Edison Investment Research - recent research

Vermilion Energy (VET) - Dividend and growth comfortably covered

2019-03-19T16:24:53+00:00

Edison Investment Research - Oil & gas - Vermilion Energy: Vermilion Energy offers a geographically diverse production base, the ability to fund an 8.1% dividend yield and a forecast FY19 c C$530m capital programme, all achievable even at realised commodity prices c 3% below our base case (WTI US$56.1/bbl, Brent US$62.8/bbl). We adjust our FY19 and FY20 forecasts to reflect lower short-term commodity price expectations (based on the latest EIA forecasts of 12 March 2019). EIA’s FY19 WTI moves from US$64.9/bbl to US$56.1/bbl (-14%), driving down our forecast FY19 FFO from C$1,200m to C$982m (-18%), comfortably above the $954m we estimate is required to cover dividend, maintenance and growth capex. Our valuation falls from C$54.5/share to C$47.5/share, based on a blend of P/CF, EV/EBIDAX, DDM, and FCF (plus growth) multiples. The valuation remains highly sensitive to commodity price assumptions. We provide a sensitivity to these key inputs in this note.
ISIN: CA9237251058

Hurricane Energy (HUR) - Aoka Mizu hook-up at Lancaster

2019-03-19T15:11:02+00:00

Edison Investment Research - Oil & gas - Hurricane Energy: The Aoku Mizu FPSO is now on station and hooked up at Lancaster; we believe this keeps the EPS on schedule for first oil in H119. Hurricane will now focus on topside commissioning prior to start-up, which will be followed by a ramp-up period to a gross targeted plateau production rate of 20kbd (17kbod net of operating efficiency). In addition to progressing Lancaster, the company has a full programme of activity in its neighbouring Greater Warwick Area (GWA), with the three-well E&A programme in the GWA expected to kick off in early Q219 at Warwick Deep. Our risked valuation stands at 102.8p/share (see our last note).
ISIN: GB00B580MF54

Laboratorios Farmacéuticos ROVI (ROVI) - DORIA Phase III trial hits primary endpoint

2019-03-19T12:49:23+00:00

Edison Investment Research - Pharmaceuticals & healthcare - Laboratorios Farmacéuticos ROVI: Laboratorios Farmacéuticos ROVI (ROVI) has announced top-line data from the pivotal Phase III PRISMA-3 trial evaluating DORIA (ISM risperidone) in schizophrenia. DORIA achieved the primary endpoint of a statistically significant reduction (p<0.0001) in PANSS score at week 12 (both 75mg and 100mg doses once-monthly intra-muscular injection). These data not only validate DORIA but also the ISM technology platform developed by ROVI. ROVI plans to file the US NDA in H219. We forecast a potential launch in 2021 in both the US and EU and peak sales opportunities of US$411m (US and EU) in 2027. DORIA has the potential to be highly value enhancing to ROVI’s long-term profit growth. This is in line with our expectations and we leave our forecasts and valuation unchanged at €1.23bn or €21.9 per share.
ISIN: ES0157261019

PureCircle (PURE) - Growing pains

2019-03-19T11:47:39+00:00

Edison Investment Research - Consumer Support Services - Food & Drink - PureCircle: PureCircle’s H119 results highlight the ongoing evolution in the company: sales declined 5%, partly due to phasing of deliveries, but also due to adoption of the superior-tasting, higher-margin Reb M product cannibalising the base business. Gross margins were up 240bp as a result of Reb M contributing positively to the mix. The innovation pipeline continues to strengthen and the company is well positioned to capitalise on the continued shift away from sugar and towards natural sweeteners.
ISIN: BMG7300G1096

Invesco Asia Trust (IAT) - Disciplined Asia specialist, solid long-term returns

2019-03-19T11:22:13+00:00

Edison Investment Research - Investment trusts - Invesco Asia Trust: Invesco Asia Trust (IAT) aims to provide significant capital returns over the long-term through investing in listed companies in Asia. It follows a rigorous bottom-up investment process with few constraints, to build a relatively concentrated 50–70 stock portfolio representing the manager’s highest-conviction ideas over a three- to five-year horizon. The approach also emphasises the valuation discipline and favours cash-generative companies, which is reflected in the underlying portfolio yield of c 3%. IAT has increased its annual dividend in seven out of the past 10 years and over that time has delivered an annualised NAV total return of c 16%.
ISIN: GB0004535307

Focusrite (TUNE) - A solid first-half performance

2019-03-19T10:22:22+00:00

Edison Investment Research - Consumer Support Services - Focusrite: Focusrite has reported solid H119 revenue growth, reflecting particularly strong performance in Europe and for its Focusrite ranges globally. We leave forecasts unchanged, recognising the macroeconomic challenges in H2 arising from US tariffs and Brexit. The company is actively seeking opportunities to use its substantial net cash balance (H119: £26.2m), as reflected in the current valuation.
ISIN: GB00BSBMW716

