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Some European countries have begun to lift restrictions on residents as the infection curve of the virus stabilises. France, Belgium and Spain were the latest countries to announce plans to lift some restrictions over the weekend. While many businesses will benefit from this easing, others rely on certain levels of customer density to run profitably and queuing in the rain is not going to be attractive; it might be more cost effective (with more government support) to stay closed. Moreover, these same businesses are likely on the sharper end of longer-term changes to social attitudes that may linger for longer than the virus.

Headlines

• Boris Johnson arrives back in Number 10.

• Six US states lift restrictions.

• Belgium sets out a plan to lift restrictions.

• New Zealand says community transmission has been stopped.

• Sri Lanka extends lockdown for another week.



Company news

Buildings & Construction

Alumasc Group# – “As previously announced, Timloc re-opened on 14 April 2020 and started to despatch products on 16 April 2020. This was as a result of requests from customers. Products to support the building industry will be despatched in accordance with the Government's construction industry guidance. Staff safety remains the main priority and Timloc is operating social distancing measures with a small team on site supported by staff working from home.

Water Management – Water Management has announced that it will be re-opening its Burton Latimer (Skyline, Alumasc Rainwater & Harmer) and Halstead (Wade & Gatic Slotdrain) sites on a phased basis from 27 April 2020. This is in response to customer requests and to fulfil recent orders placed. Manufacturing can be operated in accordance with Government guidelines on social distancing to safeguard the health and safety of our employees.

Our other two Water Management businesses, Rainclear and Gatic (Engineered Access Covers) have been trading as usual throughout. Rainclear, our online business, has been trading well and has benefitted from increased internet sales. The AWMS Dover site has been continually open for business and exporting Gatic engineered access covers for new ports and other developments overseas.

Building Envelope – Roofing and Levolux have remained open for business. Roofing has received strong order intakes and some staff are working from home supporting the business. A number of staff have been furloughed as an initial response to Covid-19 and we will bring these furloughed staff back as demand dictates. Levolux had been trading throughout, it is open for sales and operational on sites.

Board actions – The Board has taken swift and prudent decisions to support the Group's businesses during this difficult period and to ensure that cash flow is protected as part of a broader cash conservation programme. These actions include the suspension of capital expenditure, a freeze on new hiring and cancelling the dividend as previously announced. Further to this and after consultation, we have obtained a deferral of three months' pension contributions from the Group's Pension Trustees, amounting to £575k in aggregate which would otherwise have been payable between April 2020 and June 2020. The deferred amount will be recovered between July 2020 and the next revaluation in March 2022. Our balance sheet remains strong and we have £16.6m of headroom available from our banking facilities.

Health and Safety remains our top priority and a great deal of work has gone into making sure our people are safe at work and those returning to the Group's re-opening facilities can do so safely, following the implementation of well-planned operating procedures. The phased opening of our manufacturing locations represents a positive move for the Group and will support the delivery of building products to the construction industry.

We remain focused on delivering sustainable quality building products whilst also protecting and supporting our customers, employees and suppliers.”

Redrow# – “Redrow announced the orderly and safe closure of all of its sites on 27th March 2020 and decided not to reopen until it was safe to return to work and it could rely upon a functioning supply chain. Since then, the Government have made it clear they would like to see construction sites operating provided they can do so safely with stringent social distancing measures in place.

Redrow is now satisfied these conditions can be met over the next two weeks and therefore intends to commence mobilising sites week commencing 11th May 2020 with a phased return to construction on 18th May 2020. Mobilisation will include putting robust social distancing protocols and physical measures in place.

We have developed rigorous social distancing protocols that will be supported by strict arrangements to ensure they are consistently applied. In particular, we will have an e-learning module for all Redrow employees, induction videos for contractors, appointed Covid Supervisors for each site and enhanced signage and PPE.

Additionally, our advanced IT systems allow us to communicate remotely with our contractors and customers. Our tablet-based quality management system records and monitors work and directly notifies contractors of any issues that need to be addressed. Our My Redrow portal gives customers access to make appointments, to complete reservations online and to choose options and upgrades.

Throughout the past month, we have been working closely with our material suppliers to understand their production plans and liaising with our sub-contractors to ensure all the resources we need will be available to match our phased return to construction.

Returning to normal trading – Net reservations have been running at very low levels since the lockdown was imposed. Important to a return to more normal trading conditions will be a relaxation of the Government's ongoing advice about moving home, which currently recommends deferring any move unless there is no alternative, and the reopening of sales complexes that remain closed under lockdown restrictions. We will be guided by our customers to judge if it is safe for them to move.

