Investing for future growth

OTC Markets Group 15 May 2019 Update
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OTC Markets Group

Investing for future growth

Q119 results

Financial services

15 May 2019

Price

US$31.0

Market cap

US$357m

Net cash ($m) at 31 March 2019

22.4

Shares in issue

11.5m

Free float

61%

Code

OTCM

Primary exchange

OTCQX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.7)

(15.8)

15.3

Rel (local)

(0.2)

(18.5)

11.1

52-week high/low

US$39.95

US$26.27

Business description

OTC Markets Group operates the OTCQX, OTCQB and Pink financial markets for over 10,000 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 87% of revenues are of a subscription-based recurring nature.

Next events

Q219 results

August 2019

Analysts

Andrew Mitchell

+44 (0)20 3681 2500

Martyn King

+44 (0)20 3077 5745

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

OTC Markets Group’s first quarter figures were affected by the one-off costs of its headquarters move and investment in additional headcount and IT infrastructure, in part supporting incremental acquisitions. These investments are set to support future growth and, following more recent share price weakness and despite a reduction in our EPS estimates, the prospective P/E rating is now below that of peers.

Year end

Revenue ($m)

PBT
($m)

EPS*
($)

DPS**
($)

P/E
(x)

Yield
(%)

12/17

54.7

18.4

1.06

1.16

29.3

3.7

12/18

59.3

19.8

1.36

1.23

22.7

4.0

12/19e

62.5

19.3

1.34

1.27

23.2

4.1

12/20e

65.8

21.8

1.47

1.33

21.0

4.3

Note: *Fully diluted and calculated after restricted stock award allocation. **Including special dividends declared and estimated of 60c, 65c, 67c and 73c for FY17–20e, respectively.

Q119 results

OTC Markets Group (OTCM) reported gross revenue up 7% versus Q118 including 10% growth in Corporate Services, within which OTCQX Best market benefited from 16% corporate client growth, a particularly encouraging indicator. While Market Data Licensing growth appeared subdued at 4%, this was partly held back by the absence of one-off revenue that benefited Q118 and compliance data sales growth continued. OTC Link was affected by lower market activity levels, but this was more than offset by continuing traction at OTC Link ECN, which allowed revenue to grow by 7%. Operating expenses rose 15%, including one-off HQ move costs of c $0.5m, leaving pre-tax profits down 11% and diluted EPS, after a reduced tax charge, down 6%. Excluding one-off costs, net income would have risen 7%. The quarterly dividend has been maintained at $0.15.

Market background and outlook

Equity market performance year to date has been positive and, providing macro concerns including global trade tensions do not reverse this, the background for the corporate sector and therefore OTCM should remain relatively attractive. OTCM continues to focus on improving the transparency and regulatory recognition of its markets and, reflecting the progress made to date, we expect further gains on this front to benefit the reputation of its markets. In future, this could mesh with the development of online fund-raising, which may create a larger pool of companies interested in the cost-effective secondary trading platforms offered by OTCM.

Near-term estimates trimmed, but valuation held

Reflecting one-off and ongoing costs, our EPS estimates for FY19 and FY20 are reduced by 7% and 3% respectively. However, longer-term cash flows should benefit from investments in headcount and add-on acquisitions, so we maintain our estimated fair value at $37.

Q119 results analysis

OTCM’s first quarter results showed gross revenues 7% ahead of the same period last year; net of redistribution fees and transaction-based expenses, the increase was 6%. Operating expenses were up by 15%, including one-off costs of moving into the group’s new HQ office, which accounted for five percentage points of the rise. This left pre-tax profits 11% below Q118 but, excluding the one-off move costs, profits would have been virtually unchanged. A lower tax charge (13% versus 18%) meant the net income reduction was 5% while, excluding one-off costs, net income would have increased by 7%. This was in a period during which the group invested in additional headcount and infrastructure to support the sustainability and growth of existing and acquired businesses. OTCM declared a maintained quarterly dividend of $0.15.

