stock-1863880

Revenue beat, positive business mix

OTC Markets Group 19 August 2021 Update
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OTC Markets Group

Revenue beat, positive business mix

Q221 results

Financial services

19 August 2021

Price

US$45.50

Market cap

US$536m

Net cash ($m) at 30 June 2021

43.0

Shares in issue

11.7m

Free float

63%

Code

OTCM

Primary exchange

OTCQX

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(7.1)

3.4

46.3

Rel (local)

(8.7)

(3.0)

12.7

52-week high/low

US$52.7

US$29.5

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 63% in Q221.

Next events

Q221 results

August 2021

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

While elevated US equity market volumes drove up OTC Markets Group’s (OTCM) trading revenues 40% ahead of our expectations, higher P/E multiple divisions of Market Data Licensing and Corporate Services also exceeded (by 9% and 15% respectively). Net acquisition of corporate clients has accelerated, which bodes well despite a likely normalisation of trading activity. We raise our EPS forecast by 12% for 2021 and 19% for 2022. Management’s confidence in the business has prompted it to increase the quarterly dividend to $0.18 from $0.15 and we expect the group to pay a special dividend of 65c in 2021 and 75c in 2022.

Year end

Revenue ($m)

PBT
($m)

EPS*
($)

DPS**
($)

P/E
(x)

Yield
(%)

12/19

62.8

18.0

1.25

1.25

33.7

2.7

12/20

71.2

21.4

1.53

1.25

27.4

2.7

12/21e

92.5

33.1

2.16

1.34

21.1

2.9

12/22e

84.1

30.5

2.06

1.41

22.2

3.1

Note: *Fully diluted and calculated after restricted stock award allocation. **Including special dividends of 65c each year for FY19–21e and 75c for FY22e.

Q221 summary: Boosted by strong trading volumes

OTCM reported a very strong second quarter, with gross revenues of $25.5m, up 49% compared with Q220. Segmentally, this was led by OTC Link (+110%), which benefited from elevated US equity trading levels (albeit lower than Q121). Market Data Licensing (+25%) and Corporate Services (+40%) were also strong. Expenses, including redistribution fees and transaction-based expenses, increased by 33%, reflecting volume-related costs and incentive compensation as well as increases in base salaries. This left pre-tax profit up 90% illustrating the operational gearing and, after a higher tax charge, diluted EPS increased by 65%.

Trading to normalise, but underlying trends positive

Following Q221, there are further signs that US equity trading activity continues to normalise, and we have assumed this in our forecasts while acknowledging that it is not possible to estimate with any degree of confidence. 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 (530, up 10% quarter-on-quarter and 28% year-on-year) and OTCQB (1,020, up 6% quarter-on-quarter and 15% year-on-year) is likely to have longer-lasting benefits. We have increased our 2021 EPS estimate by 12%, which reflects a normalisation in trading but stronger market data and corporate services revenue, while our 2022 estimate has increased by 19%, reflecting a lower than expected decline in revenue in 2022.

Valuation

Following our estimate changes, the shares trade on a 2022 P/E of 22.2x, below the average for global exchanges (nearest peers) of 24.3x (see Exhibit 9). For both years, the multiples remain significantly below those of information providers (35.2x). The high proportion of subscription-based revenues and longer-term potential for development of OTCM’s cost-effective markets are supportive factors.

Q221 results analysis

Exhibit 1 provides a summary of profit and loss figures, comparing the Q221 results with Q121 and Q220. In the comments below, we are comparing Q221 with Q220 unless stated.

Gross revenue increased by 49%, with the largest increase coming from OTC Link (a FINRA member broker-dealer that operates two Securities and Exchange Commission (SEC) registered Alternative Trading Systems), where trading volumes on OTC Link ECN and messaging volumes on OTC Link ATS drove a 110% increase in revenue ($4m absolute increase, $3.4m was driven by OTC ECN). OTC Link’s commitment to ensuring the reliability of its core systems was validated by this period of continued high activity.

Market Data Licensing (distributes market data and financial information) revenue increased by 25%, with the main contributor being the growth in non-professional users as retail participation in equity markets increased. 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 40% was generated by a combination of strong additions in new clients for OTCQX and OTCQB markets (see Exhibit 2), price increases and increased demand for Virtual Investor Conferences’ services.

Re-distribution fees, which relate to market data services, grew by 6% and transaction-based expenses (payments for liquidity provision on OTC Link ECN) were up 310% as a result of higher transaction activities.

Operating expenses (before depreciation and amortisation) were up 19%, 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 90% to $9.1m, while a higher tax charge of 22.7% versus 11.9% left diluted earnings up 65% at $0.59 from $0.36.

