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Beaufort Securities Breakfast Alert: DekelOil Public, Hummingbird Resources, JD Sports Fashion, Motif Bio, Persimmon, Petards Group, Poundland Group

Published: 08:38 15 Apr 2016 BST

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The markets
Europe
The FTSE-100 finished yesterday's session 0.04% higher at 6,365.10, whilst the FTSE AIM All-Share index closed 0.18% higher at 732.53. Continental markets ended in the green as investors digested mixed corporate earnings and the Bank of England's monetary policy decision. Investors remained cautious ahead of a meeting of oil producers on coming Sunday. Germany's DAX and France's CAC 40 advanced 0.7% and 0.5%, respectively.
Wall Street
Wall Street ended broadly flat on weak corporate earnings. However, a decline in unemployment claims strengthened the jobs market, thereby boosting investor sentiment. The S&P 500 remained unchanged, with the energy sector leading the gainers and consumer staples declining the most.
Asia
Equities are trading lower, as investors remain concerned over oil prices ahead of the April 17 meeting of oil producers in Doha. Investors largely ignored China's GDP numbers for Q1 2016, which matched expectations. The Nikkei 225 fell 0.4% and the Hang Seng was trading 0.1% lower at 7:00 am.
Oil
Yesterday, Brent and WTI oil prices declined 0.8% and 0.6%, respectively. The spread between the two varieties stood at US$2.3 per barrel.

Headlines
Bank of England maintains bank rate
The Monetary Policy Committee of the Bank of England (BoE) voted 9-0 to retain the bank's benchmark interest rate at 0.5%, amid weak inflation and moderate growth. The bank warned that the EU referendum could negatively impact growth in the first half of the year.
China's economy grew 6.7% in Q1 2016
As per the National Bureau of Statistics, China's GDP expanded 6.7% y-o-y in Q1 2016 compared with 6.8% in Q4 2015, marking the slowest quarterly growth in seven years. However, the reading was in line with expectations and Beijing's growth targets. Growth in housing and infrastructure offset a slowdown in financial services.

Company news

DekelOil Public (LON:DKL, 1.58p) - Buy
DekelOil Public, operator and 51% owner of the vertically integrated Ayenouan palm oil project in Côte d'Ivoire, announced its final audited results for the year ended 31 December 2015. It also published its annual report on its website https://www.dekeloil.com/ Record full year production of 35,770 (2014: 14,242) tonnes of crude palm oil (CPO) and 6,221 (2014: 2,504) tonnes of kernels at the Company's 70,000 tonnes per annum CPO extraction mill (the Mill), represents a 151% increase on the CPO tonnages produced for the full year of 2014 and a 134% increase in revenues to €23.4m (2014: €10m) and EBITDA of €3.7 million compared to a 2014 loss of €0.4m. These results derived from selling 35,573 tonnes of CPO and 4,806 tonnes of kernel (2014: 13,900 tonnes and 2,444 tonnes respectively). The Company strengthened its balance sheet via an offset agreement signed with joint venture partner, Biopalm Energy Ltd which reduces the Company's debt position by €5.1m. The Company list multiple growth drivers for 2016:

- The Board expects that like-for-like CPO production volumes will be higher in FY 2016 following an excellent first quarter which saw a 56% increase in production compared to Q1 2015
- On track for a significant increase in 2016 sales via the sale of products from a new Kernel Crushing Plant (KCP) which commenced operations in Q4 2015
- Post year end refinance of €9.15m of senior debt at 7% interest compared to 10.5%

Our view: The year 2015 saw DekelOil deliver on its promise to add significant value to its West African palm oil operation. The strength of the Company's revenues and EBITDA for the year and the record Q1 2016 production figures reported recently from its 60 t/hour extraction mill, highlight the efficacy of DekelOil's activities. Operationally, the Company has seen a significant increase in feedstock from smallholders, which demonstrates DekelOil's standing as a responsible and reliable processing company in the region and we welcome this development. The Company has also recently delivered its first full quarter of production from its new KCP, which will play a strong role in building further value in the business during 2016. In tandem with reinforcing the business from an operational perspective, the debt re-financing has strengthened the balance sheet, which will help with the Company's objective to implement a dividend policy in the future. It is also pleasing to see Institutional investor, Miton UK Microcap Trust PLC, on the Share Register with a holding above 4%. We happily reiterate our Buy stance on DekelOil.

