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  • Writer's pictureMark Watson-Mitchell

Taking a bullish ‘small-cap’ look at KAPE, MPE, ELIX and SWG

Kape Technologies (LON:KAPE) – a significantly undervalued growth stock

Yesterday’s announcement of the final results for 2021 from my favourite cyber technology group, showed that its revenues had exceeded even its own management’s expectations.

They came in 89% higher at $230.7m ($122.2m), while its adjusted pre-tax profits were 136% better at $72.8m ($30.1m). Earnings came in 121% to the fore at 29.8c (13.5c) per share, with no dividends paid. Its margins improved from 31.9% to 33.8%.

In the year it grew its subscriber numbers from 2.52m to 6.57m.

What I really liked to see was the fact that its annual recurring revenue was up another 5% at an impressive 92% at the year-end. That really does underpin the profitability, earnings predictability and growth potential of the group.

This is an excellent example of a group using its quotation to expand and grow.

Reflecting acquisitions and fundraising during the year, the actual earnings per share growth this year will be somewhat slower.

Analyst Caspar Erskine, at the group’s brokers Singer Capital Markets, is estimating that the current year will see revenues more than double again to $618.5m, generating doubled pre-tax profits of $159.1m, worth 39.2c in earnings per share.

For next year he sees $690.7m sales, $181.7m profits and 44.6c earnings.

Understandably he rates the group’s shares as a ‘buy’ looking for a price objective of 500p a share.

Yesterday the shares eased on profit-taking, to fall back 30p to close at 400p, on the back of some 600,000 shares traded.

I stay firmly with my most recent price aim – this group is a classic growth stock and still significantly undervalued.

(Profile 21.12.20 @ 172p set a Target Price of 215p*)

(Profile 01.11.21 @ 402.5p set a Target Price of 600p)

MP Evans (LON:MPE) – edging high enough to take part or all of profits to date

This sustainable Indonesian palm oil group yesterday declared a great set of figures for its 2021 financial year.

They reflect much higher spot prices feeding through from the commodity markets.

They showed revenues up from $174.5m to $276.6m, pre-tax profits up from $28.44m to $112.5m and giving earnings up from 37.4c to 158.4c per share.

Dividends per share come out at some 35p for the year.

It appears that the group’s board takes the view that sustainable palm oil, as a high-yielding and low-cost product, will continue to offer attractive returns, and that prospects for the group remain bright.

The company reckons that the current share price levels do not reflect the value and cash generation of the business, so it will look to reinstate its share buyback programme.

Analysts Raymond Greaves and Michael Clifton, at brokers finnCap, estimate that the group will push up its sales to $295m this year, to end December, with $97.7m profits, worth 129c per share in earnings, with an unchanged dividend.

But that is based upon current pricing levels.

They rated the results as a bumper showing, and duly increased their share price objective up to 1100p a share.

The shares closed last night at 965p, with some 100,000 shares transacted during the day. They touched 1021p at the best yesterday, so they will be back up there again soon.

At which level I would suggest holders start to look for a part or total exit just above the 1000p mark.

(Profile 31.07.20 @ 540p set a Target Price of 700p*)

Elixirr International (LON:ELIX) – a strategic deal ups profit guidance

It wants to be the best consulting firm in the world, its acquisition and corporate expansion strategy shows its determination.

With a global presence covering 16 main industry sectors in over 25 countries its reach now spreads across Europe, Africa, North America and Australasia.

Last Friday the group announced its latest acquisition, that of the US-based iOLAP technology and data firm for £30.4m.

To Elixirr’s wide offering the new company brings specialist data and analytics capabilities, including artificial intelligence and machine learning. There is an existing demand for such services from its clients.

The announcement of the deal was coupled with an update for the current year to end December 2022, even though last year’s figures have not yet been revealed.

The group updated its guidance for 2022 to reflect its current expectation, including some nine months' impact of the acquisition. Revenue should be in the range of £70 -75m, with an adjusted EBITDA margin in the range of 27-28%.

Analyst Guy Hewett, at brokers finnCap, is going for the 2021 estimated revenues of £50.5m (£30.3m) and pre-tax profits of £14.6m (£8.7m), worth 23.4p in earnings (16.0p) and a dividend of 4.1p per share (2.2p).

Now, after this guidance, his estimates for 2022 are £72.5m sales, £18.9m profits, 28.5p earnings and a 4.7p dividend per share.

Accordingly, Hewett upped his firm’s price objective to 859p a share.

Last night they closed at 697.5p, after minimal dealings.

At that price and allowing for the imminent growth I would suggest that holders stay firmly with the shares.

(Profile 21.09.20 @ 227p set a Target Price of 285p*)

Shearwater Group (LON:SWG) – new contract brings about the setting of a new Target Price

In a few weeks we should be getting a Post Close Trading Update from this cybersecurity, advisory and managed security services.

Late last week the group reported a significant $4.1m contract win from an existing financial services customer requiring a new zero-day attack prevention system.

Analyst Simon Strong at Cenkos Securities is estimating that the current year, ending 31 March, will show £34.0m revenues (£31.8m) and a fractional loss of just £0.3m (£nil). After tax generation enables a guesstimate of 11.4p per share in earnings (10.4p) but no dividends.

He goes for £37.4m this year of sales and a recovery to an adjusted pre-tax profit of £0.5m, worth 13.8p per share in earnings and again no dividend.

In rating the group’s shares as a ‘buy’ Strong suggests that they have a ‘fair value of over 200p each.

I have not covered myself in any glory, as yet, in having Profiled the company almost two Covid-19 years ago.

However, I now seek to offer some recompense to readers – by suggesting that Shearwater Group shares, currently at 118p, are heading a great deal higher.

My new Target Price is an easy 145p.

(Profile 14.04.20 @ 245p set a Target Price of 310p)

(Asterisks * denote that Target Prices have been achieved since Profile publication)


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