Strong Balance Sheet and Order Book -Redrow has a strong balance sheet. In the month of April, the business generated £62m of cash from legal completions. In addition, as part of our measures to protect our cash flow, a number of land payments have been successfully deferred into 2021 and later. As a result, net debt at the end of June is now expected to be c£200m. We have recently extended our Revolving Credit Facility to £350m and we have been accepted as an issuer under the Government's CCFF with an issuer limit of £300m. We also have an order book of over £1.3bn, of which £0.9bn is contracted.”

Springfield Properties – “Since the start of the outbreak, the Health and Safety of Springfield employees, customers and the communities in which the Group operates has been of paramount importance. Consequently, in accordance with Scottish Government guidance, on 24 March 2020 Springfield temporarily closed down all of its sites under construction and its kit factory, as well as closing its sales and administrative offices to the public with employees working from home wherever possible. The Covid-19 situation continues to evolve and until there is clarity on the duration and severity of these events, it is not possible to know when operations will recommence.

Enhanced £85m banking facility – In light of the current situation, the Group is pleased to confirm that it has agreed an additional £18m, 12-month, term loan facility with Bank of Scotland, increasing the total credit facility to £85m. The term loan has been agreed on similar terms to the existing credit facility.

Financial modelling has demonstrated to the Board that this additional support gives Springfield sufficient headroom, should it be necessary, to withstand even the most unlikely event of a 12-month shutdown. The Board modelled several cash flow scenarios that assumed different lengths of shutdown as well as the adoption of various mitigating actions. These actions are described below. Beyond continued liquidity, the fundamental basis of the models was the punctual payment of Springfield's employees, suppliers and sub-contractors throughout the period.

The Board is satisfied that the Group is in a strong financial position and able to operate within its new facilities even under the most extreme of these highly stressed scenarios: a full year shutdown.

Further mitigating actions taken – The Group has taken a number of actions in order to preserve its cash position during this period. Cancellation of the interim dividend was notified on 24 March 2020. Over 90% of the Group's workforce has been furloughed under the UK Government's Job Retention Scheme. In addition, of the core team still working, Executive and Non-Executive Directors have agreed to a voluntary 50% reduction in base salary until further notice, and at least until sales recommence, with 30% deferred and 20% forgone. All senior managers still working have agreed to a 20% voluntary reduction in base salary over the same period.

Additional measures that significantly reduce the Group's monthly running costs include the delay or cancellation of future land purchases, postponement of office rental and financial lease payments, and curtailment of all non-essential spend. It is too early to estimate with accuracy the potential impact on the Group's financial results. However, the Board believes the Group is in a strong position to withstand the impact of Covid-19 and once a return to work is permitted (with the necessary Health and Safety measures in place), Springfield will continue to deliver against its strong order book.

Contracted revenues from private and affordable housing currently stand at over £110m. This includes £44m of largely constructed private housing, much of which would have handed over to clients in April and May 2020. These homes are contracted under the Scottish missive system and are underpinned by the banks' three-month extension to mortgage offers. The affordable housing element consists of £66m of affordable housing revenue from construction contracts already underway.

The Group's position is further strengthened by a significant volume of private house reservations on which the Group continues to work, with customers, to secure a missive (contract). In addition, Springfield is in possession of, what the Directors' believe to be, the largest land bank in Scotland.”

Food, Drinks & Household

Camellia Group – Trading – Agriculture All our agricultural operations continue to work as close to normal as is possible with the exception of India. Following the shut down in India announced on 24 March there has been a gradual easing of restrictions and currently all tea estates are open but utilising only 25% of their workforce in West Bengal and 50% of the workforce in Assam in order to maintain social distancing. As a consequence, and as

indicated in our trading update of 1 April, we expect to lose the majority of our lucrative first flush and if the current restrictions continue a significant proportion of our second flush crops in India.

Elsewhere the restrictions that we are seeing globally continue to increase with all our countries of operation experiencing some form of lock down. It remains unclear the extent of the impact these restrictions will have on our production levels, our distribution channels, demand for our produce and access to market for our perishable crops such as avocado and citrus. A small number of tea auctions have been cancelled in recent weeks although some have since resumed or are scheduled to resume in May. Overall the tea price during the first quarter was exceptionally poor as a result of the very high production levels of 2019, but as a consequence of the current crisis we have seen some signs of increased demand and prices for our teas.

