The Quarto Group Inc (LON:QRT) – BUY*: Initiation
Market Cap: £43m; Current Price: 219p; Target Price: 350p
Initiation: Enduring IP and international publishing platform
NORTHLAND CAPITAL PARTNERS VIEW: The Quarto Group Inc. (‘Quarto’) is one of the world’s largest publishers of illustrated, non-fiction titles with a substantial base of enduring intellectual property (IP) and an international publishing platform. Although listed since 1986, its business model and the advantages it enjoys over traditional publishing companies have been poorly understood historically. CEO Marcus Leaver has brought focus to the business with the disposal of non-core assets, tighter integration and expansion into growth markets. The current share price fails to reflect the value of Quarto’s existing IP or a publishing platform that enables the Company to bring new content to market quickly and existing content to new markets. It can also assimilate acquisitions in a fragmented market. We initiate coverage with a BUY rating and 350p price target.
Amphion Innovations plc (LON:AMP) - CORP: Partner company to merge
Market Cap: £11.3m; Current Price: 6p
Partner company m2m Imaging Corp. to merge
- Amphion Innovations plc announced that it has signed a Memorandum of Understanding (MOU) with an undisclosed pioneer and leader in advanced pulmonary imaging technology (the Private Company).
- Conditional upon the fulfilment of certain terms, and following the merger of Amphion's Partner Company, m2m Imaging Corp. (m2m) with the Private Company, Amphion expects to own approximately 40% of the combined merged entity.
- m2m is a US-based company focused on developing a range of preclinical and clinical imaging system accessories for MRI systems. As of 31 December 2014, Amphion owned 25.58% of m2m. The Private Company owns an advanced pulmonary imaging technology platform which is used to more accurately diagnose and monitor major lung diseases, including COPD, asthma, and cystic fibrosis.
NORTHLAND CAPITAL PARTNERS VIEW: Lung Disease is a major global public-health issue affecting over 40 million people in the US and costs the US $150 billion annually. The Private Company which Amphion plans to merge with m2m has advanced pulmonary imaging technology which is sold as an add-on component to an existing, already installed base of MRI machines. The combined company will have an array of products serving the multi-billion dollar MRI marketplace in both the US and Europe.
Altona Energy (LON:ANR) – CORP: Arckaringa joint venture
Market Cap: £2.4m; Current Price: 0.3p
Agreement to move Arckaring UGC forward
- Altona Energy and its joint venture partners Sino-Aus Energy Group and Wintask Group have signed an agreement modifying the terms of the Arckaringa Project joint venture to change the definition of “the project” to mean the completion of a Bankable Feasibility Study (BFS) for an underground coal gasification project (UGC), subject to a number of conditions.
- Sino-Aus and Wintask will invest a maximum of A$33m in four stages. Once the partners have made their investment, the ownership of Arckaringa Coal Chemical Joint Venture Co Pty Ltd will be: Altona 45%, Sino-Aus 45%, Wintask 10%. The JV will have a board consisting of two directors from Altona, two from Sino-Aus and one from Wintask.
- An initial drill programme will form part of a BFS. The JV will aim to complete the BFS within three years from the Effective Date (the date when all conditions are met) If the cost of the BFS exceeds the A$33m from Sino-Aus and Wintask then all the joint venture partners will contribute on a pro-rata basis.
- Sino-Aus will provide Altona with working capital of up to £1.25m by subscribing for two equal tranches of 100,000,000 shares. The first tranche will be issued at 0.5p, raising £500,000 and the second at 0.75p raising £750,000. Altona will seek shareholder approval at the forthcoming General Meeting for the issue of 200,000,000 shares. The first tranche will be issued within five days of receiving shareholder approval and the second tranche is due 180 days after the first tranche. Following both tranches Sino-Aus will hold 20.2% of Altona and will have the right to appoint a director to the board of Altona after the first tranche.
- Following the completion of the second tranche the Company will have 991,956,853
NORTHLAND CAPITAL PARTNERS VIEW: It is positive to see that Altona Energy and its joint venture partners have now reached an agreement to move the Arckaringa UGC Project forward. The placing with the joint venture partner is at a 67% premium to the current market price and demonstrates the partner’s commitment moving forward.
ValiRx Plc (LON:VAL) US operations - CORP
Market Cap: £10m; Current Price: 26p
Establishment of US operations in Cambridge, Massachusetts
- ValiRx announced that it has established US operations in Cambridge, Boston, Massachusetts and has strengthened its US advisory team following the appointment of industry specific advisors in the US.
- The US operation is being formed to encourage and facilitate greater interaction with academic, clinical and business leaders in ValiRx's areas of oncological development.
- The group’s new office in Kendall Square, Cambridge, close to the Massachusetts Institute of Technology will facilitate conducting US business, as the group looks to expand its co-operation with biotech and pharma players in the US market.
NORTHLAND CAPITAL PARTNERS VIEW: ValiRx's expansion into the US strengthens the group’s international presence, taking advantage of close proximity to the largest biotech market in the World.
