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Beaufort Securities Breakfast Alert ATTRAQT Group, Horizon Discovery, Ryanair, Sports Direct and others

Published: 08:04 10 Sep 2015 BST

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The Markets

Market opening: The UK market opened lower this morning. The FTSE 100 was trading 60 points lower at 8:06 am.

New York: Wall Street ended in the red following a decline in oil prices. Moreover, record job openings in July raised the possibility of an interest rate hike by the Fed. The S&P 500 slipped 1.4%, dragged by the energy sector.

Asia: Equities are trading lower, with weak economic data from China and Japan denting investor sentiment. China’s producer price index (PPI) fell yet again in August, while Japan’s core machinery orders slipped 3.6% m-o-m in July. The Nikkei 225 dropped 2.5% and the Hang Seng was trading 1.7% lower at 7:00 am.

Continental Europe: Markets extended gains for the third consecutive day amid reports of stimulus measures by China and Japan. France’s CAC 40 and Germany’s DAX rose 1.4% and 0.3%, respectively.

Crude Oil: Yesterday, prices of Brent and WTI oil fell 3.9% each. The spread between the two varieties stood at US$3.4 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.21% higher yesterday at 736.30.

Today’s news

UK house prices jump in August: RICS

As per the Royal Institution of Chartered Surveyors (RICS), the monthly house price balance in the UK rose to 53 in August, the highest since May 2014, from 44 in July. The increase is ascribed to shortage of homes in the market. The agency has revised its estimate for house price growth for 2015 to 6% from 3% earlier.

China PPI falls to six-year low

China’s producer price index (PPI) slipped 5.9% y-o-y in August, the biggest drop since 2009, after declining 5.5% in July. The consumer price index (CPI) improved 2% y-o-y, largely due to increasing food prices.

Company News

ATTRAQT Group (LON:ATQT) – Speculative Buy

ATTRAQT issued its interims yesterday, showing significant revenue growth of 40% to £1.34m, and with recurring revenues over 90% of the headline figure. Deal values are growing up 31% and losses reduced to £350k, in line with expectations. Operationally, there is excellent continued sales momentum, with 24 deals in H1 including 7 upgrades/new sites and signing 17 new clients, bring the Total client numbers at period end to 100. The US sales operations are doing well with 6 new customers. Since the end of H1, seven new clients, including a large new US client, TUMI, were signed. The company also announced the launch of ‘Live Catalos’ JV with mobile digital app developer YUDU Media.

Our view: ATTRAQT is a visual merchandising platform of choice for multichannel retailers. For a fast growing but small company, ATTRAQT is punching above its weight, attracting high value marquee names, including Tesco Clothing, Bonmarché, TK Maxx, Heal’s, Screwfix, boohoo and Superdry. The company continues to see encouraging growth from its Freestyle Merchandising platform, both in terms of new clients joining as well as increased use by existing clients. H1 usage statistics revealed a 57% increase in page impressions to 4.2 billion and a doubling in the number of transactions. ATTRAQT is also seeing client reliance on its software increasing, resulting in high renewal rates and some significant service upgrades during H1. The company expects to see this trend continue through the second half of the year. The company has also maintained a low client revenue churn of 6%. The challenge for retailers is to ensure consistency of merchandising across channels and countries – something that ATTRAQT successfully achieves through its Freestyle Merchandising platform. An extension to these trends has been the move towards responsive web design (“RWD”), whereby retailers design a universal eCommerce site to work on any mobile device, rather than creating separate sites to cater for different devices. ATTRAQT has been instrumental in helping its clients adapt to RWD requirements, with recent examples including Ben Sherman and Fat Face. The company is confident in the outlook for rest of the year. One final point of note is the JV with YUDU Media, which has 220 digital catalogues retailers. This is a potential source of new clients for ATTRAQT and we anticipate news as the year progresses. We initiate coverage with a Speculative Buy.

