7 pages - Allenby Capital

COMPANY NOTE
Results
15 April 2015
FOX MARBLE HOLDINGS PLC (FOX.L)
N/A
Current price
20.5p
Sector
FY 2015: a key year for building the order book
Basic Resources
Code
Fox Marble Holdings Plc (‘Fox’ or ‘the Company’ ) the marble quarrying,
processing and distributing business operating in South-East Europe, has this
week announced its final results for the year ended 31 December 2014.
Financials were in line with expectations, with the modest revenue figure of
€0.15m having already been declared to the market in a pre-close statement in
January. The significant news items included the status of the Company’s
order book and the ongoing construction of its processing factory in Pristina,
Kosovo. Having received a modest-sized order for polished slabs from a
division of Berkeley Homes Plc in January, we are encouraged that further
orders have been placed by the customer for Fox’s marble with a total value of
€0.57m. Fox’s FY 2015 order book now amounts to circa €2m, and in excess
of €2.8m inclusive of orders beyond FY 2015. We believe that the order book
will continue to expand rapidly over the next two years. Importantly, the
processing factory – which will boost revenues and margins substantially – is
also entering into the final stages of construction.
(FOX.L)
Listing
AIM
SHARE PERFORMANCE
(p)
30.0
(K)
2,500
2,000
20.0
1,500
1,000
10.0
500
0
May-13
0.0
Oct-13
Mar-14
Aug-14
Volume (LHS)
—FOX.L
Jan-15
Price (RHS)
1m
3m
12m
17.1%
12.3%
(7.3%)
–
Source: Thomson Reuters, Allenby Capital
SHARE DATA
Market cap
£30.72m
Shares in issue
149.85m
52 weeks
High
Low
26.25p
15.38p
Financial year end
–
31 December
Source: Company Data, Allenby Capital
–
KEY SHAREHOLDERS
Dr Etrur Albani (MD)
13.19%
Mr Christopher Gilbert (CEO)
12.88%
Mr Dominic Redfern
8.03%
Majedie Asset Management Ltd
6.86%
Standard Life Investments Ltd
5.90%
Artemis Investment Management
LLP
5.75%
Source: Thomson Reuters
The numbers – in line with expectations: results were largely in line with our
forecasts, with revenues of €0.15m and an operating loss of €2.12m. The pre tax
loss improved marginally yoy to €2.33m (FY 2013: pre tax loss of €2.57m). Cash
at year end was €4.70m, whilst inventories increased to €1.57m.
The quarrying – extraction rate accelerating: in FY 2014 the Company’s four
operational quarries – Cervenilla, Syrigane, Malesheva and Prilep – produced over
14,000 tonnes of block marble. This was an increase of circa 600% on FY 2013’s
total of circa 2,000 tonnes. Two large chain saws have been procured which will
assist in accelerating production further. We maintain our expectations that a
further two sites will be opened by end 2015. As such, we feel that management’s
stated production target of 25,000 tonnes in FY 2015 is readily achievable.
The processing – factory nearing completion: the long awaited factory that has
been under construction since March 2014 is at last nearing completion. This is a
key aspect of Fox’s business model: the factory will enhance both revenues and
margins substantially once in operation, as there is a disconnect between the
market price of polished ‘slab’ marble and the costs involved to produce it. The
building will be complete within five working days from now (weather permitting),
after which the equipment will be shipped from Italy for installation. Post
commissioning, we envisage the factory to be in operation within Q3.
EXHIBIT 1: SUMMARY OF FINANCIALS
Y/E December (€'000)
REVENUE
YOY GROWTH
OPERATING PROFIT
Myles McNulty
+44 (0)20 3328 5656
MARGIN
PRE TAX PROFIT
MARGIN
m.mcnulty@allenbycapital.com
EPS (BASIC) (P)
www.allenbycapital.com
P/E RATIO
2013A
2014A
2015E
2016E
46
150
6,789
21,877
na
224.5%
4428.3%
222.2%
(2,168)
(2,116)
1,679
13,118
na
na
24.7%
60.0%
(2,569)
(2,325)
1,561
11,638
na
na
23.0%
53.2%
-1.60
-1.24
0.75
5.59
na
na
27.3
3.7
Source: Company data, Allenby Capital
EQUITY RESEARCH
This document should be classified as marketing communication and all required disclosures appear on the last page of the
report. This research is intended for UK institutional investors only. It is not intended for retail customers and any retail
customers should seek professional, independent advice before investing. Additional information is available upon request.
