The FTSE-100 finished yesterday's session 1.02% higher at 6,919.42, whilst the FTSE AIM All-Share index closed 0.26% better-off at 820.08. In continental Europe, markets ended mixed despite gains in energy stocks. Investors digested a mixed set of economic data released in the region, speculating a possible rate increase by the Fed. Germany's DAX inched down 0.3%, while France's CAC 40 edged up 0.3%.
Wall Street ended in the green as concern surrounding Deutsche Bank exerted pressure on financial sector stocks. Investors remained concerned over a possible interest rate hike in the near term. The S&P 500 edged down 0.9%, with the healthcare sector leading the laggards.
Equities are trading lower as concerns over Deutsche Bank dented investor sentiment. The Nikkei 225 declined 1.5% on weaker-than-expected consumption and inflation data. The Hang Seng was trading 1.5% down at 7:00am.
Yesterday, WTI prices increased 1.7% to US$47.83 per barrel, and Brent oil prices rose 1.1% to US$49.24 per barrel.
UK consumer confidence improves in September
As per GfK, UK consumer confidence improved to -1.0 in September from -7.0 in August, beating the market forecast of -5.0.
UK mortgage approvals drop in August
As per data from the Bank of England, mortgage approvals for house purchases in the UK dropped to 60,058 in August from 60,925 in July, the lowest since November 2014. Total lending to individuals rose £4.5bn in August, higher than £3.8bn in July. Net consumer credit advanced £1.6bn in August, vis-à-vis £1.2bn in July.
Strat Aero (LON:AERO, 0.75p) - Hold
Strat Aero, the international aerospace company focused on the rapidly emerging Unmanned Aerial Vehicle ('UAV') sector, yesterday announced the settlement of all litigation and claims arising from its dispute with Mr W. Hulsey Smith, the Chief Executive Officer of Aero Kinetics Holdings LLC. Under the terms of the settlement, Strat Aero disclaims any allegations of fraud against Mr. Smith and will issue Mr. Smith 44,750,645 new Ordinary Shares ('Settlement Shares'), representing approximately 11.75% of the Group's enlarged issued share capital. Strat Aero has also made a cash payment to Mr. Smith of US$75,000. As a result of the settlement, both Strat Aero and Mr. Smith are released from all current and future claims relating to the Group's acquisition of Aero Kinetics and all debt and loan obligations relating to the Group's acquisition of Aero Kinetics are deemed to have either been satisfied or written off. Both parties have agreed to dismiss all pending litigation between them which is subject to certain procedural formalities. Application will be made for of the Settlement Shares, which will rank pari passu with the existing Ordinary Shares in the Group, to be admitted to trading on AIM ('Admission'). It is expected that Admission will become effective and dealings will commence at 7:00 a.m. on or around 5 October 2016. Following the issue of the Settlement Shares, the issued share capital of the Group will consist of 380,856,709 Ordinary Shares. No shares were held in treasury at the date of this announcement. The total current voting rights in the Group are therefore 380,856,709.
Our view: If there is one thing markets do not like it is uncertainty. So yesterday' resolution lifts one of the larger clouds that has overhung Strat shares for several months now and tells us that the Group's new management recognises such issues, however painful, must be dealt with. Coming closely behind the £2.5m contract won by Geocurve earlier this month, confidence does finally appear to be returning. In a sector that is otherwise becoming crowded-out with 'me too' player, the new contract in particular is a big 'tick in the box' for Strat Aero. It also tells us that if utility groups like the Environment Agency are prepared to engage with such 'newfangled' technologies, then UAVs are rapidly going mainstream with all the giant market opportunities that presents. The reality is that ATC regulators globally, including the likes of the US's Federal Aviation Administration and the UK's Civil Aviation Authority, have been running significantly behind with UAV/UAS curve for some years now and, given the relatively low cost of entry and the vehicle's potential to create safety hazard, criminal or terrorist opportunity in national airspace, this has to change. When they do catch up, new legal and operating constraints will likely squeeze out the bulk of the 'mom and pop' entities that have saturated this early stage opportunity, leaving larger, more credible players with comprehensive offerings, like Strat Aero, to seize the longer-term opportunity. That's the upside vision but, back on earth the Group's management still must contend with many challenges, including restructuring the numerous different operations that were thrown together over the past 18 months or so, into a series fully integrated and complementary operations while taking the knife to costs. Having recorded an operating loss of some US$5.9m during FY2015, and having managed to raise only around US$0.5m in August's equity placing, Strat's balance sheet is clearly under strain. Once such issues have been resolved, however, shareholders will be able to focus back on the scale of its global opportunity and the Group's early mover advantage. Until then, Beaufort retains its 'Hold' recommendation.