Exhibit 1: Q119 P&L results summary

$000s (except where stated)

Q118

Q318

Q418

Q119

y-o-y (%)

q-o-q (%)

OTC Link

2,651

2,807

2,918

2,843

7.2

(2.6)

Market Data Licensing

5,842

5,763

5,949

6,071

3.9

2.1

Corporate Services

5,849

6,195

6,538

6,442

10.1

(1.5)

Gross revenues

14,342

14,765

15,405

15,356

7.1

(0.3)

Redistribution fees and rebates

(623)

(584)

(608)

(626)

0.5

3.0

Net revenue

13,719

14,181

14,797

14,730

7.4

(0.5)

Transaction-based expenses

(6)

(144)

(147)

(140)

N/M

(4.8)

Revenues less transaction-based expenses

13,713

14,037

14,650

14,590

6.4

(0.4)

Operating expenses

(9,163)

(8,745)

(9,842)

(10,568)

15.3

7.4

Income from operations

4,550

5,292

4,808

4,022

(11.6)

(16.3)

Other income/net interest

17

51

37

37

117.6

0.0

Income before provision for income taxes

4,567

5,343

4,845

4,059

(11.1)

(16.2)

Taxes

(820)

(958)

(726)

(512)

(37.6)

(29.5)

Net income

3,747

4,385

4,119

3,547

(5.3)

(13.9)

Diluted EPS ($)

0.31

0.37

0.34

0.30

(6.2)

(14.3)

Operating margin

33%

37%

32%

27%

Tax rate

18%

18%

15%

13%

Source: OTCM, Edison Investment Research

Looking more closely at the revenue progression (Exhibit 2), the largest contribution to growth was from Corporate Services (+10%). Here, OTCQX, with revenues up 18%, benefited from a higher number of client companies (+16%), while OTCQB had a slightly lower client count but saw 12% higher revenues as all companies were on an increased fee schedule in this quarter.

Exhibit 2: Subdivisional revenue analysis

$000 unless stated

Q118

Q119

Change

Change %

Comment

OTC Link

OTC Link ECN

28

319

319

nm

Very little revenue Q118

Trade messages

878

799

(79)

-9%

Lower on reduced market activity

Other

2,623

2,524

(127)

-5%

2,651

2,843

192

7%

Market Data Licensing

Professional users

2,900

3,103

203

7%

Higher user numbers

Internal delayed and other data services

650

780

130

20%

Mainly related to compliance data products

Other

2,292

2,188

(104)

-5%

Mainly reflecting one-off $77,000 prior year revenue

5,842

6,071

229

4%

Corporate Services

OTCQB

2,808

3,145

337

12%

All companies on increased fee schedule

OTCQX

1,822

2,150

328

18%

Increased number of companies on market

Virtual Investor Conferences

0

51

51

Acquisition Q119

Disclosure and news service

1,067

971

(96)

-9%

Reduction in clients from 696 to 666

Other

152

125

(27)

-18%

5,849

6,442

593

10%

Source: OTCM, Edison Investment Research. Note: Absolute subdivisional numbers are approximate as calculated from reported absolute change and percentage change.

Within Market Data Licensing, the salient features were revenue increases arising from a higher number of professional users and increased sales of compliance data products. The number of subscribers to compliance data packages has increased from 21 at end Q118 to 30 at end Q119, reflecting OTCM’s success in developing this area of its business through developing products that facilitate monitoring and automation of processes at customers’ compliance departments.

As in previous quarters, the OTC Link revenue comparison benefited from the inclusion of OTC Link ECN, which only started to make a significant contribution from Q218. Otherwise, messaging fees were lower on the back of reduced market activity in comparison with Q118, which was a volatile and more active period.

Given the significant increase in operating expenses in the period, particularly compared with Q118, we have collated the expense analysis to show the changes from Q418 and the prior year quarter. As noted above, there were one-off costs associated with the move to the group’s new HQ at 300 Vesey Street, New York (in total $0.467m) and excluding these the increase in expenses was just over 10%. The largest element of cost is staff compensation and this was the largest contributor to this increase. In part, this reflected the rise in headcount from 91 at the end of Q118 to 98 (+7.7%), with the remaining growth relating to annual salary (+6% approximately), bonus and share compensation costs to ensure staff retention in a competitive market. After staff and occupancy costs, the third largest contributor to the increase in expenses was the IT infrastructure and information services category. Factors driving this increase included technology support for the Virtual Investor Conferences acquisition, a new tool to help manage market data contracts and enhancements to system security.