Exhibit 1: Profit and loss analysis

$000s

Q220

Q121

Q221

% change
vs Q220

% change
vs Q121

OTC Link

3,659

10,282

7,682

110

(25)

Market Data Licensing

6,858

7,899

8,586

25

9

Corporate Services

6,582

7,895

9,182

40

16

Gross revenues

17,099

26,076

25,450

49

(2)

Re-distribution fees and rebates

(706)

(741)

(746)

6

1

Net revenue

16,393

25,335

24,704

51

(2)

Transaction-based expenses

(607)

(3,539)

(2,487)

310

(30)

Revenues less transaction-based expenses

15,786

21,796

22,217

41

2

Operating expenses (excl. depreciation and amortisation)

(10,579)

(12,933)

(12,633)

19

(2)

Depreciation and amortisation

(415)

(444)

(441)

6

(1)

Income from operations

4,792

8,419

9,143

91

9

Other income/net interest

10

5

0

(100)

(100)

Income before provision for income taxes

4,802

8,424

9,143

90

9

Taxes

(571)

(1,586)

(2,071)

263

31

Net income

4,231

6,838

7,072

67

3

Diluted EPS ($)

0.36

0.57

0.59

65

3

Operating margin (%)

29.2

33.2

37.0

Tax rate (%)

11.9

18.8

22.7

Source: OTCM, Edison Investment Research


Exhibit 2 shows how the corporate client base for the OTCQX and OTCQB markets has evolved from Q219. After a low point in Q120/Q220, the rate of new client additions for both markets improved with a markedly stronger second quarter.

Q221 showed a continuation of the strong momentum with 70 additions for OTCQX (OTC Markets’ premium platform market providing efficient public trading without the complexity and cost of a national securities exchange listing) and 112 for OTCQB (a venture market providing public trading for entrepreneurial and development-stage companies and applies standards that promote price transparency and facilitate public disclosure. OTCQB is also open to international companies), representing 14.5% and 11.6% 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 4.6% (OTCQX) and 5.6% (OTCQB), leaving net additions in the quarter at 48 and 58 companies respectively.

Out of the 70 new corporates joining OTCQX, 56 were international issuers and of the 112 joining OTCQB, 97 were international issuers. Management comments on increased sales in the UK office and a dedicated sales effort focused on the Australian market. 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 market at a lower cost than incumbent exchanges.

Exhibit 2: Evolution of OTCQX and OTCQB corporate client base

Q219

Q319

Q419

Q120

Q220

Q320

Q420

Q121

Q221

OTCQX

Start

414

421

436

442

414

415

441

461

482

Additions

30

31

32

9

19

44

34

52

70

Other (cancellations, downgrades)

(23)

(16)

(26)

(37)

(18)

(18)

(14)

(31)

(22)

End

421

436

442

414

415

441

461

482

530

Net change

7

15

6

(28)

1

26

20

21

48

OTCQB

Start

941

916

915

907

893

885

874

902

962

Additions

38

53

43

28

45

62

94

83

112

Other (cancellations, downgrades)

(63)

(54)

(51)

(42)

(53)

(73)

(66)

(23)

(54)

End

916

915

907

893

885

874

902

962

1020

Net change

(25)

(1)

(8)

(14)

(8)

(11)

28

60

58

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 Q220 and Q221. As noted earlier, the main drivers of the 19% change were increases in compensation, and professional and consulting costs, a continuation of the trend in Q121. Compensation and information technology costs remain a significant proportion of overall expenses, representing approximately 80% of total operating expenses. 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

Q220

Q221

Absolute change

% change

Comments

Compensation and benefits

7,380

8,497

1,117

15.1

Headcount up 2 to 104, higher incentive compensation + higher commissions related to OTCQX and OTCQB sales

IT infrastructure and information services

1,560

1,876

316

20.3

Incremental data centre and network costs to support ECN growth

Professional and consulting fees

725

1,076

351

48.4

Higher ECN clearing/regulatory costs with volume

Marketing and advertising

167

280

113

67.7

Higher public relations spending offset by lower travel and entertainment spend

Occupancy costs

534

619

85

15.9

Primarily driven by higher estimated real estate taxes

Depreciation and amortisation

415

441

26

6.3

Primarily driven by IT infrastructure enhancements in 2020

General, administration and other

213

285

72

33.8

Higher payment processing fees and bad debt expenses partially offset by a decrease in office expenses

Total

10,994

13,074

2,080

18.9

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 substantial increases in trading volumes in line with US equity markets generally and the growth in number of ECN subscribers. For Corporate Services, analysis of the growth in OTCQX and OTCQB client numbers has been shown above (see Exhibit 2). In Market Data Licensing, the increase in non-professional market data subscribers remains impressive and reflects 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