W Resources (LON:WRES) – BUY*: Placing
Market Cap: £19m; Current Price: 0.5p; Target Price: 1.1p
Placing to raise £0.6m
- W Resources has raised £0.6m through the issue of 120,000,000 shares at a price of 0.5p per share.
- Michael Masterman has subscribed for 15,000,000 amounting to £75,000. Michael Masterman and related parties hold 25.24% of the Company.
- Following the placing the Company will have 3,693,937,493 shares on issue
- Updated mineral resource estimate expected in three months.
- Forecasts updated and no change to rating and price target.
NORTHLAND CAPITAL PARTNERS VIEW: W Resources plans to use these funds towards early stage engineering and procurement, lodging of environmental performance bonds to ensure timely approval, as well as, the completion of an updated mine plan and resource estimate, finalising the land access agreements and securing the mining permit from the relevant authority. The improvement in the Company’s net cash position is balanced by the issue of shares and has no material effect on our price target for the Company. We continue to believe that W Resources is significantly undervalued with production expected year.
Summary Forecasts: November 2015
Economic outlook balanced; UK consumer outlook better
Markets enjoyed a much better October with most indices bouncing back from the difficult Q3. The S&P 500 Index is now just over 1% off the all-time high recorded in late-May having recovered 13% since late-September. Meanwhile the VIX volatility index has continued to fall back to levels seen in Q2. Whether markets can sustain current levels to the end of the year and beyond remains a nuanced call. The FOMC is scheduled to meet in December and consensus is against an interest rate rise – that said the Fed left the door ajar with an unexpectedly hawkish statement. Continued support from other central banks as necessary is also expected. Second, concerns around China’s growth prospects have reduced although the outlook for mining companies remains challenging given substantial levels of gearing. The oil price has been more encouraging with Brent nudging back over $50. Finally, there remains a good volume of M&A activity at all levels of the market as companies look to acquire growth and take advantage of low interest rates but IPO activity has softened with a number of IPOs either pulled or priced at the bottom end of the range. That said, the world’s largest IPO this year (Japan Post and its subsidiaries) enjoyed a strong debut increasing more than 15% on their first day of dealings.
Mining: October was a slightly better month for London listed mining and exploration companies but was far from stellar with only 61% of miners seeing an overall negative or unchanged share price movement during the month compared to an average of 75% over the preceding three months. This month we upgraded our rating for Mariana Resources* (LON:MARL) to BUY from SPECULATIVE BUY and introduced forecasts and a price target of 4.8p following the publication of its maiden mineral resource estimate at the Hot Maden Project located in Turkey. We also visited Ariana Resources’ (LON:AAU) Red Rabbit project, also located in Turkey, and prepared a short site visit report based on the trip.
Healthcare: We estimate that Motif Bio plc* (LON:MTFB) is grossly undervalued at a current price of 58p. Motif’s late clinical-stage antibiotic, iclaprim, is set to fill a major market void—supported by the escalating global public health crisis of antibiotic resistance. Having already been tested on over 500 patients, iclaprim’s safety and efficacy is well supported. If approved, the drug could achieve over $1bn/year in sales. Evgen Pharma* (LON:EVG) also came to market having successfully raised £7m in an oversubscribed placing. Northland Capital Partners acts as Nomad and Broker to Evgen.
Support Services: We initiated coverage on Octagonal* (LON:OCT), a profitable and cash generative provider of settlement and safe custody services to smaller institutions, family offices and high net worth individuals. The company subsequently provided a trading update with H1 performing in line with expectations. Holders Technology* (LON:HDT) reported a difficult H2 for its German Printed Circuit Board business that represents around 70% of group revenue.
Consumer/Leisure: Consumer sentiment in October faltered slightly with the GfK UK Consumer Confidence Survey showing a one point decline MoM, though the index still remains in positive territory. ONS Retail sales for September 2015 posted a very healthy +6.5% YoY increase (+1.9% MoM). Online sales showed particular growth (+15% YoY/+4.5% MoM). As set out in October, we believe retailers should continue to benefit from a healthy consumer backdrop. Bellwethers Marks & Spencer Group (MKS.L) yesterday revealed healthy interims where sales were +1.4% to £5bn (UK +1.7%) and underlying operating profit +3.8% (UK +14.6%) to £331m and similarly Next plc (NXT.L) produced good 3Q15 sales figures +6% toward the upper end of the guidance range, corroborating a healthy consumer backdrop driven by low levels of interest rates, inflation and unemployment. Within Leisure, a number of gaming companies are finalising consolidation plans.
TMT: Amino Technologies (LON:AMO) warned on FY performance as whilst the recent acquisitions (Booxmedia and Entone) have performed well, the core business has fallen short. This is partly a function of some delays in the market but more poor sales execution. Management has undertaken remedial action. We reduced FY15 and FY16 forecasts and cut our price target to 155p from 210p but believe the market over reacted to the announcement and hence maintain our BUY rating.