Northland Capital Partners View on the City Hummingbird Resources, W Resources, Telit Communications, Uranium Resources and others


Hummingbird Resources (LON:HUM) – BUY: Proposed funding package

Market Cap: £28m; Current Price: 32.5p

  • Additional US$8m to US$10m to move Yanfolila into production
  • Hummingbird Resources is looking to complete a funding package of between US$8m and US$10m. The package will consist of a placing to raise between US$3m and up to US$5m at 30p per share with half a warrant exercisable at 33p. As well as a US$5m agreement with BCM International Ltd. a mining and civil earthworks contractor to subscribe for US$5m of shares at 30p per share on lieu of payment for services, once the definitive project contracts have been entered into. Hummingbird will also conduct an open offer to allow existing shareholders to participate through the issue of up to 6,712,284 shares, raising up to US$3m.
  • Hummingbird is expecting Taurus to complete its due diligence on the US$75m facility in Forecasts and price target under review pending the completion of the financing. BUY rating maintained.

NORTHLAND CAPITAL PARTNERS VIEW: As we highlighted in our previous note (02/03/15) we expected Hummingbird to need additional funds in order to move the Yanfolila project, located in Mali, into development following the increase in capex from the optimisation study. The funds raised will be used to fund the capex deposit for long lead items, earthworks and infrastructure and grade control drilling, land acquisition and working capital, allowing the Company to fast track the development of the Yanfolila project.


W Resources (LON:WRES) – BUY*: Placing to take out Bergen

Market Cap: £6.4m; Current Price: 0.22p

  • Removing Bergen within the next few weeks
  • W Resources has repaid US$250,000 of the US$800,000 facility from existing working capital that was strengthened by the receipt of VAT refunds and the BBVA facility.
  • W Resources also intends to remove the balance of the Bergen convertible loan within the next few weeks and Bergen has agreed not to convert the balance of the note during this period.
  • Part of the note will repaid using the funds from a £375,000 placing in which W Resources will issue 187,500,000 at 0.2p per share. Both Michael Masterman and Byron Pirola will participate in the placing with £160,000 and £50,000, respectively.
  • Following the placing the Company will have 3,073,937,497 shares. Michael Masterman will hold a 28.32% interest in the Company and Byron Pirola will hold 6.4%, respectively.
  • Forecasts and price target under review. BUY rating maintained.

NORTHLAND CAPITAL PARTNERS VIEW: Taking out the Bergen facility is a major step forward for W Resources that will remove a significant overhang in the Company’s shares. Following this positive development we will look to update our forecasts and price target.


Uranium Resources (LON:URA) – CORP: Loan Agreement

Market Cap: £3.7m; Current Price: 0.4p

  • A further US$200,000 loan from Estes
  • Uranium Resources has entered into a US$200,000 unsecured loan facility with its major shareholder and strategic investor Estes Limited for continued working capital.
  • The loan bears interest at LIBOR.
  • This is in addition to the US$1m (26/03/13) and US$300,000 (24/03/14) loan facilities already provided by Estes.

NORTHLAND CAPITAL PARTNERS VIEW: It is positive to see Estes continuing to support Uranium Resources in a difficult environment for uranium companies. The Company plans to conservatively use the funds for its working capital as it examines its strategic options regarding the Mtonya project.


Quarto (LON:QRT) – Prelims

Market Cap: £32.5m; Current Price: 165p

  • Recovery in H2; growth in Children’s
  • Revenue from underlying operations +2% to $172.6m, adj. operating profit +10% to $15.4m, adj. PBT +26% to $12.1m (reflecting lower interest charges) and adj. EPS +12% to 27.2p. Net debt reduced 7% to $66.0m and final proposed dividend of 4.95p (total 8.3p +5%).
  • Recovery of US publishing in H2 following the loss of a large wholesaler in H1; Children’s publishing revenue +17% (organically and via acquisition) to $23.0m; adj. operating growth in International Co-Editions and UK publishing; Publishing operating margin +100bps to 12.3%. 
  • Quarto International Co-Editions (QIC) revenue +5.7% to $42.7m and adj. operating profit +35% to $6.1m. The percentage of backlist sales fell to 68% (from 74%). Post period end acquisition of Lewes Holdings, the owner of the Ivy Press.
  • Quarto Publishing Group USA revenue down $0.3m to $64.1m and operating profit down 8% to $6.6m reflecting the impact of the closure of the wholesaler into Lowe’s and Tractor Supply. Management has established direct links with those customers. Quarto Publishing UK revenue +3.4% to $21.5m and adj. operating profit +24% to $3.1m. Business benefited from the sales and marketing relationship with Quarto US.
  • Books & Gifts Direct revenue +5.8% to $31.2m and adj. operating profit +$0.1m to $3.0m. Merger of the two owned but competing business in North Island New Zealand completed but the recovery in profits has taken longer than expected.