Q220

Q121

Q221

% change y-o-y

% change q-o-q

OTC Link

Dollar volume traded

OTCQX

18,807

77,599

60,030

219.2

(22.6)

OTCQB

5,814

17,062

8,796

51.3

(48.4)

Pink

82,380

134,063

100,644

22.2

(24.9)

Number of securities quoted

11,336

12,091

12,725

12.3

5.2

Number of active ATS participants

85

82

83

(2.4)

1.2

Number of ECN subscribers

64

82

84

31.3

2.4

New form 211 filings

71

197

200

181.7

1.5

Revenue per security quoted ($)

323

850

604

87.0

(29.0)

Corporate Services

Number of corporate clients (period end)

OTCQX

415

482

530

27.7

10.0

OTCQB

885

962

1,020

15.3

6.0

Pink

690

789

999

44.8

26.6

Total

1,990

2,233

2,549

28.1

14.2

Revenue per client ($)

3,303

3,640

3,840

16.3

5.5

Graduates to a national securities exchange

9

29

46

411

59

Market Data Licensing

Market data professional users

22,533

24,404

25,647

13.8

5.1

Market data non-professional users

16,545

27,814

28,977

75.1

4.2

Revenue per terminal (total - $)

175

151

157

(10.4)

3.9

Market data compliance file users

44

46

47

6.8

2.2

Source: OTCM, Edison Investment Research

Other developments

OTCM is on track to launch a 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 to 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, as at OTC Link ECN. Management have 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 NQB will be an attractive proposition to clients and thus should be a positive for OTC Link’s revenue in the medium term.

On 16 September 2020, the SEC published a final Rule 15c2-11. This has a compliance date of 28 September 2021. Rule 15c2-11 governs information requirements before quotes may be published on interdealer quotation systems such as OTC Link ATS. The amended rule will generally prohibit broker-dealers from submitting or publishing quotations for securities on OTC Link ATS unless current information about the company is publicly available. The rule will permit OTC Link ATS, as a qualified IDQS, to perform the required information review to determine whether a security is eligible for public quoting. This will enable OTCM to streamline onboarding of securities to its markets, removing the risk and administrative burden of certifying the suitability of securities for quotation from broker dealers, which in turn will allow them to focus on their financial advisory role.

In December 2020 the SEC published a proposed exemptive order that would, subject to approval, allow OTC Link to operate an Expert Market for companies that do not meet the information requirements allowing sophisticated or professional investors to continue to trade in the securities. On 2 August 2021, the SEC’s Division of Trading and Markets indicated that the SEC chair did not intend to approve the order in the short term. Accordingly, while the Expert Market for ‘no information’ securities will continue to operate, the market will only be available for unsolicited quotes representing limit orders from customers not affiliated with the issuer. Expert Market data feeds will continue to be available to broker-dealers and other sophisticated investors.

Background and outlook

OTCM has reiterated its three priorities for 2021 as:

1.

Implementation of amended Rule 15c2-11, effective 28 September 2021. OTCM sees the amended rule as a significant shift for the group, moving it from being a provider of ATS platforms to being recognised as setting the standard for monitoring the level of disclosure, compliance and governance of OTCM companies.

2.

Remaining focused on the reliability of trading systems and enhancing their functionality for traders.

3.

Continued support for OTCQX and OTCQB issuers. This will include enabling efficient interaction with shareholders, providing an efficient onboarding process for new clients and maintaining high service levels.

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 normalise in April 2021.

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 seven months of 2021 were up 27% by number compared with the same period in 2020 and the TSX Venture exchange saw an 174% increase.

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

Looking at the trend in the number of corporate client additions for OTCM shown in Exhibit 2, the Q221 figures reflect the favourable development in IPOs highlighted above. OTCM indicates that this has continued into the current quarter, with a good pipeline of potential clients also in place.

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 Q221, our group revenue estimate for 2021 is increased by 7.6%, including a 15% increase in the estimate for OTC Link (strong quarterly performance followed by an assumed normalisation of trading activity, as discussed above). We continue to assume a significant normalisation (-40%) in revenue for the division in 2022. The higher multiple divisions of Market Data Licensing and Corporate Services also beat our expectations by 9% and 15% respectively.

Our revenue growth assumptions for Market Data Licensing (16% and -7% for 2021 and 2022) are influence by our assumption of lower trading levels possibly affecting non-professional subscription levels, particularly in 2022. Uncertainty on this point, together with the outlook for trading activity levels in US equities, should be considered when viewing our estimates. Nevertheless, we increase our estimates by 6% for both 2021 and 2022.

For Corporate Services, the strong new client additions have translated into an increase in our estimates (4% for 2021 and 7% 2022), although we do not assume that they continue at the same rate.

