Full-year results demonstrate underlying growth

CEPS has delivered strong underlying growth despite the impact of lockdown regulations in the first half of the financial year. Group turnover rose by 70% to £20.3m (FY20: £11.9m), representing growth of 62% over the pre-pandemic FY19 trading year. Full-year performance has benefitted from strategic restructuring over the past three years. FY21 results demonstrate that CEPS is now a transformed entity, with its first ‘clean’ set of full-year results. We are encouraged that all the subsidiary segments and the associate have been profitable. This profit improvement suggests that CEPS’ restructuring and focused ‘buy and build’ strategy is proving successful, coupled with a recovery in underlying markets. The Chairman’s comments strike a confident and enthusiastic tone, confirming progress across all businesses and pointing to the Group’s growth trajectory.

Full-year results demonstrate underlying growth

SDI Group has published a trading update for the year ended 30 April 2022. Revenue for the full year is ahead of our, and market, expectations, with management now expecting £49.0m for FY22, up 40% on FY21 (£35.1m) and £2.1m ahead of our forecast. The update also states that adjusted PBT is expected to be in excess of £10.5m (FY21: £7.4m), ahead of our forecast of £9.8m. This statement, alongside recent acquisitions, shows management’s ability to deliver record results despite the intermittent Covid recovery and inflationary supply chain pressures. We have adjusted our FY22 and FY23 figures to reflect this good news, and look forward to the final results in July as an opportunity revisit our FY23 estimates and introduce FY24 forecasts.

Record year expected

ZOO has announced a trading update for the full year to 31 March 2022. Good momentum has continued since the previous update, with what we understand to have been a strong performance from all areas of the group. The full year is now expected to be ahead of previous guidance, and we upgrade FY22 estimates. This note also provides some comment around recent subscriber challenges for Netflix. We see these as a positive for ZOO, whose content-related services are likely to experience increased demand as streaming-platform customers battle each other to produce premium content in the right geographies and languages.

Thriving while customers battle

CEPS has announced the acquisition by its subsidiary Aford Awards (AA) of the business and related assets of Impact Promotional Merchandise (IPM), a supplier of trophies and promotional customised goods such as sports bags and mugs. This acquisition reinforces CEPS’ strategy for AA to grow through the purchase of complementary businesses, where assets and clients can be integrated into the AA structure. We believe the IPM deal is likely to be immediately earnings enhancing and increase profitability significantly over the medium term.

Purchase of the business and assets of Impact Promotional Merchandise Ltd

Tern has announced that 98.6% of the Wyld Networks AB outstanding TO1
Warrants have been exercised, providing approximately SEK 25.2m (£2.0m)
to Wyld, before costs. Tern invested in Wyld in June 2016, and the
completion of the TO1 Warrant exercises reduces Tern’s equity stake in
Wyld from 58.7% to 49.2%. Wyld is reaping the benefits of its IPO on the
NASDAQ First North Growth Market in July 2021. This represents a phased
exit from the business for Tern, with access to capital in the future and share
value appreciation through Wyld’s continued success. Wyld is seeing
ongoing purchase orders and further commercial traction, including
entering into a connectivity partnership with Eutelsat Communications,
Senet Inc and TrakAssure. The recent commercial launch of Wyld Connect,
a satellite IoT product range, has created strong customer demand, with
purchase orders of more than SEK 28m as launch partners gear up for the
start of the commercial service, planned for the second half of 2022.

Wyld Networks warrants exercised

Thruvision, the leading provider of ‘safe distance’ people screening technology, has announced a trading update for the full year to 31 March 2022. Good momentum has continued, with a strong performance from Profit Protection, where revenue was up 70% on the prior year. The decision by Tesco, the leading UK retailer, to deploy Thruvision at scale represents a significant contract win, coupled with the addition of its first major European customer, Zalando. In the US, Profit Protection has secured its first order from Republic National Distributing Company (RNDC), one of the US’s largest alcohol distributors, representing a foothold into the US market. Management has reiterated confidence in an increased order flow from US Customs and Border Protection (CBP) given its close engagement. Finally, we introduce FY23 estimates – these anticipate growth of some 20%-25% on the FY22 revenue outturn, and importantly also suggest an EBITDA-breakeven result for the first time in the group’s history. Overall, a strong update for FY22, and boding very well for FY23 and beyond.

