stock-1863880

Hitting it out of the ballpark

OTC Markets Group 24 November 2021 Update
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OTC Markets Group

Hitting it out of the ballpark

Q321 results

Financial services

24 November 2021

Price

US$58.75

Market cap

US$693m

Net cash ($m) at 30 September 2021

50.0

Shares in issue

11.8m

Free float

62.6%

Code

OTCM

Primary exchange

OTCQX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

16.9

30.6

69.5

Rel (local)

13.3

24.7

29.2

52-week high/low

US$60.00

US$33.53

Business description

OTC Markets Group operates the OTCQX, OTCQB and Pink financial markets for over 11,000 US and global securities. OTC Link LLC, a member of FINRA, operates OTC Link ATS and OTC Link ECN, both SEC-registered Alternative Trading Systems. Approximately 82% of revenues were of a subscription-based recurring nature in FY20 and 78% in Q321.

Next events

Q421 results

March 2022

Analysts

Karl Morris

+44 (0)20 3077 5700

Andrew Mitchell

+44 (0)20 3681 2500

OTC Markets Group is a research client of Edison Investment Research Limited

OTC Markets Group’s (OTCM’s) Q321 revenues were 20% ahead of our expectations, driven by trading (+22%), Market Data Licensing operations, which we consider to be a high-value business (+6%) and Corporate Services (+32%). Net acquisition of corporate clients has tempered marginally from Q221 but remains elevated, which bodes well despite a likely normalisation in trading activity. We raise our EPS forecast by 8% for 2021 and 14% for 2022. Management’s confidence prompted it to maintain the quarterly dividend at $0.18/share and to announce a special dividend of $1.50, and we expect the group to pay a similar special dividend in 2022.

Year end

Revenue ($m)

PBT
($m)

EPS*
($)

DPS**
($)

P/E
(x)

Yield
(%)

12/19

62.8

18.0

1.25

1.25

47.0

2.1

12/20

71.2

21.4

1.53

1.25

38.4

2.1

12/21e

97.9

35.6

2.33

2.19

25.2

3.7

12/22e

88.5

34.8

2.35

2.22

25.0

3.8

Note: *Fully diluted and calculated after restricted stock award allocation. **Including special dividends of 65c each year for FY19/20 and $1.50 for FY21e/22e.

Q321 summary: Boosted by Corporate Services

OTCM reported a very strong third quarter, with gross revenues of $25.2m, up 42% compared with Q320. Segmentally, this was led by OTC Link (+60%), which benefited from elevated US equity trading levels (albeit lower than Q221) and Corporate Services (+57%), with Disclosure and News Service (DNS) product driving the better-than-expected result. Expenses, including redistribution fees and transaction-based expenses, increased by 27%, reflecting volume-related costs and incentive compensation as well as increases in base salaries. This left pre-tax profit up 78% and, after a higher tax charge, diluted EPS increased by 68%.

Trading normalisation, but underlying trends positive

Following Q321, there are further signs that US equity trading activity continues to normalise, and we have assumed this in our forecasts. We reflect these trends in our estimates for OTC Link and, to some extent, Market Data Licensing. The positive trend in corporate clients joining OTCQX (561, up 6% quarter-on-quarter and 27% year-on-year) and OTCQB (1,067, up 5% quarter-on-quarter and 22% year-on-year) is likely to have longer-lasting benefits. We have increased our 2021 EPS estimate by 8%, which reflects a normalisation in trading but stronger corporate services revenue following the implementation of the Securities and Exchange Commission's (SEC’s) Exchange Act rule 15c2-11, while our 2022 estimate has increased by 14%, reflecting an increase in corporate services revenue forecasts that will also benefit from repricing in January 2022.

Valuation: Remains attractive

Following our estimate changes, the shares trade on a 2022e P/E of 25.0x, marginally above the average for global exchanges of 24.2x (see Exhibit 9). The multiples remain significantly below those of information providers (46.7x). The high proportion of subscription-based revenues and longer-term potential for the development of OTCM’s cost-effective markets are supportive factors.

Q321 results analysis

Exhibit 1 provides a summary of profit and loss figures, comparing the Q321 results with Q221 and Q320. In the comments below, we are comparing Q321 with Q320 unless stated.

Gross revenues were up 42% on Q320. While there was a decrease in revenue from OTC Link trading quarter-on-quarter (a FINRA member broker-dealer that operates two Securities and Exchange Commission (SEC) registered Alternative Trading Systems), the Corporate Services division, which in our view is the highest quality and thus implicitly the most highly valued component of OTC’s businesses, was up 16% relative to Q221.

