Today's edition features:
• Galileo Resources (LON:GLR)
• Morses Club (LON:MCL)
• Motif Bio (LON:MTFB)
The FTSE-100 finished yesterday's session 0.01% lower at 7,467.58 whilst the FTSE AIM All-Share index was up 0.02% at 1,015.36. In continental Europe, the CAC-40 finished 0.08% lower at 5,363.23 whilst the DAX was 0.53% higher at 12,970.52.
In New York last night, the Dow Jones closed 0.09% higher at 22,661.64, the S&P-500 climbed 0.12% to stand at 2,537.74 and the Nasdaq added 0.04% to end the session at 6,534.63.
In Asian markets this morning, the Nikkei 225 was little changed at 20,614.51, while the Hang Seng was up by 0.73% at 28,379.18.
In early trade today, WTI crude was 0.10% lower at $49.93 per barrel, while Brent was up 0.04% at $55.82 per barrel.
Bank calls for Brexit transition deal by Christmas
The UK and Europe must agree on a Brexit transition deal by Christmas or risk banks triggering their contingency plans, the Bank of England has warned. Deputy governor Sam Woods said that while the UK is committed to an implementation period, the EU's position "is not yet clear". If no deal is reached, banks will begin a potentially disorderly shift of operations overseas. He said that would mean banks becoming more complex and harder to supervise. Speaking at the annual Mansion House City banquet in London, Mr Woods said: "If we get to Christmas and the negotiations have not reached any agreement on this topic, diminishing marginal returns will kick in." He said: "Contingency planning is a sliding scale of increased commitment, investment and momentum through time. It is much more prudent and prosaic than hovering over the relocate button or rushing to the exit door." While he said that the first phase of banks' contingency plans would have a relatively modest impact on jobs, "re-structuring by firms will in general increase their complexity". "I struggle to see an outcome in which banks and insurers do not get harder to supervise and harder to resolve for all involved," said Mr Woods, who heads the Prudential Regulatory Authority, which oversees large lenders in the UK. In her speech in Florence last month, Prime Minister Theresa May said there should be a transition period of "about" two years after Brexit.
Source: BBC News
Altus Strategies (LON:ALS, 8.38p) – Speculative Buy
Altus Strategies, the natural resources project generator company focused in Africa, announced today the discovery of multiple gold-bearing quartz veins at the Company's Laboum gold project in northern Cameroon. To date 995m of quartz veins up to 40m wide have been mapped with grab samples returning elevated gold grades including 24.5g/t, 16.15g/t and 3.04g/t Au. The quartz veins were discovered during Altus' recent high-resolution ground magnetic survey which suggests that the veins could potentially continue beneath the soil cover. The Company is now planning a systematic channel and grab sampling programme to commence in October in order to determine the gold-grade distribution within the individual veins and across the whole vein system.
Our View: We are encouraged with the new discovery of gold bearing quartz veins and the results from the grab samples. Previously, exploration work focused on the sheared and silicified metasedimentary rocks at Laboum where grab samples returned up to 6.86g/t Au. We look forward to results from the channel sampling programme which will better constrain the gold distribution within individual veins as well as across the whole vein system. In the meantime, we maintain our speculative buy on the stock.
Beaufort Securities acts as corporate broker to Altus Strategies plc
Galileo Resources (LON:GLR, 1.72p) – Speculative Buy
Galileo Resources announced that following a review of a previous conceptual study (using current zinc prices) on the Star Zinc project it has decided to initiate a fast track drilling programme to upgrade the historical non-compliant resource. The estimated US$350k drill programme comprises twining previous drill holes to confirm historical mineralisation in order to delineate a JORC-compliant resource estimate as well as test for additional resources in the surrounding area. The conceptual study returned an IRR of 77% with a NPV of US$18m based a 10% discount rate, a US$3,000/t zinc price and a US$9.1m capex spend. Galileo owns a 51% interest in the Star Zinc with BMR Group owning the remaining 49%. The Star Zinc project is a historical small-scale open pit that operated intermittently between 1950s and 1990s and has adequate infrastructure including power, water, rail and telecommunications.