Beaufort Securities acts as corporate broker to Strat Aero plc
Tiziana Life Sciences (LON:TILS, 187.50p) - Speculative Buy
Tiziana Life Sciences ('Tiziana'), a clinical stage biotechnology company focused on targeted drugs to treat diseases in oncology and immunology, yesterday announced its interim results for the 6 months ended 30 June 2016. During the period, operating loss before tax was £2.1m (H1 FY2015: loss £4.1m) due to reduced R&D expenditures. Basic and diluted loss per share therefore fell to 2.3p from 4.6p. The Group has raised £676,241 (gross) through a convertible loan note back in January and the period-end cash balance stood at £8.28m (H1 FY2015: £8.9m). On the operational front, Tiziana has appointed 4 executives to enhance its commercial and clinical development. From the R&D, Tiziana outlined its clinical development plan of foralumab in two clinical indications, graft vs host disease and non-alcoholic steatohepatitis (NASH), while milciclib continuing its Phase II trials for thymic carcinoma in patients previously treated with chemotherapy. Research agreement with Cardiff University for Bcl-3 inhibitors for cancer treatment has led to the identification of a first-in-class lead clinical candidate, CB1 (TZLS-101). Tiziana intends to file an Investigational New Drug application for CB1 in June 2017 and expects to move this drug candidate into clinical trials shortly thereafter. Furthermore, anti-cancer stem cell agent, TZLS-214 / c-FLIP and StemPrinter are currently under analysis with more detailed expected later this year. Tiziana's Chairman and founder, Gabriele Cerrone commented "Tiziana Life Sciences has had a successful six months. Looking ahead, we are confident of being well positioned to progress these programmes to their next respective value inflection points."
Our view: Tiziana progressed well during the H1 FY2016, moving its R&D programme forward while strengthening its cash position. The Group's appointment of Dr. Robert Evans as Vice President of Clinical Sciences, Tiziano Lazzaretti as CFO and Professors Kevan Herold and Howard Weiner as Scientific Advisory Board will enable Tiziana to build credibility into its commercial and clinical development. Post the half-year period, in July Tiziana purchased key assets from Shardna SpA, a biobanking and genomics research company located in Cagliari, Sardinia for €258,000. The key assets include 230,000 biological samples from 13,000 fully genealogically-linked residents from region with second highest longevity after Okinawa Island, Japan. This transaction provides Tiziana with access to a unique biobank, taken from a highly genetically homogenous population. It provides a unique resource at minimal cost from which it can leverage and combine the massive power and low cost of next generation gene sequencing with a full complement of biologic technologies, including proteomics and metabolics alongside, of course, genomics. It will permit the Group to generate valuable insights into gene regulatory networks, genotype-phenotype linkage and gene-environment interactions that will feed into and inform its drug discovery and diagnostic programmes. The Group's successful £12.8m raise in FY2015, followed by a further £0.68m raised through a convertible loan note in January, is the clearest demonstration of shareholders' continuing support and confidence in its prospects and management team. Beaufort retains its Speculative Buy Speculative Buy rating on the shares.
Beaufort Securities acts as corporate broker to Tiziana Life Sciences plc
CityFibre Infrastructure (LON:CITY, 61.0p) - Speculative Buy
CityFibre Infrastructure (CityFibre) signed a £0.5m, 15-year contract with euNetworks, a London-based provider of bandwidth infrastructure services in Western Europe, for capacity on its Manchester footprint. The contract gives euNetworks access to CityFibre's 40-km network in Manchester. euNetworks has 13 fibre-based metropolitan city networks across five countries connected with a high capacity intercity backbone covering 45 cities in 10 countries.
