Northland Capital Partners View on the City Hummingbird Resources, Formation Group, Eckoh and Richoux Group


Formation Group (LON:FRM) – CORP: Pre-close trading update
Market Cap: £16.8m; Current Price: 7.625p
FY pre-close: Strong growth in profits, record revenue

  • Strong FY15 performance with PBT expected to exceed £1.75m (FY14: LBT of £0.1m) and management expects a further significant improvement in FY16 (more than double). £2m early interim profit share distribution received on the Norwich House (Streatham High Road) investment in FY15.
  • Further expansion of the order book in H2 and currently includes a number of substantial project management contracts. H1 FY15 revenue of £10.8m was substantially ahead of FY14 (£7.9m) and management has secured additional revenue in H2 and expects to report a record year in revenue.
  • Iverson Road development site has progressed well and is on target for completion by the end of March 2016 – marketing has commenced. In July, Formation announced a profit share agreement in relation to the Norwich House development property entitling Formation to 40% of net profit. £2m received represents part of this.
  • FY16 growth in profits will generate sufficient cash to invest in further projects, some of which are already being appraised.

NORTHLAND CAPITAL PARTNERS VIEW: Strong outturn to FY15 and a very positive outlook for FY16 with further funds from the profit share on the Norwich House (Streatham High Road) development and the sale of Iverson Road development expected. Management also reports a strong project management order book.

Hummingbird Resources (LON:HUM): Interim results
Market Cap: £27.8m; Current Price: 26p
From Yesterday: LBT of US$1.9m

  • The change in year-end means a direct comparison with last year’s interims is not possible.
  • LBT for H115 (30th June) was US$1.9m and LPS of 2.1c.
  • Net debt was US$24.7m.
  • Forecasts, rating and price target remain under review pending the finalisation of the recently completed technical studies that have indicated an improvement to the projects economics.

NORTHLAND CAPITAL PARTNERS VIEW: Hummingbird Resources has continued to advance its 1.8moz Yanfolila Gold Project towards production in H116. The H115 results reflect that focus with a relatively low LBT considering the large volume of technical studies and definition work the Company completed in the first half of the year. We would expect the LBT to widen in H215 as the mine development will be in full swing. While the focus has been on Yanfolila, the positive preliminary report on the Hydro-Electric Power Plant at its Dugbe Gold Project, funded by IFC InfraVentures, has been a positive development that indicates that hydropower could reduce operational costs at the Project.

Eckoh (LON:ECK): Trading update
Market Cap: £90.4m; Current Price: 40p
Good start to FY16

  • Good start to FY16 with a number of wins with CallGuard contracts secured for implementation in Morocco, USA, Canada and South Africa. International interest in the newly launched Haloh Audio Tokenisation secure payment solution with a first contract signed with Sensée.
  • High levels of sales pipeline activity with particular acceleration in enquiries in the US. FY16 is expected to see the usual H2 weighting, reflecting the seasonal volume increases of existing customers and the delivery of projects secured in H1.
  • Separately announced a CallGuard contract with The Co-operative Group, following a competitive tender. The three year deal will see CallGuard deployed across the group’s contact centres in its Electrical, Legal Services, Group Finance and FuneralCare divisions. The service is expected to commence in December. No financial terms disclosed.

NORTHLAND CAPITAL PARTNERS VIEW: Positive trading update with a good start to FY16 with a number of international contracts secured. The FY results in June were overshadowed by the (ultimately unsuccessful) recommended offer for Netcall but the company is trading well with an up to date product set and strong demand drivers as companies battle with the data loss and ensure compliance with PCI DSS. The shares have tracked sideways over the past three months but the current rating of 32.4x FY16 and 26.2x FY17 EPS assumes very strong execution.

Richoux Group plc (LON:RIC): Interims
Market Cap: £21.6m; Current Price: 23.5p
Solid trading in the 1H15

  • Turnover and Adj. EBITDA increased marginally YoY to £6.7m and £0.8m. There are currently nineteen restaurants trading, where two new Dean’s Diners were opened in Hampstead Valley, Kent, and an eighth in Orpington.
  • Outlook statement looks positive where the business is looking to further expand the Dean’s Diner portfolio by adding two new restaurants next year. Furthermore, the new Richoux site in Gloucester Road is clearly trading well as management sees scope for further openings of the Richoux brand.      

NORTHLAND CAPITAL PARTNERS VIEW: The business produced a credible 1H15 performance where both revenue and EBITDA increased YoY. Furthermore, there is sufficient cash headroom of c. £4.4m on the balance sheet with which to add additional sites as alluded to above. There are no forecasts in the market for the business but we estimate the stock trades on c. 10x EV/EBITDA, which does not appear particularly demanding in our view. The additional Dean’s Diner and Richoux site openings will add to the scale of the business.

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