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Northland Capital Partners View on the City Sunrise Resources, Starcom Plc and Rockwell Diamonds

Northland Capital Partners View on the City Sunrise Resources, Starcom Plc and Rockwell Diamonds

Rockwell Diamonds (TSE:RDI) Q215 production and sales results

Market Cap: CAD$19m; Current Price: 34c; Target Price: 49.4c

  • Results largely in line with our forecasts
  • Minor downgrade to FY15 revenue forecasts, no change to price target.

NORTHLAND CAPITAL PARTNERS VIEW: Rockwell Diamonds’ Middle Orange River operations boasted a strong operational performance this quarter (Q215) with the new mining fleet leading to improved volumes at all operations, in line with expectations. Changes to our assumptions on the average diamond value at two of the mines (one upgraded, one downgraded) results in a small downgrade to our revenue forecast to $64.5m from $65.1m for the current financial year (FY15). This has no significant effect on our price target of 49.4c per share. Interim results are expected shortly and we will be looking for a reduction in operational costs as a result of the improved volumes and the new mining fleet.

 

Starcom (LON:STAR): Slow H1, expect better H2

Market Cap: £7.9m; Current Price: 9.4p; Target Price: Under Review

  • Interims: Revenue lower - Ukraine disruption & lower than expected WatchLock growth
  • H1 revenue fell 16.6% to $2.9m with the loss of sales to Ukraine (that represented 20% of FY13 revenue) coupled with lower than expected WatchLock revenue. This was impacted by US regulatory delays and a lack of traction from Mul-T-Lock, its JV partner, that focusing its marketing efforts on the second generation product. 
  • The lower revenue coupled with a lower gross margin (51.7% versus 56.7%) and higher operating costs ($2.2m versus $1.4m) resulted in a $1.3m negative swing in operating profit to a loss of $0.7m. Cash at period end was $0.1m (FY13: nil) but net debt increased to $1.2m (FY net debt: $0.9m) with an expansion in working capital ($2.4m) partially offset by February’s placing ($2.9m). Management reports better collection post period end.
  • Product development. New versions of Helios (TT for the motorcycle market and Hybrid that combines cellular and satellite communications) are generating interest and revenues are expected in H2. New version of Triton has successfully undergone a series of extreme environment tests and is running pilots with potential customers – initial sales expected in H2. Kylos product due for launch shortly. Second generation of WatchLock (more compact, cheaper and improved battery life) should be available in H1 FY15. Four products being launched in 2014.
  • Signed a Guatemalan distributor in May that has placed orders for a significant number of units across the product portfolio. Revenue of $400k is expected in the FY and the three year contract represents a total value of $1.8m. Post period end, a three year supply and support agreement has been signed by a distributor covering Central and Latin America with an initial order received.
  • H1 performance below forecasts and FY is now expected to be below our previous forecasts at the top and bottom line despite a considerable improvement in H2.

NORTHLAND CAPITAL PARTNERS VIEW: A slow first half, as flagged in May’s trading update, as the company looked to bounce back from the loss of the Ukrainian business that represented around 20% of FY13’s revenue. We had been optimistic that growth in WatchLock revenues would have more than compensated and although we expect H2 will be much stronger than H1 and Starcom will be profitable in the FY, we now anticipate revenue growth of closer to 10% for the year. The company continues to drive product development with four product launches scheduled for this year and product evolutions extends into 2015 with the smaller, cheaper WatchLock that will offer much improved battery life. Balance sheet was somewhat stretched at the H1 balance sheet date but management reports good collection post period end.

 

Sunrise Resources (LON:SRES): Australian Gold Update
Market Cap: £1.9; Current Price: 0.4p

  • Soil sampling programme underway and new licence application made
  • Soil sampling programme underway at the Corona Gold Project and expected to commence at the Bakers Gold Project in two weeks.
  • Results expected for Corona Project in five weeks and the Bakers Project in seven weeks.
  • Application made for a prospecting licence located adjacent to western edge of the Bakers Project targeting the gold bearing quartz-stockwork of the Dickey Lee gold mine.

NORTHLAND CAPITAL PARTNERS VIEW: Sunrise Resources is undertaking a soil sampling programme to generate targets for the first drill programme at the Corona and Bakers Gold Projects expected later this year. The Company hopes to be able to fast track its application for the Dickey Lee licence by including it in the existing Aboriginal Heritage Agreement. Sunrise notes that the Dickey Lee licence contains a drill ready target.

1. Northland Capital Partners Limited (“Northland”) acts as Nominated Advisor and/or Broker to the company.

2. Northland) and/or its affiliates companies do beneficially own 1% or more of any class of the issuer’s equity securities, as of the end of the month immediately preceding the date of issuance of the research report or the end of the second most recent month if the issue date is less than 10 calendar days after the end of the most recent month. 

3. The authoring analyst or any associate of the authoring analyst does maintain a long or short position in any of the issuer’s securities directly or through derivatives, including options or futures positions.

4. Northland, its affiliated companies, partners, officers, directors or any authoring analyst of Northland has provided services to the issuer for remuneration during the preceding 12 months other than investment advisory or trading services.

5. Northland or any of its affiliated companies has performed investment banking services for the issuer during the 12 months preceding the date of issuance of the report.  

6. A partner, director, officer, employee or agent of Northland or any of its affiliated companies is an officer, director, employee or advisor of the issuer.  Disclosures are applicable for all companies

7. The authoring analyst, or any associate of the authoring analyst, has viewed the material operations of the issuer. 

8. The authoring analyst, or any associate of the authoring analyst, received reimbursement for travel expenses.

9. Northland makes a market in the securities of this company.

 

 

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This document is provided solely to enable clients to make their own investment decisions. It may therefore not be suitable for all recipients and does not constitute a personal recommendation to invest. It does not constitute an offer or solicitation to buy or sell securities or instruments of any kind. If you have any doubts about the suitability of this service, you should seek advice from your investment adviser. This document is produced in accordance with UK laws and regulations. It is not intended for any person whose nationality or residential circumstances may render its receipt unlawful.

The past is not necessarily a guide to future performance. The value of shares and the income arising from them can fall as well as rise and investors may get back less than they originally invested. The information contained in this document has been obtained from sources which Northland Capital Partners Limited believes to be re¬li¬able. The Com¬pany does not warrant that such information is accurate or complete. All estimates and prospective figures quoted in this report are forecasts and not guaranteed. Opinions included in this report reflect the Company’s judgement at the date of publication and are subject to change without notice. If the investment(s) mentioned in this report are denominated in a currency different from the currency of the country in which the recipient is a resident, the recipient should be aware that fluctuations in exchange rates may have an adverse effect on the value of the investment(s). The listing requirements for securities listed on AIM or PLUS markets are less demanding, also trading in them may be less liquid than main markets.

Northland Capital Partners Limited and/or its officers, as¬sociated entities or clients may have a position, or other material interest, in any securities men¬tioned in this report. Northland Capital Partners Limited does not provide recommendations on securities of firms with which it has a corporate relationship. More information about our management of Conflicts of Interest, Investment Research Methodology & Definition of Recommendations can be found at www.northlandcp.co.uk 

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