–
Five partnerships now in place with established
industry players across the globe
Having secured a modest order from St George in January for cut and polished
Argento Grigio marble for installation in 50 apartments in the Chelsea Creek
development in London, Fox announced last week that it had received a second,
substantially larger order from the same customer with a value of €0.57m.
Recent significant order received from a high
end UK house builder
Small scale orders recently received from
customers in Egypt
Moreover, a number of initial small scale orders have been received from and
fulfilled for Egyptian based customers for Rosso Cait marble, one of the
Company’s core ranges from its Cervenilla quarry.
Fox has now distributed samples and marketing materials across over twenty
countries throughout the Middle East, Europe and Asia: we are confident that
further orders with new customers will be announced throughout 2015.
Samples of Fox's products have been
distributed in over 20 countries across the
Middle East, Europe and Asia
–
Growth in top line now a priority
Order book currently amounts to €2.8m, €2.0m
of which will be recognised in FY 2015
Minimum of a further €2.35m to €4.7m of
revenues to be generated through the sales
agency agreement with China based ZSC
The order book – rapidly gaining momentum: in our Initiation Note we
highlighted how Fox had enjoyed a strong final quarter in FY 2014 in terms of
building its order book, with agreements of varying structures having been
entered into with no less than five established partners across the globe (see
p.24 of Initiation Note, hosted on Allenby website). Since publication of the note,
the Company has won a new, prestigious UK customer, namely St George Plc, a
division of leading British house building company, Berkeley Homes Plc.
The forecasts – looking readily achievable: with the Company’s central
overheads now having been largely established, growth in the top line is of
primary importance over the next 18 months. Our revenue forecast for FY
2015 is presently €6.8m. The Company has announced that its current order
book amounts to €2.8m, with €2.0m of that to be recognised in FY 2015 (and
the balance of €0.8m to be recognised in FY 2016).
However, we note the following: i) the Company announced in its pre-close
statement in January this year that its FY 2015 order book already amounted to
a minimum of €1.5m; and ii) the announcement last week referred to the
further €0.57m order increasing Fox’s order book to in excess of €2.0m for FY
2015.
The Company stated in January that the quoted order book did not include any
booked revenues from the sales agency agreement entered into with Zhong
Shengdestone Co., Ltd (‘ZSC’) in December last year.
ZSC supplies to a major processor of block
stone in China; we therefore feel the minimum
order of 10,000 tonnes (which represents 40%
of Fox’s target production in FY 2015) under
the agreement could easily be surpassed
The Beijing, China based company has been granted the exclusive rights by Fox
to sell its block marble in China. The agreement is for an initial 12m period and
is conditional on ZSC selling a minimum of 10,000 tonnes pa. ZSC is a
procurement company for Hong Xing Stone Group, a major Chinese integrated
stone company with operations ranging from quarrying to processing to
construction. Hong Xing processes 1.5 million m² of stone pa at its Beijing
branch alone. There is thus evident ample scope for ZSC to surpass the
minimum tonnage.
ZSC might also purchase Fox’s marble on its
own account
The minimum sales quantity under the arrangement would equate to revenues
for Fox of between $2.5m to $5.0m pa. Furthermore, ZSC has stated to Fox
that as well as acting as sales agent, it intends to purchase block product on its
own account.
We are confident that our sales forecast of
€6.8m for FY 2015 will be readily achieved
2
Given that only a little over a quarter of the financial year has passed, circa 30%
of our revenue forecast has already been booked, and the agreement with ZSC
is set to generate, at the very minimum, a further €2.35m, we are comfortable
that our target of €6.8m for FY 2015 will be achieved.
–
Forecasts for FYs 2015-16 reset, based on FY
2014 numbers: EBIT and EPS forecasts
decrease marginally
Forecasts reset; fair value for shares maintained at 49p: we have reset our
forecasts for FYs 2015-16 based now upon the FY 2014 numbers, but have left
all of our assumptions unchanged. Operating costs increase marginally, with
resultant declines in EBIT for FY 2015 of 12.0% and for FY 2016 of 2.1%; and
in EPS for FY 2015 of 13.8% and for FY 2016 of 3.8%.
