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Beaufort Securities Breakfast Alert: Advanced Oncotherapy, BT Group, Debenhams, Smith

Published: 07:56 28 Oct 2016 BST

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Markets
Europe

The FTSE-100 finished yesterday's session 0.41% higher at 6,986.57, whilst the FTSE AIM All-Share index closed 0.20% down at 823.01. In continental Europe, the CAC 40 index ended the day 0.14% lower at 4,533.57 and the DAX closed 0.04% down at 10,717.08.
Wall Street
In New York overnight, the Dow Jones shed 0.16% to 18,169.68, the S&P-500 fell 0.3% to 2,133.04 and the Nasdaq eased 0.65% to 5,215.98.
Asia
In Asian markets this morning, the Nikkei 225 had risen 0.61% to 17,442.15 and the Hang Seng had lost 0.55% to 23,004.47.
Oil
In early trade today, WTI crude was up 0.08% to $49.76/bbl and Brent was up 0.16% to $50.55/bbl.

Headlines
Royal Bank of Scotland sees more losses in third quarter

Royal Bank of Scotland (RBS.L) has reported a £469m loss for the July-to-September period as "legacy issues" continue to overshadow its performance. The bank received a £45.5bn bailout during the financial crisis and has been tackling a range of problems. But once restructuring costs and provision for litigation were excluded, the bank made an adjusted quarterly operating profit of £1.3bn. A spokeswoman said RBS's core business was producing "really strong profits".

Company news

Advanced Oncotherapy (LON:AVO, 102.00p) – Speculative Buy
Advanced Oncotherapy, the developer of LIGHT, a next-generation proton therapy systems for cancer treatment, yesterday announced that Nicolas Serandour, Chief Operating Officer and Chief Financial Officer, will become Chief Executive Officer with immediate effect. Michael Sinclair, currently Chief Executive Officer and Executive Chairman, will retain his role as Executive Chairman.

Our view: At such an important stage of its development, shareholders will be delighted that AVO has chosen to split the roles of CEO and Executive Chairman. This means, of course, Nicolas Serandour now holds three important and distinct executive roles for the Group and, although he clearly has the perfect credentials for each position, it would be realistic to expect some sharing of these responsibilities or other succession planning to be detailed in the relatively near term. This might be expected following the completion of the Open Offer that is currently underway. As already advised, this entails a maximum of some £4.02 million (being below the €5 million threshold which would require the publication by the Company of a prospectus under the Prospectus Rules) to be raised at 100p/share from Qualifying Shareholders through the issuance of up to 4,020,587 new shares, being conducted on the basis of 1 Open Offer Share for every 13 Existing Ordinary Shares held as at the Record Date of 13 October 2016. As part of the Open Offer, an Excess Open Offer Entitlement facility also permits excess applications over and above Qualifying Shareholders' Entitlements to be accepted from such holders to the extent that others do not take up their Entitlement. The new shares to be issued pursuant to this are to be admitted to trading on AIM, which is expected to take place at 8.00 a.m. on 1 November 2016. A further announcement will be made in due course. Beaufort recommends existing investors take advantage of this proposal, recognising the latest time and date for receipt of completed Application Forms and payment in full is 11:00hrs on 31st October 2016. Beaufort retains its Speculative buy recommendation on Advanced Oncotherapy shares.

Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc

BT Group (LON:BT.A., 379.25p) – Buy
BT Group, a global provider of communications services and solutions, yesterday announced its second quarter results for the period ended 30 September 2016 ('Q2 FY2016'). During the period, revenue advanced +35% to £6.0bn and pre-tax profit increased +5% to £671m. Basic earnings per share fell by -10% to 5.7p. On adjusted basis, underlying revenue excluding EE acquisition rose +1.1%, adjusted EBITDA jumped by +31% to £1,888m and adjusted pre-tax profit grew +24% to £873m, consequently, adjusted basic earnings per share improved by +4% to 7.2p. In the H1, the BT's normalised free cash flow increased by +£667m to £1,342m and net debt widened by £3,654m to £9,573m year-on-year. On the operational front, the Group added 280,000 net mobile pay monthly customers with sustained low churn rate. BT's CEO Gavin Patterson commented "This is a positive set of results, both operationally and financially, and we remain on track to achieve our full year outlook. We've made good progress on the integration of EE and the delivery of our synergy targets. Our consumer facing lines of business have performed well, but in the enterprise space, UK public sector continues to be a challenging market. Across the group, we continue to drive cost reduction and productivity improvements." The Group declared an interim dividend of 4.85p, up +10%.