Beaufort Securities acts as corporate broker to DekelOil Public Limited

Hummingbird Resources (LON:HUM, 23.5p) - Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced yesterday its final audited results for the period ended 31 December 2015. During the period, loss before tax was US$4.6m (USc4.64 per share) compared with a loss of US$3.4m (USc4.3 per share) over the previous period. As at 31 December 2015, Hummingbird had a cash balance of US$7.2m versus US$8.5m over the previous period and net debt of US$7.7m. The Company has made significant progress during the period and expects its first gold pour in 2017. As previously announced (February 2016) the optimised mine plan on the Yanfolila gold project in Mali reported an NPV8 of US$162m, an IRR of 60% and AISC of US$695/oz based a US$1,250/oz gold price. Progress has also been made on Hummingbird's Dugbe gold project in Liberia including signing of a hydroelectric collaboration agreement and mineral development with the Government of Liberia.

Our view: We are encouraged with the progress made during the period including the improved ore reserve statement and the revised mine plan which have significantly improved Yanfolila's overall economics. Given the improved project economics and the recent extension of the US$15m bridge loan facility with Taurus Mining Finance Fund until 8 September 2015, we believe Hummingbird is in a stronger position to negotiate the final funding package for development of the project. We look forward to further developments on the financing package in due course. In the meantime, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as a corporate broker to Hummingbird Resources plc

JD Sports Fashion (LON:JD., 1,193.0p) - Buy
Yesterday, JD Sports Fashion declared preliminary results for the year ended 30th January 2016 (FY 2016). The company's revenue rose 20% y-o-y to £1.8bn, with like-for-like (LFL) sales growth of 11.6%. Operating profit (before exceptional items) jumped 56% to £158.9m. Pre-tax profit advanced 45% to £131.6m, resulting in an EPS of 50.16p versus 35.17p. Net cash at the end of the period stood at £209.4m compared to £84.2m in FY 2015. On the operational front, JD Sports continued the roll-out of its European business, with a net increase of 38 stores for the JD fascia across Europe. The company declared a final dividend of 6.2p, taking the full-year dividend to 7.4p, 5% higher than the previous year.

Our view: JD Sports performed strongly in FY 2016, driven by solid growth in both its operating segments. The Sports Fashion division's revenues soared 49% to £162.9m, with LFL sales growth of more than 10% for the second successive year. The company's Outdoor segment continued to stabilize, with the operating loss reducing to £4m from £7.1m in the previous year. JD Sports expanded its international presence with the addition of new stores in the existing European market and other countries. The company's sustained focus on cash and stock management resulted in an enhanced cash position at the end of the period. These funds paved the way for increased dividends payable to shareholders and provide JD Sports with a strong financial foundation for its ongoing retail developments, both in the UK and abroad. We are encouraged by the company's progress in FY 2016 and believe it is well-placed to continue its growth momentum. Therefore, we maintain a Buy rating on the stock.

Motif Bio (LON:MTFB, 41.0p) - Speculative Buy
Motif Bio plc, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday announced the appointment of Pete A. Meyers as Chief Financial Officer and Rajesh B. Shukla, Ph.D. as Vice President, Clinical Operations. Bob Bertoldi, Motif Bio's current CFO and Director, will transition his CFO responsibilities to Mr. Meyers but will continue as a Director to contribute to the future success of the Company. The Company has also appointed Jonathan Gold, currently a non-executive director of Motif Bio plc, as a strategic financial consultant under a consulting agreement (the 'Consulting Agreement') to assist the Company in its capital raising plans. Mr. Gold's consulting term will be for an initial period of six months from 1 January 2016 reflecting his efforts since that date. Under the terms of the Consulting Agreement, the Company will pay Mr. Gold US$10,000 per calendar month. After the initial 6-month period, the Consulting Agreement renews on a monthly basis subject to the agreement of both parties.

