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Beaufort Securities Breakfast Alert:, Cyan Holdings PLC, GKN, ValiRx Plc, Xtract Resources PLC, Taylor Wimpey

Beaufort Securities Breakfast Alert:, Cyan Holdings PLC, GKN, ValiRx Plc, Xtract Resources PLC, Taylor Wimpey

Today's edition features:

• CyanConnode Holdings (LON:CYAN)

• ValiRx (LON:VAL)

• Xtract Resources (LON:XTR)



Taylor Wimpey (LON:TW)


"Short on the detail. In fact, it was mostly a rendition of the what we have all heard before. President Trump’s inaugural address to the joint-session of Congress left many more questions than answers. While reasonably expansive regarding replacement of Obamacare, his unifying statements again broadly covered a ‘renewal of the American spirit’, economic nationalism, jump-starting momentum and that America had at last started to ‘drain the swamp’; a repeat of his ambitions to reduce high US corporation taxes in order to allow businesses to ‘compete anywhere’, while offering ‘massive’ relief for the middle classes, however, sounded something like a broken record. Having already heard White House officials suggest the President will call for the biggest increase in military spending since the height of the Iraq and Afghanistan wars, adding US$54bn to the Pentagon’s budget, a further ‘throw away’ ambition of invest US$1tr into his country’s tired infrastructure came across as just another unfunded promise. Equity markets appeared to anticipate just such an outcome before their close, with all three principal US indices falling modestly into the red as the Dow Jones snapped its 12-day streak of record closings, with retailers leading the decline following disappointing results and outlook statement from Target. Although trader’s patience now appears to be wearing rather thin, the initial impact on asset prices was limited during the Asian session as they instead hiked bets on a March interest-rate rise following hawkish speeches which put such a move ‘on the table’ coming from the Fed’s Bullard and FOMC’s Williams yesterday. This was enough to spike the US$:Yen, which was immediately reflected in a rising Nikkei that also celebrated news that Business Spending rose more than expected in Q4’2016. Other Asian markets followed this lead, with the Shanghai Composite confident having seen February Official Manufacturing PMI rise, while the commodity-heavy ASX also reversed earlier losses as the US$ spiked. Feeling in a rather anti-climactic mood, today’s macro releases are not expected to provide any great shakes, with the UK due to provide Nationwide House Prices, January Consumer Credit and February Markit Manufacturing PMI, with the US is scheduled this afternoon to detail January Personal Consumption Expenditures index data followed by Markit and ISM manufacturing PMI for February, the Beige Book and vehicle sales. Two further FOMC Member speeches due late in the US session, this time from Kaplan and Brainard, may add further to the markets increased conviction that a hike next month is on the cards. UK corporates due to detail earnings or trading updates include BBA Aviation (BBA.L), CRH (CRH.L), Carillion (CLLN.L), Costain Group (COST.L), James Fisher & Sons (FSJ.L), ITV (ITV.L) and Man Group (EMG.L). London equities will likely focus on the raised expectation of a Fed hike rather than last night’s disappointing lack of details, with the FTSE-100 seen rising between 10 and 15 points in early trade. Investors will also be seeking more detail from BP this morning after news of it setting a new break-even target for the Group at US$35 for a barrel of oil."

- Barry Gibb, Research Analyst




The FTSE-100 finished yesterday's session 0.14% higher at 7,263.44, whilst the FTSE AIM All-Share index lost 0.14% to stand at 907.20. In continental Europe, the CAC-40 finished up 0.28% at 4,858.58 whilst the DAX was 0.10% higher at 11,834.41.

Wall Street

In New York last night, the Dow Jones fell 0.12% to 20,812.24, the S&P-500 shed 0.26% to 2,363.64 and the Nasdaq eased 0.62% to 5,825.44.


In Asian markets this morning, the Nikkei 225 had risen 1.43% to 19,392.26, while the Hang Seng fell 0.01% to 23,737.21.


In early trade today, WTI crude was up 0.09% to $54.06/bbl and and Brent was up 0.16% to $56.60/bbl.



'Still stains' on Sir Philip Green over BHS

Retail tycoon Sir Philip Green's £363m payment to the BHS pension scheme does not wipe away the stains from his reputation, a senior MP has said. Business committee chairman Iain Wright told the Daily Mirror letting him keep his title would be the "biggest case of cash for honours that we've ever seen". Sir Philip agreed the settlement with the regulator to help fill the failed retailer's pensions black hole. But fellow Labour MP Frank Field said the BHS saga was far from over. Under the deal with the Pensions Regulator announced on Tuesday, former BHS workers will get the same starting pension that they were originally promised. Mr Wright and Work and Pensions Select Committee chairman Frank Field led questioning of Sir Philip over the sale of the chain and its eventual collapse. He owned BHS for 15 years before selling it for £1 to former bankrupt Dominic Chappell.

