Sunrise Resource (LON:SRES) – SPECULATIVE BUY*: Initiation note
Market Cap: £1.4m; Current Price: 0.2p
Bonanza grades at the Bay State Silver project
NORTHLAND CAPITAL PARTNERS VIEW: Sunrise Resources is an exploration company that focuses on jurisdictions considered to have a low political risk to offset the inherent risk that is associated with exploration. The Company ensures it is efficient with the use of its capital by staking “open ground” allowing it to gain 100% ownership of the projects it invests in at a minimal cost. Sunrise also utilises low cost initial exploration techniques to enable it to rapidly assess projects and drop the ones that do not return results that justify further work. This ensures that the Company focuses the majority of its capital on projects where there is the biggest potential for success. Sunrise’s aim is to rapidly advance its early stage exploration projects to production allowing it to build a profitable mining company. Based on the recent success at the Bay State Silver project and the near term production potential of the County Line Diatomite Project we initiate coverage on Sunrise Resources with a SPECULATIVE BUY rating.
Anite (LON:AIE) – Bid Situation: Finals
Market Cap: £382m; Current Price: 127p; Target Price: Bid situation
Finals overshadowed by ongoing bid situation
- Revenue +8.4% to £118.4m (NCPe: £120.2m) with EBITDA of £30.7m (+27.9%; NCPe: £30.2m) and adj. EPS of 6.0p (+53.9%; 5.6p). Net cash of £37.0m (FY14: £6.1m; NCPe: £36.9m). Closing order book up marginally at £32.9m. Maintained significant R&D spend (+11% at £23.1m). No final dividend in accordance with the terms of the Keysight offer.
- Device & Infrastructure (D&I) Testing (formerly Handset) saw year of recovery based on growth in Interoperability Testing and Channel Emulation. Revenue +5% to £81.5m and adj. operating profit +62% to £17.5m with operational gearing coming through. Closing order book down £3.6m at £27.2m.
- Network Testing – good performance throughout the year with initial contribution from Xceed acquisition. Revenue +16% to £36.9m and adj. operating profit +18% to £7.1m. Order intake +23% (11% organic) to £39.1m.
- Current year has started in line with expectations with market conditions continuing to be mixed. In D&I Testing, APAC is expected to remain strong and growth in IOT and Channel Emulators. In Network Testing, growth in Data Analytics, building market share with the new Nemo Indoor tools and the roll out of Nemo Invex II benchmarking platform.
NORTHLAND CAPITAL PARTNERS VIEW: Final results overshadowed by the ongoing bid situation with the recommended 126p/share cash offer from Keysight Technologies last month. Results demonstrate good recovery in D&I and continued growth in Network Testing. Considerable R&D spend remains a feature (20% of revenue) and hence one of the attractions of becoming part of a larger group. As previously argued, Anite is a strategic acquisition and the Keysight offer though good isn’t knock-out.
Action Hotels (LON:AHCG): ACQUISITION
Market Cap: £85m; Current Price: 57.5p
Ibis hotel in Australia
- AHCG has agreed to acquire the 73 room ibis Budget hotel at Melbourne Airport for $8.8m, $3.7m from existing cash resources and the balance of $5.1m through secured debt at a fixed rate of c.5% for five years to 2020. This takes the total ibis branded hotels in the group’s operating portfolio to seven and the second in Melbourne. The hotel’s average occupancy in the year to December 2014 was just below 90% and contributed $1m to EBITDA which implies an acquisition multiple of 8.8x EBITDA.
- AHCG now operates nine hotels with a total of 1,561 rooms and management have a fully funded pipeline to develop an additional nine hotels which will add a further 1,512 rooms to the portfolio or a 60% increase in capacity compared to December 2013.
- In May management alluded to a positive start to the new year where 1Q15 started well and where ADR was +3% YoY to $111, revenue was +22% compared to the same period in the prior year. Consensus is looking for c.35% YoY revenue growth which implies the business has a lot to do in the remainder of the year however today’s acquisition of the ibis hotel at Melbourne airport will help achieve targets.