On track to breakeven

SDI Group has announced the acquisition of Safelab Systems Limited (Safelab), a UK manufacturer of fume cupboards, for an estimated total consideration of £7.7m, net of £0.7m cash acquired. The initial consideration is £5.5m, of which £5.3m is cash and £200k in ordinary shares. A further £2.9m cash payment is due shortly after completion. The total cash consideration will be funded by the group’s existing cash resources and revolving credit facility, highlighting SDI’s balance sheet strength. The acquisition is expected to be broadly neutral to FY22 profit but earnings enhancing from FY23. We therefore make a minor adjustment to our FY22 forecasts, with an 11% uplift to our fully adjusted operating profit for FY23E.

Acquisition of Safelab Systems Limited

ZOO has provided an update on current trading for the full year ending 31 March 2022. Strong business momentum has continued since the update on 26 January. Management notes that revenue is being driven by the rapid international roll-out of streaming services, and also through increased market share from its new service offerings and customer take-up for its dubbing service. The full year is now expected to be ahead of previous guidance; we increase FY22E revenue by 14% to $65m and adjusted EBITDA by 26% to $6.8m. This represents a 65% increase in revenue over FY21, with around $10m attributed to one-off regional launches of streaming services. We expect the current strength to continue into FY23E, and upgrade both FY23E revenue and EBITDA, by 10% and 14%, respectively. We also introduce FY24E estimates.

Strong full-year trading update

Tern, the AIM-listed specialist in the acquisition and development of
Internet of Things (IoT) technology businesses, has delivered a strong set of
full-year results. This marks a very successful year across all financial
performance metrics but also in terms of attracting additional third-party
investment and significantly de-risking the business, with Device Authority
now below 50% of the portfolio. Tern reported 35% growth in total net
assets to £32.4m (2020: £24.0m), with NAV per share increasing 26% to 9.2p
(2020: 7.3p). The main valuation driver was a £4.7m uplift in the value of
Tern’s investment in Wyld Networks to £8.7m, following the successful IPO.
This in essence represents an exit of Wyld Networks, with access to capital
in the future. Tern invested £2.5m across its network in the period, to
support two value-enhancing syndicated equity raises (plus another post
period). The £4m equity raise in July 2021 has significantly strengthened
Tern’s balance sheet, with £2.0m cash held at the year-end.

Strong full-year results

Tern has agreed to participate in a new venture capital fund, the Sure Valley
Ventures UK Software Technology Fund (New SVV Fund). The fund is
expected to complete its first close with £85m of investment, of which £50m
will be from the British Business Bank (BBB) with the balance from other
investors. Tern’s £5m investment will be drawn down in tranches over the
10-year life of the fund, with only £90k on the first close. In our view, this
broadens Tern’s exposure to early-stage private UK technology companies
with only a modest capital commitment. SVV has a track record of
developing a portfolio of technology investments, delivering both cash
returns and a steady flow of upward revaluations. We believe that Tern’s
participation will achieve attractive financial returns while also expanding
its pipeline of technology businesses to add to its network of companies,
with the potential for additional commitments over and above investments
made through the New SVV Fund.

Participation in a new venture capital fund

Tern has announced an update on its portfolio. The update follows recent successful fundraises that are already starting to bear fruit in terms of growing monthly recurring revenues, a key metric used in exit valuations. This should in turn maximise shareholder value, with Tern constantly evaluating the appropriate time to divest investees rather than focusing on a set timeframe. In late 2021, Tern introduced an important strategic investor, Venafi, to Device Authority and undertook a value-enhancing funding round for Konektio (previously InVMA) at a 44% uplift, followed in February 2022 by a further funding round for Talking Medicines at a 62% uplift. Tern’s investment in Wyld Networks has more than doubled since Wyld’s IPO in July 2021, providing access to capital and an exit strategy over time. Today’s announcement highlights further significant progress across the portfolio and new contract wins. We look forward to further positive announcements in due course.

Positive portfolio update

Tern’s portfolio company Talking Medicines, the digital health data
company, has announced a successful £1.59m fundraise at a significant
uplift to Tern’s book valuation. The announcement demonstrates the
success of the group’s investment strategy, delivering value from the
portfolio and reducing dependence on Tern for future funding. Tern’s
holding in Talking Medicines’ equity has increased from 23.4% to 23.8%,
with a book value of £1.79m, up 62% on the amount invested by Tern since
November 2020.