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Northland Capital Partners View on the City: Stratex International, Starcom Plc, Anite Group and Prime Focus London

Last updated: 10:49 17 Oct 2013 BST, First published: 09:49 17 Oct 2013 BST

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MINING: Stratex International (LON:STI)

WEST AFRICAN DISCOVERY & TEMBO ACQUISITION

NORTHLAND UK VIEW: Stratex International is a junior exploration and development company that has consistently discovered significant deposits and rapidly advanced and/or monetised these discoveries. The Company’s exploration pedigree is demonstrated by its track record that includes the discovery of more than 2.2moz of gold and 7.9moz of silver. Stratex has de-risked and/or monetised these projects to provide shareholders with near term value. This is highlighted by Stratex retaining a significant stake in two development projects currently being funded by JV partners, a 1% royalty worth up to $20m at the Öksüt project, as well as the £16.7m cash received from the sale of Öksüt and other projects. With £13.7m net cash, production next year and follow up drilling to begin shortly at the Dalafin project, its latest discovery, we continue to believe Stratex is significantly undervalued and maintain our price target of 12.8p.

 

SUPPORT SERVICES: STARCOM (LON:STAR)

UPDATE: TECHNICAL AND COMMERCIAL PROGRESS

NORTHLAND UK VIEW: Since coming to market in February, Starcom has continued to enhance and broaden its product set to expand the addressable markets for tracking and monitoring assets. It has also invested in the sales and marketing operations and secured the first couple of distributors for WatchLock and the first contract through the Mul-T-Lock partnership. On the negative side, there is a need for market education to create demand for its products and Starcom is dealing with large organisations. As a result, gaining commercial traction has taken longer than initially anticipated and we reduced our growth assumptions at the time of the interim results (30/09/13). On the basis of the revised forecasts, Starcom is currently trading on an FY14 PER of 10.9x. We reinstate our BUY rating (from CORP) and set a 31p price target. This is equivalent to an FY14 PER of 15.0x and reflects the considerable global growth potential of the company.

 

TMT: ANITE (LON:AIE)

FORECAST UPDATE: THE DUST SETTLES

  • Following yesterday’s profit warning on the softness in trading in the Handset Testing division and the subsequent conference call, we have further adjusted out forecasts to reflect. 
  • In terms of additional detail, the consolidation and reorganisation amongst a number of tier one handset and chipset manufacturers impacted c. £12.5m of potential revenue in the pipeline. Around £8.5m of this has been delayed, less than £1m was booked to revenue and c. £3m appears to have been deferred indefinitely, according to management. Management insisted that there was no loss of market share.
  • The weakness has impacted mainly Conformance Testing sales but also Interoperability and Development Testing and Propsim has also come up short than initial expectations (£4m in H1 versus expectation of £6m).
  • Cost control currently involves recruitment and capex control but if the situation persists into Q3 other measures are likely.
  • H1 net debt is likely to be £10m to £12m with a substantial improvement expected in H2.
  • Small further downgrades but we maintain our BUY rating and 120p price target, equivalent to 14.5x FY15 EPS.

NORTHLAND UK VIEW: The scale of the profit warning elicited a similar response on the share price (down 31.8%) and puts the share price back to the levels last seen in November 2011. The Anite story has developed considerably since then as has the deployment of LTE/4G, however, and current levels represent a buying opportunity for those willing to look beyond the short term revenue opacity. The management team had built a reputation for hitting/beating forecasts and yesterday’s warning has shaken the faith. Acquisition rumours had recently been circulating about the company at higher levels and the sell-off may pique some interest. Pressure may also resurface for the disposal of the non-core Travel business to enable management to concentrate on the larger Handset and Network Testing opportunities. Having made the investment in @com and secured blue chip customers, we would argue there is no compelling reason to sell. Anite remains a core tech holding and we reiterate our BUY rating.

 

TMT: Prime Focus London (LON:PFO)

GM REQUISITION ON AIM CANCELLATION

  • Prime Focus Limited (the holder of 64.98% of the shares in Prime Focus London) requisitioned on 16th October a general meeting to consider a resolution to cancel the admission of the Company’s share on AIM.
  • Under AIM rules, the resolution will require the approval of not less than 75% of the votes cast.
  • A circular containing the notice convening the general meeting will be sent out in due course.

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