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Beaufort Securities Breakfast Alert: Armadale Capital PLC, Motif Bio Plc, Obtala Ltd, Tiziana Life Sciences

Published: 08:13 02 Oct 2017 BST

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Today's edition features:

• Armadale Capital (LON:ACP)

• Obtala Limited (LON:OBT)

Tiziana Life Sciences (LON:TILS)

• Motif Bio (LON:MTFB)

 

Markets

Europe

The FTSE-100 finished Friday's session 0.68% higher at 7,372.76 whilst the FTSE AIM All-Share index was up 0.47% at 1,004.26. In continental Europe, the CAC-40 finished 0.68% higher at 5,329.81 whilst the DAX was up 0.98% at 12,828.86.

Wall Street

In New York last Friday, the Dow Jones closed 0.11% higher at 22,405.09, the S&P-500 climbed 0.37% to 2,519.36 and the Nasdaq added 0.66% to stand at 6,495.96.

Asia

In Asian markets this morning, the Nikkei 225 was 0.10% higher at 20,376.61, while the Hang Seng is closed for a public holiday and remains unchanged at 27,554.3.

Oil

In early trade today, WTI crude oil was 0.35% lower at $51.49 per barrel and Brent was down 0.44% at $56.54.

 

Headlines

Monarch flights cancelled as airline ceases trading

Monarch Airlines has ceased trading and its 300,000 future bookings for flights and holidays have been cancelled, the Civil Aviation Authority has said. About 110,000 customers are currently overseas and the government has asked the CAA to charter more than 30 planes to bring them back to the UK. The process is the UK's "biggest ever peacetime repatriation", Transport Secretary Chris Grayling said. Monarch employs about 2,100 people and reported a £291m loss last year. The airline - the UK's fifth biggest and the country's largest ever to go into administration - collapsed at 04:00 BST, while passengers were at airports. The airline reported a loss of £291m for the year to October 2016, compared with a profit of £27m for the previous 12 months, after revenues slumped. It had been in last-ditch talks with the CAA about renewing its licence to sell package holidays and had until midnight on Sunday to reach a deal, but failed to do so.

Source: BBC News

 

Latest Video

On Thursday, 28th September 2017 Leon Coetzer, CEO and Colin Bird, Non-Executive Chairman of Jubilee Platinum (JLP.L) presented an update on the company at the Beaufort offices. 

 

Beaufort Securities acts as corporate broker to Jubilee Platinum PLC

 

Company news

Armadale Capital (LON:ACP, 1.15p) – Speculative Buy

Armadale Capital announced that further testwork on a 300kg bulk sample of graphite mineralisation from its wholly owned Mahenge Liandu graphite project in Tanzania has produced improved flake size distribution while maintaining high level of purity. Conventional crushing and floatation circuit returned graphite concentrate purity of up to 98.5% TGC from individual size fractions and an overall average of 97.8% TGC. Reduced grind time has improved flake size from 15.2% above jumbo flake size (>300µm) to 20.9%. Overall, 48% of the concentrate occurred as Super Jumbo, Jumbo and Large flake size. These results underpin Mahenge Liandu's potential to produce high-quality graphite concentrates, which should be suitable for a number of commercial applications including the rapidly growing battery market. Assay results from the recently completed RC (Reverse Circulation) drill programme are expected in the coming weeks. Work also continues to enhance the current high-grade JORC-compliant resource of 40.9Mt grading 9.41% TGC.

Our View: We continued to be impressed with the results coming from the Mehange Liandu graphite project. The improved flake size distribution coupled with the high-purity graphite concentrate produced from relatively low-cost processing methods demonstrate the project's potential as a commercially viable graphite source suitable for a range of commercial applications. Armadale is looking to capitalise on the expected growth in the graphite market driven by increasing applications particularly in the energy storage market. We look forward to assay results from the recent RC drill programme in the coming weeks as well as an update to the current resource base. In the meantime, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as a corporate broker to Armadale Capital PLC

 

Obtala Limited (LON:OBT, 17.25p) – Speculative Buy

Following Thursday's Interims results and Board changes, the African-focused agricultural and forestry company, this morning has released a further corporate announcement. It confirms the raising of an additional US$2.0 million from a further and final subscription for preference shares in Argento Limited (Obtala's 75% owned forestry subsidiary) in accordance with the terms announced on 1st December 2016. 6,000 additional Argento Preference shares are to be issued at a price of US$350 per share, bringing the total in issue to 75,000 which is the maximum number of Preference Shares permitted for issue. There were 6 investors which were a mix of HNWs as well as further management and significant shareholder investments. Significantly, With the successful completion of this round the Company has decide to cease discussions with Jiangsu Dolphin International Trading Co. Ltd ('JDIT') and terminate the subscription agreement signed 2nd May 2017. As noted in its initial Argento Preference Share subscription announcement on 1 December 2016, monies raised (US$20.25m in total) will be used to fund expansion of production capability at Argento Ltd, working capital for Obtala, and investment into agricultural production in Tanzania. Also, as detailed in Friday's Quarterly Business Update, now that the Company has a substantial forestry trading division acquired through the acquisition of WoodBois International ApS, management's immediate focus is to secure tranches of US$25m in trade finance to fund the working capital required for accelerated growth trading revenues and profits.