As a result of very dry hot weather in Malawi and South Africa during the fourth quarter of 2019 we are also anticipating a decline in our macadamia production for 2020 and reduced global demand is also likely to adversely impact prices.

Engineering – Our engineering businesses are operating at close to normal. Both AJT Engineering (due to its role in the energy sector) and Abbey Metal Finishing (due to its role for aerospace and military) are deemed to be essential businesses. We are concerned however that issues in the wider economy could mean that demand in the oil, energy and aerospace sectors will be very weak in the second half of the year.

Food Service – ACS&T continues to operate but the reduced demand for its transport services which we mentioned on 1 April, means that profitability in H1 2020 is expected to be significantly lower than that for the same period in 2019. Jing Tea continues to trade at a substantially reduced level. Both businesses' trading results for the remainder of the year are dependent on the timing of any resumption of operations in the hospitality and food service sectors.

All our UK businesses have utilised the UK Government's Coronavirus Job Retention Scheme for those employees where it is no longer possible for them to work.

Financial Position – The Group has a strong balance sheet with substantial cash liquidity which amounted to £77.1 million in cash and cash equivalents net of borrowings as at 31 March 2020. In addition, our investment portfolio had a market value of £43.8 million at 31 March 2020. We continue to conserve cash wherever possible against a fast changing and unpredictable backdrop. Further to the announcement on 1 April 2020, the Board has decided not to declare a final dividend in respect of the 2019 financial year and will review this decision at the time of the interim results when the outlook may be clearer.”

Healthcare

Byotrol – “We continue to experience exceptional demand for our technologies across all our markets due to the covid19 pandemic. We expect this to continue for at least the first quarter of FY2021 and likely beyond, and are now expecting to benefit significantly from a secular shift towards the heightened importance of infection prevention, cleanliness and hygiene, whether personal, institutional or environmental.

Current trading – We entered the new financial year with a strong order book exceeding £2m and expect to generate record sales from products (i.e. excluding licenses, royalties and technical development deals) in the first quarter of the year. There are also many additional orders still being assessed for deliverability against the supply chain constraints being experienced across our whole industry sector.

The management team is also working on a number of longer-term product supply contracts and technology licenses, including for Byotrol24 in the US.

Gross cash balances at 31 March 2020 were £1.7m. Net of the Group's invoice discount facility of £0.3m, net cash balances were £1.4m. An additional £0.3m cash was received on 2 April 2020 having been due on 31 March, relating to a stage payment for a previously-announced technology development agreement.

Outlook – Whilst we expect the current very high levels of demand to ease at some stage over the course of FYE 2021, we also expect:

• business and consumers to take more proactive responsibility for protecting individuals against infection risk, leading to sustained demand for anti-microbials

• further acceptance of the role of regulators as opinion leaders on safe and efficacious anti-microbial chemistries, for which we are well-positioned

• international supply chains to improve and reduce the very high current level of unfulfilled orders.

Byotrol has been positioning for such trends for many years and expects them to favour technologies like ours, presenting exceptional growth opportunities for the Group.”

EKF Diagnostics Holdings – “Global demand for the PrimeStore MTM device has increased significantly due to Covid-19. The device was invented in 2006 in preparation for a worldwide pandemic and is designed to de-activate pathogen rapidly and stabilise the RNA for up to four weeks with no requirement for cold storage. This approach also allows samples to be tested by a greater number of laboratories, as the handling risks for the deactivated virus are reduced.

As announced in the detailed trading review on 24 March 2020, the Company has been rapidly scaling up production to meet the demand of one of the core components in PrimeStore MTM, which is manufactured at EKF's Boerne, Texas site and for which orders were expected to grow significantly. The initial $1m purchase orders referred to at that time have been fulfilled and, following conversations with Longhorn, the Company anticipates additional orders totalling over $3m to be received in May. The majority of these orders will be for the core reagent used within the device and EKF is in the process of doubling its manufacturing capacity for this reagent, in order to fulfil these and anticipated future orders.

Even considering the somewhat lower sales in the Company's core diabetes and haemoglobin products observed in more recent weeks due to lockdown measures affecting patient-physician interactions, the increased contribution from the Longhorn manufacturing contract means that the Company expects to exceed significantly the overall management budgets for H1. Trading in Q1 exceeded management expectations and EKF remains on track to deliver strong year-on-year growth in both revenues and adjusted EBITDA for the six months ended 30 June 2020.”

Horizon Discovery Group – “Consistent with the Group's Covid-19 update announcement of 27 March 2020 and the Placing announcement of 17 April 2020, Horizon initially experienced a limited impact from Covid-19 but events in relation to the pandemic continue to evolve rapidly.