Exhibit 3: Analysis of operating expenses

$000s unless stated

Q118

Q418

Q119

y-o-y

y-o-y %

q-o-q %

Compensation and benefits

6,194

6,075

6,996

802

12.9

15.2

IT Infrastructure and information services

1,347

1,477

1,527

180

13.4

3.4

Professional and consulting fees

406

519

400

(6)

(1.5)

(22.9)

Marketing and advertising

313

402

251

(62)

(19.8)

(37.6)

Occupancy costs

469

750

846

377

80.4

12.8

Excluding $0.26m overlapping rent cost

586

117

24.9

Depreciation and amortization

252

260

279

27

10.7

7.3

General, administration and other

182

359

269

87

47.8

(25.1)

Total

9,163

9,842

10,568

1,405

15.3

7.4

Excluding $0.467m one-off HQ move costs

10,101

938

10.2

2.6

Source: OTCM, Edison Investment Research

In Exhibit 4 we show selected quarterly operating metrics for the period between Q118 and Q119. We would highlight the following points from the table:

The number of active participants in OTC Link ATS recovered from the dip in Q418 and was slightly ahead of Q118. This represented welcome resilience, although we assume the background for broker dealers will remain challenging, potentially putting pressure on participant numbers. The number of OTC Link ECN subscribers has continued to grow and at the beginning of May stood at 43.

There has been a significant rise in the number of OTCQX client companies since last year (+16%) with stronger sales and a smaller number of downgrades during 2018. The retention rate for 2019 increased from 91% to 94%. The number of corporate clients at OTCQB was down marginally yo-y but up sequentially. The full application of earlier fee increases across the client base noted above generated the increase in revenue per client at OTCQB.

For Market Data Licensing, the 6% y-o-y increase in the number of professional users is encouraging and compared with subscribers to UTP Tape C (Nasdaq data) OTCM subscribers increased from 6.9% to 7.5%. Non-professional users did show a reduction but this figure has tended to fluctuate and has increased significantly over four years (from below 10,000).

Exhibit 4: Operating and related revenue data

Q118

Q218

Q318

Q418

Q119

% change y-o-y

% change q-o-q

OTC Link

Number of securities quoted

10,448

10,476

10,121

10,042

10,091

(3.4)

0.5

Number of active ATS participants

94

95

97

91

97

3.2

6.6

Number of ECN subscribers

28

35

36

41

42

50.0

2.4

Revenue per security quoted ($)

254

267

277

291

282

11.0

(3.0)

Revenue per average active participant ($)

28,202

29,619

29,240

31,043

30,245

7.2

(2.6)

Corporate Services

Number of corporate clients

OTCQX

358

365

395

409

414

15.6

1.2

OTCQB

951

922

953

934

941

(1.1)

0.7

Pink

756

761

736

741

740

(2.1)

(0.1)

Total

2,065

2,048

2,084

2,084

2,095

1.5

0.5

Revenue per client ($)

2,832

2,997

2,973

3,137

3,075

8.6

(2.0)

Graduates to a national securities exchange

21

20

16

13

12

(42.9)

(7.7)

Market Data Licensing

Market data professional users

20,557

20,951

20,991

21,487

21,776

5.9

1.3

Market data non-professional users

15,726

15,389

14,661

14,763

14,976

(4.8)

1.4

Revenue per terminal (total - $)

