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Northland Capital Partners View on the City dotDigital, Paragon Diamonds, W Resources, 32RED and others

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Paragon Diamonds (LON:PRG) – BUY*: Mothae acquisition update
Market Cap: £14m; Current Price: 5.2p; Target Price: 12.9p
Enters legally binding share purchase agreement with Lucara

  • Paragon Diamonds has now entered a legally binding share purchase agreement with Lucara Diamond Corporation to acquire the Mothae Diamond Project for US$8.5m.
  • The acquisition remains subject to approval from the Government of Lesotho and the execution of contracts from International Triangle General Trading.
  • Paragon Diamonds has provided the Minister of Mining with the evidence of its financial capability to develop the Mothae Project, as requested by the Minister, and is now awaiting formal Government approval.
  • No change to forecasts, BUY rating and 12.9p price target.

NORTHLAND CAPITAL PARTNERS VIEW: It is positive to see Paragon Diamonds continuing to advance its acquisition of the Mothae Diamond Project. The final hurdle for the acquisition is the approval from the Government of Lesotho that will allow it to finalise the debt financing package and complete the acquisition of the Project. Mothae represents a near term development project that Paragon can rapidly advance towards production alongside the development of its Lemphane Diamond Project, creating a significant large and high value diamond producer.

W Resources (LON:WRES) – BUY*: La Parrilla update
Market Cap: £9.5m; Current Price: 0.27p
Environmental approval received for the Fast Track Mine

  • W Resources has received approval for the Fast Track Mine development at the La Parrilla Tungsten Mine ahead of schedule.
  • The Company now expects to receive development approval for the mine in September 2015.
  • Significant progress continues to be made on a number of pre-development areas including; metallurgical and ore sorter test work, infill drilling and equipment testing and selection. This work will be included in an upgraded mineral resource estimate.
  • Development finance discussions are proceeding with a number of potential partners.
  • Forecasts and price target remain under review.

NORTHLAND CAPITAL PARTNERS VIEW: The award of the Environmental Approval for the Fast Track Mine at the La Parrilla Tungsten Project is a major de-risking event for W Resources. The Company now expects the Mining Department to proceed with the issue of the development approval in September clearing the way for the Company to secure the development finance to put the mine into production in 2016, transforming the Company from developer to producer.

dotDigital (LON:DOTD): FY pre-close
Market Cap: £98m; Current Price: 34p
Revenue in line; slight EBITDA beat

  • FY revenue increased c. 31.5% to £21.3m with overseas revenue more than doubling to £1.5m and UK revenue +23.9% to £14.7m. EBITDA slightly ahead of market expectations (consensus £6.3m, up 34%). Year end cash balance of £12.3m (H1 FY15: £9.5m; FY14: £9.3m) in spite of £2.3m on capex and product development.
  • Organic growth from new SME client wins and users of the Magento e-commerce platform. Average monthly recurring revenue from Magento customers increased 48% to c. £1,070. Healthy growth in recurring revenue from existing clients and dotDigital has signed up a higher proportion of clients under contract than in FY14. US revenue +114% to $3.0m and early progress in APAC region.
  • 56% increase in revenue from professional services offerings to £2.8m with margins around 60%. Further growth anticipated given the introduction of a range of new productised services to enable rapid deployment of marketing automation programs.
  • Outlook positive with investment in new sales offices in the US Mid West and West Coast to focus on Magento systems integrators; appointment of Anup Khera as SVP Global Sales and encouraging results from the test marketing partner initiative in LatAm. Will appoint a Global Channel Sales Director to drive indirect sales.

NORTHLAND CAPITAL PARTNERS VIEW: Good FY15 performance with KPIs heading in the right direction and an upbeat outlook. Scope for growth in a number of directions: geographically, via the indirect channel, professional services and larger customers. Shares have been somewhat becalmed of late and the current rating of 23.6x consensus FY15 EPS and 21.4x FY16 assumes strong growth but management is delivering.

32RED (LON:TTR): Acquisition
Market Cap: £47m; Current Price: 64p
32RED acquires Roxy Palace

  • TTR this morning announced that it has acquired Roxy Palace for a consideration of £8.4m, £2m in cash staggered as £1m at completion, £0.5m six months after completion and the remaining £0.5m on 31 December 2016. The rump of the consideration is 10m shares at 64p (£6.4m). The take out multiple looks attractive at less than 1x net gaming revenue or 6x FY14 EBITDA and on that basis appears earnings accretive for TTR shareholders.
  • Roxy is an online casino provider with more than 500 games which includes slots, blackjack, poker and roulette. The business has a customer database of 230,000 players and produced £10m of net gaming revenue and £1.6m of EBITDA in FY14. Roxy uses the Microgaming platform which will aid the migration of players and integration of systems and software which ultimately will result in cost synergies for the enlarged business. 
  • The current trading statement at time of finals in March read well, where in the early part of the new year revenue in the first 20 days were +31% YoY.

NORTHLAND CAPITAL PARTNERS VIEW: The acquisition of Roxy makes sense. It not only adds 33% to net revenue but also cost synergies in our view will benefit TTR shareholders. Current trading at the time of publishing FY14 results in March read well where revenue growth showed healthy double digit figures. Despite this the share price has not performed particularly well since then gaining a mere 3.6%. TTR trades on c. 11x FY15 consensus earnings which does not appear particularly demanding in our view especially given the regulatory nature of earnings, the stock also offers investors a c. 4% dividend yield. Today’s acquisition news should be well received by the market in our view.

Cyprotex plc (LON:CRX): Launch of new predictive modelling solution
Market Cap: £12m; Current Price: 54p
Launch of new chemPKTM workflow solution

  • Cyprotex announced the launch of a new predictive modelling solution, chemPKTM, which predicts human pharmacokinetics directly from chemical structure. Pharmacokinetics is defined as the study of the concentration of drug in the body over time, and is based on the absorption, distribution, metabolism and excretion of a drug.
  • chemPKTM is a virtual screening tool which can be used as an early stage filter for directing chemistry and prioritising in vitro screening of a new drug. As such, the tool is designed to provide potential cost savings to drug developers. 
  • The solution is unique in that the model has been optimised directly on human clinical data, and so provides a more robust approach as compared to alternative models.
  • chemPKTM solution was developed by Cyprotex's Scientific Computing Team using PBPK (physiologically based pharmacokinetic) predictive modelling.

NORTHLAND CAPITAL PARTNERS VIEW: Cyprotex continues to expand its service offering. The group’s new chemPKTM solution provides significant advantages over existing products in the market.

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