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Beaufort Securities Breakfast Alert: AstraZeneca, Touchstone Innovations Plc

Published: 08:11 03 Apr 2017 BST

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Today's edition features:

AstraZeneca (LON:AZN)

• Touchstone Innovations (LON:IVO)

 

Markets

Europe

The FTSE-100 finished Friday's session 0.63% lower at 7,322.92, whilst the FTSE AIM All-Share index rose 0.26% to stand at 929.42. In continental Europe, the CAC-40 finished up 0.65% at 5,122.51 whilst the DAX was 0.46% higher at 12,312.87.

Wall Street

In New York on Friday night, the Dow Jones fell 0.31% to 20,663.22, the S&P-500 lost 0.23% to 2,362.72, and the Nasdaq faded 0.04% to stand at 5,911.74.

Asia

In Asian markets this morning, the Nikkei 225 was up 0.25% to 18,957.42, while the Hang Seng added 0.28% to 24,178.44.

Oil

In early trade today, WTI crude was down 0.16% to $50.52/bbl and Brent was down 0.26% to $53.39.

 

Headlines

Lloyds Bank to shrink hundreds of branches in size

Lloyds Bank (LLOY.L) has announced plans to shrink hundreds of its branches in size, in some cases boarding up the old counter sections. The new "micro branches" will be staffed by just two people, who will help customers to use machines, including pay-in devices. Some of those being converted will be Halifax and Bank of Scotland branches. Lloyds said the reason was "a profound change in customer behaviour", which has seen more transactions move online. It has already announced plans to close 400 of its branches around the UK, with 9,000 job losses. The micro format, modelled on an existing branch in Paternoster Square in the City of London, will use as little as 1,000 square feet of space. "We have a lot of branches that used to have a lot of footfall, and therefore feel quite empty and intimidating for customers," said Jakob Pfaudler, Lloyds' chief operating officer for retail. "So when there's too much space we may board up places in existing branches."

Source: BBC News

 

Company news

AstraZeneca (LON:AZN, 4,912.50p) – Hold

AstraZeneca, a global, science-led biopharmaceutical company focused on three main therapy areas – Oncology, Cardiovascular & Metabolic Diseases and Respiratory, on Friday announced that its Tagrisso (osimertinib) tablets for the 2nd line treatment for patients with metastatic non-small cell lung cancer, has received full approval from the US FDA. AstraZeneca's Executive Vice President, Global Medicines Development and Chief Medical Officer, Sean Bohen, commented "By following the science, we aim to turn lung cancer into a chronic, manageable disease for patients and this milestone brings us one step closer to that ambition. The FDA's full approval reinforces the potential of Tagrisso to become the standard of care for patients with metastatic EGFR T790M mutation-positive non-small cell lung cancer whose disease has progressed on or after first-generation EGFR-TKI therapy".

Our view: The announcement follows December's positive data for Phase III AURA3 trial where Tagrisso demonstrated superiority against the chemotherapy. Tagrisso reduced risk of disease progression by 70% and improved progression-free survival by almost 6 months, while no single serious adverse reaction reported in 2% or more patients treated. Lung cancer is very common cause of cancer death, both in men and women, responsible for around one-third of all cancer deaths, surpassing breast, prostate and colorectal cancers all combined. Tagrisso approved on Friday was for EGFRm form of non-small cell lung cancer which affects 10%-15% of US and European and 30%-40% of Asian non-small cell lung cancer patients, whose tumours develop resistance to the current treatment (approximately two-thirds of patients develop resistance). This is a positive news for AstraZeneca, however, for now, Beaufort's focus remains on the success/failure of AstraZeneca's MYSTIC trial (for non-small cell lung cancer), for which, the PFS data readout is expected in mid-2017, followed by final overall survival data during 2018. Beaufort accordingly maintains its 'wait and see' approach on the shares, retaining its Hold rating on AstraZeneca.

 

Touchstone Innovations (LON:IVO, 310.00p) – Hold

Touchstone Innovations (formerly Imperial Innovations), a UK investment company focused on technology sectors, with particular expertise in therapeutics, medtech, engineering & materials and ICT, on Friday announced its interim results for the 6 months ended 31 January 2017 ('H1 FY2017'). During the period, net portfolio value advanced by +14.2% to £382.8m, driven by increased investments of £29.0m across 18 companies, net fair value gains of £26.5m, minus the disposals of £7.8m in its portfolio. The net fair value gain of +7.9% to £26.5m (H1 FY2016: £0.5m) during the period was comprised of £3.4m gain in the Group's quoted portfolio (mostly attributable to Oxford Immunotec) and gain of £23.1m in unquoted portfolio (mostly attributable to PsiOxus Therapeutics). The Group made pre-tax profit of £16.0m against a loss of £5.9m a year ago, leading to basic profit per share was 10.0p (H1 FY2016: basic loss per share 4.3p, FY2016: basic loss per share 43.2p). Net assets value increased to £472.4m (FY2016: £455.9 million), leading to net asset value per share of £2.93. The Group had cash and short term liquidity investments of £163.3m (FY2016: £198.3m) including the £50.0m second loan facility from European Investment Bank available for investment and operations, at the period end. As at 31 January 2017, the Group has 43 portfolio companies (of these, 4 are quoted) and held equity stakes in 112 companies. Touchstone's CEO, Russ Cummings, commented "We have a dozen companies of material scale and considerable potential. Most of our larger and maturing unlisted companies made significant progress and are approaching key inflexion points. We have great depth to our portfolio, with another 20 portfolio companies or so making significant progress and showing rapid development. Despite the macro-economic backdrop, we have the people, platform and skills to continue to build on our successful investments for the long-term.

Our view: Touchstone returned to pre-tax profits with increased net portfolio value and net asset value during H1 FY2017. The Group witnessed increased dealflow amongst its portfolio companies, particularly the PsiOxus Therapeutics which signed a license agreement with Bristol-Myers Squibb for value up to US$936.0m, and Crescendo Biologics that signed collaboration and license agreements with Takeda Pharmaceutical for value up to US$790.0m during the period. Post period, its troubled Circassia agreed a US$230.0m collaboration with AstraZeneca and Cell Medica completed a £60.0m funding round, both during March. The Group has fully drawn down its £50.0m EIB facility since the period end. Touchstone stated that its portfolio is maturing and that higher cash realisations can be expected in FY2017. It has sold its holding in Oxford Immunotec, generating total proceeds of £11.3m, which represents a 1.5 times return on its original investment and generated a fair value gain of £5.0m. While we are seeing some positive progress, the Group's top 10 assets stands at 61% of net portfolio value and therefore potential risks of failure amongst them remain concerns, before seeing the success of ongoing adjustment in its portfolio to grow its investment in non-therapeutics businesses, especially the ICT & Digital portfolio. Beaufort would prefer to monitor the Group's progress of delivering shareholder value here before considering its recommendation. The shares are valued at FY2017E NAV of £444.3m with 1.14x P/BV. Beaufort reiterate its Hold rating on the shares.

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