Source: BBC News


Company news

CyanConnode Holdings (LON:CYAN, 0.20p) – Speculative Buy

The world leader in narrowband radio mesh networks, yesterday announced that it has signed a Memorandum of Understanding with Tech Mahindra Limited, a specialist in digital transformation, consulting and business engineering. CyanConnode and Tech Mahindra have agreed to collaborate to market, sell and deliver expertise in narrowband mesh technology for the smart grid, smart city and Internet of Things markets. As part of the collaboration, Tech Mahindra will integrate CyanConnode's enterprise-level Head End Software with leading Meter Data Management Systems and Enterprise Business Applications to create an end-to-end utility specific solution.

Our view: Broadening potential by extending the platform beyond smart metering! The integration of CyanConnode’s enterprise-level software with Tech Mahindra's Enterprise Applications will broaden the Group’s proposition and provide customers with solutions across the leading application platforms. This collaboration is a further step towards a managed services business model, which is capable of delivering recurring revenue streams from software licenses and support services. Tech Mahindra is a US$4.2 billion revenue company, helping over 837 global customers including Fortune 500 companies. It is part of the US$17.8 billion Mahindra Group that employs more than 200,000 people in over 100 countries. The Mahindra Group operates in the key industries that drive economic growth, enjoying a leadership position in diverse markets including information technology. According to a recent report from Navigant Research, the global revenue for MDMS and analytics is expected to total US$10.3 billion from 2015 to 2024. Recognising this and the Group’s lead in this giant developing global opportunity, Beaufort reiterates its Speculative Buy recommendation for CyanConode and its price target of 0.6p/share.

Beaufort Securities acts as a corporate broker to CyanConnode Holdings plc


ValiRx (LON:VAL, 4.30p) - Speculative Buy

The clinical stage biotechnology company, yesterday announced the recent publication of two articles in peer-reviewed journals that examine drug reprofiling in oncology and the progress of novel cancer treatment drug, VAL401, in its Clinical Efficacy trials for the treatment of lung cancer and other oncology indications. The first article is titled "A Chemical Genomics Approach to Drug Reprofiling in Oncology: Antipsychotic Drug Risperidone as a Potential Adenocarcinoma Treatment". Accepted for publication in Cancer Letters, Volume 393, 2017, Pages 16-21 and co-authored by Dr Suzy Dilly, Professor Paul Taylor, University of Leeds, alongside other academic staff at both the University of Warwick and Leeds University, this peer-reviewed communication details the experimental processes that led to the formulation of the VAL401 process. The second publication is Bentham Science and is titled "Pimping up Drugs Recovered, Superannuated and Under Exploited Drugs - An Introduction to the Basics of Drug Reprofiling", Current Drug Discovery Technologies, 2017, 14, 000-000, by Dr George Morris, COO of ValiRx Plc and Dr Suzy Dilly, CEO of ValiSeek. They explore examples of success in reprofiling, draw comparisons between techniques, and finally provide two examples from the ValiRx plc development pipeline currently undergoing the process. A third article appears as an advertising feature in the March 2017 issue of "BioPharma Dealmakers" (a Nature publication) describing the licensing opportunity of VAL401 as an oncology treatment and summarises the expectations of the current trial.

Our view: These peer-reviewed published articles support ValiRx and ValiSeek’s anti-cancer technology. Dr Victoria D'Aquino, Research and Development Officer at ValiRx, has submitted an abstract on the current VAL201 clinical trial, which has been accepted for poster presentation at the 15th International Congress on Targeted Anti-Cancer Therapies in Paris, France, on 6-8 March 2017. Dr Suzy Dilly will also attend the Bio-Europe Spring bio-partnering conference on 20-22 March 2017, in Barcelona, Spain; this conference represents a further opportunity to continue to develop conversations with potential partners and licensees. This positive news underlines the fact that ValiRx investors are getting an awful lot for their money! The Group operates a low-risk, high return model that is shareholder friendly in the respect that it seeks to partner or out-licence drug candidates, with a view to crystallising value, before reaching the costlier phases of the development. It routinely provides shareholders with tangible progress between modest funding rounds, the latest of which now finances its two lead candidates with respect to additional patient/centre recruitment, trial dosing and product manufacturing out to September. Comparisons with both peer groups with similar clinical portfolios, or early stage partnership deals with big pharma seeking entrance into such therapeutic areas, suggests a significant valuation gap has opened. ValiRx shares presently recognise none of the value created over the past 18 months, nor the depth of its therapeutic pipeline. While it is understandable that the market remains concerned regarding the Group’s prospective funding needs, it should also recognise that a potentially near-term Big Pharma development collaboration for either VAL201 or VAL401 would likely be at a multiple of the Group’s current capitalisation. Beaufort reiterates its Speculative Buy rating on the shares.