Our View: This morning's announcement resolves one of the uncertainties overhanging the Group. JDIT had encountered unforeseen complications in achieving regulatory approval for external investment, which they have not managed to resolve so, for the time being at least, arrangements with Obtala have ended and management has moved quickly to secure necessary funding from elsewhere. Proceeds from the committed US$2.0m are to be received are now due to be received by end-November 2017. The Directors and significant shareholder of the Company who have agreed to further invest on or before 31st October 2017are Miles Pelham (Chairman), Paul Dolan (CEO) and Frank Scolaro (Founder). In his statement, the Chairman commented "Completion of this final Preference Share funding represents an important step for the company as we embark on the monetization of our latent assets. Asian investor appetite remains healthy and we hope to expand access to this investment by actively pursuing a dual-listing in the coming quarters." He went on to note "The progress of the company over the last twelve months and exponential growth in revenues will leave us well positioned to attract further capital investment from Asia as we seek to deliver on our transformation strategy". While the investment market will always factor in higher risk for such ambitious plans in such geographical territories, it is clear nevertheless that the giant African continent is poised to undertake its own green revolution. And Obtala's timing, given projected global demand growth for timber at a time when international efforts to control illegal logging have the potential to create a premium environment in quality hardwoods, looks almost perfect. Modelling Obtala's business opportunity, fair value still appears to be multiple of the current share price, even after applying punitive discount rates. Beaufort retains its Speculative Buy rating on Obtala.

Beaufort Securities acts as a corporate broker to Obtala Limited

 

Tiziana Life Sciences (LON:TILS, 149.00p) – Speculative Buy

Tiziana, the clinical stage biotechnology company developing targeted drugs for cancer and autoimmune diseases, on Friday announced its interim results for the 6 months ended 30 June 2017 ('H1 FY2017'). Operationally, the highlights included milciclib's approval in Israel for a Phase II clinical trial protocol for patients with refractory hepatocellular carcinoma ('HCC') and similar protocol submitted for approval in Italy, Turkey and Greece. The Group also acquired exclusive world-wide license for TZLS-501 (formerly NI-1201), a fully human anti-interleukin-6 receptor (IL-6R) monoclonal antibody from Novimmune SA for the potential treatment to increase anti-inflammatory activity as well as complementing the Company's foralumab programme. Financially, the Group's loss for the period amounts to £3.87m (H1 FY2016: loss £2.11m), predominantly due to increased R&D costs to £2.38m from £0.73m, leading to loss per share of 4.1p (H1 FY2016: loss 2.3p). The Group has raised £572,648 (gross) through conversion of warrants in March 2017 and ended the period with £2.0m cash (H1 FY2016: £8.3m, FY2016: £4.7m). During the period, Tiziana has added Dr. Kunwar Shailubhai as CEO and Chief Scientific Officer, and Dr. Arun Sanyal as a member of the Scientific Advisory Board. Tiziana's Chairman, Gabriele Cerrone, commented "Our clinical programmes for foralumab and milciclib are progressing well and we were pleased to acquire an exclusive world-wide license for NI-1201, a fully human anti-interleukin-6 receptor monoclonal antibody from Novimmune SA. We are confident of being well positioned to progress these programmes to their next respective value inflection points and we look forward to keeping the market informed of our progress".

Our View: With good clinical progress being made, investors should focus beyond R&D costs onto latest newsflow. Post period, for example, in July for example, Tiziana announced the enrolment of its first patient in Phase IIa clinical trial of milciclib, a novel inhibitor of cyclin-dependent kinases (CDKs), in patients with refractory HCC, for which the top line result is expected to be announced in Q4 2018. HCC is the 5th most common cancer worldwide and the 2nd most common cause of death from cancer worldwide affecting both men and women (S. Mittal & H. El-Serag, 2013). Tiziana also significantly advanced the development of Foralumab, a fully human anti-CD3 monoclonal antibody (mAb), which has been successfully developed for an oral formulation to be used in upcoming Phase IIa clinical trial in patients with non-alcoholic steatohepatitis ('NASH') and type 2 diabetes. The Group has also demonstrated consistent efficacy of foralumab via oral administration in humanised mouse models (pre-clinical studies) with "virtually no toxicity". According to market research by iHealthcareAnalyst, Inc., the global market opportunity for NASH treatment is estimated to reach US$19.5bn by 2025, assuming the condition expands at its current annual growth rate of +10.0% from 2016 to 2025, presenting huge market potential for Tiziana. In August, the Group announced that it had passed a resolution with its holders to convert all of the Group's Convertible Loan Note ('CLNs'), leaving the Group debt free, and to vary the terms of the warrants prior to the intended deadline. This has resulted in issuance of 27,645,013 new ordinary in the Group's shares (or 22.3% of the total capital ) to convert the full £12,969,219 (at par value) of CLNs, while attaching a 12-months disposal restriction on the new equity, demonstrating continuing shareholder support and confidence in Tiziana's pipeline and business plan. Tiziana has an exciting pipeline of products and opportunities beyond just these but, for prudence, Beaufort has modelled its Group valuation based just on foralumab and milciclib, applying a relatively aggressive 15% discount to its long-run cashflow model. This creates a valuation more than twice the current level based on anticipated milestone fees & royalties. In light of continued progress, Beaufort reiterates its Speculative Buy rating on the shares together with a price target of 400p/share.

