logo-loader

MySQUAR Limited, Direct Line Group, Hutchison China Meditech, InterContinental Hotels group, Meggitt, Travis Perkins

Published: 08:18 03 Aug 2016 BST

no_picture_pai

Markets
Europe

The FTSE-100 finished yesterday's session 0.72% lower at 6,645.40, whilst the FTSE AIM All-Share index closed 0.07% worse-off at 758.03. In continental Europe, markets ended sharply lower, dragged down by losses in banking stocks. Weak oil prices and concerns over the Eurozone economy further dampened investor sentiment. France’s CAC 40 and Germany’s DAX shed 1.8% each.
Wall Street
Wall Street ended in the red as oil prices continued to fall amid oversupply concerns. Investors remained worried over the US economy even as they digested a mixed set of corporate earnings released yesterday. The S&P 500 fell 0.6%, pulled down by the consumer discretionary sector.
Asia
Equities are trading lower, following losses in global equities. The Japanese market led the decline after the yen rallied on disappointment over the government’s stimulus measures. The Nikkei 225 shed 1.9%, and the Hang Seng was trading 1.6% down at 7:00am.
Oil
Yesterday, WTI prices declined 1.4% to US$39.51 per barrel, while Brent oil prices dropped 0.8% to US$41.80 per barrel.

Headlines
UK shop prices fall in July

As per the British Retail Consortium, shop prices in the UK fell 1.6% y-o-y in July, after a 2.0% drop in June, marking the slowest rate of decline since August 2015. Food prices plunged 1.2% y-o-y, while non-food prices dropped 2.2%. The price trend can be ascribed to intensifying competition among retailers. Meanwhile, non-food deflation decelerated to 2.2% in July from 2.8% in June.

Company news

MySQUAR Limited (LON:MYSQ, 3.88p) – Speculative Buy
MySQUAR, the Myanmar-language social media, entertainment and payments platform whose principal activity is to design, develop and commercialise Myanmar-focused internet-based mobile applications, on Monday, announced that it has raised GBP 455,000, before expenses, by way of a proposed placing of 13,000,000 shares of no par value in the share capital of the Company at 3.5 pence per share. For each Placing Share subscribed for, placees will also receive 1 warrant to subscribe for one new share of no par value each in the Company at an exercise price of 5.5 pence per share with a 3-year exercise period. The net proceeds of the Placing will be used to fund the working capital needs of the business including the ongoing development of new businesses including VoIP voice calling and gaming. It is expected that Admission will become effective and that trading in the Placing Shares will commence on or around 15 August 2016. In addition, the Company advises that Neil Osborn, a director of the Company intends to subscribe for a Total of 571,429 shares on the same terms for a further sum of £20,000 following the announcement of the Placing. Management noted that MySQUAR's financial year ended on 30 June 2016 will produce unaudited results in line with market expectations, including revenues of approximately US$0.8m.

Our view: MySQUAR user numbers are booming! Having confirmed back in October last year that the figure had surpassed 1.5m, meaning total unique users had risen by 50% in just three months, the Group has now confirmed that its current number of accounts exceeds 3m, which outstrips Beaufort’s full year calendar 2016 estimate of 2.95m. Quite clearly, the compounding effect experienced by the most successful social media operators, as their sites gain national recognition and the branding wins ‘go-to’ status, is now being achieved by MySQUAR. Realistically, a figure of 4.0m (the level at which acquisitive US sector giants usually Express an interest in international virgin territories), looks to be surpassed by early calendar 2017. Having now also added the mobile payment services, MyPay, to MyCHAT’s portfolio of features – a very natural ‘next step’ - the platform is increasingly able to satisfy all user requirements. Being integrated on a rev-share basis, as a trusted operator MySQUAR is capturing a potentially significant and growing, long-term monetisation opportunity. With this in mind, it also plans to release a new game (to be called ‘Myfish’) in the first week of August, another game (‘Invincible Sword’) in September and thereafter intends to continue to release new games at a rate of one every two months. In addition, management is currently negotiating a commercial agreement with a VoIP technology provider, and both sides are working on technical integration of their respective services. The voice calling business - similar to a highly successful counterpart in Cambodia - is targeted for launch in the 4th quarter of the calendar year 2016. Thankfully these projects will not significantly build on operating costs, leaving Myanmar’s unique, local language social media operator more than delivering on its promises. Indeed, based on the momentum now being build and the Group’s low operating costs, realistically MySQUAR could be achieve monthly breakeven by the end of calendar 2017. This is something that is unlikely to have been missed by the numerous and very cash-rich global operators who remain determined to rapidly ensnare local players that have successfully participated in an online user ‘landgrab’. In this respect, MySQUAR now appears quite dramatically undervalued; Beaufort sets a price target of 21.0p/share and repeats its Speculative Buy recommendations.
Click here to request a call back from a broker regarding this recommendation.