Market Data Licensing (distributes market data and financial information) revenue increased by 18%, with the main contributor being the growth in non-professional users as retail participation in equity markets remained elevated. Growth in professional users and price increases were among the other factors at play.

Corporate Services (operates the OTCQX and OTCQB markets and offers issuers disclosure and regulatory compliance products) revenue growth of 57% was generated by a combination of strong additions in new clients for OTCQX and OTCQB markets (see Exhibit 2), price increases and an increasing number of companies subscribing to the group’s DNS product in order to comply with regulation 15c2-11.

Redistribution fees, which relate to market data services, grew by 8% and transaction-based expenses (payments for liquidity provision on OTC Link ECN) were up 172% as a result of higher transaction activities.

Operating expenses (before depreciation and amortisation) were up 21%, with the main contributors being personnel costs, and clearing and regulatory costs resulting from the expansion of ECN trading (see further detail in Exhibit 4).

At the pre-tax profit level, the increase was 78% to $9.7m, while a higher tax charge of 22.5% versus 18.1% left diluted earnings up 68% at $0.62 from $0.37.

Exhibit 1: Profit and loss analysis

$000s

Q320

Q221

Q321

% change
vs Q320

% change
vs Q221

OTC Link

3,816

7,682

6,110

60

(20)

Market Data Licensing

7,172

8,586

8,489

18

(1)

Corporate Services

6,759

9,182

10,621

57

16

Gross revenues

17,747

25,450

25,220

42

(1)

Redistribution fees and rebates

(689)

(746)

(744)

8

(0)

Net revenue

17,058

24,704

24,476

43

(1)

Transaction-based expenses

(614)

(2,487)

(1,668)

172

(33)

Revenues less transaction-based expenses

16,444

22,217

22,808

39

3

Operating expenses (excl. depreciation and amortisation)

(10,525)

(12,633)

(12,686)

21

0

Depreciation and amortisation

(441)

(441)

(446)

1

1

Income from operations

5,478

9,143

9,676

77

6

Other income/net interest

(35)

0

12

Income before provision for income taxes

5,443

9,143

9,688

78

6

Taxes

(984)

(2,071)

(2,176)

121

5

Net income

4,459

7,072

7,512

68

6

Diluted EPS ($)

0.37

0.59

0.62

68

6

Operating margin (%)

32.1

37.0

39.5

Tax rate (%)

18.1

22.7

22.5

Source: OTCM, Edison Investment Research


Exhibit 2 shows how the corporate client base for the OTCQX and OTCQB markets has evolved from Q319. After a low point in Q120/Q220, the rate of new client additions for both markets improved again in the third quarter year-on-year. In OTCQX they were down slightly quarter-on-quarter from previously elevated levels.

Q321 showed a continuation of the strong momentum with 55 additions for OTCQX (OTC Markets’ premium platform market providing efficient public trading without the complexity and cost of a national securities exchange listing) and 115 for OTCQB (a venture market providing public trading for entrepreneurial and development-stage companies and which applies standards that promote price transparency and facilitate public disclosure). OTCQB is also open to international companies, representing 10.4% and 11.3% of the opening client base for each market respectively. At the same time, the rate of cancellations and downgrades was similar to previous quarters at 4.5% (OTCQX) and 6.7% (OTCQB), leaving net additions in the quarter at 31 and 47 companies respectively.

Of the 55 new corporates joining OTCQX, 44 were international issuers and of the 115 joining OTCQB, 90 were international. Management noted increased sales in the UK and Canadian offices, which remain at healthy levels. This highlights the importance of the contribution by international companies to the group’s growth profile and of the value that OTCM can offer to international companies seeking access to the US capital markets at a lower cost than incumbent exchanges.

Exhibit 2: Evolution of OTCQX and OTCQB corporate client base

Q319

Q419

Q120

Q220

Q320

Q420

Q121

Q221

Q321

OTCQX

Start

421

436

442

414

415

441

461

482

530

Additions

31

32

9

19

44

34

52

70

55

Other (cancellations, downgrades)

(16)

(26)

(37)

(18)

(18)

(14)

(31)

(22)

(24)

End

436

442

414

415

441

461

482

530

561

Net change

15

6

(28)

1

26

20

21

48

31

OTCQB

Start

916

915

907

893

885

874

902

962

1,020

Additions

53

43

28

45

62

94

83

112

115

Other (cancellations, downgrades)

(54)

(51)

(42)

(53)

(73)

(66)

(23)

(54)

(68)

End

915

907

893

885

874

902

962

1020

1067

Net change

(1)

(8)

(14)

(8)

(11)

28

60

58

47

Source: OTCM, Edison Investment Research. Note: Start, end and additions (new sales) figures are reported, while the other figures (cancellations and compliance and other downgrades) are residual.

