City of London Group (CIN) : Corp

New appointments to Recognise

Key data

  • Share price (p) 137.5
  • Target price (p) 300.0
  • Market cap (£m) 54.7
  • Enterprise value (£m) 38.9

City of London Group this morning announced two new senior appointments to the Recognise subsidiary. On 22 November, Recognise announced that it had applied for a banking licence and we expect the bank to commence lending in H2 2020. Today’s announcement of a new CFO and chief risk officer (CRO), both with significant experience in the UK banking market, is another indication of the commitment behind this new UK SME bank and further supports the ambitions that the group has to become a profitable UK SME bank. We leave our estimates unchanged and keep our 300p target price.

Kim Bergoe 020 7220 0550 kbergoe@finncap.com

DX (DX) : Corp

Stepped improvement

Key data

  • Share price (p) 11.8
  • Target price (p) 18.0
  • Market cap (£m) 67.4
  • Enterprise value (£m) 68.7

In a positive AGM statement, DX has confirmed it is on track to meet its full-year targets. Trading in the first four months of the new financial year has shown a “stepped improvement” on the same period last year. This reflects the structural organisational and operational changes made in both DX Express (annuity attrition improved at Exchange) and DX Freight (performance continues to improve) over the past 18 months. Management is now focused on sales and operational improvements supported by a major investment programme in IT, mechanisation and site improvements. We reiterate our view that DX is well placed to continue along its recovery path, providing a service that customers both need and value. We believe that the free cash flow potential post turnaround will support a significantly higher share price.

Guy Hewett 020 7220 0549 ghewett@finncap.com

discoverIE (DSCV) : Corp

Strategy continues to deliver growth and rising margins

Key data

  • Share price (p) 540.0
  • Target price (p) 579.0
  • Market cap (£m) 479.0
  • Enterprise value (£m) 533.3

discoverIE has reported a strong set of H1 2020 results driven by strong sales growth (+10% in total and +5% organic) and rising operating margins (7.6% up from 6.8%). Adj. EPS was up +11%. With a record order book and a high level of design wins the group is very well placed to further progress its growth track record despite more short-term economic caution generally. We upgrade FY 2021 EPS by 2% factoring in the latest acquisition and raise our target price from 535p to 579p.

Guy Hewett 020 7220 0549 ghewett@finncap.com

Redcentric (RCN) : Corp

Building the perfect beast

Key data

  • Share price (p) 87.0
  • Target price (p) 120.0
  • Market cap (£m) 129.4
  • Enterprise value (£m) 145.9

Typically for Redcentric, strict cost control has delivered like-for-like pre IFRS16 EBITDA ahead of prior year, from revenue behind the prior year. Quarterly revenue performance suggests revenue decline has been stemmed, with new logo wins and strong, if protracted, opportunities for growth in existing public sector framework agreements. While also focusing on the challenge restoring top-line growth, the deeper management team (new CFO since 2 September) has now had capacity to quietly tidy up further elements of the business and drive further efficiencies, today highlighting third-party datacentres and surplus legacy network infrastructure, which represent costs savings of £2.8m in FY21. The resulting leaner and single platform machine finds itself perhaps one of the cleanest vehicles for consolidation of its scale, as a listed principal or as agent of a private equity roll up. Once the overhanging FCA investigation has finally been closed we look forward to RCN, with a strong balance sheet (0.1x net debt/EBITDA by March FY21), a single efficient platform from network to billing, and management well versed in cleansing inefficient processes and infrastructure, being a key driver in necessary industry consolidation. Target 120p.

Andrew Darley 020 7220 0547 adarley@finncap.com

Phase III Grass MATA MPL update

Key data

  • Share price (p) 10.8
  • Target price (p) 40.0
  • Market cap (£m) 68.4
  • Enterprise value (£m) 55.1

Allergy Therapeutics announced on 26 November that it intends to carry out a smaller trial of Grass MATAMPL in the US/Europe to determine whether the learnings from its failed Phase III trial of PQ Birch can be successfully applied to the Grass study, after which it will run the larger pivotal Phase III trial for registration purposes. This two-step approach adds an additional year to the development programme but should improve the probability of success and ensure that the more substantial investment into the pivotal study is significantly de-risked. We maintain our 40p target price, which is underpinned by the current revenue base. This excludes any value attributed to Grass MATAMPL or other early stage clinical assets.

Mark Brewer 020 7220 0556 mbrewer@finncap.com

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