Our View: We are encouraged with the initial results from the Star Zinc project and look forward to results from the upcoming drill programme. We note that zinc prices continue to be well supported on the back of dwindling inventories. The availability of primary zinc deposits is diminishing and the Star Zinc project has a non-JORC compliant resource of 0.3Mt grading 20.2% Zn which remains open along strike and at depth. We also note the occurrence of high grade (>50% Zn) float 200m south of the current pit representing a potential new exploration target. We maintain a speculative buy on the stock.
Beaufort Securities acts as corporate broker to Galileo Resources PLC
Evgen Pharma (LON:EVG, 20.50p) – Speculative Buy
Evgen Pharma ('Evgen'), a clinical stage drug development company focused on cancer and neurological conditions, yesterday announced that its lead product SFX-01 has been granted the first European patent for the manufacturing and scale-up of SFX-01. This core manufacturing patent has already been granted in the United States, Australia and Japan and is pending in other countries worldwide. SFX-01 is a synthetic version of the naturally occurring compound sulforaphane, a known anti-cancer agent and neuro-protective, which has been stabilised in an alpha-cyclodextrin lattice. Evgen is currently conducting two Phase II trials for SFX-01, one in Metastatic Breast Cancer and another in Subarachnoid Haemorrhage, a type of stroke. Evgen Pharma holds exclusive global rights to all products, including SFX-01, and processes associated with the Sulforadex technology platform under the terms of a licence agreement with the technology's inventor, US-based PharmAgra Labs Inc. Evgen's CEO, Dr Stephen Franklin, commented "In March this year we stated that we would issue separate announcements only for significant patent grants in key territories and that we would give an update on all other grants in our full and half year results. We are therefore delighted to announce the grant of this core European manufacturing patent, which further strengthens our intellectual property position. This patent is particularly significant as it marks our first in Europe, further underpinning the Company's commercial potential worldwide".
Our View: This is a positive announcement from Evgen. In total, the Company has granted eight patents this year so far, continuing to growth its worldwide patent estate. Now that the core manufacturing patent is granted in the Europe, the Company is currently pending a composition of matter patent from the same region. With respect to the two Phase II clinical trials of SFX-01, the Company continue to recruit its patients, having passed the key milestone of first patient dose for both Subarachnoid Haemorrhage (90 patients 'SAS' trial) and Metastatic Breast Cancer (60 patient 'STEM' trial). For the Subarachnoid Haemorrhage, the Company has also been granted an orphan drug designation by the US FDA in August 2016, significantly increased its commercialisation opportunities. As at 13 June 2017, the Company recruited 34 patients. To accelerate the patient recruitment, the Company has initiated a second site in Queen Elizabeth Hospital Birmingham, UK. The Company is currently anticipating the data read-out to be towards the end of calendar year 2018. For STEM trial, as the study is open label, the Company is anticipated to release an interim data analysis in the first half of calendar year 2018, while the data read-out is expected in the second half of calendar year 2018. As at 13 June 2017, the Company enrolled 9 patients. At the end of 31 March 2017, the Company reported full year FY2017 loss of £3.1m (FY2016: loss £3.1m), and net cash outlow before short-term investment movements of £3.3m (FY2016: inflow £6.9m), leaving cash position (including short-term investments and cash on deposit) at the period end of £3.9m (30 September 2016: £5.5m). The Directors estimate that the cash held by the Group together with known receivables will be sufficient to support the current level of activities into the first quarter of 2018. Considering its cash position, with estimated monthly burn of around £270k during FY2018, the previously announced delay in recruitment means that the Company is funded to the first quarter of calendar year 2018. The Directors said they are continuing to explore sources of finance available and is confident to secure sufficient cash inflows from further fundraising. Whilst we recognise the potential equity fundraising in the near horizon, considering the Company's two Phase II assets with multi-billion dollar market opportunity each, the current valuation of just £15m, does not appear to have fully recognised the value Evgen might deliver over the coming 14 months or so. Beaufort reiterates its Speculative Buy rating on the shares.
