hVIVO gathered momentum in the first half of 2024 achieving a 30.6% increase in revenue to £35.6 million compared to £27.3 million in the same period last year.

The company’s EBITDA margin has also seen a significant boost, rising to approximately 24% from 19.1% in H1 2023. This improvement is attributed to enhanced operational efficiencies and better utilisation of quarantine facilities.

UK Investor Magazine recently included hVIVO in our ‘Four UK Small Cap Growth Shares to Watch Summer 2024’. Today’s results highlight just why we included hVIVO.

The combination of higher revenue and operational strength saw hVIVO reaffirm its full-year revenue guidance of £62 million. hVIVO has set a medium-term revenue target of £100 million by 2028.

Investors will be pleased to see the company’s contracted orderbook at £71 million as of 30 June 2024, providing good visibility into 2025. Notably, 100% of the full-year 2024 revenue guidance is already contracted.

hVIVO’s new facility in Canary Wharf is now fully operational, positioning the company for future growth. This state-of-the-art quarantine facility offers increased capacity and containment level 3 capability, allowing hVIVO to expand its core human challenge trial offering to include new pathogen models.

hVIVO continues to diversify its service offering, which is expected to positively impact growth and margins. New services include Phase II and Phase III field studies, volunteer recruitment services, and standalone hLAB services.

In a significant development, hVIVO recently secured its largest field study contract to date. The company has been selected as the sole UK clinical site for a multicentre study, with plans to enrol up to 1,000 volunteers.

“The results of H1 2024 reflect the hard work, flexibility and commitment of the team. During a period of significant activity including the build-out and move to a new facility, we have not only materially increased our revenue but also further improved our margins. The concurrent running of three different facilities helped to boost our revenues for H1 2024, creating an expected H1 2024 weighting,” said Yamin ‘Mo’ Khan, Chief Executive Officer of hVIVO.

“We have full visibility over our expected 2024 revenues and continue to deliver on our sustainable growth strategy. The orderbook remains strong in spite of record revenue delivery in H1 2024. The recent Omicron characterisation study contract and the award of our largest field study to date are two key sales highlights for H1 2024. In addition, the current sales pipeline includes several advanced stage opportunities that we expect to convert in the coming months.  

“The outlook for hVIVO is positive as we welcomed our first volunteers into our new facility at Canary Wharf – the world’s largest human challenge trial unit. I believe we have laid the foundations for strong performance in the months and years ahead.”

Spectra Systems Corporation, a leading provider of high-speed banknote authentication and security technologies, has announced an agreement worth £29.7 million to manufacture sensors for an existing central bank customer.

Spectra Systems shares were 13% higher on the back of the news on Tuesday.

The contract is expected to expand further, with an additional £1.3 million tranche anticipated later this year upon signing of the related manufacturing agreement. This would bring the total value of the sensor manufacturing contract to £31 million.

Revenue from this substantial deal is projected to be recognised from the first quarter of 2025 through the fourth quarter of 2027, with additional manufacturing contract revenues of about £3.5 million expected to continue until 2029.

“This long-awaited contract for the third generation of sensors follows after over $14.8 million of development funding by our customer and reflects both the continued need for banknotes as well as the trust our customer has in Spectra Systems,” said Dr. Nabil Lawandy, Chief Executive Officer.

The FTSE 100 dropped on Tuesday as several disappointing company-specific developments culminated to offset any positivity investors may have had after hearing dovish comments by Fed Chair Powell overnight.

Utilities companies United Utilities and Severn Trent dropped on concerns around regulatory action, Rio Tinto’s recent production underwhelmed sending shares lower, and Burberry continued the sell-off amid concerns about the luxury sector.

London’s flagship index was down 0.5% at 8,140 at the time of writing.

“The FTSE 100 took a step back after the index was dragged down by Rio Tinto and Experian,” says Dan Coatsworth, investment analyst at AJ Bell.

“Rio Tinto disappointed with its latest production update, with iron ore the biggest worry area after a weak quarter for output. Experian’s update was generally fine but didn’t deliver the earnings upgrades needed to justify its premium stock rating, leaving investors a tad miffed. It also didn’t help that chief operating officer Craig Boundy handed in his notice as he’s got a new job running McAfee.”

Rio Tinto’s update weighed on the rest of the mining sector already under pressure after a string of soft China economic data releases. Rio Tinto fell 3.3% while Glencore dropped 2.2%.

United Utilities and Severn Trent

United Utilities and Severn Trent were down 2.8% and 2.7%, respectively, after Ofwat, the UK’s water regulator, announced an industry-wide investigation into sewage spills.