Horizon Discovery Group (LON:HZD) – Speculative Buy

Yesterday, Horizon Discovery Group (Horizon) informed that it has entered into license and supply agreement with Abcam, a global player in the supply of research antibodies. As per the deal, Abcam would access more than 1,800 human diploid and haploid cell line models from Horizon, to authenticate its prevailing monoclonal and polyclonal antibodies marketed globally. The data generated by Abcam would help the company in time and cost savings for the cell line manufacturing process. The new cells produced would be offered to customers across Horizon’s core products and services. The company would receive £660,000 distributed over a three year period, and an additional £1,275,000 across four to six years if Abcam extends the contract. Horizon will also receive a royalty payment on Abcam antibodies, marketed and made using its cell lines, for a period of 10 years from the date of first sale. Further, the company has an option to extend the contract to cover the complete human proteome having more than 17,000 targets.

Our view: The aforementioned contract showcases Horizon’s quality to enter into value deals well supported by its robust technology and resources. The company’s cell lines are to be used in antibodies, reflecting the range of products it could be utilized. The partnership with Abcam would help the company generate long-term earnings in the form of licensing and royalty payments. Last week, Horizon entered into an agreement with Redx Pharma on treatments for colorectal cancer. The company is expected to benefit from this contract with a share of future milestones and product royalties. Recently, the company also announced an investment up to £10m in its leveraged R&D business for a span of two years, to identify the next generation of molecular cancer therapeutics. These investments would further broaden its product portfolio and offerings to the customers. Going forward, Horizon would look out for partnerships for its programmes with therapeutic-focused companies to minimize its risk and widen the revenue stream. We believe the company’s continuous efforts to broaden its portfolio of services by investments and agreements would help it achieve their profitability target by 2017. We maintain a Speculative Buy rating on the stock.

Ryanair Holdings (LON:RYA) – Buy

Yesterday, Ryanair Holdings (Ryanair) released a trading statement for the fiscal year. The company raised its net profit estimate by 25% to lie between €1.175bn and €1.225bn from its previous range of €940m to €970m. The improvement in the guidance was led by a 13% traffic growth in H1 2015 as compared to previously guided 10%, and a 2% rise in fares in the first half. Ryanair expects a traffic growth of 15% in Q3 2015, compared to the previously guided 13%, and no change in the fares during the quarter. The forecasted traffic for 2016 increased to 104 million against an earlier estimated 103 million. The company informed that it has recovered all the funds (less than US$5m) which were subject to fraudulent electronic transfer to a Chinese bank in April.

Our view: Ryanair expects healthy performance for the year led by strong forward bookings and improved traffic. The company has delivered excellent results in the past two months with record seat load factor and customer traffic. Ryanair continues to build on the success of its’ Always Getting Better’ (ATB) customer experience improvement programme, that sets apart the carrier from other low cost airlines. The company is taking advantage of the lower oil prices as it has introduced new routes and increased frequencies, with additional services for business passengers. These positive developments enabled Ryanair raise its guidance substantially. Going forward, the company plans to improve its ATB service to further enhance consumer experience. The new enhancements for the year 2015 include the launch of a new website, new app, new cabin interiors, new crew uniforms, and better in-flight menus. In view of the constant improvement in services and value delivered to the customers, we maintain a Buy on the stock.

Barratt Developments (LON:BDEV) – Buy

Yesterday, Barratt Developments announced its annual results for the year ended 30th June 2015. During the period, revenues jumped 19.1% to £3.8bn led by an increase in private average selling price to £262,500 (2014: £241,600). Total completions stood at 16,447, up 10.8% on yearly basis. Pre-tax profit advanced 44.8% to £565.5m resulting in an EPS of 45.5p against 31.2p last year. The company’s ROCE improved 440 basis points to 23.9% with net cash at the end of period stood at £186.5m (2014: £73.1m). On the operational front, Barratt Developments continued its progress approving 16,956 plots for purchase and maintained a controlled land supply of 4.5 years. The company declared a dividend of 15.1p, 46.6% higher than last year, to be paid on 20th November 2015. In addition, Barratt Developments also declared a special cash dividend of 10p per share amounting to £100m.

Our view: The year 2015 has been a successful one for Barratt Developments, both in financial as well as in operational terms. The company continued to deliver on its core strategy to provide quality homes in all market segments. Riding on the surging demand for new homes and healthy mortgage lending environment Barratt Developments generated strong margins and increased the number of plots. The new financial year has also been productive for the company with Total forward sales including JV as on 6th September 2015 at £2,321.9m, up 32.2% y-o-y. Going forward, Barratt Developments expects to leverage on a healthy land market with better development prospects, and achieve targets of 20% gross margin and at least 25% ROCE by 2017. In view of company’s solid results and plans to secure land pipeline, we retain a Buy rating on the stock.