Morses Club (LON:MCL, 149.00p) - Buy
The UK's second largest home collected credit lender, this morning announced its interim results for the twenty-six-week period ended 26 August 2017. Key highlights included a strong first half performance with revenue up 14.8% to £54.2m (H1 FY17: £47.2m), a 16% rise in net loan book to £65.2m (H1 FY17: £56.2m) and a 12.6% increase in customer numbers to 233,000 (H1 FY17: 207,000). Recent changes in market conditions had presented an opportunity for Morses to make a significant increase in its number of territory builds, which was seized during the period, while still maintaining its selective approach to bringing agents on-board. As a result, the total number hiked to 434 (H1 FY17: 114) as additional high-quality customers were introduced while in tandem reducing its cost/income ratio to 56.4% (H1 FY17: 58.3%). Reflecting its growth plans, impairment as a percentage of revenue for the period rose to 26.6% (H1 FY17: 22.5%), although this remains within management's target range. As a result, adjusted profit before tax rose to £8.7m (H1 FY17: £8.6m); with reported profit before tax up to £6.7m (H1 FY17: £4.6m). Accordingly, adjusted EPS was flat at 5.3p (H1 FY17: 5.3p), while Basic (reported) EPS increased sharply to 3.9p (H1 FY17: 2.7p). Paul Smith, Chief Executive Officer of Morses Club, commented: "Our strong first half performance demonstrates the success of our credit policy and emphasis on high quality lending, as well as our ability to capitalise on market opportunities to increase our customer base. In light of the change in market conditions, we have placed considerable emphasis on ensuring that growth is sustainable and we are focused on developing products in line with customer demand and supported by our excellent customer service offering."
Our View: Impressive stuff! Morse has seized the opportunity presented by Provident Financial's badly planned reorganisation of its CCD division. Provident's decision to move away from commissioned agents to contract staff, while also seeking to migrate away from the bottom rung of accounts, had been badly planned and effectively handed significant numbers of active agents to competitors. A real own goal and Morses will now reap the rewards! Managing nevertheless to deliver unchanged adjusted earning while also marginally raising the dividend, is a reflection of Morses' excellent structural positioning and management strength. Reflecting this expansion, however, the Group's total impairment charge increased to £14.4m and as a ratio to revenue to 26.6% for the period (H1 FY17: 22.5%). Management believe that this reflects the rapid increase in newer customers rather than a fundamental reduction in customers' ability or willingness to repay. Whilst remaining within the target range of 22.0% to 27.0% of revenue, this was originally set in expectation of more modest annual growth levels. With higher sales typically in the second half, the range now looks set to be breached for the current year, possibly as high as 29% according to Beaufort estimates. Despite this, the contribution from the loan book (revenue less Impairment) demonstrated very good progress, increasing by 8.7% to £39.8m (FY17: £36.6m) and on a rolling 12-month period saw a 7% (H1 FY17: 7%) increase in the proportion of high quality customer balances in its gross loan book. The average customer balance of £549 is substantially unchanged from £553 twelve months ago. Beaufort re-set its P&L projections a few of weeks back in response to this news, which now places the shares on 2019E and 2020E earnings multiples of 11.6x and 9.9x, together with yields of 5.1% and 6.4% respectively. The share price has recovered significantly from the Provident-led set back in August but, nevertheless, still appear too cheap considering its operations this year should deliver 24% ROE on a P/BV of just 3.0x. Beaufort upgrades its price target for Morses Club to 165p/share (from 155p/share previously) while repeating its Buy rating.
