Tatton Asset Management Plc (TAM)

AIM listed-Tatton Asset Management Plc is engaged in the business of providing on-platform only discretionary fund management and financial advisory services. Shares of the TAM got admitted to the sub-exchange (AIM) of the London Stock Exchange on July 06, 2017. The asset management company is headquartered in the United Kingdom. BlackRock Investment Management (UK) Ltd., Liontrust Investment Partners LLP and Chelverton Asset Management Ltd. are the major shareholders in the company.

Recent Developments
As on June 03, 2019, the investment management arm of the Tatton Asset Management Plc was appointed by Trent Group to provide a managed portfolio service.

As on June 03, the group appointed by Frenkel Topping Plc for an initial three years term to provide advisory services.

Financial Highlights – FY 2019

Source: Annual Report, Company Filings

As on June 03, 2019, the investment management company and the IFA services provider TAM Plc has announced its preliminary results for the year ended March 31, 2019. Discretionary AUM during the FY19 period recorded a growth of 24.5% to £6.1bnagainst the AUM of £4.9bn recorded in the previous financial year. Net AUM inflows enhanced to £1.1bn and the average inflow was £90mn per month. For the financial year ended March 31, 2019, the group’s revenue stood at £17.5mn as compared with £15.5 mnin the year-ago. Recorded growth in the revenue was 12.9 on a YoY basis.  During the year under review, adjusted operating profit surged to £7.3 mn from £6.5 mnrecorded in a year-ago period and adjusted operating margin during the period was at 41.7% and declined marginally against the FY18’s adjusted operating margin of 42.1%.  Adjusted earnings per share surged by 14.6% to 11.0 pence per share.

Dividend
The board of the TAM Plc has recommended a final dividend of 5.6 pence per share, and including the final dividend proposed by the board, group's total dividend for the FY19 period stood at 8.4 pence per share.Dividend growth for the year under review was at 27.3%. The group aims for progressive dividend policy and target a payout of 70% of annual adjusted earnings per share over the medium-term time spam.

Cash Flow
Net Cash generated from the operating activities (before exceptional costs) was an inflow of £8.0 mnagainst £5.6 mn in a year ago period. Net cash inflow (adjusted against the exceptional items) stood at £6.1 mn and recorded a growth of 165.2%from £2.3 mn in FY18. Tangible and Intangible investment in the asset stood at £0.6mn. The group has a decent cash position with cash on the balance sheet stood at £12.2mnas compared with £10.6mn in a year-ago period.

Stock Performance – 1 Year

Daily Price Chart (As on June 04, 2019), before the market close. (Source: Thomson Reuters)

At the time of writing (before the market close, at 10:45 AM GMT), shares of TAM Plc were quoting at GBX 208 and added 2.0p points or 0.97% against the previous day closing price. In the past 52-wks, shares have touched a high of GBX 294 and a low of GBX 188.

The outstanding market capitalisation of the company stood at around £114.88 mn,which ranks it among the small-cap companies listed on the London Stock Exchange. At the current price, as quoted in the price chart, the dividend yield of the company stood at 4.08%.

Valuation Methodology


Conclusion
The group performed well in the financial year ended March 31, 2019, despite challenging market conditions. In the wake of Brexit uncertainties, the group has managed to report a double-digit growth rate in the top-line. Also, the group has a decent financial position, with cash position improved by 15.1% to £12.2mn from £10.6 mn in the previous financial year.

During the FY19, Tatton’s EBITDA margin stood at 39% as compared with the industry median EBITDA margin of 31.4%. At the Return of Equity (ROE) standpoint, TAM Plc reported an ROE of 16.8%, whereas the industry median stood at 7.2%.

However, from the simple moving average price standpoint, the group is trading below the 200-days SMA, which is a crucial resistance level for the stock.

Therefore, based on the above rationale and the valuation done using the above methodology, we have given a “Speculative Buy” recommendation at the closing price of GBX 206 (as on June 03, 2019), with high single-digit upside potential, based on the 15x NTM Industry Median Price-to-Cash flow per share (approx.) on the FY20E Cash Flow per share (approx.).

*The “Speculative Buy” recommendation is also valid at the current price as on June-04-2019.
 

Avacta Group PLC

United Kingdom-based Avacta Group Plc is a Biotechnology and Medical Research Company. The company offers products that include optim and sensipod. It also develops UCB celltech that is an analytical instrument. Avacta’s sensipod is an in-clinical blood testing system that delivers ELISA tests. The company offers intellectual property relating to an alternative to antibodies.

Financial Highlights (H1 FY2019, £’000)

(Source: Interim Report, Company Website)

For H1 FY19, the group has reported a revenue of £0.97 million as compared to £1.47 million reported during the corresponding period of the previous financial year. Revenue from the company’s Affimer business and Life Science business reduced to £0.29 million vs revenue of £0.69 million in H1 FY18. Revenue from Avacta Animal Health and the allergy and diagnostic business reduced marginally to £0.69 million from £0.77 million in H1 FY18.

The company’s operating loss during the period surged to £5.87 million against the operating loss of £4.47 million during the H1 FY18 and reported loss post-tax surged to £5.20 mn from £3.95 million in the H1 FY18. However, basic loss per share reduced to 4.80 pence as compared with the basic loss per share of 6.04 pence.

Share Price Performance

Daily Chart as at June-04-19, before the market closed (Source: Thomson Reuters)

On 4^th June 2019, at the time of writing (before the market close, GMT 11:45 AM), AVCT shares were trading at GBX 31.395, down by 1.12 per cent against the previous day closing price. Stock's 52 weeks High and Low is GBX 51/GBX 21. The company’s stock beta was 0.05, reflecting significantly lower volatility as compared to the benchmark index.

Conclusion
Avacta remains on track to dose first patients in late 2020, with pre-IND enabling studies due to start for AVA004 (PD-L1 Affimer). Proof of concept animal data for the TMAC programme is expected in Q4 2019, which could stimulate a preclinical licence deal, given the interest already shown from established pharmaceutical companies.

In the past couple of trading days, the stock has breached the 200-day simple moving average support level of GBX 30.98, which indicates stock can move down further from the current trading levels. Also, the group’s margins are in the negative territory from the last five years. Therefore, based on the unfavourable technical indicators and weak financial position, we recommend investors to keep a cautious “Watch” on the stock at the closing price of GBX 31.75 (as on June 03, 2019) and support from future growth catalysts need to be evaluated at a subsequent stage.

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