Beaufort Securities acts as corporate broker to ValiRx plc


Xtract Resources (LON:XTR, 0.03p) - Speculative Buy

Xtract Resources announced yesterday afternoon results from the Definitive Feasibility Study (DFS) for an open pit operation on the Manica gold project (Fair Bride deposit) in Mozambique. The DFS was completed by Minxcon. Based on a gold price of US$1,262/oz and a discount rate of 8.4% the after-tax NPV was US$42m with an IRR of 41.1%, assuming total capital expenditure of US$44m and a LOM of seven years producing 215,293oz at an average grade of 2.62g/t Au. The LoM cash cost (C1) were estimated at US$556/oz and the All-in-Sustaining Cost (C3) at US$862/oz. The mineral reserve estimate is 3.21Mt grading 2.62g/t Au (cut-off grade of 1.0g/t Au) for a gold content of 269.5koz. The total combined mineral resource estimate is 13.95Mt grading 1.76g/t Au (0.5g/t Au cut-off) for 789.2koz with 94% of the total resource occurring within the Measured and Indicated categories.

Our view: We are encouraged with the robust DFS results using on a conservative long term gold price of US$1,262/oz. We note that there is considerable exploration upside within the concession that includes the Guy Fawkes, Dot’s Luck and Boa Esperanza gold deposits. We also note the potential for alluvial gold within the mining licence and we understand that the Company is currently in discussions and negotiating third party mining contrats. We look forward to further updates as management proceeds with project funding and the potential development of the alluvial gold at Manica. In the meantime, we maintain our Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Xtract Resources PLC (LON:BOO, 147.20p) – Buy (‘boohoo’), one of the UK’s largest online own-brand fashion retailers, yesterday announced pre-close trading update for the 12 months ended 28 February 2017 (‘FY2017’). The Board said trading since 31 December 2016 has been “strong” and accordingly, updated its full year guidance. boohoo now expects FY2017 revenue growth (including PrettyLittleThing) to be c.+50% (previous guidance: 46%-48%) with adjusted EBITDA margin at the upper end of the previous guidance (11%-12%). On a separate announcement, the Group confirmed that acquisition of Nasty Gal (its certain intellectual property assets and customer databases for US$20m) has been completed. The Group will announce its Preliminary Results on 26 April 2017.

Our view: Yet another highly reassuring statement for investors! Having already revised its full year guidance upward four times during the past year, yesterday’s pre-close update confirmed that remains on track to deliver a truly impressive outcome for 2016, as well as the fact that its recently acquired/consolidated PrettyLittleThing is performing in line with expectations, boosting Group revenue in the process. The Group also announced the completion of acquisition of Nasty Gal’s intellectual property, which is highly valuable for the boohoo as former sells its products in 180 countries with over 3.5 million social media followers, which will become an important accelerator for boohoo’s international presence, particularly in the US. Beaufort believes that the worldwide market for internet fashion sales will continue to expand as shopping preferences shift towards convenience fashion and highly competitive pricing affordable by online retailers, such as boohoo. We view the recent acquisition of PrettyLittleThing and Nasty Gal Inc. both as excellent strategic fits, and expect them to make an important contribution toward accelerating the enlarged Group’s growth momentum while maintaining its ability to meet rapidly changing customer demand patterns. The shares have performed extraordinarily well over the past year, yet we believe there remains further upside for the share price. Beaufort reiterates its Buy rating on the shares.


GKN (LON:GKN, 360.01p) – Buy

GKN, the global engineering group, yesterday announced results for the 12 months ended 31 December 2016 (‘FY2016’). During the period, on a statutory basis, sales advanced by +22% to £8,822m with +2% organically, while operating profit rose +4% to £335m, against the comparative period (FY2016). As a result of lower net financing costs and higher share of post-tax earnings of equity accounted investments, pre-tax profit jumped by +19% to £292m, leading earnings per share increased by +19% to 14.1p. On a management basis, sales advanced by +22% to £9,414m, operating profit rose +14% to £773m, pre-tax profit jumped by +12% to £678m, leading earnings per share increased by +12% to 31.0p. The main differences between management and statutory includes change in value of derivative and other financial instruments and acquisition related restructuring charges. At the period end, the Group’s reduced net debt to £704m (31 December 2015: £769m) and the total deficit on post-employment obligations amounted to £2,033m (31 December 2015: £1,558m). On the operational front, the Group has completed disposal of its Stromag business for a cash consideration of £159m on 30 December 2016. GKN’s CEO, Nigel Stein commented “We expect 2017 to be another year of further growth, helped by the benefits of the actions taken in 2016 and GKN's constant focus on continuous improvement”. The Group declared a final dividend of 5.9p per share, bringing full year dividend to 8.85p, up +2%, to be paid on 17 May 2017.