DeA Capital (DEA) - Platform developments and AUM growth

2019-03-19T09:46:10+00:00

Edison Investment Research - Financials - DeA Capital: DeA Capital performed well in FY18 despite turbulent financial markets, developing its alternative asset management platform and growing AUM. Minority interests have been eliminated and net asset value grew. Strong cash flow continues, driven by net distributions from maturing fund investments, sufficient to fund reinvestment and strong distributions. The board is proposing payment of an unchanged €0.12 per share dividend in the current year, a yield of almost 9%. Our adjusted net asset value per share is unchanged at €1.94, c 40% ahead of the share price.
ISIN: IT0001431805

MyBucks (MBC) - Rapid expansion calls for new capital

2019-03-19T09:28:09+00:00

Edison Investment Research - Financials - MyBucks: MyBucks’s (MBC’s) H119 results reveal a continuation of solid loan book expansion driven by both organic growth (especially in the banking business) and acquisitions (including Capfin and Pride). As the company is still loss making at the bottom line and generates negative operating cash flows, growth has been facilitated by both higher indebtedness and new customer deposits in H119. With the integration of entities acquired over the last years now completed, and given the recently introduced measures to reduce funding costs and operating expenses, the company should continue to gradually approach its break-even point.
ISIN: LU1404975507

Adocia (ADOC) - Chinese progress and US lawyers

2019-03-19T09:13:10+00:00

Edison Investment Research - Pharmaceuticals & healthcare - Adocia: FY18 accounts show cash of €39.8m after the April 2018 payment of €37.2m ($50m) for the deal with Tonghua Dongbao (THDB) in China. The €11.9m 2018 arbitration award ($11.6m plus $1.6m interest) against Lilly should be received in 2019 after further legal aspects are cleared. A successful single-dose Phase I of BioChaperone (BC) pramlintide insulin could lead to a multiple-dose study in Q219. A European/US Phase III of BC Lispro can be run after a short bridging study and if a partner is found.
ISIN: FR0011184241

Nuevolution (NUEV) - Small molecules, big ambitions

2019-03-19T08:52:36+00:00

Edison Investment Research - Pharmaceuticals & healthcare - Nuevolution: Positive progress in Nuevolution’s RORγt partnership with Almirall has triggered a €1m milestone payment (SEK10.5m) and we continue to forecast that it will enter the clinic in 2019. FY18 was defined by the progress in the Amgen partnership as it opted in for two oncology programmes, further validating Nuevolution’s Chemetics technology. In Nuevolution’s BET-BD1 programme, a development candidate (NUE20798) has been nominated; data in animal cancer models highlight that it may have synergistic effects in combination with immunotherapies. The FY18 net loss was down year-on-year to SEK99.7m (from SEK117.5m) as a result of lower R&D costs. Net cash of SEK108m (FY17: SEK110.6m) should fund operations into 2020. We value Nuevolution at SEK20.7/share.
ISIN: SE0007730650

JPJ Group plc (JPJ) - International continues to drive growth

2019-03-19T08:44:50+00:00

Edison Investment Research - Travel & Leisure - JPJ Group plc: Driven by an impressive 42% organic growth in the Vera&John division, JPJ reported FY18 revenue growth of 10% to £319.6m with an EBITDA margin of 35.3%. International now comprises 43% of revenues and we expect this to increase as the company diversifies away from the UK. Cash generation remains strong and adjusted net debt/EBITDA has fallen from 3.6x in FY17 to 2.7x in FY18. Management is committed to a progressive dividend policy (once the ratio is sustainably below 2.5x) and would also consider share buybacks at that point. The stock is trading at the bottom of the peer group at 6.7x P/E and 8.2x EV/EBITDA for FY19e.
ISIN: GB00BZ14BX56

Actinogen Medical (ACW) - Differentiated treatment for Alzheimer’s disease

2019-03-18T08:43:35+00:00

Edison Investment Research - Pharmaceuticals & healthcare - Actinogen Medical: Actinogen Medical is an ASX-listed Australian biotech developing its lead asset Xanamem to treat cognitive impairment that occurs in chronic neurodegenerative diseases. Xanamem® is a selective 11β-HSD1 inhibitor that is able to cross the blood-brain barrier and target excess brain cortisol, which has been associated with cognitive impairment in Alzheimer's disease (AD). The ongoing Phase II XanADu trial is fully enrolled with mild AD patients, who receive Xanamem in conjunction with standard of care. The results are due by end-Q219 and will shape further development of Xanamem. Our valuation is A$195m or A$0.17/share.
ISIN: AU000000ACW3

Attica Bank (TATT) - Balance sheet repair nears completion

2019-03-18T07:55:46+00:00

Edison Investment Research - Financials - Attica Bank: Through the Artemis and Metexelixis securitisations, Attica’s exposure to impaired loans has reduced significantly and now compares favourably with the larger Greek banks. Management forecasts common equity Tier 1 to increase from 12.2% to 13.2% at year end, representing significant headroom over regulatory requirements. Management will now move to the next stage of recovery, right-sizing the cost base and shifting the group’s focus to the small and medium-sized enterprise market. Q3 results provide evidence of tight cost control and declining impairments. With Attica trading at 0.18x tangible book value, investors are taking nothing on trust.
ISIN: GRS001003029