Beaufort Securities acts as corporate broker to MySQUAR Limited

Direct Line Group (LON:DLG, 399.90p) - Hold
Direct Line Insurance Group (Direct Line) announced its results for the half year ended 30th June 2016 (H1 2016). Gross written premiums increased 3.9% y-o-y to £1.6bn. Operating profit fell 5% to £316.9m and pre-tax profit dropped 5.2% to £298.5m. EPS increased to 17.2p as compared with 16.5p in H1 2015. The loss ratio reduced 0.8% to 53.4%, while the commission ratio dropped 0.7% to 10.9%. The combined operating ratio increased 0.2% to 89.6%, while the expense ratio, including Flood Re levy, increased 1.7% to 25.3%. Return on tangible equity stood at 23.1% (H1 2015: 21.2%). On the operational front, the group agreed to an extension with RBS of the Home and Private Insurance partnership for another three years. Direct Line declared an interim dividend of 4.9p (H1 2015: 4.6p) and a special interim dividend of 10.0p per share. The group’s estimated post-dividend Solvency II capital coverage ratio was 184% (pre-dividend: 199%).

Our view: Direct Line delivered a decent performance in H1 2016 amid difficult trading conditions. The group recorded an increase in gross written premiums, supported by strong growth in Motor in-force policies (up 2.5%) and premium rates (up 9.5%). Direct Line witnessed a fall in profit levels, hurt by lower investment gains. The group also had an additional expense to contend with this year, forking out £24m as levy to cover Flood Re. Direct Line maintained its operating ratio expectation for FY 2016 in the range 93–95%, assuming normal annual weather. However, after Brexit, the trading environment for the banking and insurance sectors has weakened. Also, consumer confidence in the UK has dampened. In light of the mixed outlook going ahead, we reiterate a Hold rating on the stock.
Click here to request a call back from a broker regarding this recommendation.

Hutchison China Meditech (LON:HCM, 1,935.0p) - Buy
Hutchison China MediTech (‘Chi-Med’), the China-based healthcare group, yesterday announced its interim results for the 6 months ended 30 June 2016 (H1 2016). During the period, total revenues jumped by +27% to US$104.5m. Net income attributable to the Group fell to US$0.5m (H1 2015: US$15.9m) as total operating expense widened to US$120.5m from US$82.5m, primarily due to increase in cost of sales by third parties, selling expenses and R&D (research and development) expenses. Its Innovation Platform division, an oncology/immunology pipeline, generated consolidated revenue of US$22.3m (H1 2015: US$26.9m) while spending US$36m (H1 2015: US$24.9m) mainly for 25 clinical trials (4 of which are Phase III studies on fruquintinib and sulfatinib) and on increased scientific team headcount resulted net loss attributable to Chi-Med of US$13.7m (H1 2015: net income US$2.0m). Commercial Platform division, a pharmaceutical business in China commercialising its Innovation Platform candidate drugs, saw consolidated sales expanded by +48% to US$82.3m and non-consolidated joint ventures sale rose +9% to US$249.6m, despite the weaker Chinese RMB against the US Dollar. Total net income attributable to Chi-Med from Commercial Platform was US$22.1m, up +12%. During the period, the Group completed NASDAQ listing with net proceeds of US$95.9m which boosted its available cash resources (consists of; cash and cash equivalents, short-term investments and banking facilities unutilised) to US$197.5m as at 30 June 2016 (31 December 2015: US$38.8m). Chi-Med’s Chairman, Simon To commented “Chi-Med has once again made very considerable progress at both the operating and strategic levels. In the first half, we completed our Nasdaq listing, which broadened our exposure to U.S. specialist investors and strengthened our cash position. We now have multiple shots at success with four pivotal studies underway today, and three more likely to initiate by H1 2017, on a diversified group of drug candidates. The results of these pivotal studies will emerge during 2017-2019, and we believe that if they prove successful, substantial benefits can be created for patients and shareholders alike. Consequently, we view the future with great confidence.” The full year 2016 guidance for consolidated revenue is US$190-205m, while net income attributable to Chi-Med is expected in the range US$0-5m.

