D4T4 Solutions (D4T4) : Corp

Management confidence in the H2 pipeline is validated

Key data

  • Share price (p) 205.0
  • Target price (p) 310.0
  • Market cap (£m) 80.4
  • Enterprise value (£m) 69.2

Our FY 2019 growth forecasts are further underpinned by today’s reassuring news of a raft of Celebrus contracts and extensions in the key verticals of banking and the wider financial services sector, notably endorsing the investment in the latest Version 9 launched last year. These contracts represent strong trading through H2 and should greatly reassure any investors nervous of the notable H2-weighting seen in the Interims. Management has confidence in a strong pipeline with new and existing clients, and this is being converted to meet forecasts; D4T4 is building a track record of delivering on its H2-weighting. We caveat this by highlighting a shift to SaaS contracts which might require us to adjust expectations as the company trades short-term results for greater long-term security and quality of earnings.

Lorne Daniel 020 7220 0545 ldaniel@finncap.com

FY 2019 beats forecasts and points to a bright future

Key data

  • Share price (p) 168.0
  • Target price (p) 210.0
  • Market cap (£m) 222.9
  • Enterprise value (£m) 185.9

Telit has released a brief but encouraging post-YE trading update, noting revenue and earnings ahead of our FY 2019 forecasts and leading us to upgrade. We leave FY 2020 revenue and EBITDA changes until the full results in March. However, with better visibility following the Automotive division disposal, we take this opportunity to correct a D&A overestimate, raising adj. EBIT and PBT forecasts materially in FY 2019 and FY 2020. There is no cash benefit to this. However, looking ahead we feel Telit is now very well positioned to capitalise on the clear growth opportunities in the industrial IoT sector, armed with $48m cash, a revamped management team and a growing set of high quality products and services. On the back of this guidance, we lift our target price by 5% to 210p.

Lorne Daniel 020 7220 0545 ldaniel@finncap.com

Gateley (GTLY) : Corp

High ROCE; strong cash flow while investing for growth

Key data

  • Share price (p) 211.0
  • Target price (p) 252.0
  • Market cap (£m) 242.0
  • Enterprise value (£m) 244.1

Gateley has reported a strong set of H1 results detailing sales up +11.8% (+10.5% organic), adj. EPS +9.3%, DPS +11.5% and operating cash conversion of 114%. This continued progress has been supported by a +21.9% increase in average fee-earning staff numbers as the group continues to attract and retain high-calibre professionals. Management remains confident on meeting market expectations for the full year and we have upgraded our target price from 210p to 252p (based on FY 2020E free cash flow). These results are another milestone in evidencing the success of the group’s growth strategy, and with the market potential undiminished we anticipate further target price upgrades.

Guy Hewett 020 7220 0549 ghewett@finncap.com

Flowtech Fluidpower (FLO) : Corp

Year-end trading update: weaker Q4 trading

Key data

  • Share price (p) 127.0
  • Target price (p) 151.0
  • Market cap (£m) 77.4
  • Enterprise value (£m) 102.8

The company has announced its year-end trading update, which highlights that Q4 trading has been softer than expected, resulting in a lower revenue and profit than forecast. Cash flow management has been in line with expectations with a significant reduction in stock and year-end net debt in line with forecast. We therefore cut our 2019 EPS forecast by 18.2% to 12.3p, followed by 16.7% to 13.9p in 2020. As a consequence, we cut our price target from 180p to 151p, in line with earnings still targeting a P/E of 10.8x for 2020. The shares will naturally respond to this disappointing update, but continue to trade at a very low valuation compared with the industry peer group.

David Buxton 020 7220 0542 dbuxton@finncap.com

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