Motif Bio (LON:MTFB, 44.50p) – Speculative Buy
The clinical stage biopharmaceutical company specialising in developing novel antibiotics yesterday announced positive topline results from REVIVE-2, a global Phase 3 clinical trial evaluating the investigational drug candidate iclaprim in patients with acute bacterial skin and skin structure infections (ABSSSI). Iclaprim is a novel investigational antibiotic that has a different and underutilised mechanism of action compared to other antibiotics. Iclaprim exhibits potent in vitro activity against Gram-positive clinical isolates of many genera of staphylococci, including methicillin-resistant Staphylococcus aureus (MRSA). Iclaprim is rapidly bactericidal, achieving 99.9% in vitro kill against MRSA within 4 to 6 hours of drug exposure versus 8 to 10 hours for vancomycin. To date, iclaprim has been studied in over 1,300 patients and healthy volunteers. The release confirmed Iclaprim achieved the primary endpoint of non-inferiority (NI) (10% margin) compared to vancomycin, the current standard of care, at the early time point (ETP), 48 to 72 hours after the start of administration of the study drug, in the intent-to-treat (ITT) patient population. Iclaprim also achieved NI (10% margin) at the test of cure (TOC) endpoint, 7 to 14 days after study drug discontinuation, in the ITT patient population:
In an analysis of a pre-specified secondary endpoint, 54.6% of patients receiving iclaprim demonstrated resolution or near resolution at end of therapy (EOT), compared to 55.4% of patients receiving vancomycin (treatment difference: -0.83%, 95% CI: -8.80% to 7.13%). In another pre-specified secondary endpoint analysis, using a modified clinical cure TOC endpoint defined by a >90% reduction in lesion size at TOC, no increase in lesion size since ETP and no requirement for additional antibiotics, clinical cure was seen in 71.9% of patients receiving iclaprim and 70.5% of patients receiving vancomycin (treatment difference: 1.37%, 95% CI: -5.88% to 8.62%). Based on this, management will now submit their New Drug Application ('NDA') to the FDA in Q1'2018, which typically establishes acceptance after 2 months following which approval should be anticipated within 6 months given iclaprim's priority review status. Similar submission of a Marketing Authorization Application to the European Medical Authority ('EMA') is expected to follow in Q2'2018.
Our View: Truly excellent news! Motif management have delivered on every promise. Based on priority review, Iclaprim is set for a FDA decision in Q4'2018, followed by US commercial launch early in 2019, whereupon it will benefit from 10-years of Qualified Infectious Disease Product ('QIDP') marketing exclusivity. Of course additional funding will required within the next 12 months or so, in order to capture both the drug's full potential and further promote iclaprim while also funding the platform's development of follow-on indications. But the Motif Bio story has turned from 'high risk investment' to 'major commercial opportunity' and attracting such funding on a significantly higher valuation should present no difficulty although, realistically, this is more likely to be secured from potential industrial partners willing to pay handsomely for global territorial rights while the Board's own focus remains on overseeing commercialisation in the US. On the basis of ABSSSI identifying just the US market opportunity, specifically for those hospitalised patients having renal impairment with or without diabetes, of up to 26% of the 3.6 million ABSSSI patients hospitalised annually in the U.S. have kidney disease, suggesting iclaprim's annual market opportunity would be in the range of US$2.8bn. Globally it could be more than twice this for just the first indication, behind which there appears to be half-a-dozen more even larger opportunities. The pulmonary pneumonia one, for example in just the US, is probably twice the size of ABSSSI. Given past share price hiccups and the large retail element in its shareholder base, while spiking yesterday the equity still got nowhere near its true value. Investors should now at least hold on for Beaufort's price target of 110p/share, which will probably be reached when Motif management is able to confirm the signing-up of a major partner to take the non-US distribution rights for, say, an upfront payment of US$150m plus a 4% royalty, although that is possibly nine or so months away still. That said, any disbelievers still out there, could simply look at similar stage antibiotic developer, Nasdaq-listed Paratek Pharmaceuticals Inc. which presently has a valuation five times that of Motif, despite appearing somewhat inferior on the safety front. If the ordinary investor fails to recognise this unusual situation, one thing they can be sure of is that Big Pharma (Merck?) looking to expand their antibiotic portfolios will not. The starting point for discussions to assume outright control of Motif's assets is then likely to be something like 200p/share. Beaufort retains its Speculative Buy recommendation on Motif Bio with a 110p price target.