Beaufort Securities acts as a corporate broker to Tiziana Life Sciences plc

 

Motif Bio (LON:MTFB, 34.75p) – Speculative Buy

The clinical stage biopharmaceutical company specialising in developing novel antibiotics, on Friday released its financial results for the half-year ended 30 June 2017. Net losses for the six months ended 30 June 2017 and 2016 were, very much as expected, US$29.7 million and US$14.2 million, respectively. Management strategy has focused on gaining approval for and commercialising iclaprim for ABSSSI and the continued development of iclaprim for additional indications to potentially broaden its use as a safe and effective antibiotic. In this regard, the necessary steps to initiate a Phase 3 clinical trial of iclaprim for the treatment of hospital-acquired bacterial pneumonia ('HABP'), including ventilator-associated bacterial pneumonia ('VABP'), have been completed. As of 30 June 2017, the Group had cash and cash equivalents of US$29.5 million, moving down to US$18.1 million by 22 September 2017. Post period, the Group has confirmed operations and strategic progress including that the last patient had completed the treatment phase in REVIVE-2, the second Phase 3 clinical trial investigating the safety and efficacy of iclaprim in patients with ABSSSI, as well the U.S. Food and Drug Administration ('FDA') granting Orphan Drug Designation to iclaprim for the treatment of Staphylococcus aureus lung infections in patients with cystic fibrosis. While awaiting the outcome of REVIVE-2, Motif will continue to refine its commercialisation strategy for iclaprim, both through the development of its go-to-market approach involving Medical Scientific Liaisons and targeting the highest antibiotic-prescribing hospitals, and leveraging the expertise of its Clinical Advisory Panel and other experts to understand how hospitals judge new products, including their expectations on data that will be required to enable rapid formulary access. The Board has submitted articles for publication in peer-reviewed scientific journals and abstracts for presentation at key scientific conferences, including Infection Diseases Week in October 2017, to build awareness and understanding in the medical community of the features and potential benefits of iclaprim.

Our View: Not long to wait now. Potential short-term share price bonanza. Top-line results from REVIVE-2, which employ an identical protocol to REVIVE-1 but from different trial centres, are expected in the fourth quarter of 2017. Indeed, based on the scheduling of REVIVE-1, they could well appear in the next two to three weeks! Successful completion of the REVIVE-1 and REVIVE-2 Phase 3 trials is expected to satisfy both FDA and European Medicines Agency requirements for regulatory submission for an IV formulation of iclaprim in the treatment of ABSSSI. This offers a potential annual market opportunity valued well in excess of US$1bn (based on over 2 million ABSSSI admission/year in the US alone). On this basis, Beaufort anticipates submission of a New Drug Application ('NDA') in the United States in the first quarter of 2018 and a Marketing Authorisation Application ('MAA') for iclaprim for the treatment of ABSSSI in Europe in the first half of 2018. Assuming a positive trial outcome, existing cash will be sufficient to continue steering toward commercialisation although, of course, additional capital will required within the next 12 months or so to capture the drug's full potential and further promote iclaprim and while funding the platform's development of further indications. But by then, of course, the Motif Bio story should have turned from 'high risk investment' to 'major commercial opportunity' and attracting such funding on a much higher valuation should present no difficulty, although realistically this might well be found from potential industrial partners willing to pay handsomely for certain territorial rights, while the Board's own focus remains on overseeing commercialisation in the US. Had it not been for major shareholder, Amphion Innovations' recent seemingly distressed equity sales, by now Motif's share price would likely be more realistically reflecting the weight of the anticipated announcement. Thankfully, until the REVIVE-2 data at least, this sell-down has now completed and, while the forthcoming Top-line results make Motif something of an 'all-or-nothing' punt, the huge amount of diagnostic data already logged captures a much higher level of confidence than is normally the case. For those who understand these risks, Motif Bio represents a truly excellent buying opportunity. Beaufort retains its Speculative Buy recommendation on Motif Bio with a price target of 110p/share.

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