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Northland Capital Partners View on the City: Mediazest Plc

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TMT: MEDIAZEST (LON:MDZ)

TRADING UPDATE: CONTRACT WINS IMPROVE OUTLOOK FOR RECURRING REVENUES

  • MediaZest announced contract wins in line with its strategy of increasing its recurring revenue base and enhancing visibility.
  • The group announced several new service contracts including a three year deal with an existing client to rationalise its estate costs. New contract revenues confirmed for the next there years exceed £85k during the current half year (April to September).
  • Group is providing development and installation services for four substantial projects this quarter with combined revenues of £320k, three of which relate to new concept developments that have potential for roll out in future.
  • Company worked with Samsung in July on the latter’s high profile Futurescape event. This incorporated several MediaZest solutions alongside other third-party solution providers and content from the MediaZest Team.

NORTHLAND UK VIEW:  A positive update in which management has emphasised the potential for recurring revenues in line with strategy. This follows the considerable progress on many fronts announced July’s trading update when the company highlighted the successful delivery of the Coca-Cola project, its largest and most complex contract to date that helped substantially boost revenue. As we stated then, MediaZest has invested this into increased sales and marketing plus product development that should drive revenue forward in future. Securing larger scale roll out contracts will take longer but should provide greater visibility. With the global economy recovering, retailers are increasing investment in digital signage and MediaZest is well placed to capitalise and this announcements looks to conform progress along those lines.

Week Ahead (11/08/14)

View from the trading desk

This week equities reacted negatively to geopolitical factors that have been looming for some time, with the UK following the US markets in sell-off mode. Threats of an escalation in tensions between Russia and Ukraine with Russian troops again amassing on the Ukrainian border and the threat of counter sanctions from Russia in response to increased US/EU sanctions spooked markets. In the meantime, the temporary ceasefire and withdrawal of Israeli troops from Gaza halted one of the bloodiest chapters in the troubled region’s recent history but this ends this morning. Other conflict areas such as Syria, Iraq and South Sudan have slipped down the pecking order in terms of news coverage but remain destabilising influences in the background likely to resurface. This morning brought news that the US has sanctioned air strikes to provide military support to Iraq authorities against militant incursions, through would not send ground troops.

Economic and corporate news flow has been better though not universally. US manufacturing data this week was robust and US PMI remained positive, albeit less so than previously. In the UK, corporate earnings are expected to come under pressure due to the strong pound. EasyJet reported good growth in Passenger numbers this week. Last week Shell’s surprised the market by doubling quarterly earnings after a successful initial response to restructuring. However, UK manufacturing figures were behind expectations. The UK will not be immune to European headwinds increasingly evident from a weak Eurozone battling with deflationary fears and the indirect consequences of the Ukrainian conflict. The ‘safe haven’ German economy will also be acutely exposed to any counter sanctions from Russia and is already feeling the pinch from economic weakness in Russia impacting its manufacturing sector, particularly in areas such as new car orders. Revised German manufacturing orders announced for June were already down -1.6% against an expectation of -0.9%.

In our monthly ‘September on the horizon’ published last Friday, we mentioned how September has traditionally a dangerous month for equities as trading picks up momentum following the summer hiatus. In fact, August has already shown its predilection to low volume aided volatility. One element that may provide some comfort in the UK is a reasonable, if not spectacular, prospective market yield of 3.3% for the main market. This is below a typical dividend support level of around 4% but provides some comfort given the negligible rate available for safe gilts. Yield support is of course dependent on there being a level of confidence in the dividend outlook and we have highlighted pressures on payments given the strong pound that is impacting translation of overseas earnings in the UK. Thus, dividend support is unlikely to halt the volatility.  

Sales & Research thoughts

Mining: Metal prices fell across the board this week with silver down 2.8%, copper down 2.4%, zinc down 1.5% and nickel down 1.3%. Sluggish industrial demand weighed heavy on silver, while copper, zinc and nickel’s weakness was the result of a stronger dollar and concerns on Chinese growth. Data released on Tuesday demonstrated activity in the Chinese service sector had fallen to its lowest level for almost nine years. Unsurprisingly, safe haven gold bucked the trend rising 0.7% following the build-up of Russian troops along the Ukrainian border.

In Indonesia, Freeport-McMoRan is expected to resume copper concentrate exports by mid-next week following a resolution to its tax dispute with the Government. The revised deal will see Freeport pay 7.5% tax on its copper concentrate exports, a rate that is expected to decline as the major begins the construction of an Indonesian smelter. No such good news from Newmont Mining Corp., the other major copper producer located in Indonesia. Newmont took a harder line with the Indonesian Government and filed for international arbitration against the Government earlier this year. As a result it has made little progress in subsequent negotiations with the government. The Company is now planning to seek interim injunctive relief from the arbitration panel that would allow it to reopen the mine and resume its concentrate exports. Newmont estimates that it could take several months to obtain a ruling and ramp back up to full production.

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