Sunrise Resources (LON:SRES) – SPECULATIVE BUY*: Bay State update
Market Cap: £1.5m; Current Price: 0.3p
Drilling to commence this month
- Sunrise Resources has received the required consent from the US Bureau of Land Management to commence drilling at the Bay State Silver Project, located in Nevada.
- The programme will be permitted for up to sixteen drill pads and multiple holes can be drilled from each drill pad.
- The first phase will comprise of three holes at a 150m-200m spacing to test the below the existing workings. One hole is planned to test the area where Sunrise recovered bonanza silver grades from underground.
- Sunrise is now in the final stages of reviewing drilling contractor bids and aims to commence drilling this month.
NORTHLAND CAPITAL PARTNERS VIEW: It is positive to see Sunrise Resources fast-tracking its drill programme at the Bay State Silver Project. Should the initial drill programme define high grade mineralisation over significant incepts, as has been indicated from the limited sampling done to date, it will be a transformational development for the Company. The large volume of drill pads that have now been permitted should allow the Company to define a JORC compliant mineral resource estimate from a second drill programme, should the results from phase 1 be favourable.
Amino Technologies (LON:AMO) – BUY: Increased forecasts & price target
Market Cap: £119.2m; Current Price: 69.5p; Target Price: 210p (from 150p)
Interims & acquisition: Transformational deal
The proposed $73m acquisition of Entone and associated £21m fundraising represents a significant step for Amino Technologies. Entone, a provider of broadcast hybrid TV and connected home products, broadens Amino’s product set, substantially expands its North American footprint and consolidates a direct competitor. There is obvious execution risk associated with such a large transaction and the acquisition has emptied Amino’s cash reserves but we would argue that the opportunity outweighs this risk. There is scope for Amino to accelerate its revenue growth but also bring to bear its strong operational efficiency to the Entone business and thereby drive margins. The proposed acquisition is significantly earnings’ accretive in FY16. We maintain our BUY rating and upgrade our price target to 210p on the basis of revised forecasts.
Starcom (LON:STAR) – CORP: Directorate Change
Market Cap: £3.7m; Current Price: 3.9p
Avi Engel appointed as Non-Executive Director
- Avi Engel appointed as Non-Executive Director.
NORTHLAND CAPITAL PARTNERS VIEW: Mr Engel has over twenty-five years’ experience of public companies and was previously the CEO of AIM listed Pilat Media Global and led its sale to SintecMedia in 2014 for US$100m.
Northland Capital Partners Monthly Summary – August 2015
Retreat to the beach
The traditional summer doldrums look unlikely this year. Although the Greek situation appears to have reached some sort of short term respite, attention has shifted to the gyrations of the Chinese stock market and the more general outlook for the world’s second largest economy. The Shanghai stock market saw the second-biggest fall in its history at the end of July and China’s ‘National Team’ of state institutions that had been leading market rescue efforts is reportedly scaling back its intervention. Many had viewed the bubble and correction in Chinese equities as something of a minor irrelevance and it is fair to say that the Chinese market has a number of unique features and authorities have taken a variety of misguided steps. That said, the scale of intervention by the authorities has rekindled scepticism about the economy’s purported 7% growth rate and whether China’s hybrid mode of central planning and market forces is sustainable. This has resulted in further weakness in commodity prices. Second, the looming prospect of a US rate rise, possibly as early as September, is driving dollar strength. These are both putting emerging markets under pressure. Higher M&A activity and continued share buyback has also driven bond issuance and yields are ticking back up. The beach might be the safest place to be.
- Mining: April’s positivity for London listed Mining and Exploration companies (60% gaining value) and May (46%) now seems like a long time ago. In June, 75% of miners were flat or down and July saw further deterioration with 85% flat or down as commodity prices continue to fall on the back of a strengthening US dollar and a weaker Chinese economy. This month we initiated coverage on Sunrise Resources (SRES.L) and Botswana Diamonds (BOD.L) with SPECULATIVE BUY* ratings. We also upgraded our forecasts and maintained our price target for W Resources (WRES.L, BUY, PT 1.1p) following the Company’s definition study. We also upgraded both our forecasts and price target to 7.8p (from 6.8p) for Stratex International (STI.L, BUY*) following the publication of the feasibility study for the Öksüt project where Stratex has a 1% royalty.
- Healthcare: Our top Healthcare pick, Motif Bio* (MTFB.L) raised £22m to support the development of its novel flagship 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 114p price target. Antibiotic resistance is 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.
- Consumer/Leisure: Higher taxation in both online and land based gambling is driving sector consolidation. Ladbrokes (LAD.L) and Gala Coral (Private) have struck a merger that will create the largest LBO business in the UK. However, the deal, more importantly, in our view is about driving online scale to compete with the likes of William Hill (WMH.L) and with Jim Mullen at the helm of the new entity emphasis will be placed on expanding the online operation. Playtech (PTEC.L), that provides technology to both operations and has an equity stake in the new entity, is a good way to gain exposure without being subject to gaming taxes. Elsewhere, the battle for Bwin.Party Digital (BPTY.L) by GVC Holdings (GVC.L) and 888 Holdings (888.L) is reaching an endpoint. Despite a revised offer from GVC at 122.5p 888’s offer looks more attractive and with lower execution risk attached to it for Bwin shareholders. Finally, a further increase in the GVC offer risks diluting the dividend, and this gives GVC limited room to manoeuvre.
- TMT: M&A activity continued with Aveva (AVV.L) proposing an innovative reverse takeover with Schneider Electric whereby it will acquire Schneider Software and receive £550m in cash in return for Schneider Electric getting a 53.5% stake in the enlarged group. The consideration cash plus excess cash on Aveva’s balance sheet will be distributed – around £10 per share. The enlarged business will be much more diversified in terms of products and industry verticals. Amino Technologies (AMO.L, BUY, PT 210p) also proposed a significant acquisition of its competitor Entone Inc plus a £21m fund raising. The acquisition will substantially increase Amino’s scale, particularly in North America.