Altitude Group (ALT) : Corp

Proposed disposal of ADP

Key data

  • Share price (p) 21.5
  • Target price (p) 120.0
  • Market cap (£m) 14.9
  • Enterprise value (£m) 11.4

Altitude has announced the disposal of AdProducts, known as ADP, for potential consideration of £0.8m (initial consideration of £0.65m: £0.35m up front then £0.3m paid in four tranches over 12 months, with a further £0.15m deferred consideration conditional on revenue generation criteria over 12 months). The division was acquired in FY17 for £0.8m in order to support the roll out of Channl.com in the UK – an initiative which has been superseded by the more rewarding focus on the subsequent acquisition and development of AIM Smarter in the US. After an initial unsolicited approach, the division, which had been breakeven in FY18 and loss making in the (unaudited) 12 months to December 2019, was put into a competitive bid process and subject to GM has been sold to a company controlled by Joanne Varley, wife of NED and Altitude founder Martin Varley, who is stepping down from the Altitude board on completion of the disposal. We adjust FY20 forecasts (revenue £-5.3m and EBITDA £-0.7m) assuming shareholder approval, removing the low gross margin ADP revenue from group forecasts, which the board reasserts leaves unchanged underlying performance for the 12-month period to December 2019. The obvious rapid change in both demand and supply circumstances however leads us to withdraw March 2021 forecasts, and we look forward to a more detailed trading update on 23 March.

Andrew Darley 020 7220 0547 adarley@finncap.com

Europa Oil & Gas (EOG) : Corp

Wressle economics highly robust

Key data

  • Share price (p) 0.9
  • Target price (p) U/R
  • Market cap (£m) 4.0
  • Enterprise value (£m) 1.1

The Wressle oil field development, in which EOG is a 30% partner, has highly robust economics. A breakeven oil price below $18/bbl means that the project generates free cash flow even in the current oil price environment. This low risk, low cost development is expected to start up in H2 2020 and will double Europa’s production to over 200 bopd, delivering valuable free cash flow.

Jonathan Wright 020 7220 0543 jwright@finncap.com

Morses Club (MCL) : Corp

Substantial immediate upside opportunity in share price

Key data

  • Share price (p) 38.0
  • Target price (p) 160.0
  • Market cap (£m) 49.4
  • Enterprise value (£m) 64.6

The company yesterday repeated its trading update from Wednesday last week, reiterating its robust balance sheet, EBITDA interest cover of 9x (almost twice the requirement of the covenants), and an expected near-term positive outcome regarding ongoing negotiations on the funding facility. Ignoring the fundamental long-term growth opportunity in non-standard digital lending, the share price presents a rare immediate opportunity to capitalise on minimum potential upside of 66% in the share price using a book value of £71m (FY 2019).

Nik Lysiuk 020 7220 0546 nlysiuk@finncap.com

Quixant (QXT) : Corp

Coronavirus delays audit sign-off for a week

Key data

  • Share price (p) 93.0
  • Target price (p) 250.0
  • Market cap (£m) 61.7
  • Enterprise value (£m) 48.2

The detailed FY 2019 results are to be delayed a week to the end of the month so that the auditor, KPMG, can complete its work. In the current Coronavirus scenario, auditors on many companies are specifically reviewing Going Concern statements in light of its impact and will need extra time to review their modelling, applying downside sensitivities. This should be a mere formality for Quixant, which boasts a strong underlying business providing critical outsourced hardware for multiple international tier-1s in the gaming-machine industry. Furthermore, it is underpinned by both $18.5m cash at the end of February and a notably asset-rich balance sheet. The FY 2019 headline results were released in the January post-YE trading update; revenue of $92.3m, adj. PBT of $10.7m and net cash of over $16m. Quixant remains profitable and cash generative; indeed, we notice that net cash improved another £2.5m to $18.5m in the two months to the end of February despite the virus issues in the Far East.

Lorne Daniel 020 7220 0545 ldaniel@finncap.com

Revolution Bars Group (RBG) : Corp

COVID-19 trading update

Key data

  • Share price (p) 24.5
  • Target price (p) U/R
  • Market cap (£m) 12.3
  • Enterprise value (£m) 23.8

The group has announced that despite encouraging LFL results for the year to date, in recent days it has experienced a decline in LFL revenue following the increasing impact of COVID-19. In addition, the recent advice by the UK government to stay away from bars and restaurants creates a very challenging trading environment for the foreseeable future and as a result, we have withdrawn our forecasts and target price.

Mark Paddon 020 7220 0541 mpaddon@finncap.com

Synairgen (SNG) : Corp

COVID-19 Phase II trial to start imminently

Key data

  • Share price (p) 24.5
  • Target price (p) U/R
  • Market cap (£m) 26.8
  • Enterprise value (£m) 23.3

Synairgen announced that it has received expedited approvals from MHRA and HCA in the UK to conduct a Phase II trial of SNG001 (inhaled interferon beta/IFN-β) initially in 100 hospitalised patients with mild-moderate COVID-19. This is not an insignificant challenge given the fast-moving situation for COVID-19 and positions Synairgen favourably ahead of the expected increase in COVID-19 cases in the UK. The trial is expected to commence imminently, with an initial readout likely in Q2 2020. We are putting our 54p target price, which was underpinned by the rNPV of SNG001 in COPD as well as economic interest in Pharmaxis’ LOXL2 programme, under review pending further analysis. Nevertheless, we view the potential risk-adjusted value of SNG001 as an antiviral to be very significant given the lack of therapeutics to treat COVID-19.

Mark Brewer 020 7220 0556 mbrewer@finncap.com

LPA Group (LPA) : Corp

COVID-19 update and Board appointments

Key data

  • Share price (p) 82.0
  • Target price (p) 125.0
  • Market cap (£m) 10.3
  • Enterprise value (£m) 12.8

The company has announced it has so far seen little undue impact from coronavirus, but it comments it is prudent to expect some impact on its transport and aerospace customer base. The AGM statement also highlights several new appointments to the Board that help rejuvenate the senior management team. The announcement also signals actions to mitigate the impact of coronavirus, including the suspension of the 2019 final dividend to conserve cash. We therefore reduce revenues by 10%, which results in a £0.5m reduction in PBT and EPS of 4.7p, down 40%. Our price target reduces from 156p to 125p, with longer-term value driven by the recovery in its order book, while the shares are already significantly lower due to current market weakness.

David Buxton 020 7220 0542 dbuxton@finncap.com

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