OTCM’s balance sheet remains strong, with no debt and cash of $43.0m or $44.6m including restricted cash at the end of Q221. 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 this should continue to feature in the group’s investment case 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

85.9

92.5

7.6

28.6

33.1

15.8

1.93

2.16

11.8

1.25

1.34

7.2

2022e

77.7

84.1

8.2

25.6

30.5

19.3

1.73

2.06

19.1

1.35

1.41

4.4

Source: Edison Investment Research. Notes: Dividends include the special dividend of 65c announced for FY20 and estimates of 65c for FY21 and 75c for FY22.

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 of elevated trading volumes). The shares trade on markedly lower P/Es than the 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 Q221 suggests a higher multiple rating could be justified going forward.

Exhibit 9: OTCM comparative multiples

P/E ratios (x)

2021e

2022e

MSCI

64.2

57.2

Markit

37.2

33.4

Average information providers

39.8

35.2

Average global exchanges

26.1

24.3

OTCM

21.1

22.1

Source: Refinitiv, Edison Investment Research. Note: Prices as at 10 August 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

26,464

15,878

Market Data Licensing

21,054

21,922

23,384

24,447

28,133

32,705

30,416

Corporate Services

19,254

22,660

24,719

26,716

27,206

33,298

37,764

Revenue

50,881

54,656

59,278

62,839

71,229

92,467

84,058

Re-distribution fees and rebates

(2,317)

(2,480)

(2,448)

(2,489)

(2,810)

(2,896)

(3,042)

Net revenue

48,564

52,176

56,830

60,350

68,419

89,571

81,017

Transaction-based expenses

0

0

(375)

(746)

(3,022)

(7,971)

(3,334)

Revenues less transaction-based expenses

48,564

52,176

56,455

59,604

65,397

81,600

77,682

Operating expenses

(30,032)

(32,511)

(35,768)

(40,230)

(42,202)

(46,753)

(45,364)

EBITDA

18,532

19,665

20,687

19,374

23,195

34,847

32,319

Depreciation

(1,606)

(1,361)

(1,042)

(1,492)

(1,761)

(1,779)

(1,796)

Operating profit

16,926

18,304

19,645

17,882

21,434

33,068

30,522

Net interest

9

47

116

103

(27)

25

25

Profit Before Tax

16,935

18,351

19,761

17,985

21,407

33,093

30,547

Tax

(6,407)

(5,792)

(3,524)

(3,043)

(3,133)

(7,174)

(5,804)

Profit after tax

10,528

12,559

16,237

14,942

18,274

25,919

24,743

Profit after tax and allocation to RSAs

10,252

12,241

15,840

14,588

17,839

25,484

24,308

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

222.4

211.6

Fully diluted EPS (c)

90.4

105.8

136.3

124.7

153.4

216.0

205.6

Dividend per share (c)

116.0

116.0

123.0

125.0

125.0

134.0

141.0

EBITDA Margin (%)

38

38

36

32

34

39

40

Operating profit margin (%)

35

35

35

30

31

37

38

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

21,966

20,104

Current assets

Debtors

6,262

6,450

4,942

5,157

6,609

7,743

7,743

Cash & cash investments

25,034

23,683

28,813

28,217

33,733

47,957

62,237

Other current assets

1,789

2,316

2,998

1,656

1,763

1,879

1,879

Current liabilities

Deferred revenues

(14,664)

(15,531)

(16,070)

(15,815)

(18,765)

(23,000)

(26,085)

Other current liabilities

(5,372)

(5,644)

(6,711)

(9,574)

(11,232)

(9,984)

(9,984)

Long-term liabilities

Tax, rent and other

(1,101)

(1,351)

(2,459)

(17,293)

(15,267)

(15,378)

(14,023)

Net assets

15,506

13,791

16,409

17,673

19,546

31,474

42,163

NAV per share ($)

1.36

1.21

1.42

1.52

1.67

2.67

3.58

CASH FLOW

Net cash flow from operating activities

15,740

16,483

22,590

21,413

26,013

32,388

32,175

Capital expenditure, intangible investment

(415)

(1,165)

(549)

(5,516)

(1,034)

(850)

(1,300)

Dividends

(13,059)

(13,262)

(14,195)

(14,560)

(14,610)

(15,418)

(16,595)

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)

(374)

0

Net cash flow

1,109

(1,351)

5,130

(596)

5,516

14,224

14,280

Opening net (debt)/cash

23,925

25,034

23,683

28,813

28,217

33,733

47,957

Closing net (debt)/cash

25,034

23,683

28,813

28,217

33,733

47,957

62,237

Cash and restricted cash

25,244

24,375

30,534

29,778

35,297

49,521

63,801

Source: OTC Markets Group annual reports, Edison Investment Research


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 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

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 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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