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Beaufort Securities Breakfast Alert: EasyJet, Hastings Group Holdings, InterContinental Hotels, Provident Financial, Stratex International

Published: 08:16 09 May 2016 BST

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Europe
The FTSE-100 finished Friday's session 0.14% higher at 6,125.70, whilst the FTSE AIM All-Share index closed 0.05% higher at 722.78. On the continent, equities ended mostly lower on Friday, as a renewed commodities sell-off in China affected investor sentiment. The focus remains on poorer-than-expected jobs data in the US. France's CAC 40 closed 0.4% lower, whereas Germany's DAX gained 0.2%.
Wall Street
Wall Street recovered from initial losses amid gains in oil prices on Friday. Earlier in the day, markets had turned lower, as the key figures in the April employment report missed street expectations. The S&P 500 advanced 0.3%, with materials leading seven sectors higher.
Asia
Markets are trading higher on oil price rally due to supply concerns in Canada, even as investors digested weaker-than-expected trade figures in China. The Nikkei 225 closed 0.7% higher, while the Hang Seng was trading 0.6% higher at 7:00 am.
Oil
On Friday, WTI and Brent oil prices increased 0.8% each. The spread between the two varieties stood at US$0.7 per barrel.

Headlines
Cameron warns of threat to peace following Brexit
Today, British Prime Minister David Cameron will put forward a case for the UK to stay in the European Union (EU) to avoid another conflict that may threaten peace in the region. He will insist that the country cannot remain immune from the events in Europe.
China's trade falls in April
China's exports fell 1.8% y-o-y in April, slipping again after surging 11.5% y-o-y in March. In addition, the country's imports slumped 10.9% from a year ago.

Company news

EasyJet (LON:EZJ, 1416.0p) - Buy
easyJet, a low-cost European airline company, on Friday provided its passenger statistics for April 2016. During the month, the Group's passenger traffic advanced by +6.1% to 6.4 million customers, while load factor fell -0.4% to 90.4% comparing to the same period last year. On a rolling basis for the past 12 months, passenger traffic rose +7.4% to 71.1 million customers and the load factor improved +0.5% to 91.5%. EasyJet will announce its results for the 6 months ending 31 March 2016, on 10 May 2016.

Our view: easyJet performed satisfactory in April 2016, with increased passenger traffic, recovering from last month's statistics (March 2016: passenger traffic +4.3%, load factor -1.3% y-o-y). Passenger traffic represents number of earned seats flown, while load factor represents number of passengers as a proportion of the number of seats available for passengers. Although the load factor fell slightly, considering series of strikes by ATC (air traffic controllers) in some countries such as France, Belgium, Greece and Italy, together with bombings that hit Brussels airport and Maalbeek metro station on 22 March, that discouraged many travellers and resulted flights cancellations, the overall performance was good. The Group's strategy of easy and affordable travel aided growth in passenger numbers. We look forward to its H1 result to see how the Group's strategy to expand its services by increasing its flight offerings and launching of several strategic routes, had played. Beaufort reiterate its Buy rating on the stock, but for the time being, Ryanair is the preferred pick between the two who outperformed.

Hastings Group Holdings (LON:HSTG, 176.80p) - Buy
Hastings on Friday provided an update on its trading performance for the 3 months ended-March 2016. It confirmed that the first quarter saw a strong operating performance and delivery in line with targets set at the time of the IPO. It noted that the Group had 'continued its profitable growth trajectory, with increases in customer policy numbers and rising premiums.' Business highlights for the period included live customer policies increasing to 2.1 million, a 17% year on year increase; market share of UK private car insurance policies up 6.0% (5.3%); gross written premiums up 29% to £171.0 million (£132.3 million) and net revenue up 22% to £132.7 million for the 3 months ended 31 March 2016 (£108.8 million).

Our view: Hasting's trading performance during Q1'2016 demonstrated its ability to continue to deliver on promises. The Group's differentiated and agile, data driven business model continues to drive profitable growth in customer policies and market share, and strong cash generation. Demonstrating superior growth without significantly relying on reserve releases, it appears set to deliver 2.5m policy volume by the end of 2017 while also benefitting from a firming trend in motor policy rates driving expansion of underwriting margins. Hastings trades on a forward P/E multiple of just 11.8x which remains a steep discount to the broader sector's 15.6x rating. Coming with a 4.2% prospective yield, Hastings should be of interest for investors seeking both capital gains and income. Beaufort repeats its Buy recommendation on Hastings in anticipation of further re-rating relative to its peers.