NORTHLAND CAPITAL PARTNERS VIEW: Good overall performance given a difficult H1 that saw a large US wholesaler go out of business and the integration of the New Zealand businesses taking longer than expected. The level of debt will continue to deter some potential investors but management continues to chip away through operational cashflow and the disposal of non-strategic assets and the company has built a substantial backlist of ‘evergreen’ titles. Post period end, the debt was re-financed for a four year term on improved terms. Growth in the Children’s is encouraging. 

Week Ahead (23/03/15)

View from the trading desk

The main events on both sides of the Atlantic occurred Wednesday with the final UK budget before the General Election and the latest meeting of the Federal Reserve. As widely anticipated, the Fed dropped its pledge to be ‘patient’ before raising interest rates but it surprised markets with a markedly lower indicated rate trajectory reflecting weakened forecasts for growth and inflation. Much of this is a function of the rapid dollar strengthening. As a result, the first expected rise has slipped from June to September and US markets pushed higher given the more dovish stance.

In the UK, there were no massive budget surprises with some tempering of austerity plans, mild tax incentives targeting the middle classes, some respite for beleaguered North Sea oil producers/explorers and banks suffered further with the increase in the bank levy. The OBR also marginally upgraded its growth forecasts for 2015 and 2016. Unemployment data was generally good with the employment rate for 16 to 64-year olds reaching a record high and the overall rate was flat at 5.7% but the recovery in wages remains anaemic (1.8% versus 2.2% expected).The budget failed to deliver any sort of knockout blow and the outcome of the election remains very uncertain. This is likely to impact UK markets. Since reduced Public Sector spending will be a feature whatever the outcome, there should be few surprises for most suppliers.

Sales & Research thoughts

Consumer / Leisure: TechFinancials Inc. (LON:TECH) a financial trading platform provider supplying simplified trading solutions to online brokers, with its own direct to consumer brand called OptionFair listed on AIM on 16 March. Northland Capital Partners acts as broker and placed 11.3m new share at 27p/share or £3.05m. The capital will be used to grow both the B2B and B2C businesses by penetrating new markets, focussing on regulated markets and introducing new trading products and platforms to new and existing broker clients. Payment processing business SafeCharge International (LON:SCH) did not disappoint with FY14 results, where EBITDA was slightly above expectations at $24.7m and a final dividend of 5.28c was recommended (ex-div 7th May). The current trading statement read well where the strong momentum from the 4Q14 has carried through. The rating isn’t particularly undemanding on 23.5x FY15 consensus earnings and with consensus looking for c. 21% YoY revenue growth, additional news on strong trading would imply an increase to consensus forecasts. We expect a 1Q15 trading update in May.

Next week 888 Holdings (LON:888) reports FY14 results having published a positive pre-close statement on 16 December. Consensus is looking for EBITDA of c. $94m – a c.7.4x EBITDA multiple. Consensus is also looking for a FY14 dividend of 6.9c where the company paid an interim of 3.5c. Last year’s final divi was 4c and there was an additional special for 7c. So if there are any surprises to look out for, it may be a bump to the final dividend. 

TMT: The volume of results continues to increase with a host of results scheduled. Monday sees interims from Nanoco (LON:NANO), the provider of cadmium-free quantum dots for applications such as TVs and lighting. The company is still at a pretty early stage commercially and hence the numbers will reveal little (other than the level of cash burn). Focus instead will be on the relationship with Dow Chemical and LG by extension. M2M module and service provider Telit Communications (LON:TCM) will announce prelims on the same day. Management has flagged record revenue of c. $294m (+21%) including m2mAIR revenue of c. $20m, a more than doubling, as well as a first contribution from ATOP. Meanwhile net debt has reduced substantially $8.7m to $5.9m. 

Vislink (LON:VLK) is scheduled to report prelims Tuesday. Earlier this month, management flagged a better than expected outturn to FY14 with a bigger contribution from its higher margin software business. Overall revenue is expected to be c. £62m. Corero Network Security (LON:CNS) also reports FY results that day though FY14 has been trying for the provider of DDoS security products. In February’s pre-close, it reported that revenue would be around $7.6m, below November’s guidance of $9.0m that was also below the previous market expectations. Net cash was $6.0m that included £4.5m from December’s funding.

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