NORTHLAND CAPITAL PARTNERS VIEW: The hotel portfolio continues to expand in high growth regions though the share price is not particularly undemanding at c. 18x FY14 consensus EBITDA in our view though the stock trades at a c. 46% discount to Adj. NAV per share of 84p. Finally, a prospective dividend yield of just over 3% will attract some investors looking for yield.
Northland Capital Partners Monthly Summary: July 2015
Greece continues to dominate; M&A hits record levels
Greece continued to dominate the agenda and the failure of numerous bailout talks and the threat of non-payment initially to the IMF, then the ECB and the ultimately a ‘Grexit’ resulted in marked volatility at the end of June with the FTSE enduring its worst month in three years. Although a potential Grexit has been mulled for some time and the risk of contagion is much reduced since the 2012 crisis, Grexit would represent a leap into the unknown. The saga is likely to dominate the summer. New measures in China resulted in a snap back in share prices after a two week slide that wiped more than $2tn off the market capitalisations of companies listed on China’s two stock exchanges in the second half of June. That said the Shenzhen Index is up 42% YTD. M&A continues to be a major feature with buyers willing to pay record valuations for US targets reflecting ultra-low financing costs and a search for growth. During H1, US M&A activity increased 60% to $987.7bn, the highest level since records began. Global M&A increased 38% to $2.18tn - the highest since 2007. The average deal multiple rose to 16x EBITDA from the previous highest of 14.3x. Given the level of funds held overseas by US companies and the ongoing ratings’ gap, further M&A looks likely to buoy global markets even as we move towards interest rate rises in the US.
Mining: Following the rally seen in London listed mining and exploration companies in April (60%) and May (46%), June saw a return to business as usual with a paltry 25% of miners seeing positive share price movements. This month we initiated coverage on Churchill Mining (LON:CHL) with a SPECULATIVE BUY* rating. We also upgraded our forecasts and price target for DiamondCorp (LON:DCP) to 16.6p (from 16.4p) following the Company’s decision not to enter a royalty agreement and the completion of a placing. We also had a minor downgrade to our forecasts for Paragon Diamonds (LON:PRG) but this did not affect our price target of 12.9p.
Healthcare: 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 Bio plc (LON:MTFB), our top Healthcare pick. Motif has recently conditionally raised £22m to support the development of a novel antibiotic, iclaprim. The drug is set to fill a major market void in the battle against antibiotic resistance. If approved, iclaprim could achieve over $1bn/year in sales. We maintain our BUY rating and 89p price target.
Support Services: Latham James (LON:LTHM) reported strong FY results that were slightly ahead of upgraded forecasts. FY16 has started well and there were upgrades to FY16 forecasts and we increased our share price target. Management has also indicated the redevelopment of two sites over the next two to three years. This will dip into cash reserves but will provide scope for further growth in higher margin products.
Consumer/Leisure: We initiated on TechFinancials (LON:TECH), a software business with over 55 brands using the software for the retail financial trading market. The business also has a direct to consumer brand called OptionFair, focused on providing retail traders with access to trading financial markets. Elsewhere, Plus500 (LON:PLUS), a CFD trading platform to retail customers, updated the market on trading and reinstating UK customer accounts. Over 70% of c. 13,500 accounts reviewed have resumed trading and 6% of customers reviewed (847) have cashed out all their funds, only five accounts have been refused reopening. Gaming software provider Playtech (LON:PTEC) has bid 400p in an all cash offer and PLUS.L shareholders have a vote on 16 July.
TMT: Anite (LON:AIE) announced a recommended cash offer at 126p/share. A 22.3% premium to the closing price and a 5% premium to our price target but not necessarily a knockout bid for a company with a global presence operating in market with good growth dynamics given the ongoing investment in networks as data traffic volumes continue to climb.