Exhibit 3 shows changes in operating expenses between Q320 and Q321. The main drivers of the 19.8% increase were higher compensation, and professional and consulting costs (rule 15c2-11), a continuation of the trend in Q221. Compensation and information technology costs remain a significant proportion of overall expenses, representing approximately 80% of total operating expenses (excluding one-offs). Higher incentive compensation combined with higher sales commissions (strong sales at OTCQX and OTCQB) were the key driver.

Exhibit 3: Analysis of operating expenses

$000s

Q320

Q321

Absolute change

% change

Comments

Compensation and benefits

7,052

8,471

1,419

20.1

Headcount up 8 to 109, higher cash incentive compensation +58% and regulatory obligations, Rule 15c2-11

IT infrastructure and information services

1,642

2,062

420

25.6

Incremental data centre and network costs to support ECN growth

Professional and consulting fees

586

1,008

422

72.0

Higher ECN clearing/regulatory costs with volume, support costs for VIC business and Rule 15c-11

Marketing and advertising

138

218

80

58.0

Public relations spending and rebound in travel expenses

Occupancy costs

877

521

(356)

(40.6)

Due to a one-time catch-up for certain building costs billed in 2020

Depreciation and amortisation

441

446

5

1.1

IT infrastructure enhancements in 2020 and 2021

General, administration and other

230

406

176

76.5

Higher payment processing fees and bad debt expenses

Total

10,966

13,132

2,166

19.8

Source: OTC Markets Group, Edison Investment Research

Exhibit 4 sets out operating and related revenue data, showing year-on-year and quarter-on-quarter changes. OTC Link data show a slowdown in in trading volumes compared with Q221 but still remaining at elevated levels, which reflects the wider US equity markets generally. For Corporate Services, analysis of the growth in OTCQX and OTCQB client numbers is discussed above (see Exhibit 2). In Market Data Licensing, the growth in non-professional users has slowed but is still reflecting high retail investor participation, a phenomenon that began during the COVID-19 lockdowns. We note that the number of non-professional users has been volatile historically and, should equity markets correct, we see risk of a pullback here.

Exhibit 4: Operating and related revenue data

Q320

Q221

Q321

% change y-o-y

% change q-o-q

OTC Link

Dollar volume traded (000s)

OTCQX

17,021

60,030

41,802

145.6

(30.4)

OTCQB

6,942

8,796

5,008

(27.9)

(43.1)

Pink

69,988

100,644

107,295

53.3

6.6

Number of securities quoted

11,381

12,725

11,604

2.0

(8.8)

Number of active ATS participants

82

83

85

3.7

2.4

Number of ECN subscribers

69

84

90

30.4

7.1

New form 211 filings

196

200

151

(23.0)

(24.5)

Revenue per security quoted ($)

335

604

527

57.0

(12.8)

Corporate Services

Number of corporate clients (period end)

OTCQX

441

530

561

27.2

5.8

OTCQB

874

1,020

1,067

22.1

4.6

Pink

722

999

1,556

115.5

55.8

Total

2,037

2,549

3,184

56.3

24.9

Revenue per client ($)

3,357

3,840

3,705

10.4

(3.5)

Graduates to a national securities exchange

19

46

45

137

(2)

Market Data Licensing

Market data professional users

22,926

25,647

25,870

12.8

0.9

Market data non-professional users

20,102

28,977

29,156

45.0

0.6

Revenue per terminal (total - $)

167

157

154

(7.4)

(1.9)

Market data compliance file users

44

47

47

6.8

0.0

Source: OTCM, Edison Investment Research

Other developments

OTCM launched its third alternative trading system (ATS) in Q321 called OTC Link NBQ in addition to OTC Link ATS and OTC Link ECN. The two existing platforms are complementary, with OTC Link ATS providing a network to publish quotes and facilitate trades between subscribers, while OTC Link ECN operates an anonymous matching engine and acts as an order router, functioning as the execution party on an agency basis.