“Shares in United Utilities and Severn Trent have fallen as it was revealed they are facing enforcement cases brought by the regulator Ofwat. The action stems from analysis by Ofwat of their environmental performance in particular how regularly sewage is discharged via storm overflows,” said Susannah Streeter, head of money and markets, Hargreaves Lansdown

“Ofwat is showing more teeth following the huge public outcry about the amount of pollution in the UK’s waterways. Bringing an enforcement case means that Ofwat is concerned that the companies have failed to meet their obligations. A detailed investigation will follow to determine if contraventions have occurred and what measures they may have to take to clean up their act. If there are serious breaches fines could follow.”

Although the index was firmly in the red, there were some positive stories for investors on Tuesday.

B&M gained 5% after revealing sales growth across all regions as shoppers persisted with budget options amid the cost of living crisis.

“B&M’s trading update is a bit of a mixed bag,” said Mark Crouch, analyst at investment platform eToro.

“A steady increase in revenues helped by higher volumes across its businesses indicates the discount retailer is on course to achieve cash generating growth across the full financial year. However, B&M’s UK like-for-like revenue was down 3.5%, with increasing competition throwing a spanner in the works. 

“B&M, who sell a wide range of household items, managed to capitalise during the cost-of-living crisis, offering household brands at cheaper prices as more consumers turned away from big name stores in pursuit of value. However, with inflation cooling in recent months, rivals are pushing back.

Ocado shares jumped on Tuesday after reporting first-half results, which were cheered by investors who have become increasingly pessimistic about the company after a number of setbacks in rolling out its technology business this year.

Ocado saw group revenue rise 12.6% to £1.5bn in the first half with all business units enjoying an uptick in sales. The group’s technology solutions experienced the largest increase in revenue on a percentage basis (21.8%) while Ocado Retail added the most in monetary terms.

After what has been a tough year for Ocado shareholders, there was a glimmer of hope for the future, with profitability and cash generation metrics improving.

“It’s been a tough year for Ocado shareholders, seeing the price get slashed by half as the firm contends with the grocery market’s stuttering post-pandemic recovery and high food inflation,” said Adam Vettese, analyst at investment platform eToro.

Ocado shares were 16% at the time of writing and touched the highest point since March, making Bernstein’s downgrade yesterday to ‘underperform’ with a price target of 250p look a little premature.

Ocado’s Adjusted EBITDA rose to £71.2m from £16.6m in the same period last year. This is a notable improvement in EBITDA, but it still requires a sharp uplift to quell any questions about the company’s valuation.

Looking forward, the company was upbeat about cash generation and said it expected the group to be cash flow positive in 2026FY. It also increased its EBITDA outlook for the year. 

Many focus on Ocado’s Retail business where there was improvement in sales. However, it’s the technology business that has afforded the stock a higher multiple than retailing peers, and investors will be quietly confident today’s numbers validate the investment thesis.

“Future growth relies on its so-called Technology Solutions business, where Ocado charges third-party retailers to use its robotic systems,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown

“Hundreds of thousands of orders are processed each week with the help of its automated bots scurrying around the trademarked grid system. While this side of the business saw cash profit guidance raised, overall group growth of late hasn’t been as fast as markets had hoped. Some retail partnerships have been paused or delayed this year, denting Ocado’s growth plans and leading to certain high-profile analyst houses downgrading the stock as a result.”

Adverse cost pressures, particularly in copper material price rises, which have hit the £10m capitalised Strip Tinning Holdings (LON: STG),will now materially impact revenue and profitability in the current financial year, with the company expecting FY24 and FY25 financial performance to be behind market expectations.

This morning the group has guided that it now expects that for FY 2024, revenues will be approximately £9.1m and that the adjusted EBITDA loss will be £1.9m.

The Business

Supplied in high volumes, Strip Tinning products are used by most major vehicle OEMs, with a bias towards the premium end of the market and EVs, as these vehicle types typically have more sophisticated electronic features.

Typical applications are sports and luxury cars, trucks, off-highway vehicles, new vehicle types such as autonomous shuttles, motorcycles, and even Electric Vertical Take Off and Landing (eVTOL) aircraft.

Strip Tinning has four major product groups, all serving the automotive electrical connector market – its Glazing segment is made up of Busbar and Connectors, whilst the Battery Technologies segment contains Flexible Printed Circuits (FPC) and Cell Contacting Systems (CCS).

Busbar – ultra fine gauge plated metals such as tinned copper strip to provide a circuit for electrical connections in a vehicle and Tungsten wire used for heating elements.

Connector types include cable connectors, flat foil connectors, and, increasingly, FPC connectors. These connectors provide a broad range of functionality from heated windscreens to antenna GPS / FM / TV digital signal reception and internet access, emergency response, camera and Radar / Lidar systems and “smart glass” applications for tinting, solar power generating glass, and embedded LED lighting.