Fair value market cap. of £73.4m
We leave our fair value for shares as set out in our Initiation Note unchanged at
49p. This implies a fair value market capitalisation of £73.4m.
–
Company to attain profitability by year end
Concluding remarks: Fox has a robust balance sheet with uncommitted cash of
€3.70m as at end December (€1.0m of year end cash has been earmarked for
further factory capex). We believe that even through the sale of only block and
3rd party processed marble, the Company will be able to attain profitability by
year end. The commissioning of the processing factory and ramp up in
operations at some point in H2 should hasten the arrival of the breakeven point.
Investment proposition de-risked with each
new order won
Fox’s shares have enjoyed increased volume in trading this week on the back of
the recent market update and yesterday’s publication of the final results: the
share price has rallied 18.8% in the past week alone. Nevertheless, we feel that
Fox has now truly left its start up phase behind and is on the road to developing
into an established player in the marble market not only in South-East Europe
but on the global stage.
FOX MARBLE HOLDINGS PLC (FOX.L) 15 April 2015
ALLENBY CAPITAL
The investment proposition is de-risked further with each new order won at this
stage in Fox's development. We believe that – notwithstanding the presence of the
still significant operational and geopolitical risks – the market will shortly wake up
to the potential underlying Fox’s growth profile.
3
EXHIBIT 2: SUMMARY FINANCIALS (€’000)
INCOME STATEMENT
FY 2014A
FY 2015E
YEAR END: 31 DECEMBER
FY 2016E
Gross revenue
46
150
6,789
21,877
Growth
na
224.5%
4428.3%
222.2%
Royalty
-
-
(611)
(767)
as a % of sales
na
na
9.0%
3.5%
Net revenue
46
150
6,178
21,109
Administrative and operating expenses
(2,198)
(2,254)
(4,153)
(7,546)
Quarrying, processing and transportation costs
Central overheads
Professional, legal, auditor, consultancy fees
(572)
(1,146)
(480)
(678)
(1,262)
(314)
(2,326)
(1,497)
(330)
(5,541)
(1,659)
(346)
(17)
(12)
(345)
(445)
(2,168)
(2,116)
1,679
13,118
na
na
24.7%
60.0%
(401)
(209)
(118)
(1,480)
(2,569)
(2,325)
1,561
11,638
na
na
23.0%
53.2%
Depreciation and amortisation
EBIT
EBIT margin
Financing
Profit / (loss) before tax
PBT margin
Tax
-
-
(156)
(1,164)
na
na
10.0%
10.0%
(2,569)
(2,325)
1,405
10,475
na
na
20.7%
47.9%
(2,569)
(2,055)
(2,325)
(1,860)
1,405
1,124
10,475
8,380
EPS (€) basic
EPS (€) diluted
-0.02
-0.02
-0.02
-0.02
0.01
0.01
0.07
0.07
EPS (p) basic
EPS (p) diluted
-1.60
-1.60
-1.24
-1.22
0.75
0.74
5.59
5.50
na
na
27.3
3.7
Tax rate
Profit / (loss) after tax
PAT margin
Total comprehensive income for the period (€)
Total comprehensive income for the period (£)
P/E Ratio
Source: Company data, Allenby Capital
4
FY 2013A
EXHIBIT 3: SUMMARY FINANCIALS (€’000)
BALANCE SHEET
YEAR END: 31 DECEMBER
FY 2016E
FY 2013A
FY 2014A
FY 2015E
Non-Current Assets
Property, plant and equipment
Intangible assets - capitalised mining costs
Receivables
2,073
1,922
91
60
4,724
3,315
1,346
64
7,490
6,104
1,322
64
9,371
8,009
1,298
64
Current Assets
Trade and other receivables
Inventories
Cash and cash equivalents
6,534
926
349
5,259
7,189
917
1,570
4,701
6,032
1,697
1,570
2,765
13,672
3,282
1,570
8,820
TOTAL ASSETS
8,607
11,913
13,522
23,043
(1,297)
(1,297)
(1,480)
(1,480)
(1,480)
(1,480)
-
Current Liabilities
Trade and other payables
(462)
(462)
(378)
(378)
(582)
(582)
(1,108)
(1,108)
NET CURRENT ASSETS
6,072
6,811
5,451
12,564
(1,759)
(1,857)
(2,061)
(1,108)
6,848
10,056
11,461
21,935
1,540
16,486
56
36
(11,270)
1,871
