Motif Bio plc (LON:MTFB) – BUY*: Initiation of coverage
Market Cap: £20m; Current Price: 31p; Target Price: 89p
- We initiate coverage with a BUY rating and 89p price target
- Global antibiotic resistance crisis: antibiotic resistance has become a major public health concern, with close to 50,000 deaths annually across Europe and the US attributed to the problem. Despite this looming crisis, the global pipeline of novel antibiotics is insufficient, creating an opportunity for specialist drug developers, such as Motif.
- Iclaprim addresses desperate need for novel antibiotics: Motif’s flagship late-stage antibiotic, iclaprim, targets an underutilised mechanism of action making it less susceptible to developing antibiotic resistance. The drug has already been tested on over a thousand patients, providing considerable evidence to support its safety and efficacy. Iclaprim is expected to commence phase 3 trials in H2-2015.
- Grossly undervalued: we believe that Motif is grossly undervalued. Our risk-adjusted DCF analysis indicates a fair value of 89p/share, indicating 187% upside to the current share price. Moreover, Motif’s closest peer, NASDAQ-listed Paratek, trades at a substantial premium to our target value for Motif.
NORTHLAND CAPITAL PARTNERS VIEW: In the wake of a major global public health crisis driven by rampant antibiotic resistance, Motif’s late clinical-stage antibiotic, iclaprim, is set to fill a major market void. Having already been tested on over a thousand patients, iclaprim’s safety and efficacy is well supported. If approved, the drug could achieve over $1bn/year in sales. We initiate coverage with a BUY rating and 89p price target.
Market Cap: £13m; Current Price: 2.4p
- Production expected in June
NORTHLAND CAPITAL PARTNERS VIEW: Premier African Minerals (Prem) is now fully funded to move the RHA Tungsten Project, located in Zimbabwe, into production in June 2015. The open pit will have an estimated life of twenty-two months producing around 120,000mtu of tungsten. The funds generated from the open pit operation will be used to cover corporate overheads, delayed capex and as a contribution towards the cost of developing the larger underground operation at RHA. This underground operation is expected to result in the production of around 100,000mtu per annum for over twelve years. Based on the near term nature of production, the low operational and capital cost of the RHA project we initiate coverage of Premier African Minerals with a SPECULATIVE BUY rating.
Market Cap: £9.1m; Current Price: 9p
- Final grid certification pending; positive wind data on next projects
- Certification for the final grid connection for the 15MW Raki/Huajache wind projects (where Rame has a 20% stake) is pending. The nature of the Raki/Huajache projects (they are electrically separate for qualification under the Chilean renewable energy regulations (PMGD) but share a newly built collector substation onsite) has led to a slight delay – this is the first such situation in Chile and has necessitated more legal definition and technical input. The minor modifications to the substation required are expected to be completed shortly.
- EKA, the counterparty to the PPA, has agreed to delay the PPA start date to allow for the final completion. The JV partners (Santander Investment Chile Limitada and Rame) have now agreed on completion dates tied to a final commercial account with the EPC contractor Vestas. The agreement is still subject to final approval within Santander, which is imminent, and anticipates commencement of energy sales in the middle of June.
- Rame has been gathering further wind data at the next potential project sites in the Santander portfolio (133MW total). Following the installation of taller masts (112m) the actual data gathered over seven months indicates a ≥25% increase in annual energy production against previous assumptions for the next two projects (totalling 54MW). This could correspond to a significant increase in the NPV of the projects. The new data is being analysed to conclude turbine selection and Rame has started the consultation programme with local government and nearby communities.
NORTHLAND CAPITAL PARTNERS VIEW: The Raki/Huajache project is now nearing completion with the close out of the EPC contract and the modifications to the substation required to meet the PMGD regulations to gain certification. The project has been a learning curve for various parties and will mark Rame’s transition from an EPC to a niche Independent Power Producer (IPP) targeting 300MW in three years. The additional wind data on the next 54MW of projects suggests higher levels of energy production and hence a higher NPV on the next two projects. As previously argued, there is considerable funding interest in the Chilean renewables market and Rame has proven experience and expertise and a large portfolio of projects at various stages. This progress and potential is not reflected in the current price.
Market Cap: £33m; Current Price: 35p; Target Price: 82.4p
- Change in year end
- Hummingbird Resources has changed its financial year-end to bring it in line with its subsidiary companies. It will move from the 31st May to the 31st December. As a result, the Company reports in these results as seven months to the 31st of December 2014.
- LBT for the seven months to 31st December 2014 was US$3.4m, which appears in line with the results for the twelve months to 31st May 2014. Net debt or the seven months to 31st December 2014 was US$20.6m, which is up from US$10.4m in the results for the twelve months to 31st May 2014.
- Our forecasts will now be updated to bring them in line with the new year-end. Rating and price target maintained.
NORTHLAND CAPITAL PARTNERS VIEW: It is difficult to give a detailed review of these results compared to our forecasts due to the change in year-end but these results appear broadly in line with our expectations.
Market Cap: £35m; Current Price: 10.8p
- From yesterday: FY results reflect development progress at Lace
- LBT of £3.3m for FY14 was up from £2.6m in FY13 and higher than our forecasts of £2.4m largely due a £1.7m fair value adjustment that outweighed a reduction in corporate expenditure.
- Net debt increased to £21.9m in FY14 from £11.6m in FY13 noticeably higher than the £14m we had forecasts due to increase in capex associated with a change in the development schedule.
- Forecasts and price target under review. BUY rating maintained.
NORTHLAND CAPITAL PARTNERS VIEW: While these results reflected the development of Lace during last year, this year will see maiden production from the Upper K4 kimberlite at Lace that is expected to commence in H215. The impressive growth profile for DiamondCorp’s production will see production increase 547% in two years from around 68,000cts in 2015 to 440,000cts in 2017. We continue to believe the Company looks undervalued.