Our view: Chi-Med announced excellent H1 progress with its Innovation Platform delivering good progress, its Commercial Platform recording a +48% jump in consolidated sales and, importantly, completion of its a NASDAQ quotation through which it successfully raised US$95.9m. The Group has 4 Phase III studies underway with potentially 3 more Phase III studies expected to begin by H1 2017. Reduced net income attributable to the Group of US$0.5m compared to US$15.9m in H1 2015 is not an issue having expanded its available cash resources, series of milestone payments from the partners, as well as a one-off property compensation from the Shanghai government which will lead to gain of over US$35m in the Q4 2016 plus a further US$40m (in a form of dividend) in H1 2017. Post the period, Chi-Med and AstraZeneca amended their co-development agreement for savolitinib, after eyeing early positive data from multiple Phase I/II studies, to accelerate its global pivotal Phase III study (in c-Met-driven papillary renal cell carcinoma). The amendment means Chi-Med will contribute up to an additional US$50m (over 3 years) to joint development costs, in return for an additional 5% in the global (excluding China) tiered royalty rate payable on savolitinib sales across all indications. The current cash position is considered not only sufficient for 3 additional Phase III studies and all near-term activities, but also for the savolitinib collaboration with AstraZeneca. With the increased stake in savolitinib, the potential long-term economic value is exciting. The NASDAQ quotation has not yet been seen to benefit Chi-Med’s share price, given macroeconomic uncertainties and recent downward pressure across NASDAQ early-stage Healthcare valuations. We believe, however, that its share price will track improvement as the sector regains confidence and results from its Phase III studies emerge. Beaufort reiterate Buy rating on the shares.
Click here to request a call back from a broker regarding this recommendation.

InterContinental Hotels group (LON:IHG, 3,104.0p) - Buy
InterContinental Hotels Group declared results for the half year ended 30th June 2016 (H1 2016). During the period, revenue dropped 8.4% y-o-y to US$838m, while operating profit before exceptional items increased 2.1% to US$344m. Pre-tax profit decreased 34.9% to US$298m, leading to an EPS of 87.7 cents, 43.9% lower than that in H1 2015. Net debt at the end of period was US$1.8bn (H1 2015: US$1.7bn). Free cash flow for H1 2016 was US$336m (H1 2015: US$134m). Revenue per available room (RevPAR) for the group grew at 2.0% in H1 2016. InterContinental signed 35,000 rooms into the pipeline, taking total rooms to 222,000. Of the pipeline, 45% is under construction and 90% is in the group’s 10 priority markets. InterContinental signed its second Kimpton outside the Americas in Paris, and the opened the second Hotel Indigo in the AMEA region in Singapore. InterContinental announced the next phase of the Crowne Plaza refresh in the US at investments over US$200m over three years. The group continued the roll-out of both Formula Blue room designs for Holiday Inn Express in the Americas and the innovative Open Lobby solution for Holiday Inn in Europe and the Americas. In May 2016, InterContinental returned US$1.5bn through a special dividend of US$6.329 per share. The group declared an interim dividend of 30 cents, 9% higher than that in H1 2015.

Our view: InterContinental recorded a resilient performance in H1 2016. Americas revenue grew 4.0%, while Europe revenue declined 24.3%. There was a 0.9% drop in AMEA revenue, while Greater China revenue fell 53.4%. The group remained focused on expanding its portfolio as it recorded the highest signings since 2008. RevPAR growth was good, with the Americas, Europe and Greater China regions recording robust numbers. Digital revenue rose 7% y-o-y, with mobile revenue up 32% y-o-y and driving more traffic to the website than desktops. IHG continue to execute its well-established strategy as it delivers consistent, high-quality growth and generates significant operating cash flows. The group has had a good first half, delivering a 10% increase in underlying operating profit and an 11% increase in underlying EPS, underpinning the decision to increase the interim dividend by 9%. The group has driven another excellent signings performance, which includes a second hotel for Kimpton outside the Americas, in Paris. IHG has enhanced its loyalty proposition, continued to develop its technological capabilities and grew its digital channels. IHG has also remained focused on innovating and evolving the brand portfolio, which includes launching the latest phase of the Crowne Plaza refresh in the US. The fundamentals for the industry, and particularly for IHG as one of the largest branded players, remain compelling. This backdrop, combined with IHG’s winning strategy and the strength of their business model, will enable the group to deliver sustainable growth into the future. Despite the uncertain environment in some markets, the group remains confident in the outlook for the remainder of the year. The statement is positive and whilst we retain our Buy stance, recent outperformance since the Brexit vote makes us inclined to recommend to short term investors that they consider to-slicing the holding. Speak to your broker for further advice.
Click here to request a call back from a broker regarding this recommendation.

