group
Standard Chartered
Taylor Wimpey
Weir Group
Finals
Ricardo
RSM Tenon Group
Sportingbet
Interims
HarbourVest Global Private Equity
Edison Investor Access event (North west)
Dairy Farm International Holdings
Derwent London
Fiberweb
Hardy Underwriting Bermuda
Hongkong Land Holding
Howden Joinery Group
Jardine Lloyd Thompson Group
Man Group
Mandarin Oriental International
Novae Group
office2office
Psion
Quadnetics Group
Robert walters
Spirent Communications
Unite Group
Vitec Group
WPP
Xchanging
Finals
Ai Claims Solutions
Interims
BBA Aviation
IMI
Jardine Matheson Holdings
Jardine Strategic Holdings
Laird
Rentokil Initial
Finals
Amlin
FBD Holdings
Glencore International
Hydrogen Group
Intertek Group
Paddy Power
Petrofac
Sagentia Group
Finals
Thursday 1 March
Friday 2 March
Monday 5 March
23 February 2012
139
Edison Insight
Date
Company
Event
Tuesday 6 March
Cape
Cupid
Fisher (James) & Sons
Hydro International
Inmarsat
John Menzies
Macfarlane Group
Meggitt
Michael Page International
Omega Insurance Holdings
Pace
SQS Software Quality Systems
Tullett Prebon
Ubisense Group
Wood Group
Zotefoams
Finals
Interior Services Group
St Ives
Interims
Zanaga Iron Ore
32Red
4imprint Group
Access Intelligence
Admiral Group
Alkane Energy
Chime Communications
Costain Group
Dignity
Elringklinger
Goldenport Holdings
Hardy Oil & Gas
InterQuest Group
Legal & General Group
Lookers
Management Consulting Group
Melrose
Sportech
Stadium Group
Tarsus Group
Finals
Edison Investor Access breakfast (London)
Alpha UK Multi Property Trust
Aviva
Balfour Beatty
Cineworld Group
Clarkson
Cobham
Corin Group
H&T Group
Hunting
Irish Continental Group Units
JCDecaux
Morrison (Wm Supermarkets)
Schroders
Schroders (Non-Voting)
Spirax-Sarco Engineering
Finals
Goldplat
Edison Investor Access lunch (London)
Wednesday 7 March
Thursday 8 March
140
23 February 2012
Edison Insight
Date
Company
Event
Friday 9 March
Aga Rangemaster Group
Aggreko
Marshalls
Old Mutual
Finals
JD Wetherspoon
Interims
Ark Therapeutics
Brady
Finals
Abcam
Interims
Communisis
Antofagasta
Cello Group
Computacenter
Futura Medical
G4S
HaloSource
Inchcape
Law Debenture
Standard Life
Finals
Brooks Macdonald Group
Regenersis
Interims
Ferrexpo
French Connection Group
Greggs
Hikma Pharmaceuticals
Mecom Group
Modern Water
SIG
SocialGO
StatPro Group
Tullow Oil
Yule Catto & Co
Finals
CVS Group
EpiStem Holdings
IndigoVision Group
Smiths Group
Interims
Advanced Computer Software
Aegis Group
Fairpoint Group
Hill & Smith Holdings
Playtech
Plaza Centers
Premier Farnell
Trinity Mirror
TT Electronics
Work Group
Finals
Air Partner
Interims
EMIS Group
Finals
Monday 12 March
Tuesday 13 March
Wednesday 14 March
Thursday 15 March
Friday 16 March
23 February 2012
141
Edison Insight
Date
Company
Event
Monday 19 March
Capital Drilling
PowerFilm
Quindell Portfolio
Finals
Renewable Energy Generation
Interims
Bank Pekao
Cairn Energy
Charlemagne Capital
Hutchison China Meditech
Mears Group
Real Good Food Company
Restore
T Clarke
UTV Media
Xaar
Finals
Innovation Group
Empresaria Group
Eurasian Natural Resources
IQE
Lupus Capital
Ted Baker
Finals
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142
23 February 2012
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23 February 2012
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144
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23 February 2012
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146
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23 February 2012
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23 February 2012
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