TXT e-solutions (158355634TXT) - Accelerating growth with M&A

2019-03-15T14:25:11+00:00

Edison Investment Research - Technology - TXT e-solutions: Group organic revenue growth in FY18 was driven by double-digit growth of the aerospace business. TXT started to invest some of its substantial cash pile in H218, acquiring two Italian businesses in the fintech space. This investment should provide growth opportunities for the Banking & Finance business. Increased investment in sales and R&D in FY19 reduces our normalised EPS forecast by 15.5%; we introduce a forecast for 21% EPS growth in FY20. The company continues to assess targets in both business lines and has net cash of €60m available to fund acquisitions.
ISIN: IT0001454435

Plant Health Care (United Kingdom) - Leading the field

2019-03-15T11:52:40+00:00

Edison Investment Research - Industrial Support Services - Plant Health Care: Plant Health Care expects to gain the first US regulatory approval for one of the products in its New Technology portfolio, PHC279, a PREtec (plant response elicitor) in 2020, leading to market launch in 2021. The PREtec products, which address markets worth over US$5bn, complement the company’s existing range of biological products for boosting plant yields, which are already approved for sale in 16 countries.
ISIN: GB00B01JC540

Jupiter Green Investment Trust (JGC) - Growing opportunity set drives higher income

2019-03-14T14:31:12+00:00

Edison Investment Research - Investment trusts - Jupiter Green Investment Trust : Jupiter Green Investment Trust (JGC) is continuing to benefit from the greater public interest in green issues, which is driving demand growth for companies delivering solutions to environmental challenges. Manager Charlie Thomas and his team run a globally diversified portfolio of c 60 companies, invested across a wide variety of areas, broadly grouped into themes of resource efficiency, demographics and infrastructure. The growing maturity of the investment universe is leading to a larger number of companies paying attractive dividends, enabling JGC to enhance its own dividend policy, with a higher yield (now c 1.3%, from c 0.7%) and semi-annual payouts. As the highest-yielding, closed-ended ‘green’ equity fund, JGC could see greater demand for its shares, which could help to narrow the currently wider-than-average discount to NAV.
ISIN: GB00B120GL77

Acarix (ACARIX) - Favourable market dynamics

2019-03-14T11:33:49+00:00

Edison Investment Research - Pharmaceuticals & healthcare - Acarix: The CADScor medical device helps doctors rule out coronary artery disease and so avoids complex and costly further testing in 50% of cases. Acarix is in a market development phase; FY18 results show CADScor sales of SEK1m. The application for German public reimbursement is underway; more news is expected in mid-2019. Acarix is focused on the German private market (about 10% of the population) plus public sector sales in Scandinavia. The significant long-term sales potential remains unaltered, but we have adjusted our 2019 and 2020 forecasts for longer market development times. The revised valuation is SEK369m (SEK16/share), formerly SEK448m (SEK19.46/share).
ISIN: SE0009268717

Deinove (ALDEI) - Diversified biotech championing antibiotics

2019-03-14T11:05:09+00:00

Edison Investment Research - Pharmaceuticals & healthcare - Deinove: Deinove is a biotech company that develops innovative compounds from rare bacteria strains, including the little-explored Deinococcus genus. Using proprietary strain-selection technology, the company has collected an extensive library of c 6,000 extremophile bacteria found in hostile environments. Of the many potential compounds identified by Deinove, the most valuable are novel antimicrobials. The lead Phase II-ready asset, DNV3837, is targeting Clostridium difficile infection. Drug development efforts are expected to be partly supported by revenue from products for other applications, such as Phyt-N-Resist, the first-ever scaled-up, bio-sourced phytoene for cosmetics. Our valuation is €65m or €4.2/share.
ISIN: FR0010879056

Jersey Electricity (JEL) - Continuing dividend growth forecast

2019-03-14T10:39:14+00:00

Edison Investment Research - General Industrials - Jersey Electricity: Jersey Electricity’s (JEL) strong financial position and forecast cash flow should underpin 5% per year growth in the dividend per share. Although JEL faces wholesale cost rises, lower unit demand and a fluid regulatory situation, we believe that, given its strong position on pricing and service standards, it is well positioned to withstand these pressures. Our latest valuation analysis indicates increased upside potential from current levels.
ISIN: JE00B43SP147

Marshall Motor Holdings (MMH) - A record year despite challenges

2019-03-14T09:39:52+00:00

Edison Investment Research - Automotive Retailers - Marshall Motor Holdings: FY18 was another record year for the continuing businesses, with underlying PBT delivered as we expected, a modest rise on FY17 aided by a strong Q4 performance in used cars. The outlook remains challenging for car retailers, compounded by the uncertainty of any Brexit outcome. Nevertheless, Marshall Motor Holdings’ (MMH) management is displaying confidence in its robust financial position by continuing investment and increasing the dividend. The resultant yield provides significant support for the shares, which like those of its peers continue to be rated for sharp declines in profitability.
ISIN: GB00BVYB2Q58