Our view: GKN delivered strong results for FY2016 with sales, pre-tax profit and earnings per share all outperforming consensus analysts’ estimates. The Group’s results were enhanced by successful acquisitions during the period which added £654m to the sales, while favourable currency translation due to weaker Sterling also boosted revenues by £862m. Although free cashflow fell by -46% to £201m, this was due to a strong 2015 comparative during which the Group benefitted from a significant customer advance, while net debt reduced from the disposal of the Stromag business. Divisionally, Aerospace (c.36% of sales), Driveline (c.45% of sales) and Powder Metallurgy (c.11% of sales) achieved a good set of results, with organic growth at +1%, +6% and +1%, respectively. Land Systems (c.8% of sales), however, recorded a decline in organic sales by -8% due to challenging agricultural and construction equipment markets and the ending of two major contracts. Following the sale of the Stromag business, Land Systems division was absorbed into Driveline and Other Businesses from 1 January 2017. Looking ahead, the Group said it expects organic sales in its Aerospace to grow slightly above the market, while both Driveline and Powder Metallurgy expected to grow organically in excess of the market. Now that restructuring of its Land Systems division is complete and fixed costs reduction programme to be effective from FY2017 with annualised savings of £30m, while external forecasts predicting a broadly supportive market environment, we believe GNK remains well-positioned to achieve further international growth. Beaufort retain a Buy rating on the stock.


Taylor Wimpey (LON:TW, 179.96p) – Buy

Group CEO, Pete Redfern, yesterday detailed the housebuilders fully year 2016 results. He confirmed that during the period Taylor Wimpey delivered an excellent performance set against an uncertain political and economic environment that stabilised in the final quarter. He also noted that the outlook for 2017 is for ongoing stability and incremental price growth, which is a healthy backdrop for both business and customers. Revenues rose 17.1% to £3.67bn, while operating profits increased 20% to £764.3m, taking adjusted earnings per share to 18.1 from 14.9p in 2015. The tangible NAV/share rose 6.1% to 88.6p, while net cash at year end was £364.7m (+63.3%), despite the generous capital return programme. In 2016 shareholders received total dividends (including ordinary and special dividends) of £355.9 million (or 10.91 pence per share). As previously announced, and subject to shareholder approval at the 2017 Annual General Meeting, the Board intend to pay c.£300 million to shareholders in July 2017 by way of a special dividend. Accordingly, subject to shareholder approval at the 2017 Annual General Meeting, in 2017 shareholders will receive a total dividend of c.£450 million (c.13.8 pence per share), comprising an ordinary dividend of c.£150 million (c.4.6 pence per share) and a special dividend of c.£300 million (9.2 pence per share). During 2016 the Group completed a total of 14,112 homes, including Spain, up 4.8% (2015: 13,470), excluding joint ventures, with a 10.9% increase in UK total average selling price to £255k (2015: £230k), excluding joint ventures.