Our view: The contract is a positive development. It underpins CityFibre's metro local access footprint outside the competitive market of London. In addition, the contract adds seven data centres in Manchester to CityFibre's footprint and euNetworks as its 52nd service provider customer. CityFibre reported solid results for H1 2016. It signed several contracts and acquired assets to foster future growth. Earlier this week, CityFibre acquired the assets of Redcentric, a Harrogate-based leading national IT managed services provider to the enterprise and public sector segments. CityFibre now has presence in 40 cities and cater to an estimated 28,000 public sector sites, 280,000 businesses, 7,800 cell sites and 4 million homes. CityFibre plans to launch the acquired city footprints into full commercial production. The company continued to see strong demand for its national fibre and book record levels of new orders. We look forward to further updates from CityFibre and maintain a Speculative Buy rating on the stock.
Daily Mail & General Trust (LON:DMGT, 729.0p) - Buy
Daily Mail & General Trust (DMGT) released a pre-close trading update for the 11 months ended August 2016. DMGT reported 4% revenue growth. Its business-to-business (B2B) segment registered 9% revenue growth. The dmg media segment registered a 5% decline in revenue owing to a weak print advertising market in the UK. On an underlying basis, DMGT's revenue remained flat, with the B2B and dmg media segments registering a 2% increase and a 2% fall in revenue, respectively. DMGT's net debt/EBITDA ratio is expected to be less than 2.0 at the end of the year. On 1st June 2016, Paul Zwillenberg was appointed as chief executive, succeeding Martin Morgan, who retired. On 22nd September 2016, Stephen Daintith resigned as CFO. DMGT expects to incur about £50m in cash-related exceptional operating costs on reorganization initiatives vis-à-vis £15m given in the May 2016 guidance.
Our view: DMGT expects its FY 2016 performance to be in line with market expectations. DMGT reported stable underlying revenue for 11 months ended August 2016. Meanwhile, its reported revenue benefited from currency translation. The B2B segment led in terms of revenue growth, as most sub-segments registered underlying growth in revenue. The Risk Management Services (RMS) sub-segment registered 10% revenue growth due to a strong US dollar. The RMS (one) suite of products and solutions remains on track to be released in stages to clients. Exposure Manager, the first application to run on the RMS (one) suite was successfully released in July. The DMG information sub-segment registered 16% revenue growth on account of the consolidations of acquisitions and a strong US dollar. DMGT remained active in portfolio management. Its B2B division (Euromoney) acquired FastMarkets for £13m to extend Metal Bulletin's capabilities into real-time data delivery and be an integral part of Euromoney's extensive portfolio of digital products. DMGT is conducting a strategic review of all businesses to increase focus on its portfolio. It is undertaking reorganisation initiatives to protect its profitability and enable effective decision-making. We remain concerned about dmg media's print advertising segment. Nonetheless, we are confident about the company's prospects owing to growth in other segments and continuous initiatives to enhance its portfolio. Therefore, we maintain a Buy rating on the stock.
Imperial Brands (LON:IMB, 3,960.50p) - Buy
Imperial Brands (Imperial) released a trading update ahead of its close period on 1st October 2016. Imperial remains on track to meet full-year expectations at constant currency and reported exchange rates. Imperial registered strong growth in reported tobacco net revenue. The full-year trends in tobacco volume and operating profit margin are broadly in line with those recorded for the first half. The preliminary results for the financial year ended 30th September 2016 will be announced on 8th November 2016.
Our view: Imperial expects to register a good performance for FY 2016. The increase in revenue was driven by solid performance in the US. At current exchange rates, currency translation is expected to benefit full-year earnings by 4–5%. Imperial made good progress in the US and gained market share in its focus brands (Winston and Kool). Imperial registered a strong performance in growth markets, as it focused on profitable share opportunities and benefited from Fontem Ventures' revenue growth. In returns markets, Imperial remained focused on maintaining market share and profit. Its cost optimisation programme remains on track to deliver targeted savings. The company's cash conversion remains strong. Considering the factors mentioned above, we maintain a Buy rating on the stock.