21,662
82
36
(13,595)
1,871
21,662
82
36
(12,190)
1,871
21,662
82
36
(1,716)
6,848
10,056
11,461
21,935
FY 2013A
FY 2014A
FY 2015E
FY 2016E
Short Term Financial Debts
Long Term Financial Debts
Gross (Debt)
(1,297)
(1,297)
(1,480)
(1,480)
(1,480)
(1,480)
-
Cash and Cash Equivalents
Net (Debt) / Cash
5,259
3,962
4,701
3,221
2,765
1,285
8,820
8,820
ASSETS
FOX MARBLE HOLDINGS PLC (FOX.L) 15 April 2015
ALLENBY CAPITAL
LIABILITIES
Non-Current Liabilities
Convertible loan notes
TOTAL LIABILITIES
NET ASSETS
EQUITY
Share capital
Share premium
Share based payment reserve
Other reserve
Retained earnings / (losses)
TOTAL EQUITY
BALANCE SHEET RATIOS
Source: Company data, Allenby Capital
5
EXHIBIT 4: SUMMARY FINANCIALS (€’000)
CASH FLOW STATEMENT
FY 2014A
FY 2015E
Profit / (loss) before tax
(2,569)
(2,325)
1,561
11,638
Adjustments for:
Finance income
Finance costs
Operating profit / (loss)
(0)
401
(2,168)
209
(2,116)
118
1,679
13,118
Adjustments for:
Depreciation
Amortisation
Share based payment charge
Exchange gains on cash and cash equivalents
Operating profit before movements in working capital
103
2
41
(2,022)
393
2
26
(95)
(1,790)
321
24
2,025
422
24
13,563
Adjustments for:
Decrease/(increase) in trade and other receivables
Decrease/(increase) in inventory
Increase/(decrease) in trade and other payables
Increase/(decrease) in accruals
Cash generated from / (used in) operations
(804)
(349)
32
232
(2,911)
5
(1,222)
(4)
(81)
(3,091)
(780)
204
1,449
(1,584)
(953)
11,026
Corporation tax paid
Net cash generated from / (used in) operations
(2,911)
(3,091)
(156)
1,293
(1,164)
9,862
Expenditure on PPE
Expenditure on acquisition of mining rights / licences
Net cash flow from investing activities
(1,406)
(1,406)
(1,786)
(1,256)
(3,043)
(3,111)
(3,111)
(2,327)
(2,327)
2,731
0
(105)
(193)
2,433
5,507
(27)
5,481
(118)
(118)
(1,480)
(1,480)
(1,885)
(653)
(1,936)
6,055
7,144
(0)
5,259
5,259
95
4,701
4,701
2,765
2,765
8,820
Proceeds from issue of share capital (net of costs)
Interest income
Interest cost
Finance cost on retirement of convertible loan note
Net cash flow from financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Effects of foreign exchange rate variation
Cash and cash equivalents at end of period
Source: Company data, Allenby Capital
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YEAR END: 31 DECEMBER
FY 2016E
FY 2013A
ALLENBY CAPITAL
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No personal recommendation is being made to you; the securities referred to may not be suitable for you and should not be relied upon in substitution for the exercise of
FOX MARBLE HOLDINGS PLC (FOX.L) 15 April 2015
DISCLAIMER
independent judgement. Neither past performance nor forecasts are a reliable indication of future performance and investors may realise losses on any investments.
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RESEARCH RECOMMENDATION DISCLOSURE
Myles McNulty is the author of this research recommendation. Myles is employed by Allenby Capital Limited as an Equity Analyst.
Tel: 020-3328-5663
Email: m.mcnulty@allenbycapital.com
Unless otherwise stated the share prices used in this publication are taken at the close of business for the day prior to the date of publication.
* denotes that Allenby Capital acts as an Adviser to the Company
Information on research methodologies, definitions of research recommendations, and disclosure in relation to interests or conflicts of interests can be found at
www.allenbycapital.com
Allenby Capital
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www.allenbycapital.com
7