OTC Link NBQ will provide alternative functionality to broker dealers, enabling electronic matching and execution, but with full disclosure rather than anonymity and allowing distribution of full depth of book data rather than top of book alone. Management has stated that it is unable to gauge the financial impact or how successful this new interdealer quotation system (IDQS) will be. However, we believe the launch of NBQ will be an attractive proposition to clients and thus should be a positive for OTC Link’s revenue in the medium term.

Background and outlook

Given the impact of trading activity on recent results, we include in Exhibit 5 an index of the average daily volume of US equity share trading. This shows two spikes in early 2020 and from the end of 2020 to Q121. In line with OTCM’s commentary, this appears to have begun to return to more normal levels. These trends have been reflected in OTC’s trading revenues.

Exhibit 5: US equity share trading (consolidated monthly average daily volume)

Source: Nasdaq, Edison Investment Research

The trends in the number of IPOs on the Nasdaq, TSX and TSX Venture exchanges are shown in Exhibits 6 and 7. The number of IPOs on Nasdaq has tempered after very strong activity in Q121. TSX IPOs for the first 10 months of 2021 were up 5% by number compared with the same period in 2020 and the TSX Venture exchange saw a 147% increase.

Exhibit 6: Nasdaq – number of IPOs

Exhibit 7: TSX and TSX Venture – number of IPOs

Source: Nasdaq

Source: TMX

Looking at the trend in the number of corporate client additions for OTCM shown in Exhibit 2, the Q321 figures reflect the favourable development in IPOs highlighted above.

Financials

Headline figures from our revised estimates are shown in Exhibit 8 with further detail, including the divisional breakdown of revenues, shown in the financial summary (Exhibit 10).

Following a strong Q321, we have increased our group revenue estimate for 2021 by 5.9%. This includes a 10% increase in the estimate for OTC Link (reflecting strong quarterly performance followed by an assumed normalisation in trading activity, as discussed above). We continue to assume a significant normalisation (-40%) in revenue for the division in 2022. The higher multiple value (in our view) divisions of Market Data Licensing and Corporate Services also beat our Q321 expectations by 6% and 32% respectively.

Our revenue growth assumptions for Market Data Licensing (19% and -7% for 2021e and 2022e) are influenced by our assumption of lower trading levels possibly affecting non-professional subscription levels, particularly in 2022. Uncertainty on this point, as well as on the outlook for trading activity levels in US equities, is incorporated in our estimates. Nevertheless, we increase our Market Data Licensing revenue estimates by 2.6% for both 2021 and 2022.

For Corporate Services, the strong new client additions and strong sales of the DNS product have translated into an increase in our estimates (by 6.0% for 2021e and 5.6% 2022e).

OTCM’s balance sheet remains strong, with no debt and cash of $50.0m or $51.5m including restricted cash at the end of Q321. In addition to cash held, OTCM has an undrawn line of credit of up to $1.5m available. This indicates that the capital return profile, mainly in the form of dividends, is reasonably secure in the near to mid-term. The group has paid a special dividend since 2014 and we expect this to continue in the near to medium term.

Exhibit 8: Estimate revisions

 

Gross revenue ($m)

PBT ($m)

Diluted EPS ($)

Dividend ($)

 

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

2021e

92.5

97.9

5.9

33.1

35.6

7.6

2.16

2.33

7.8

1.34

2.19

63.4

2022e

84.1

88.5

5.3

30.5

34.8

14.1

2.06

2.35

13.9

1.41

2.22

57.4

Source: Edison Investment Research. Notes: Dividends include a quarterly 18c and an additional special dividend of $1.50 announced with the Q321 results. We expect a similar special dividend for FY22e.

Valuation

An updated version of our comparative P/E table is shown in Exhibit 9 below. This includes information providers MSCI and Markit together with the average multiples for global exchanges. OTCM shares are trading on prospective P/Es below the average for global exchanges for 2021 and 2022 (which also reflects the normalisation in elevated trading volumes). The shares trade on markedly lower P/Es than those for information providers. While the multiple applied to prospective earnings may be limited by the relative illiquidity of OTCM shares, the group is financially strong and has a high proportion of subscription-based revenues. The positive change in business mix in Q321 suggests a higher multiple rating could be justified going forward.

Exhibit 9: OTCM comparative multiples

P/E ratios (x)

2021e

2022e

MSCI

65.4

57.4

Markit

40.1

36.1

Average information providers

52.8

46.7

Average global exchanges

25.8

24.2

OTCM

25.2

25.0

Source: Refinitiv, Edison Investment Research. Note: Prices as at 24 November 2021.