Our view: Putting the right management team in place. Pete Mayer's experience in capital markets, M&A and financial operations, combined with Rajesh Shukla's depth of knowledge in Clinical Operations should ensure strong leadership in these critical functions. Given the significance of the trials presently underway, with ABSSSI trials expected to be completed in 2H'2017, followed by the planned 2018 commercial launch, securing the right sets of sector-related skills and experience is very important. Iclaprim has the potential to be a major addition to the armamentarium of antibiotics much needed for the treatment of serious and life-threatening infections caused by multi-drug resistant bacteria in hospitalised patients. Being a platform drug with a long pipeline of further indications, which could at least provide part of the solution to the medical world's looming antibiotic crisis, suggests iclaprim is capable of creating quite considerable value. Having already raised some US$25m funding, Motif's management is pressing ahead with an accelerated dosing timetable, has appointed a leading CRO (Covance) to conduct the trials and won fast-track designation while also appointing a US financial advisor in anticipation of it achieving a NASDAQ quotation (possibly during Q3'2016). The latter point, of course, is key to Motif's equity performance, given the premium valuation US healthcare investors typically award to such early stage developments. NASDAQ-quoted Paratek Pharmaceuticals which, for example, is highly comparable to Motif in terms of medical indication and development stage, enjoys a valuation almost four-times that of Motif. Motif Bio is one of Beaufort's key picks for 2016 and we retain our Speculative Buy rating on the shares.

Persimmon (LON:PSN, 1,900.0p) - Hold
Persimmon, one of the largest housebuilders in the UK, yesterday announced its trading updates for the period from 1 January 2016 to 14 April 2016. During the period, the Group's total forward sales revenue, including legal completions taken, was +8% higher than last year at £2.15bn (2015: £2bn), while weekly private sales rate per site over this period was +6% ahead of last year. The Group have 7,598 new homes sold forward into the private sale market for 2016 with an average selling price of c.£220,000, an increase of +5.8% compared to the prior year. Persimmon is currently developing 370 active outlets across the UK, having opened 75 of the 100 new sites planned for H1 FY2016 and planning to increase its active outlet numbers towards c.400 by the end of 2016. The Group also declared that £300m Revolving Credit Facility with its five relationship banks has now been extended its maturity date to 31 March 2021. The Group remains focused on delivering family housing across the UK, excluding central London, to deliver affordable homes. The announcement reads "the Group is in a strong position to continue to make good progress over future periods". Persimmon will provide next trading update on 5 July 2016.

Our view: Persimmon has made excellent progress so far in 2016, with improved forward sales revenue and average selling price. But then, it would have come as a bit of a shock if they had said anything less! Consumer confidence has been supported by ultra-low interest rates, continuing progress with UK economy/employment, direct government incentives to stimulate/support house purchases, mortgage lenders remain keen to offer credit together with an obvious and almost overwhelming shortage of homes across the nation. Indeed, time for the UK fraternity of housebuilders has rarely been better! Cash flow has become so plentiful, the whole sector has been returning surpluses to shareholders by the bucketful. Persimmon, which pays specials rather than providing a stated annual policy, on 1 April 2016 paid 110p per share, or £338m, as its fourth payment of the Capital Return Plan. On 23 February 2016, the Board announced an increase of £860m, or +45%, to its original plan, increasing the total value to c.£2.76bn, or £9 per share, proposed for returning to shareholders by the end of 2021. But there are worries on the immediate horizon for the notoriously cyclical housebuilding sector, and given that it has become so widely owned by performance funds over the past five or so years, many have recently decided now is the time to take some of their money 'off the table'. Clearly this reflects a number of concerns in different measure, but including : 1) Fears of a 'yes' vote for BREXIT, which would likely discouraging international property buyers, not just from the EU, and possible push the UK into recession, while further GBP devaluation would increase costs of both materials and labour; 2) The Panama leak, may discouraging the movement of wealth; 3) Higher stamp duty effected from 1 April 2016; 4) Looming higher interest rates and; 5) Possibility of a Government fearful of a house price bubble deciding on an early end or dilution of the Help-to-Buy scheme. Given the present Government's exceptional support for home-ownership and the underpinning house prices provide to UK consumer confidence, some of the fears appear overstated, as are the real chances of the June 23rd Referendum actually providing majority support for BREXIT. Nevertheless, given that such fears persist, Beaufort last week downgraded the entire UK Housebuilding sector, including Persimmon, from 'Buy' to 'Hold', in anticipation of falling share prices. That said, Beaufort would likely be quick to re-build holdings on any serious correction and growing confidence that the public will vote to remain inside the EU.