161

160

162

164

165

2.6

0.7

Source: OTCM, Edison Investment Research

Furthering its objective of broadening the range of services offered to corporate clients, OTCM integrated the activities of Virtual Investor Conferences (related assets acquired last year) and acquired Qaravan (risk and performance analytics on over 5,000 US banks and associated software) during the first quarter. Virtual Investor Conferences hosted three events and contributed initial turnover of $51,000 in Q119. At the time of the results, a further 13 events had been confirmed. Qaravan was acquired in February for a total consideration of $0.851m (of which $0.579m cash with the balance in shares). There is a contingent consideration subject to Qaravan’s recurring revenues on the second anniversary of the acquisition. Historical revenues are not disclosed and OTCM indicates that Qaravan is not expected to have a material impact on its results in the short term. On a longer view, the company believes there should be good opportunities to exploit synergies between its existing customer base among community/regional banks and the services offered by Qaravan. Both acquisitions are in line with the group’s indication that it seeks to make incremental purchases that fit with its existing activities in order to avoid the high risks entailed in a transformational transaction.

OTCM continues to focus on gaining regulatory recognition of its markets and last year five states were added to the list granting both markets Blue Sky recognition, taking the total to 34 for OTCQX and 31 for OTCQB. None was added in the first quarter, although OTCM indicate that North Dakota is likely to grant recognition in the second half of the year. In July 2018 the North American Securities Administrators Association (NASAA) published a model rule proposal for states to employ that would have the effect of granting OTCQX/QB recognition. While there is no timetable for its adoption, OTCM has previously mentioned that it is hopeful this might take place in the second quarter. Adoption is likely to facilitate further states granting recognition and it may be that some are awaiting formal adoption prior to making this move.

The Transfer Agent Verification programme is one of OTCM’s initiatives to improve transparency in its markets by providing current information on share capital. OTCQX rules required corporates to provide data through the programme from the beginning of the year and at 1 May there were 39 agents participating, giving coverage of 99% of US companies on OTCQX and OTCQB markets.

Other developments in the quarter included the opening of a London office, currently with one employee, aimed at helping to develop international sales efforts for the two premium markets. On the new product front, Market Data Licensing launched a new compliance tool, Canari. This tool is designed to provide an overview of compliance data relating to OTCQX, OTCQB, Pink and Grey (no public quote) securities and build on the growth in compliance data sales to date.

Finally, it is pertinent to note that OTCM recorded a further quarter of 100% uptime in its core IT systems, a record that extends to over three years.

Background and outlook

The equity market background year to date has been markedly more positive than in Q418 such that total returns have been positive for the majority of markets over most periods shown in Exhibit 5. This provides a relatively favourable background in terms of corporate confidence/activity, although macro uncertainties such as trade tensions remain a potential restraining factor.

Exhibit 5: Recent market index performance (total return %)

Period

S&P 500

Nasdaq Composite

OTCQX Composite

OTCQB

S&P TSX Venture

AIM All-Share

US$

US$

US$

US$

C$

£

3 months

2.7

3.3

13.1

-4.4

-2.2

4.9

6 months

4.4

6.8

8.3

0.4

-4.7

-2.1

1 year

5.2

4.5

-4.4

-6.8

-23.6

-10.8

Year to date

13.0

15.7

19.4

6.7

7.1

11.3

Source: Bloomberg. Note: Priced on 13 May 2019.

The next two charts show IPO numbers for Nasdaq, and the Canadian TSX and TSX Venture exchanges as indicators of corporate and market confidence and activity. The number of IPOs on Nasdaq in the first quarter was unchanged from the prior year period at 37. On the Canadian exchanges, TSX IPOs in the first four months of the year were up 26%, while TSX Venture was running 17% below the prior year period. Not shown here, but the number of new admissions to AIM in the same period was down 65% with the marked weakness most likely reflecting political uncertainties in the UK, which are less relevant to OTCM.

Exhibit 6: Nasdaq – number of IPOs

Exhibit 7: TSX and TSX Venture – number of IPOs

Source: Nasdaq

Source: TMX

Exhibit 6: Nasdaq – number of IPOs

Source: Nasdaq

Exhibit 7: TSX and TSX Venture – number of IPOs

Source: TMX

OTCM itself is set to continue its focus on its five main objectives for the current year: (1) gain market share for OTC Link ECN; (2) ensure reliability of core systems; (3) win further regulatory recognition of the two premium markets; (4) enhance corporate client experience; and (5) expand the product offering through acquisitions.