Merlin Entertainments (LON:MERL, 442.10p) - Buy
Merlin Entertainments ('Merlin'), the European entertainments company operating the world's second-largest visitor attractions, yesterday provided trading update for the 38 weeks ended 17 September 2016. During the period, Group's revenue advanced +10.6% at actual foreign exchange rate and rose +3.7% at constant foreign exchange rate basis, while like-for-like ('LFL') growth was +1.3%. The Group revenue was comprised of three divisions, Midway Attractions (+9.2% actual, +3.7% constant), LEGOLAND Parks (+13% actual, +3.7% constant) and Resort Theme Parks (+10.2% actual, +4.5% constant). LFL growth for each of these three division were -0.4%, +2.2% and +3%, respectively. The Group said the result showed evidence of recovery in the Resort Theme Parks, continued growth in LEGOLAND Parks while Midway Attractions facing ongoing difficulty in certain key markets namely Midway London and Madame Tussauds Shanghai. Merlin Entertainments' CEO, Nick Varney commented "Merlin continues to deliver overall revenue growth despite challenging trading conditions…. In February of this year, we set out our New Business Development milestones for 2020. As previously stated, we continue to make good progress against these in terms of both new openings and pipeline development." The Group recently paid interim dividend of 2.2p per share.
Our view: Having risen close to 30% in the past year, lifting the shares to an EV/EBITDA multiple of 12.8x, Merlin would have needed a particularly upbeat statement to carry the firmly upwards. In the event, the statement was rather more mixed, showing LFL revenue growth of +1.3%, which was a little below consensus expectations and probably responsible for yesterday's share price weakness. Overall, Merlin delivered a resilient trading performance year to date amid relatively challenging market conditions while also benefitting from favourable foreign currency translation. More specifically, the shortfall was seen in Midway (due to challenging city centre tourist market, with heightened security concerns) and LEGOLAND (against tough comparatives), while Resort Theme Parks beat estimates delivering an encouraging recovery from the interims which reported revenues -7.0%, or -9.1% at actual and constant foreign exchange rate, and a -10.2% fall LFL. The Health and Safety Executive prosecution related to the accident at Alton Towers in 2015 has, of course, finally concluded with its imposition of a £5m fine. That aside, the Group confirmed it continued to make a good progress against the New Business Development milestones for 2020 and reaffirmed that it remains "positive on the medium-term outlook, reflecting the strength of the brands, diversity of the portfolio and confidence in the strategy". Despite the favourable foreign exchange rate, a little surprisingly the Group said to date it has not seen any material impact from Brexit. Although in theory weaker Sterling should attract more foreign visitors, as well as British tourists who are finding increasingly expensive to travel abroad, some of the shadow of heightened security concerns appears to remain in place. Beaufort sees yesterday's results much as expected and continues to rank the Group as a well-positioned, high quality vehicle. Looking ahead, the Group is on course to launch internally developed brand, 'Little Big City', first in Berlin in 2017, which could provide an additional operational spark in the coming year or two. Based on the current year and FY2017 forecasts, the share trade on P/E multiples of 23x and 20.7x along with dividend yield of 1.5% and 1.7% respectively, which is still not expensive relatively to international peers. Beaufort retains its Buy rating on Merlin Entertainments and sets a price target of 475p on the shares.
Germany unemployment change
The number of people without a job in Germany increased by 1,000 to 2.68 million in September, the Federal Labour Agency said yesterday. Economists had forecasted unemployment to drop by nearly 5,000 for the month. The seasonally adjusted unemployment rate remained at 6.1% in September, in line with the market expectations.
Eurozone consumer confidence
The gauge of Eurozone consumer confidence rose to -8.2 in September from -8.5 in August, the European Commission stated yesterday. This was in line with the market expectations.
Consumer prices in Germany rose 0.7% y-o-y in September, after a 0.4% rise in the previous month, as per the preliminary data from Destatis. Food prices rose 0.4% after a 0.9% gain in the previous month. Energy prices fell 3.6% following a 5.9% decline last month.
US wholesale inventories
US wholesale inventories dropped 0.1% m-o-m in August, after a revised 0.1% decline in July, preliminary data from the Commerce Department revealed yesterday. Markets had expected inventories to remain unchanged during the month.
US GDP annualized
As per the US Commerce Department, the US economy grew at 1.4% in Q2 2016, above the forecasts of 1.3%.
US initial jobless claims
Initial jobless claims in the US increased by 3,000 to 254,000 for the week ended 24th September, the Labor Department reported yesterday. The four-week moving average dropped fell by 2,250 to 256,000 last week.