Gateley (GTLY) : Corp

Prudently managing the business in uncertain times

Key data

  • Share price (p) 122.5
  • Target price (p) U/R
  • Market cap (£m) 142.3
  • Enterprise value (£m) 144.5

Gateley has highlighted that while up to the end of February demand for its services had been growing, activity since the start of March has reduced due to the Covid-19 disruption. A further update will be provided when there is visibility on the impact on full-year performance, but financial guidance has been suspended (we have therefore withdrawn our forecasts) and, to maximise short-term liquidity, the interim dividend (2.9p with a £3.3m cost) has been cancelled. Net debt at October 2019 was £2.1m (net debt/EBITDA only 0.1x) and we had forecast £1.8m net debt at April 2020 post a £4.5m acquisition cash and the interim dividend, which will now not be paid. Liquidity to date has been in line with expectations, the group has very close relationships with a number of banks (Gateley has always multi-banked) and there are potentially significant short-term savings that can be made on the timing of the payment of tax. Gateley has always been prudently managed and the previous significant global downturn proved to be a long term opportunity. The service offering is well-balanced and diversified and staff can be redeployed from quieter areas to those that see increased activity in difficult times. Technology/working from home is enabling client work to continue and we believe the group is very well placed to withstand the current difficult economic conditions.

Guy Hewett 020 7220 0549 ghewett@finncap.com

K3 Business Technology (KBT) : Corp

Deferral of results; FY19 dividend cancellation

Key data

  • Share price (p) 93.5
  • Target price (p) 245.0
  • Market cap (£m) 40.2
  • Enterprise value (£m) 42.6

K3 Business Technology has announced the postponement of the release of final results and cancellation of the proposed dividend, due to the current uncertain environment. Results to November 2019 will be in line with guidance provided back in October. Forecasts for the year to November 2020 are suspended given contract delays and deferrals. Employee welfare and customer support remains the focus, and cost reduction and impact mitigation measures are underway, including consideration of the closure of third party solution unit in the UK. Net debt as of 20 March 2020 was £5.5m, and in the board has taken pre-emptive steps to improve the group’s liquidity, including productive discussions with Barclays as well as the group’s two major shareholders (Kestrel Partners and Johan Claesson, both with NED positions on the board). The board will focus on the company’s core profitable units, accelerating towards its own IP – with the flagship Imagine product seeing promising levels of adoption (having signed up 106 customers). We look forward to a further trading update following close of the interim period to May 2020.

Andrew Darley 020 7220 0547 adarley@finncap.com

Pebble Beach Systems (PEB) : Corp

FY19 results postponed and extended loan facility

Key data

  • Share price (p) 7.6
  • Target price (p) U/R
  • Market cap (£m) 9.4
  • Enterprise value (£m) 17.8

Pebble Beach Systems has announced the delay of its FY19 results (expected on 26 March) as its auditors have deferred the sign off of accounts in line with regulatory guidelines in light of the current circumstances surrounding Coronavirus. Management has launched a review and assessment of the potential impact of COVID-19 on the company and its customers, to prepare for any risk mitigation actions required. Whilst it is too early to define the full extent of the impact, the current assessment suggests its customers are unlikely to experience a material downturn in demand, and may even see a rise in demand as people turn to broadcast for both information and entertainment during isolation. With initial growth in the pipeline and order intake at the start of the year, the board continues to execute against its strategy and leverage the benefits of remote working environments to deliver projects remotely. The company has also confirmed the successful extension of it £9.5m loan facility for an additional 12 months, to 30 November 2021 (signed on 10 February 2020). We await further details regarding the revised release date.

Hayley Palmer 020 3772 4681 hpalmer@finncap.com

Pelatro (PTRO) : Corp

Postponement of results reporting

Key data

  • Share price (p) 28.0
  • Target price (p) 125.0
  • Market cap (£m) 9.1
  • Enterprise value (£m) 8.5

The Multichannel Marketing Hub software specialist has announced that following discussions with its auditors, in light of recent regulatory guidance, and in accordance with the announcement by the Financial Reporting Council, in which it encouraged listed companies to delay corporate reports (including final audited statements), the results for FY December 2019 will be delayed. All of the audit work had been completed and PTRO was in a position to report today; however, given the regulatory guidance, the auditors advised the company to postpone the results. Further information on a revised timetable for publication of financial statements will follow when further guidance from the auditors and the regulator is available.

Lorne Daniel 020 7220 0545 ldaniel@finncap.com

Quartix (QTX) : Corp

A strong start to 2020 curtailed by COVID-19

Key data

  • Share price (p) 244.0
  • Target price (p) 475.0
  • Market cap (£m) 116.7
  • Enterprise value (£m) 109.0

Today’s AGM will hear that trading for the first two months was consistent with meeting FY 2020 market expectations. The Fleet progress continued with new installations up 30% YoY. Strong order intake was sustained through March across its territories despite the pandemic; however, the impact of COVID-19 is now beginning to be felt and management anticipates installation growth will fall sharply by the end of Q1, leaving a backlog of installations in subsequent months, mostly in the UK. Furthermore, QTX customers are mainly SMEs and a number of them are taking vehicles off the road due to falling demand; QTX will seek to preserve its customer base by assisting them. Meanwhile, Insurance telematics continues to decline in line with expectations, but further declines are expected. Overall, there is clear risk to our forecasts. We maintain them for now, given there is significant prudence in-built. Also, the nature of the QTX model (taking hardware and installation costs upfront) means that fewer installations have a consequential near-term profit benefit, although clearly it delays cash flow longer term. We will review the situation with a scheduled update in early May.

Lorne Daniel 020 7220 0545 ldaniel@finncap.com

Minds + Machines (MMX) : Corp

FY 2019 beats forecasts and sets course for dividends

Key data

  • Share price (p) 5.2
  • Target price (p) U/R
  • Market cap (£m) 47.8
  • Enterprise value (£m) 42.0

This was another very good year for MMX, with a comfortable beat of forecasts as management continues to execute its strategy of improving both the ‘quantum and quality’ of its revenue base. The one-off brokered sales (many from .vip in China) are steadily being replaced by rapid growth in new registrations of a much wider range of gTLDs and growing renewal revenue, all automated through the global registrar network – but more in Europe and the US. Group revenue jumped 25% YoY, assisted by strong new sales across the portfolio, the launch of a new brand protection product, and a FY (an extra five months) of the ICM acquisition while the outsourced platform model is keeping the cost base relatively flat so margins and profits are rising. MMX ended the year with $6.6m net cash and will revisit the intended maiden dividend in September, after the pandemic subsides. Given its automated business model and the switch of business and leisure online, this global issue may well be beneficial to MMX. However, with the current level of uncertainty in the global economy, we place forecasts Under Review.

Lorne Daniel 020 7220 0545 ldaniel@finncap.com

eve Sleep (EVE) : Corp

Good strategic and financial progress

Key data

  • Share price (p) 0.8
  • Target price (p) U/R
  • Market cap (£m) 2.2
  • Enterprise value (£m) -5.8

The final results revealed significant financial and strategic progress under the new management. We estimate further material reductions in losses in the current year as the new strategy gains traction and the group moves towards building the go to sleep wellness brand.

Mark Paddon 020 7220 0541 mpaddon@finncap.com

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