On a longer view, achievement of greater regulatory recognition should progressively increase the reputation of the OTCM markets and enhance their appeal to corporates. In due course, this could act in tandem with the development of online/crowdfunding capital raising, which may create a larger population of companies interested in using OTCM’s cost-effective secondary markets.

Financials

Changes in key estimate numbers are summarised in Exhibit 8, with further detail included in the financial summary on page 8. Our revenue assumptions are little changed, with slightly lower numbers for OTC Link but small increases for Corporate Services and Market Data Licensing to allow for a higher number of OTCQX corporate clients and some modest contribution from acquisitions/new products. Current year one-off move expenses of nearly $0.5m are factored in, together with higher than expected compensation costs that also affect FY20. The continuing increase in occupancy costs following the move to the new HQ are put at between $0.15m and $0.18m. We assume the tax charge will move back to c 18% following the 13% effective rate seen in the first quarter. The net effect is EPS estimate reductions of less than 7% and 3% for this year and next respectively.

Exhibit 8: Estimate revisions

 

Gross revenue ($m)

PBT ($m)

Fully diluted EPS ($)

Dividend ($)

 

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

2019e

62.2

62.5

0.4

20.9

19.3

(7.7)

1.43

1.34

(6.6)

1.27

1.27

0.0

2020e

65.1

65.8

1.1

22.6

21.8

(3.9)

1.51

1.47

(2.6)

1.33

1.33

0.0

Source: Edison Investment Research. Note: Dividends include estimated special dividends of 67c and 73c for FY19 and FY20, respectively.

The balance sheet remains strong, with period-end cash standing at $22.4m compared with $22.7m at end Q118 and $28.8m at the end of 2018. During the first quarter, cash used in investing activities amounted to $3.5m including the cash element of the Qaravan purchase, leasehold improvements and IT spending at the new HQ office and data centre upgrades. Subject to the incidence of further acquisition opportunities, we expect spending to revert to a lower level, with a figure of $1.2m assumed in our estimate for FY20, for example.

Valuation

While OTCM shares are still c 17% up on a one-year view, they have shown weakness over three months (-15%) and this has left the prospective P/E below both the information providers and global exchange comparisons shown in the table below.

Exhibit 9: OTCM comparative multiples

P/E ratios (x)

2019e

2020e

MSCI

34.2

29.9

Markit

21.2

18.8

Average information providers

27.7

24.3

Average global exchanges

25.1

21.3

OTCM

23.2

21.0

Source: Refinitiv, Edison Investment Research. Note: Prices as at 13 May 2019.

Using our discounted cash flow model to calculate the discount rate implied by the current share price ($31 at time of writing) gives a figure of 12.5%, which appears cautious (subject to our explicit forecasts for FY19/20 together with our assumption of FY21–22 cash flow growth of 5%, long-term growth of 4% and a terminal cash flow multiple of c 22x, compared with the current year value of 29x). The sensitivity table below shows how the value would change with discount rate and growth assumptions.

Exhibit 10: Discounted cash flow valuation sensitivity ($ per share)

Discount rate (right)
2023–29e growth

8%

9%

10%

11%

12%

3%

40.9

38.0

35.4

33.0

30.8

4%

42.9

39.8

37.0

34.5

32.2

5%

45.0

41.7

38.8

36.1

33.6

6%

47.2

43.8

40.6

37.7

35.1

Source: Edison Investment Research

Although our FY19 and FY20 estimates have been reduced, this reflects a one-off effect in FY19, while investment in new products and incremental acquisitions should generate increased revenue growth over time and hence improved cash flows. Allowing for this through the assumption of slightly higher FY21–22 growth, our DCF valuation outputs are little changed and, taking this and the comparator valuations into account, we keep our fair value unchanged at $37.00.