Meggitt (LON:MGGT, 422.20p) - Buy
Meggitt has reported solid half-year results to 30th June 2016 and the strong order intake supports second half growth expectations. Reported revenue rose 11%, benefiting from foreign currency movements and composites acquisitions. Organic revenue declined 2%, reflecting tough comparators in military and further weakness in energy. Also, statutory results significantly impacted by £50.8m negative mark to market of its financial instruments, principally as a result of the recent weakness of Sterling. However, excellent progress was made on deployment of the Meggitt Production System (MPS). Cost reduction initiative launched in October 2015 completed on schedule; two site closures announced as part of footprint consolidation plan, and the integration of two composites acquisitions in late 2015 progressing well. The Net debt:EBITDA, up to 2.6x on a covenant basis, is commensurate with typical seasonality of cash flow and phasing of profit. The Group expect this will be within 1.5x-2.5x target range at year end as previously indicated. Encouragingly orders were up 18% to £912m and confidence is reflected in the Interim dividend growth, up 4.3% to 4.8p and full-year 2016 guidance is reconfirmed.

Our view: First half results reflect a period of strong order intake, and thus supportive of the Group’s guidance for the full year. Organic revenue was in line with expectations, with reported revenue helped by favourable foreign currency movements and a full six-month benefit from the two composites acquisitions completed in late 2015. These businesses are trading in line with Meggitt’s business plan, and the integration activities under way confirm management’s confidence to deliver the synergies set out at the time of acquisition. We are encouraged by the progress being made by its recently launched Customer Services and Support organisation. It's early days, but implementation is tracking in line with management expectations and we are encouraged by the potential for the business in the coming years. Management confirms that MPS continues to make excellent progress, enhancing product quality and customer service. Management’s continuing confidence in the prospects for the Group is reflected in the interim dividend increase by 4.3% to 4.8p. We retain our BUY recommendation.
Click here to request a call back from a broker regarding this recommendation.

Travis Perkins (LON:TPK, 1,533.0p) - Hold
Travis Perkins, the builders’ merchanting and home improvement retailer yesterday released half year figures to end-June 2016. Highlights included, revenue increased by 5.8% with like-for-like sales up 3.1%, adjusted operating profit increased by 4.9% to £194m and adjusted EPS increased by 7.7% to 58.4p. The Group produced good adjusted free cash flow generation of £165m, with cash conversion of 85%. During the period, it made gross capital investment of £120m, including £49m of freehold property investments, while retaining a strong balance sheet, with committed long-term funding and significant liquidity headroom to continue investing. Management proposed an interim dividend increase of 3.4% to 15.25p per share. CEO, John Carter, noted that “It is clear that the result of the EU referendum has created significant uncertainty in the outlook for our end markets and we did experience weaker demand in the run up to and immediately following the referendum. Our two-year like-for-like sales in July have been below the levels we experienced in the second quarter, however we have seen a gradual improvement through the course of the month. In our view it is too early to precisely predict end market demand and we will continue to monitor the lead indicators we track and will react accordingly.”

Our view: Beaufort was quick to label the housebuilders and merchants as ‘oversold’ immediately post Brexit, having seen the already-damaged sectors become the principal casualty of the vote. A 15% or thereabouts share price rebound justified a move back to overweight, which is where we remain for the overall sectors right now, although Travis Perkin’s statement has set enough alarm bells ringing for us to review our recommendation. UK Macro indicators, such as the PMI for Manufacturing (Monday outcome was 48.2) and Construction (yesterday outcome was 45.9, marking the fastest decline since June 2009 according to data compiler Markit) highlight the extent of uncertainty which, along with Travis’ new adoption of a more cautious post-referendum stance on RMI, new construction and infrastructure spend along with an anticipated foreign currency hit on input costs, suggests expectations of around 6% top line growth this year are now too optimistic and need to be at least halved and earning, perhaps, trimmed to around 121.5p. Travis Perkins is undoubtedly one of the sector’s high quality national vehicles and a fair bellwether for the overall residential new construction and improvement sectors. While trading well below its 12-month average earning multiple and remaining capable of supporting a 3.2% yield, a current year rating of 12.6x followed by 12.5x for 2017E now appears to fairly value the shares given present uncertainties. Beaufort accordingly take the cautionary step of downgrading Travis Perkins from Buy back to Hold while keeping an eagle eye on both its immediate peers (like SIG, Howdens, etc.) and the broader housebuilding sector.

Caledonia Mining tackles 2023 challenges with optimism for 2024 as it...

Caledonia Mining Corporation PLC (AIM:CMCL, NYSE-A:CMCL) chief executive Mark Learmonth tells Proactive's Stephen Gunnion the company faced a challenging 2023, primarily due to poor production in the first half of the year at its core asset, the Blanket Mine in Zimbabwe, and an underperformance...

50 minutes ago