Horizon's trading for the first quarter of 2020 has been broadly in-line with management expectations. However, orders towards the end of March indicated pressure in Research Reagents as academic research labs slowed or stopped working following the widespread lock-down in major economies that was implemented in the second half of the month. This trend appears to have continued into the second quarter of 2020.

Separately, the Group has seen increasing interest from its BioPharma clients and a trend towards outsourcing as companies continue prioritising key projects and supplement in-house resources. Both of Horizon's UK and US sites are open and running client projects without disruption, and the Group is not experiencing any material delays in either distributing its products or running its service projects. The Group is actively monitoring key suppliers regarding potential supply chain interruptions, and so far, no immediate risks to supply have been identified.

Horizon's first priority remains the health and safety of its employees on site. The Group has implemented appropriate action plans aligned to the latest government advice in each respective country of operation. These focus on safety, travel, hygiene (including self-quarantine) and contingency planning, primarily centred around remote working. Laboratory teams can work flexibly, facilitating different working patterns that should minimise the impact of Covid-19.

As previously reported, the Group is implementing measures intended to provide the business with financial flexibility in an unknown and volatile environment, and is conserving cash to minimise expenditure whilst maintaining operational delivery through a number of actions:

• Continuing with key strategic projects but deferring certain non-essential ones

• Deferring capital expenditure where there is no impact on key strategic projects

• Hiring freezes where appropriate

• Pay cuts and pension reductions for staff – on a sliding scale aligned to salary band

• Furloughing of c. 24 staff in the UK and planned implementation of US Paycheck Protection Programme covering c. 160 US employees (as well as rent and utilities)

• Travel, conferences and discretionary spend savings



Implementing the cash conservation measures listed above is expected to deliver in-year cash savings in the range of £8 million to £10 million.

Horizon has reviewed its financing options, including evaluating support from both the UK and US governments including the Covid-19 related loan schemes, and is also in preliminary discussions with providers of working capital facilities.

The Group's contingency planning includes a package of more extensive actions should conditions deteriorate and/or if additional government support is not available. The Group has modelled further downside scenarios under which adverse trading conditions extend in to H2 2020 and return to trading normality extends beyond the current year-end. The potential downside risks include further reduction in Research Reagents business unit revenues and delays to the phasing of BioProduction revenues. Under these scenarios Horizon would have to take further cash conservation measures including but not limited to:

• Further reduction in capital expenditure

• Further remuneration measures

• Review of staffing levels commensurate with revised revenue levels



These further mitigating measures could be augmented by any additional support available from the UK and US governments upon a more prolonged period of economic disruption. While we expect the cash conservation measures described to deliver headroom in each of the downside scenarios contemplated, the net proceeds of the Placing executed in April 2020 should mitigate any further downside risk.”

Omega Diagnostics Group – “Announces that it has CE-Marked Mologic Ltd's ('Mologic') first generation ELISA1 antibody test for Covid-19.

The CE-Mark follows successful independent validation of Mologic's ELISA test by the Liverpool School of Tropical Medicine and St George's, University of London. Ongoing validations are being performed by Public Health England, NHS Scotland and in the Republic of Ireland.

Omega will use its ELISA manufacturing facility in Littleport, Cambridgeshire to manufacture up to 46,000 Covid-19 tests per day. Omega and Mologic will now finalise a longer-term supply agreement to commercialise this test, which will be used on patient samples sent by hospitals or GPs for laboratory testing.

Partnering with Mologic is separate from, and additional to, the announcement made by the Company on 9 April 2020 relating to the UK Rapid Test Consortium (RTC), which is to jointly develop and manufacture a Point-of-Care Covid-19 lateral flow antibody test which could be used 'at-home' and which will be manufactured in Omega's Alva facility in Scotland.”

Industrials

Filtronics – “As one would expect in the current circumstances, our supply chain is a key concern. Although we are addressing some areas of concern, we do not foresee any critical shortages at this time. Our customer base remains positive and to date we have not been advised of any anticipated programme curtailments or deferrals.

To this end our Covid-19 Business Continuity Team continues to meet regularly to review government information and guidance updates and to adapt our protection and mitigation compliance measures accordingly.

CEO Search – The consequences of Covid-19 have however delayed our process to secure a new CEO and we do not now expect a new CEO to join us until beyond Q1 of our new business year, which commences in June 2020. Reg Gott will continue to serve as Executive Chairman until a new CEO arrives.”


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To read the full research note, please click here.