FPC are circuits printed onto a flexible substrate, allowing the circuit to tolerate flexing during use as well as being thinner, lighter and simpler to install. The use of this technology is well established across all forms of electrical equipment, including in the automotive sector.

CCS, large, sophisticated electrical connectors for batteries. The CCS electrically connects the cells and provide monitoring of the cells for charge (efficiency) and temperature (safety).

The CCS can be used with battery packs for a great range of applications, including truck, off-highway, and static power applications

Currently, 90% of Strip Tinning product is exported (with the majority of the balance destined for export) to over 30 countries, including China, South Korea, Japan, Mexico, and Morocco.

Management Comments

In the April issued Report & Accounts, CEO Richard Barton had previously stated that:

“We believe that 2024 will be a formative year for the business with a strong focus on preparing for profitable delivery of the nominations already received as they ramp up in in 2025 and maintaining the investment needed to maximise our success in converting the strong Battery Technologies and Glazing sales pipeline we have before us to secure the nominations that will return us to significant growth from 2025.”

This morning Executive Chairman Adam Robson stated that:

“The two Glazing and one major Battery Technologies nominations in the first half of the year have secured our medium-term growth plans through to 2026, by which time we expect to have doubled the sales of the Company. 

In the short-term, the sector-wide headwinds we are currently facing are clearly frustrating.

That said, our nominations, extensive industry experience, ever improving productivity and strong customer relationships give us confidence in improved margins and further growth as customer confidence returns and as further new nominations are secured.”

Analyst View

Caroline de La Soujeole at Singer Capital Markets still rates the group’s shares as a Buy, but with a lower Price Objective of 65p (75p) a share.

The analyst considers that:

“For the patient investor, willing to look through short-term volatility in performance, there is a strong rationale for owning the shares given expectations of a much-improved trading performance from FY26 onwards with delivery of the Glazing & Battery Technologies order book supporting significant potential shareholder value creation.”

This morning the group’s shares have responded to the adverse news, by easing 25% to 38.50p.

The FTSE 100 was marginally lower on Monday despite the attempted assassination of Donald Trump threatening volatility in equities markets as trade got under way.

London’s leading index did fall materially in the early minutes of trade but made a respectable recovery as the session progressed and was down just 0.2% at the time of writing.

“Markets were surprisingly calm given the assassination attempt on US presidential candidate Donald Trump,” says Dan Coatsworth, investment analyst at AJ Bell.

“While equities saw a small pullback in parts of the world, there was no panic on the markets as a result of the weekend of violence.”

The biggest drag on the index stemmed from weak Chinese data released overnight that hit mining stocks heavily. Chinese GDP grew just 4.7% in the second quarter, missing analysts estimates of 5.1% and slower than growth of 5.3% in the first quarter.

“Investors are having to become accustomed to China running in second gear, a far cry from a decade ago when GDP growth was in the 7% region and when it was the envy of the world,” Coatsworth said.

“While 4.7% GDP growth is still better than many parts of the world, and certainly streets ahead of what the UK is currently managing, it is seen as failure in the context of China’s bold ambitions to be a superpower,

“Weaker economic activity has negative connotations for commodities demand, which in turn creates a less attractive backdrop for miners producing metals and minerals. That explains why Antofagasta and Anglo American were among the biggest fallers on the FTSE 100 on Monday.”

Antofagasta was down 3% and Anglo American dipped 1.7%.

Although the mining sector was the biggest drag on the index in terms of number of points, the impact of China’s luxury sector on Burberry’s sales meant the brand was by far the FTSE 100’s top faller on Monday.

Burberry shares were down over 16% at the time of writing after announcing retail revenue sank 21% in its first quarter, leading to a forecast of a first-half loss.

The Asian Pacific region, which includes China, saw retail sales plummet 23%, with Mainland Chinese sales dropping 21%. Japan was the only bright spot with sales gains of 6%.

“All of this led Burberry to suspend dividend payments, which is a desperate measure to preserve cash and fortify the balance sheet, indicating that fortunes aren’t expected to pick up in the near term,” said Aarin Chiekrie, equity analyst, Hargreaves Lansdown.

“Brand weakness extends beyond China, with Europe and the Americas also seeing double-digit revenue declines. There’s a lot of work to be done to make up for years of underinvestment in the brand. Unsurprisingly, the shares have taken a big hit in early trading. The new boss has a lot of work to do to steady the ship and prove to investors that calmer seas lie ahead.”

The dismal outlook for Burberry was compounded by another change in senior management as the CEO stepped down with immediate effect.