Petards Group (LON:PEG, 14.25p) - Speculative Buy
Petards announced that it has acquired the entire issued share capital of QRO Solutions Limited (QRO) for a maximum consideration of £1,255,000. The consideration, which will be satisfied in cash from Petards existing cash reserves, includes deferred consideration of £140,000 the payment of which is subject to QRO achieving revenues of at least £1,750,000 and profits before tax of at least £240,000 in the year ending 30 November 2016. QRO (www.qrosolutions.co.uk) was established over 15 years ago providing end-to-end Automatic Number Plate Recognition (ANPR) security and speed enforcement solutions to UK police forces and to integrators serving the police and security markets. QRO's systems integration expertise enables it to offer fixed site, mobile, re-deployable and hand-held ANPR systems which can be integrated into its own back office management suite of software; Check-IT ANPR, Check-IT CSGS, Check-IT Handheld and Multimedia Vault. QRO, which employs 11 permanent staff all of whom will remain with the business post acquisition, will strengthen the Group's offering and provides a strong service-based operation with recurring revenues on which to expand further into the Emergency Services sector. It will provide Petards with an entry into fixed site ANPR and complement the Group's existing ProVida range of mobile in-car enforcement products giving greater critical mass to the overall business and a wider customer base in the UK and overseas markets. In the year ended 30 November 2015 QRO generated revenues of £1,784,000 and profit before tax of £101,000. Over 25% of its revenues related to recurring maintenance and similar contracts. At 30 November 2015 QRO had net assets of £683,000. The QRO balance sheet at the date of acquisition includes cash balances of £876,000. At yesterday's AGM the Company reported that trading in the first quarter of 2016 is slightly ahead of management's expectations with both revenues and results being above those for the same period in 2015.

Our view: This acquisition marks a first step towards expanding the Group into a broader earning base and the Board is continuing to pursue other earnings enhancing acquisitions. We regard this acquisition as positive and an excellent add-on acquisition. We regard and welcome this as a start in a 'build and buy' strategy. We are encouraged by the trading in Q1 ahead of 2015 and note the increase in revenues is being seen across all of the Group's product areas. With a number of new order prospects currently being negotiated and strong backing from the Group's existing order book, we are further encourage that the Board anticipates that both the first half year and full year results will show good progress against those achieved in 2015. Therefore, we maintain a Speculative Buy rating on the stock.

Poundland Group (LON:PLND, 142.25p) - Buy
Poundland Group plc, Europe's leading single price retailer, yesterday announces an update on the 99p Stores Ltd property estate conversion programme and its fourth quarter trading statement for the 13-week period to 27 March 2016. Full year highlights included total sales, excluding Spain, increased by 17.9% to £1,310.4 million (2015: £1,111.5 million) on an actual currency basis. Like-for-like sales decreased by 3.9% (2015: + 2.4%); in H2, like-for-like sales fell by 4.9% (2015: + 0.5%), although sales in Spain amounted to £15.4 million (2015: £5.4 million); trial is progressing well with a further update to be given at results in June. Including new store openings, the acquired 99p Stores estate and Spain, 336 gross stores have been added to the Group's store portfolio in the last 12 months, increasing the estate by 57%. It ended the year with 906 stores (2015: 593) including 843 stores in the UK (2015: 547), 53 stores in Ireland (2015: 41) and 10 stores in Spain (2015: 5). Management also confirmed underlying full year pre-tax profits expected to be broadly in line with current market expectations. In this respect, it is on track to deliver targeted incremental annual EBITDA of at least £25 million, of which around two-thirds is expected to be generated in the year to March 2017. Management also detailed the costs and investment required to convert the store portfolio will be in line with expectations, with the vast majority being incurred in the 2016 financial year, given the acceleration of the conversion programme.