Our view: Taylor Wimpey has made a good start to 2017, encouraged by robust trading and levels of demand. All financial KPIs are positive and sustainable. The UK housing market fundamentals remain good with strong customer confidence in core geographies. The market is underpinned by a competitive mortgage market and low interest rates. Customer interest remains high, with website visits solid and customers continuing to register interest in forthcoming developments and progress their home purchase plans. Whilst the wider London market remains robust, prime central London is softer, as previously highlighted, however, house prices are stable, and there are good levels of underlying demand. As at 19 February 2017, the Group was c.49% forward sold for private completions for 2017, with a total order book value of £1,978 million (2016 equivalent period: £2,030 million), excluding joint ventures. This order book represents 8,573 homes (2016 equivalent period: 8,409). 58% of Central London private completions for 2017 are forward sold, as at 19 February 2017 (2016 equivalent period: 76%). Underlying build cost increases during 2017 to be at a similar level to 2016, at around 3-4%. The publication of the Housing White Paper in February 2017 recognised the importance of housing to the UK and the part all housebuilders can play in the economy. It set the Government’s desired level of annual completions to a 225k to 275k range, compared with the current level of some 170k. While some criticised the eventual publication as something of a ‘damp squib’, at the very least it fires a warning shot across the bows of the national housebuilders. Given the extent of their permitted and strategic landbanks (Taylor Wimpey, for example, has a short-term landbank of some 76k plots at the end of the year or 5.5 years of forward supply), they are the only ones capable of satisfying the government requirement. Indeed, in April 2018 the Government is expected to be more explicit still, releasing strategic policy for the UK’s annual housing needs, against which major housebuilders will be required to detail anticipated build-out rate along with directive for local authorities to continue unlocking of the planning process. Should they be seen to ignore this request to accelerate build-out, however, the treat of more punitive measures will overhang the sector. None will wish to challenge Westminster on its veiled threat, nor to lose market share to their peers. So, given that they have the land and working capital available, it is possible that this will be enough to result in the sector increasing total annual completions by 20%+ before the next general election, assuming a strong push to take strategic land to ‘shovel ready’ in the coming 24 months or so. Assuming no Brexit/interest rate shock in the meantime, such higher activity levels might be expected to result in a period of relative bonanza for shareholders who will likely see a chunk of this returned in the form of special dividends while the balance chases additional land reserves. Altogether, this means the sector finds itself in an enviable position that investors should seek to expose themselves to, both for growth and income. Investors should hold an overweight position on the sector with Taylor Wimpey (trading on a 2017E P/NAV of 1.79x in line with the sector, but a premium ROE of 21.4% and a dividend yield of 7.9%) plus Persimmon being Beaufort’s high quality picks.

Important Risk Warnings and Disclaimers 

This report is published by Beaufort Securities Ltd ("Beaufort Securities"). Beaufort Securities Ltd is Authorised and Regulated by the Financial Conduct Authority and is a Member of the London Stock Exchange. 


This document is not an offer to buy or sell any security or currency. This document does not provide you with individually tailored investment advice. It has been prepared without regard to the your financial circumstances and objectives The appropriateness of a particular investment or currency will depend on your individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for you. 

This research is non-independent and is classified as a Marketing Communication under FCA rules. As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investment research in COBS 12.2.5. However Beaufort Securities has adopted internal procedures which prohibit analysts from dealing ahead of non-independent research, except for legitimate market making and fulfilling clients' unsolicited orders. 

By receiving this document, you will not be deemed a client or provided with the protections afforded to clients of Beaufort Securities. When distributing this document, Beaufort Securities is not acting for you and will not be responsible for providing advice to you in relation to this document. Accordingly, Beaufort Securities will not be responsible to you for providing the protections afforded to its clients. 

Beaufort Securities may effect transactions in shares mentioned herein and may take proprietary trading positions in those shares, and may receive remuneration for the publication of its research and for other services. Beaufort Securities may be a shareholder in any of the companies mentioned in this report. Accordingly, this document may not be considered as objective or impartial. Additionally, information may be available to Beaufort Securities or the Group, which is not reflected in this material. The remuneration of the author of this report is not tied to the recommendations on any shares mentioned nor to the any transactions undertaken by Beaufort Securities or any affiliate company. Further information on Beaufort Securities' policy regarding potential conflicts of interest in the context of investment research and Beaufort Securities' policy on disclosure and conflicts in general are available on request. Please refer to 

Past performance is not a guarantee of future performance. Investments may go down in value as well as up and you may not get back the full amount invested. The listing requirements for securities listed on AIM or the ICAP Securities & Derivatives Exchange are less demanding and trading in them may be less liquid than main markets. This may make it more difficult to buy and sell these securities. 


This document includes certain statements, estimates, and projections with respect to the anticipated future performance of securities listed on stock exchanges and as to the market for these shares. Such statements, estimates, and projections are based on information that we consider reliable and may reflect various assumptions made concerning anticipated economic developments, which have not been independently verified and may or may not prove correct. No representation or warranty is made as to the accuracy of such statements, estimates, and projections or as to its fitness for the purpose intended and it should not be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only and may change without notice. Other third parties may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views, and analytical methods of the analysts who prepared them. This report has not been disclosed to any of the companies mentioned herein prior to its publication. 

This document is based on information Beaufort Securities has received from publicly available reports and industry sources. Beaufort Securities may not have verified all of this information with third parties. Neither Beaufort Securities nor its advisors, directors or employees can guarantee the accuracy, reasonableness or completeness of the information received from any sources consulted for this publication, and neither Beaufort Securities nor its advisors, directors or employees accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document (except in respect of wilful default and to the extent that any such liability cannot be excluded by the applicable law). You should not rely on this document and should not use it substitution for the exercise of the independent judgment of yourself or your adviser. 

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