Exhibit 10: Financial summary

$000s

2016

2017

2018

2019

2020

2021e

2022e

Year end 31 December

PROFIT & LOSS

OTC Link

10,573

10,074

11,175

11,676

15,890

29,074

17,444

Market Data Licensing

21,054

21,922

23,384

24,447

28,133

33,548

31,200

Corporate Services

19,254

22,660

24,719

26,716

27,206

35,293

39,893

Revenue

50,881

54,656

59,278

62,839

71,229

97,915

88,537

Redistribution fees and rebates

(2,317)

(2,480)

(2,448)

(2,489)

(2,810)

(2,982)

(3,120)

Net revenue

48,564

52,176

56,830

60,350

68,419

94,932

85,417

Transaction-based expenses

0

0

(375)

(746)

(3,022)

(8,544)

(3,663)

Revenues less transaction-based expenses

48,564

52,176

56,455

59,604

65,397

86,388

81,753

Operating expenses

(30,032)

(32,511)

(35,768)

(40,230)

(42,202)

(49,010)

(45,179)

EBITDA

18,532

19,665

20,687

19,374

23,195

37,379

36,574

Depreciation

(1,606)

(1,361)

(1,042)

(1,492)

(1,761)

(1,777)

(1,795)

Operating profit

16,926

18,304

19,645

17,882

21,434

35,602

34,780

Net interest

9

47

116

103

(27)

27

25

Profit Before Tax

16,935

18,351

19,761

17,985

21,407

35,629

34,805

Tax

(6,407)

(5,792)

(3,524)

(3,043)

(3,133)

(7,714)

(6,613)

Profit after tax

10,528

12,559

16,237

14,942

18,274

27,915

28,192

Profit after tax and allocation to RSAs

10,252

12,241

15,840

14,588

17,839

27,480

27,757

Average Number of Shares Outstanding (m)

11.3

11.6

11.6

11.7

11.6

11.8

11.8

EPS - basic (c)

92.4

109.9

140.8

128.4

156.4

239.7

241.5

Fully diluted EPS (c)

90.4

105.8

136.3

124.7

153.4

232.9

234.6

Dividend per share (c)

116.0

116.0

123.0

125.0

125.0

219.0

222.0

EBITDA Margin (%)

38

38

36

32

34

39

43

Operating profit margin (%)

35

35

35

30

31

38

41

BALANCE SHEET

Non-current assets

Intangible assets

291

362

312

291

291

291

291

Property and other

3,267

3,506

4,584

25,034

22,414

22,033

20,173

Current assets

Debtors

6,262

6,450

4,942

5,157

6,609

7,601

7,601

Cash & cash investments

25,034

23,683

28,813

28,217

33,733

41,205

49,298

Other current assets

1,789

2,316

2,998

1,656

1,763

2,344

2,344

Current liabilities

Deferred revenues

(14,664)

(15,531)

(16,070)

(15,815)

(18,765)

(23,000)

(25,998)

Other current liabilities

(5,372)

(5,644)

(6,711)

(9,574)

(11,232)

(11,572)

(11,572)

Long-term liabilities

Tax, rent and other

(1,101)

(1,351)

(2,459)

(17,293)

(15,267)

(15,447)

(14,092)

Net assets

15,506

13,791

16,409

17,673

19,546

23,454

28,044

NAV per share ($)

1.36

1.21

1.42

1.52

1.67

1.99

2.38

CASH FLOW

Net cash flow from operating activities

15,740

16,483

22,590

21,413

26,013

36,329

35,534

Capital expenditure, intangible investment

(415)

(1,165)

(549)

(5,516)

(1,034)

(1,446)

(1,300)

Dividends

(13,059)

(13,262)

(14,195)

(14,560)

(14,610)

(25,434)

(26,142)

Purchase of treasury stock

(1,714)

(2,176)

(1,047)

(1,390)

(3,520)

(1,522)

0

Financing / investments

557

(1,231)

(1,669)

(543)

(1,333)

(455)

0

Net cash flow

1,109

(1,351)

5,130

(596)

5,516

7,472

8,093

Opening net (debt)/cash

23,925

25,034

23,683

28,813

28,217

33,733

41,205

Closing net (debt)/cash

25,034

23,683

28,813

28,217

33,733

41,205

49,298

Cash and restricted cash

25,244

24,375

30,534

29,778

35,297

42,769

50,862

Source: OTC Markets Group annual reports, Edison Investment Research


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Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by OTC Markets Group and prepared and issued by Edison, in consideration of a fee payable by OTC Markets Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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