Our view: Good progress! Even if these LFLs remained disappointing, the data will start to improve against weaker comparatives in the current period, while management continues to deliver on the benefits promised from the 99p Stores conversion. The diversion created throughout the acquisition and integration phases is now also largely behind them. Given the opportunity this greater scale presents (in terms of buying and branding synergies, store consolidation, warehousing, H.O. procedures, etc.), it is appropriate now to concentrate upon extracting value and control costs within a significantly enlarged store portfolio as well as reduce the pace of new store openings. While 2015 became a transformative year for Poundland, it also became one for the wider fraternity of UK poundshops. The reality is that the sector has rapidly arrived at the point of saturation; the best locations are already occupied and the customers are even getting bored with the traditional format. This means much fewer new players can now find a reason to enter this arena and that the consolidation/closure phase, that Poundland kicked-off with its bargain purchase of the 99p Stores, will gather pace. Remember, this exact same exercise played out in the US some twenty years ago with the opening, followed by boom and then bust, of main-street dollar stores. Poundland's management, of course, knows this story very well. It also knows that the poundshop, in some shape or form, has become an integral, long-term feature of the UK High Street. In continuing to grow it nationwide footprint, Poundland clearly intends to be one of the last ones standing in an environment that by then will finally have erected significant barriers to entry. Whatever, presently trading on a Mar'17E multiple of just 10x earnings (roughly one-third of that achieved on its IPO less than 24 months ago) along with a 4%+ yield, the shares are looking oversold. Beaufort accordingly repeats its Buy recommendation, awarding the shares a price target of 200p.

Unilever (LON:ULVR, 3,284.50p) - Buy
Yesterday, Unilever released a trading update for Q1 2016. During the period, the company's revenues fell 2.0% to €12.5bn, mainly due to currency volatility. Underlying sales, which exclude the impact of foreign exchange, grew 4.7%, with emerging markets witnessing an 8.3% rise. The amount of goods (volume) sold by Unilever rose 2.6% in Q1 2016, and prices increased 2.0%. The company's Personal Care segment recorded a 5.8% rise in underlying sales due to a 3.8% and 1.9% increase in volume sold and prices, respectively. The food segment recorded a 1.9% increase in underlying sales, whereas the volume sold fell 0.2%. The Home Care segment's underlying sales increased 7%, with a volume growth of 4.5%. Unilever's refreshment business, which includes ice cream and tea, reported a 3.8% rise in underlying sales. The company declared a dividend of €0.32 per share, 6% higher than that in the same period last year.

Our view: Unilever has started 2016 positively, offsetting the unfavourable external environment. The company reported an increase in underlying sales, as it sold more products at higher prices. Unilever's overall revenue was lower due to weak currencies in its operating areas. The company's Personal Care segment performed strongly, led by innovations to improve its core brands and expand into more premium segments. The Home Care segment delivered solid growth, driven by improvements in higher-margin segments and the new Omo with enhanced formulation and better cleaning technology. In addition, the Refreshment segment continued its growth momentum, as all premium brands were well-accepted in the market. Unilever remains committed to shareholders, as it increased the dividends payable. The company left the full-year guidance unchanged due to the uncertainty in the markets. Given Unilever's fundamentally strong position and the strength of its brands across markets, we remain optimistic about the company's future prospects. Therefore, we maintain a Buy rating on the stock.
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Economic news
Eurozone CPI
Consumer price inflation (CPI) in the Eurozone increased 1.2% m-o-m in March, after a 0.2% rise in February, as per the data released by Eurostat yesterday. On y-o-y basis, CPI remained flat in March, after a 0.2% drop in February. Core prices, excluding energy, food, and tobacco, grew 1.0% y-o-y in March.
US initial jobless claims
Initial jobless claims in the US decreased 13,000 to a seasonally adjusted 253,000 in the week ended 9th April, matching the lowest level since 1973, the Labor Department reported yesterday. Economists expected the claims to increase to 270,000. The four-week moving average fell by 1,500 last week to 265,000.
US CPI
US consumer price index (CPI) rose 0.1% m-o-m in March, after a 0.2% decline in February, the US Bureau of Labour Statistics stated yesterday. The markets expected a 0.2% increase in prices. Core consumer prices, excluding food and energy, increased 0.1% m-o-m in March, after a 0.3% rise in February.

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