Exhibit 11: Financial summary

$000s

2015

2016

2017

2018

2019e

2020e

Year end 31 December

PROFIT & LOSS

OTC Link

11,796

10,573

10,074

11,175

11,366

11,821

Market Data Licensing

20,610

21,054

21,922

23,384

24,692

26,174

Corporate Services

17,503

19,254

22,660

24,719

26,402

27,854

Revenue

49,909

50,881

54,656

59,278

62,460

65,848

Re-distribution fees and rebates

(2,379)

(2,317)

(2,480)

(2,448)

(2,501)

(2,482)

Net revenue

47,530

48,564

52,176

56,830

59,959

63,366

Transaction-based expenses

0

0

0

(375)

(560)

(582)

Revenues less transaction-based expenses

47,530

48,564

52,176

56,455

59,399

62,784

Operating expenses

(28,972)

(30,032)

(32,511)

(35,768)

(39,151)

(40,015)

EBITDA

18,558

18,532

19,665

20,687

20,248

22,769

Depreciation

(1,692)

(1,606)

(1,361)

(1,042)

(1,119)

(1,153)

Operating profit (before amort. and except).

16,866

16,926

18,304

19,645

19,129

21,616

Net interest

27

9

47

116

148

140

Profit Before Tax (norm)

16,893

16,935

18,351

19,761

19,277

21,756

Tax

(6,635)

(6,407)

(5,792)

(3,524)

(3,251)

(4,134)

Profit after tax

10,258

10,528

12,559

16,237

16,025

17,623

Profit after tax and allocation to RSAs

9,971

10,252

12,241

15,840

15,677

17,275

Average Number of Shares Outstanding (m)

11.3

11.3

11.6

11.6

11.7

11.7

EPS - basic (c)

90.6

92.4

109.9

140.8

138.2

152.2

Fully diluted EPS (c)

88.3

90.4

105.8

136.3

133.8

147.4

Dividend per share (c)

108.0

116.0

116.0

123.0

127.0

133.4

EBITDA Margin (%)

39

38

38

36

34

36

Operating profit margin (%)

35

35

35

35

32

34

BALANCE SHEET

Non-current assets

 

 

 

 

 

 

Intangible assets

291

291

362

312

276

361

Property and other

4,187

3,267

3,506

4,584

24,625

24,688

Current assets

 

 

 

 

 

 

Debtors

6,082

6,262

6,450

4,942

5,419

5,419

Cash & cash investments

23,925

25,034

23,683

28,813

27,165

32,488

Other current assets

1,729

1,789

2,316

2,998

2,863

2,863

Current liabilities

 

 

 

 

 

 

Deferred revenues

(12,737)

(14,664)

(15,531)

(16,070)

(16,500)

(17,408)

Other current liabilities

(5,063)

(5,372)

(5,644)

(6,711)

(6,768)

(6,768)

Long-term liabilities

 

 

 

 

 

 

Tax, rent and other

(867)

(1,101)

(1,351)

(2,459)

(17,911)

(17,911)

Net assets

17,547

15,506

13,791

16,409

19,169

23,732

NAV per share ($)

1.55

1.36

1.21

1.42

1.65

2.04

CASH FLOW

Operating cash flow

22,400

21,752

21,629

24,442

21,333

26,126

Net Interest

27

9

47

116

148

140

Tax

(5,320)

(6,021)

(5,193)

(1,968)

(2,581)

(4,134)

Capex / intangible investment

(940)

(415)

(1,165)

(549)

(4,085)

(1,300)

Financing / investments

(420)

(1,157)

(3,407)

(2,716)

(1,693)

0

Dividends

(12,094)

(13,059)

(13,262)

(14,195)

(14,770)

(15,510)

Net cash flow

3,653

1,109

(1,351)

5,130

(1,648)

5,323

Opening net (debt)/cash

20,272

23,925

25,034

23,683

28,813

27,165

Closing net (debt)/cash

23,925

25,034

23,683

28,813

27,165

32,488

Cash and restricted cash

24,135

25,244

24,375

30,534

28,725

34,048

Source: OTC Markets Group accounts, Edison Investment Research

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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 £49,500 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.

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Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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Frankfurt +49 (0)69 78 8076 960

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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

1,185 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 £49,500 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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

1,185 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

1,185 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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