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Beaufort Securities Breakfast Alert: Galliford Try plc, Jubilee Platinum PLC, Salt Lake Potash

Beaufort Securities Breakfast Alert: Galliford Try plc, Jubilee Platinum PLC, Salt Lake Potash

Today's edition features:

• Jubilee Platinum (LON:JLP)

Salt Lake Potash (LON:SO4)

• Galliford Try (LON:GFRD)

 

Markets

Europe

The FTSE-100 finished yesterday's session 0.28% lower at 7,379.70 whilst the FTSE AIM All-Share index was down 0.40% at 1,004.84. In continental Europe, the CAC-40 finished 0.16% higher at 5,217.59 whilst the DAX was up 0.23% at 12,553.57.

Wall Street

In New York last night, the Dow Jones closed 0.18% higher at 22,158.18, the S&P-500 ended 0.08% firmer at 2,498.37 and the Nasdaq was also up 0.09% at 6,460.19.

Asia

In Asian markets this morning, the Nikkei 225 was recently down 0.26% at 19,814.82 and the Hang Seng was 0.42% lower at 27,776.52.

Oil

In early trade today, WTI crude was 0.14% lower at $49.23 per barrel and Brent was down 0.25% at $55.02 per barrel.

 

Headlines

John Lewis profits fall by half

John Lewis Partnership profits have fallen by more than 50% after the retail group was hit by costs to reorganise the business. Profit before tax fell 53.3% to £26.6m for the half-year ending 29 July after a £56.4m charge mainly for restructuring and redundancy costs. At the John Lewis department store, operating profits rose by 10%. But at Waitrose operating profits fell 18% as its margin was eaten into by higher costs. "Look, nobody should be surprised that this is a tough market for retailers. There's any number of reasons for that," John Lewis Partnership chairman Sir Charlie Mayfield told the BBC. "The reason our profits are down is predominantly because of margin, and cost prices are rising. It's a very competitive market, retail prices are not rising as fast."

Source: BBC News

 

Company Video

Colin Bird and Leon Coetzer of Jubilee Platinum (JLP.L) broadcast the webcast below yesterday:

 

 

Company news

Salt Lake Potash (LON:SO4, 28.38p) - Speculative Buy

Salt Lake Potash (SO4) has published test results showing excellent final recovery of SOP via flotation from harvest salts produced at Lake Wells. The test work was carried out at the world's leading SOP test laboratory in Canada (SRC). Key metrics for the flotation results include kainite to schoenite conversion quick at ambient temperature, 92% recovery, direct or reverse flotation viable, high purity SOP produced. It also demonstrated that a high value magnesium sulphate product is a straightforward byproduct for limited additional cost.

Our View: This news means SO4 has now demonstrated the whole process at Lake Wells. This includes trenching, brine flow rates, pumping brines, brine recharge, evaporation ponds using lake bed mud (i.e. no expensive pond lining), production of harvest salts, and final SOP recovery. One of the other key points for us is that " the Harvest Salts are within the range of salt composition expected in a commercial scale operation" and that the feed salt contained over 50% kainite. This means that the harvesting and concentration process removes sufficient halite to make the whole process viable. SO4 and for the time being its flagship Lake Wells project (it has multiple other brine lakes in WA) is becoming a strategically important SOP business. The next major step is building a smaller scale commercial operation at Lake Wells. We have a Speculative Buy recommendation.

Beaufort Securities provides corporate sponsored research to Salt Lake Potash Limited

 