GlaxoSmithKline (LON:GSK) – Buy

Yesterday, GlaxoSmithKline (GSK) and its partner Theravance Inc declared initial results from the Study to Understand Mortality and MorbidITy (SUMMIT) in chronic obstructive pulmonary disease (COPD) for Relvar/Breo Ellipta 100/25mcg (fluticasone furoate ‘FF’/vilanterol ‘VI’ or ‘FF/VI’). The study included 16,485 patients from 43 countries having COPD with moderate airflow limitation or a history of increased risk of cardiovascular disease (CVD). As per the results from the primary endpoint, the risk of dying on FF/VI 100/25mcg was 12.2% lower than on placebo, which is not statistically significant (p=0.137). The first of two secondary endpoints, FF/VI 100/25mcg reduced the rate of lung function decline by 8ml per year compared with placebo. However, as the primary endpoint was not met, the result is statistically insignificant. The results for the other secondary point showed that the risk of experiencing an on-treatment cardiovascular (CV) event at any time was 7.4% lower in patients taking FF/VI 100/25mcg versus placebo, which is not statistically significant (p=0.475). Further, the study analysed a number of COPD endpoints including FEV1, rate of moderate/severe exacerbations, time to first moderate/severe exacerbation, time to first severe exacerbation etc. The study resulted in an improvement as compared to placebo with P-value of less than 0.002 each; however failure to meet the primary endpoint makes it statistically insignificant.

Our view: GSK is focusing on main therapy areas comprising HIV, vaccines, oncology, cardiovascular, immune-inflammation and respiratory diseases, to drive future growth. The aforementioned study done by GSK and its partner Theravance Inc was done to understand the causes of COPD and CVD and reduce the number of patients dying from the diseases. The study was unable to draw any statistical significance; though the research did provide useful knowledge to improve the supervision of such patients. The study may not have met the expectations; however, it does not come as a blow to GSK which has made substantial improvements to its business. In August, the company divested its rights in ofatumumab that would help it generate sufficient funds and enhance shareholder value. GSK also received approval for mepolizumab as a supplementary maintenance treatment for severe asthma with eosinophilic inflammation. Owing to the expected increase in demand particularly in the emerging countries and the recent streamlining of company’s portfolio, we expect GSK to improve its earnings and generate stable returns for shareholders. We reiterate a Buy rating on the stock.

Sports Direct International (LON:SPD) – Hold

Yesterday, Sports Direct International (Sports Direct) released its trading update for the period between 27th April 2015 and 8th September 2015. During the period, there has been no significant change in the financial position from the most recent reporting on 26th April 2015. The trading has been in line with management expectations.

Our view: The aforementioned update shows that Sports Direct has shown no major improvement in its performance. The company is currently facing tough competition from online retailers and distributors. However, the company reported positive results for year ended 26th April 2015 led by growth in the Sports Retail Segment. Going forward, the company plans to improve its product range and availability, optimize its stores and web offerings, and introduce further enhancements to its store portfolio. Further, Sports Direct expansion of its Shirebrook campus is expected to be complete later this year and is likely to enhance its training facilities for employees. We would like to wait and watch company’s progress in terms of its expansion and improvement in online services. We downgrade the rating to Hold for now.

Economic News

UK industrial production

UK industrial production fell 0.4% m-o-m in July, following a similar decline in June, the Office for National Statistics reported yesterday. Markets had forecasted a 0.1% improvement. On y-o-y basis, industrial production advanced 0.8% in July from an increase of 1.5% in June. The reading missed the market expected rise of 1.4%.

UK manufacturing production

The Office for National Statistics reported that the UK manufacturing output fell 0.8% m-o-m in July, after a rise of 0.2% in June. The reading missed the market expected increase of 0.2%. On y-o-y basis, manufacturing output shrunk 0.5%, after a 0.5% improvement in June. The data missed the market expected growth of 0.5%.

US MBA mortgage applications

US mortgage applications dropped 6.2% in the week ended 4th September, after rising 11.2% in the preceding week, the Mortgage Bankers’ Association said yesterday. Refinance index fell 9.9%, while the gauge of loan requests for home purchases slipped 0.9% during the week.

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