InterContinental Hotels (LON:IHG, 2,681.97p) - Buy
The Group issued a Trading Update last Friday and report that they have made a good start to the year, driving RevPAR up 1.5% against the background of weak oil markets and the earlier timing of Easter, which affected several of their markets. The Group have continued to focus on building and leveraging scale where it matters, signing rooms into their pipeline at the fastest rate since 2008. Group RevPAR was up 1.5%, with rate up 1.0% and occupancy up 0.3%. The shift in timing of Easter into Q1 had an adverse impact across the industry, especially in the Americas and Europe, which the Group expect this to reverse in Q2. In the Americas RevPAR was up 1.9%. In the US RevPAR was up 1.5%, with occupancy levels of almost 65% on the back of record levels of industry demand. In Europe RevPAR was up 1.4%. Germany and Russia/CIS, two of the Group's priority markets, delivered mid-single digit RevPAR growth. France was down 2.3%, with double digit growth in the provinces, outweighed by declines in Paris. Flat RevPAR in the UK reflects a solid performance in the provinces, offset by softer industry-wide trading in London, predominantly due to supply increases. Asia, Middle East & Africa RevPAR was down 1.1%. Performance in the region outside the Middle East was strong, with 5.0% RevPAR growth overall. Japan and India delivered double digit RevPAR growth; Australasia was up 5.9%; and Southeast Asia up 3.3% led by Vietnam, the Philippines and Thailand. In the Middle East RevPAR was down 10.4% due to the ongoing impact of low oil prices.

Our view: The trading update provided a mixed result with a slowdown in RevPAR growth to 1.5%, partly due to the early Easter holiday and partly due to exposure to oil markets. France was down, explained by recent terrorist attacks. The group reported growth in net system size at +2.7% to 724k rooms. Pipeline build continues to grow to220k, with 45% under construction. The previously announced US$1.5bn cash return to shareholders is due on 23 May 2016. Looking ahead, despite economic and political uncertainty in some markets, current trading trends and the momentum behind the Group's brands give the Group confidence for the rest of the year. We maintain our Buy stance.

Provident Financial (LON:PFG, 2,838.0p) - Hold
Provident Financial plc, the leading UK non-standard lender, made the following Interim Management Statement on Thursday covering the period from 1 January 2016 to 4 May 2016. The group has made a good start to the year with the profit performance of all businesses in line with or above internal plans for the first quarter. Vanquis Bank delivered year-on-year average receivables growth of 13% in the first quarter and profit growth modestly ahead of that supported by robust margins, operational gearing and lower funding costs. However, total account bookings were 23,000 lower than the first quarter of 2015 and the year-on-year growth in customer numbers at the end of March was 6.2% versus growth of 9.9% for 2015 as a whole. Home credit performed well through the first quarter of the year with continued strong margins and lower costs more than offsetting the impact of lower year-on-year receivables. Satsuma's performance continues to benefit from the significant tightening of credit standards implemented in the fourth quarter of last year. A number of business and product development initiatives are on-track to be delivered in 2016, including the launch of a mobile app and a monthly product. There is no change to the guidance for the business to be at around break-even for the year as a whole. Good progress has been made in developing the underwriting, marketing and customer journey at glo in advance of the transfer of the operation to Vanquis Bank and full roll-out of the business during the second half of the year. Moneybarn has enjoyed a strong flow of new business volumes during the first quarter of the year. Customer numbers and receivables ended March at 33,000 and £243m respectively, representing year-on-year growth of approximately 40%. The returns being generated by the business are consistent with 2015 and the business continues to explore further opportunities to develop its product offering.

Our view: The Company do say that all of the group's businesses have made a good start to the year, trading in line with or above internal plans and the sound credit quality across all three divisions provides the foundation for another good performance in 2016. However, there appears to be a slowdown at Vanquis, which has been the main driver of growth in recent years. The Home Credit division saw a fall in customers in Q1 and Satsuma numbers were flat. Whilst we still believe Provident is a great business and has an exemplary track record, it is highly rated at 17x PE to end 2016 and with a yield of 4.5%. We prefer the newly quoted Morses Club (AIM: MCL) which is presently rating on a PE of just under 11x and offers a current year yield in excess of 6%. We move Provident Financial down to Hold.

Stratex International (LON:STI, 2.12p) - Speculative Buy
Stratex is an AIM-quoted exploration and development company focused on gold and base metals in East Africa, West Africa and Turkey, where it also holds a significant interest in a producing gold mine. In Friday's release, management noted that Tembo Gold Corp., in which the Company holds a 12.89% interest, has been granted a management cease trade order due to a delay in Tembo filing its annual audited consolidated financial statements and related documentation. Tembo anticipates that it will lodge the Required Filings by 29th June 2016, at which point the MCTO will be revoked. Stratex went on to inform investors that Tembo plans to undertake a non-brokered private placement of up to 20 million common shares at a price of CND$0.02/share. The Placement will raise gross proceeds of up to CND$400,000, which will be used for working capital. The successful Placement would reduce Stratex's interest in Tembo to approximately 11.2%. The Company also advised investors that Stratex's CEO Bob Foster has tendered his resignation from the Tembo Board.

Our view: The move to secure further financing for Tembo is sensible given the rising gold price and the recent awakening interest in gold projects and gold stocks. The Tembo tenements adjacent to Acacia Mining's Bulyanhulu Mine have yielded multiple gold intersections from previous drill programmes and it now remains to deliver a coherent resource with further drilling. Whilst retaining a significant interest in Tembo, Stratex is directing its future efforts and expenditures towards opportunities in West Africa, a region where management remains focused on exploration and the potential acquisition of new projects. Stratex also continues to consider opportunities in Turkey and the wider region where it already has a footprint in terms of intellectual and operating experience along with a successful exploration team. Wishing to maintain this focus and the necessary commitment of time and effort, Bob Forrest decided to step down from the Board of Tembo but will continue to monitor its developments with interest.

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