Galliford Try (LON:GFRD, 1,340.00p) – Buy

Galliford Try ('Galliford'), the housebuilding, Partnership & Regeneration and Construction group, yesterday announced its final results for the year ended 30 June 2017 ('FY2017'). During the period, revenue advanced by +7% to £2,662m, while revenue including joint ventures rose +6% to £2,820m, against the comparative period (FY2016). Pre-tax profit however, fell by -57% to £58.7m due to previously announced one-off charge of £98.3m, majority in respect to two infrastructure joint ventures that has been classified as exceptional. This resulted in earnings per share of 59.1p, down -55%. Pre-tax profit excluding exceptional, on the other hand, grew by +9% to £147.6m, leading to earnings per share of 145.8p, up +10%. Return on net assets was at 14% (FY2016: 26.9%), while before exceptional, it was at 27.5%. Net cash at the period-end stood at £7.2m (FY2016: loss £8.7m). On the operational front, Linden Homes (c.33% of revenue) delivered 3,296 completions (FY2016: 3,078) with sales per outlet per week flat at 0.62 (FY2016: 0.62). Landbank amounted to 11,250 plots (FY2016: 11,700), maintaining c.3.5 years' supply, in line with strategy. Partnerships & Regeneration (c.12% of revenue) delivered 594 completions (FY2016: 526) with stable landbank at 2,700 plots (FY2016: 2,800). Construction (c.55% of revenue) delivered revenue of £1,526.9m (FY2016: £1,503.4m) with order book of £3.6bn (FY2016: £3.5bn). Galliford's CEO, Peter Truscott, commented "I am pleased to announce strong operating progress in the financial year, which has been supported by robust market conditions. Entering the new financial year, we remain cautious about the impact of the current political uncertainty and the medium-term outlook for the macro economy. However, all three businesses have clearly defined plans as part of our 2021 strategy, providing the Group with confidence in its ability to deliver a strong performance even in a period of lower growth in the wider economy". The Group declared a final dividend of 64p per share, bringing total full year dividend to 96p, up +17%, to be paid on 22 November 2017.

Our View: Galliford's performance for FY2017 was impacted by the Construction division's previously announced one-off exceptional charge of £87.9m from two large infrastructure JV projects which were agreed on fixed-price, all-risk basis. The Group confirmed that it is making good progress in resolving such 'legacy' contracts and that it has put into place a more disciplined approach towards project selection. The Construction division delivered a pre-exceptional operating margin of zero, down from 1.1% last year, with a operating loss of £0.9m before exceptionals and £88.8m post. The division is now focusing on improving the quality of order book by selecting lower-risk public and regulated sectors and two-stage negotiated work on newer contracts, which now represents over three quarters of revenue to prevent the mistakes made on the legacy projects. Areas such as defence, rail, highways and airports has higher barriers to entry and therefore lesser competition on pricings, which would likely to results in margin recovery. The current Construction order book of £3.6bn comprises; 74% public sector (FY2016: 73%), 13% regulated industries (FY2016: 16%) and 13% private sector (FY2016: 11%). Aside from Construction, however, the Group underlying performance for Linden Homes and Partnerships & Regeneration was strong, with both improved its operating margins, volumes and profits. Linden Homes continue to benefit from supportive market dynamics with strong housing demand and attractive mortgage. Average selling price for both private housing and affordable homes increased during the year at +6% to £354,000 and +7% to £121,000, although the Group expect this to reduce over time (to c.£300,000) as the mix shift away from the south east. The Group is targeting to increase average active selling site of 83 this year (FY2017: 77) with all of land required for the FY2018 in place and 90% secured for FY2019. Partnerships & Regeneration's performance was boosted by the increased proportion of higher margin mixed-tenure work. The division expanded its regional presence by opening 3 new offices during the period, while currently finalising the plan to open in Yorkshire. Looking ahead, the Group said Linden Homes remain on track to deliver further operating margin and volume growth in the FY2018. Partnerships & Regeneration expect further volume growth, while Construction reiterated its FY2021 target operating margin of 2.0%. The management's confidence over the Group's future prospect can be evident from +17% hike in dividend, which is in line with earnings cover of 1.6x based on pre-exceptional numbers. Galliford's business model fits well with the expectation that the UK government will seek to ramp-up the build-out of social housing, both for sale and rental, in an effort to alleviate the nation's obvious housing shortage. The Shares are currently valued at FY2018E P/NAV of 2.4x, a P/E of 7.9x and a yield of 7.3%. Given strengthened balance sheet, strong total order book of £5.3bn together with stable to positive market conditions, Beaufort repeats its buy recommendation on Galliford Try with a price target of 1450p/share.



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