Our view: BT continued to make a progress in the Q2, with both revenue and pre-tax profit registering growth, with the Group remaining on track to meet full year expectations. The acquisition of EE on 29 January 2016 contributed revenue of £1,277m, EBITDA of £282m and free cash flow of £135m during the Q2. Meanwhile, BT is working extensively to improve its customer experience. The Group is expected to strengthen its investment in the H2 with over 1,000 new UK-based customer service staff, with an aim to service 90% of all enquiries from the UK. Estimating the shares trade on a FY2017E and FY2018E P/E multiple of 12.8x and 11.9x, together with a dividend yield of 4.0% and 4.5%, the shares continue to represent a good value. Beaufort retains its Buy rating on the shares.

Debenhams (LON:DEB, 55.35p) – Hold
Debenhams, a leading international, multi-channel brand clothing retailer, yesterday announced its full year result for the 53 weeks ended 3 September 2016 ('FY2016'). During the period, gross transaction value advanced +1.3% to £2,938.5m and statutory revenue fell -0.5% to £2341.7m, against 52 weeks to 29 August 2016. Like-for-like ('LFL') sales improved by +0.6%. Gross margin has declined by -0.1% and reported pre-tax profit fell -10.4% to £105.8m result in basic earnings per share down -1.3% to 7.8p. On the operational front, the Group opened Shanghai sourcing office in August to enhance its supply chain for international and multi-channel growth. The Group declared final dividend of 2.4p per share, bringing full year dividend to 3.425p, up +0.7%.

Our view: Debenhams performed in line with expectation for the full year FY2016. Revenue from UK declined, which dragged down the overall Group performance even after its international division performed positively. Pre-tax profits were also hit as a result of a £12.4m exceptional items taken during the period associated with restructuring of the Group's Irish business, head office reorganisation including the movement to category buying plus the alignment of store and online operations, and a write-off of legacy IT systems following the launch of a new international website. Debenhams' strategy to shift towards non-clothing categories amid weaker market demand supported its performances while registering encouraging growth in beauty, gifting and food categories. The shares are currently trading on FY2016E and FY2017E P/E multiples of 7.9x and 8.4x along with dividend yields of 6.3% and 6.5% respectively. On this basis the shares are not expensive, but with limited growth option with a tough and rapidly changing trading environment against a uncertain economic background, they deserve to be. The new management under CEO, Sergio Bucher, seek to turn to fortunes of Debenhams around and shareholders should give him the benefit of the doubt while the shares continue to provide reasonable income. In view of this, Beaufort maintains its Hold rating on the shares.

Smith (DS) (LON:SMDS, 400.60p) - Buy
DS Smith Plc, the leading supplier of recycled packaging for consumer goods, has issued a positive pre-close trading update in respect of the half-year ending 31 October 2016. The business has again made good progress and performance remains in line with management expectations. Volume growth continues to be supported by strong ongoing growth with their large pan European customers. The return on sales and return on capital employed are expected to show progression over the comparative period last year despite the initially dilutive effect of recent acquisitions. As in previous periods, the Company has invested in both organic and inorganic opportunities in the half-year and are pleased with the initial performance of the recently acquired display businesses, Creo and Deku-Pack, which form an important part of the Company's strategy for this growth market segment.

Our view: Despite raw material pricing pressure we still see organic growth in volumes in 2017 (circa 3%), and contribution from M&A and a FX tailwind. This positive update confirms DS Smith's excellent record of organic growth and their success in M&A. It deserves its premium rating and we confirm our Buy rating on the stock.

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