Shares to Watch 2016
As the sound of sleigh bells can be heard and the year draws to a close we highlight some stocks to watch in 2016.
Motif Bio PLC
Motif Bio PLC (LON:MTFB) has been on our radar since its 20p IPO earlier in the year. It features on our watch list as they continue developing novel antibiotics designed to be effective against serious life threatening infections caused by drug resistant bacteria. As awareness grows of anti-microbial resistance so does the opportunity for Motif in their fight against drug-resistant superbugs.
Attention centres on Iclaprim which is a potential novel antibiotic, designed to be effective against bacteria that have developed resistance to other antibiotics. Motif has two upcoming Phase III clinical trials for the treatment of skin infections. November provided further evidence of progression with a European agreement for Iclaprim development paving the way for it to be licensed in Europe. This was followed later in the month with written concurrence from the FDA to use an optimised fixed dose of Iclaprim.
Motif Bio is the only UK-listed company tackling this issue and they have seen some big hitting institutions join their share register. 2016 looks set to be an exciting year for the company.
Telford Homes plc (LON:TEF) is a London focused residential property developer. Shard took a closer look following their £50m placing at £3.60 in October this year.
The population of London is expected to rise from 8.6m to 10m over the next 15 years. Telford could be well positioned to benefit from the Greater London Authority estimates of between 49,000 and 62,000 new homes needed every year. For demand to be effective, new homes must be affordable to owners and tenants. Telford operates in the more affordable non-prime London where demand for new homes far exceeds supply.
There were a number of new measures delivered in the Chancellor’s Autumn Statement and Spending review. These were relevant to first-time buyers looking to get on the property ladder and there were also new announcements that will impact buy-to-let investors and those buying a second home.
The money Telford raised in October will assist in taking advantage of the current market dynamics and opportunities and Telford aim to boost growth and accelerate the pipeline. The company are targeting annual profit before tax of £45m on a sustained basis from 2019 and continued controlled growth towards £60m thereafter with a dividend policy to pay one third of earnings.
Satellite Solutions Worldwide Group PLC
Satellite Solutions Worldwide Group PLC (LON:SAT) is a communications company specialising in rural, last-mile satellite broadband. The company has been a little unloved since they joined AIM in May this year however developments appear positive. Organic growth, partnership agreements, notable contract wins, board enhancements and director share buying have provided encouraging news flow since their AIM admission. With customers growing at pace the UK government’s recent pledge to introduce a ‘Universal Service Obligation’ may make investors take another look at Satellite Solutions.
Macfarlane Group PLC
Steady growth with strategic development opportunities is the headline at Macfarlane Group PLC (LON:MACF). Through a balance of organic and acquisition growth, annualised PBT has grown 15% CAGR over the past six years. In the absence of further acquisitions this would slow, but there appears to be scope for a selection of opportunities. In any case Macfarlane is a business growing securely. At the moment there is strong visibility of benign conditions and when inthe future the macro divers become less strong, we do not envisage a major cycle downturn for Macfarlane.
Macfarlane has a strong competitive position thereby ensuring reasonably high visibility of robust gross margins.
PBT growth is driven by the leverage of the existing strong market presence as regards ability to 1) enhance sales without proportionate rises in costs of the UK-wide network; 2) continued focus on growing sub-segments; 3) continuing the cash generative model; 4) investing that cash into tuck-in acquisitions, delivering an explicit programme.
More of the same next year would be welcomed by investors.
Restore Group PLC
Another company that has been on the acquisition trail this year is Restore Group PLC (LON:RST). The company is a support services company with two divisions: document management and relocations. A placing in November of £34m at £2.60 facilitated the acquisition of Wincanton Records Management. The deal should be earnings enhancing in its first full year and will put Restore Group in what should prove to be an unassailable position of number two in the record management market with an estimated 13% share. The deal appears strategically significant. With house broker Cenkos estimating 6% uplift in earnings per share for 2016 next year looks interesting and we would expect the company to continue to source earnings enhancing deals.
Science in Sport PLC
Science in Sport PLC (SIS.L) is a leading producer of sports nutrition products including gels, powders, bars and tablets. The strength of the brand originates from its focus on elite athletes which has resulted in a compelling list of brand ambassadors and endorsements, including Sir Chris Hoy, Sir Bradley Wiggins, Mark Cavendish, Helen Jenkins, Team GB rowing, international rugby teams and numerous premiership football teams.
The company raised money in October to underpin its next phase of development. They are looking to ramp up sales growth and sustain the +19% reported in the six months to 30 June 2015. With the ‘brand equity’ successfully established, growing revenues and attractive margins the company may feature on the shopping list of some of the bigger players. The M&A activity in this subsector has been buoyant in recent years. We look forward to hearing more.
A ‘Stocks to Watch’ list would not be complete without a look at the resource sector. The sector has had a tough year but there are some interesting stories on AIM and despite recent investor sentiment developments have been positive on a number.
Jubilee Platinum PLC
One such company is Jubilee Platinum PLC (LON:JLP). The company featured in last year’s ‘Stocks to Watch’ list as it opened the year at a price of 1.75p. The price as at 1st December 2015 is 3.525p and 2016 could well be another stellar year for the company. There has been plenty of news flow this year much of it relating to the company’s transformational surface tailings projects.
In November the company began construction of a processing facility in South Africa which targets commissioning as early as January next year. The project, concerning ASA Metal’s Dilokong chrome mine, targets processing 30,000 tonnes per month of platinum-containing surface material. Jubilee’s two platinum surface projects target a combined processing of 80,000 tonnes per month of tailings with an estimated production of 42,000 ounces of platinum group metals per year in concentrate. 2016 could be another exciting time for Jubilee.
Xtract Resources PLC
It would appear that recent announcements in Xtract Resources PLC (LON:XTR) have disappointed investors. However, despite some setbacks, the company has made strides and we look forward to further updates from their Chepica project in Chile, the Manica project in Mozambique and the O’Kiep tailings project in South Africa.
We also put Galileo Resources PLC (LON:GLR) on the watch list. The resource development company has provisionally agreed to acquire a majority stake in the Concordia copper project in South Africa. Colin Bird, CEO, believes that the “opportunity ticks every box of our search criteria and the acquisition could only have been achieved in the current environment”. Colin believes “Concordia has extremely good prospects for potentially delineating a world class ‘super-pit’ copper resource and mine. The world demand for copper is forecast to rise with short falls projected from 2025 and onwards.” He added that “this is a large project in a mature mining jurisdiction.” With a market capitalisation of just £2m as at 1st December it should not take too much positive news and investor interest to improve this valuation.
So what happened to the companies that featured in Shard’s 2015’s Watch List released in January 2015? The table below gives a snap shot.
Price as at2nd Jan 2015 Low since 2nd Jan 2015 High since2nd Jan 2015 Price at1st Dec 2015
Summit Germany Ltd (SMTG.L) €0.70 €0.70 €0.99 €0.96
Mercia Technologies PLC (MERC.L) 76.5p 52.5p 81p 52.5p
Jubilee Platinum PLC (JLP.L) 1.75p 1.28p 5.44p 3.525p
Gfinity Plc (GFIN.L) 25.75p 15.75p 28.38p 19.625p
Finsbury Food Group PLC (FIF.L) 60p 56p 118.5p 116.5p