logo-loader

Beaufort Securities Breakfast Alert: Jangada Mines, Zenith Energy and Ryanair

Published: 08:27 01 Nov 2017 GMT

no_picture_pai

Markets


Europe
The FTSE-100 finished yesterday's session 0.07% higher at 7,493.08, whilst the FTSE AIM All-Share index was up 0.04% at 1,039.06. In continental Europe, the CAC-40 finished 0.18% higher at 5,503.29 whilst the DAX was closed for a public holiday.


Wall Street
In New York last night, the Dow Jones closed 0.12% higher at 23,377.24, the S&P-500 added 0.09% to end the session at 2,575.26 and the Nasdaq finished 0.43% stronger at 6,727.67.


Asia
In Asian markets this morning, the Nikkei 225 was up 1.91% at 22,432.16 and the Hang Seng was 0.61% higher at 28,419.15.


Oil
In early trade today, WTI was 0.42% higher at $54.61 per barrel and Brent was up 0.31% at $61.13 per barrel.

Headlines
Bookies brace for possible sales hit
Britain's betting industry is bracing for lower revenues after the government said it will cap the size of stakes gamblers can make on fixed-odds betting terminals (FOBTs). Punters can currently stake up to £100 per spin on the controversial machines, dubbed by critics as the "crack cocaine of gambling". The machines generated more than £1.8bn in revenue last year, helping to support growth for bookmakers. But the Department for Digital, Culture, Media and Sport (DCMS) has now launched a 12-week consultation into cutting maximum bets from £100 to either £50, £30, £20 or £2. The DCMS has also called for a review of the spin speed on FOBT games, and says gambling companies will need to collaborate on a two-year long campaign to promote responsible gambling. It's the result of a government review into gambling industry practice that started in October 2016.

Company news
Jangada Mines (LON:JAN, 4.62p) – Speculative Buy
Jangada Mines Scoping Study announced yesterday on the Pedra Branca platinum group metals (PGM) project highlighted the economic potential of South America's largest and most advanced PGM project, located in north-eastern Brazil. Results demonstrate the economic viability of a potential 1.1Mt pa operation producing some 34,000oz of palladium, platinum and gold (2 PGM + Au). In addition to PGM mineralisation, Pedra Branca contains significant amounts of technology metals including nickel, cobalt and chromium as well as copper. Assuming an initial capex of US$38.4 and a life of mine of 13 years, a NPV of US$158.4m with an IRR of 80.5% and a payback period of 1.3 years was calculated using a 10% discount rate and a five-year historical average for platinum, palladium, gold, copper, nickel, chromium and cobalt.

Our view: The above study captures the robust economics of the Pedra Branca project as a near-term open pit mine with low-capex and opex costs producing a PGM-bearing concentrate (mostly palladium) with significant by-product credits through a simple gravity separation and floatation process. We note that palladium prices are up 43% this year on the back of strong global sales of petrol cars and chronic undersupply. We also note the significant potential for by-product credits which essentially cover the costs for the palladium extraction. We look forward to completion of the PFS in Q4 2017 as well as additional metallurgical testwork to confirm metal recovery rates as Jangada continues to fast track the project towards trial mining in early 2018. In the meantime, we maintain a Speculative Buy and place our target price of 9.6p per share under review as we update our model in light of the Scoping Study results.

Beaufort Securities acts as corporate broker to Jangada Mines Plc

Zenith Energy (LON:ZEN, 11.12p) – Speculative Buy
Zenith has announced it has signed a commitment letter to acquire a new drilling rig. It will be custom built for Zenith and delivered in 2H18, after which we expect development drilling to begin. Zenith has 32m barrels of 2P reserves in Azerbaijan and this new highly automated rig will mean Zenith has some of the best and safest drilling equipment available.

Our view: It is good to see Zenith moving towards development drilling in 2018 and with an excellent drill rig. We don't fully understand the finance arrangement with the rig supplier but the RNS states that it is a "unique lease arrangement that aligns Zenith's targeted growth plans and cash flows with its future equipment requirements". Presumably Zenith has agreed a structure to minimise dilution and maximise Zenith shareholder returns. We look forward to continuing successes from the current workover programme and then drilling in 2018. We reiterate our Speculative Buy recommendation.

Beaufort Securities acts as corporate broker to Zenith Energy plc

Ryanair Holdings (LON:RYA, EUR16.82) – Buy
Ryanair, a low-cost European short-haul airline company, yesterday announced its interim results for the 6 months ended 30 September 2017 ('H1 FY2018'). During the period, passenger traffic advanced by +11% to 72.1 million customers, while the load factor improved +2% to 97%, against the comparative period (H1 FY2017). Despite average fares dropped by -5% to €47, strong performance in passenger traffic and ancillary revenues (+14% to €1,012.2m) resulted in Group revenues increased by +7% to €4,425m. The Group reduced unit costs by -5% (flat excluding fuel) and improved net margin by +1%, leading to profit after tax increase of +11% to €1,293m. Together with this, as a result of €639m returned to shareholders through share buyback completed, basic earnings per shares jumped by +16% to €1.07. Due to the net capital expenditure (€675m), shareholder returns (€639m) and debt repayments (€200m), period-end net debt increased to €600m from €244 at 31 March 2017. Cash and cash equivalents at the period-end stood at €1,537.3m (end-FY2017: €1,224.0m). On the operational front, the Group saw 'MyRyanair' membership increased to 30 million members (end-FY2017: 20 million). Ryanair has launched flight connections at Rome Fiumicino and Milan Bergamo during the period and expanded its hotel service to 5 inventory providers now offering over 250,000 hotels and 7.5m rooms worldwide. During the period, the Group has experienced a material failure in the management of its pilot rostering function, primarily caused as a result of the Group changed its staff holiday year from April to March to a calendar year January to December, as required by the Irish Aviation Authority (IAA), in line with European law. This shift caused shortages of available pilots and cabin crew as Ryanair had to allocate all leaves by 31 December 2017 rather than March 2018. Total cancellation amounted to 20,100 flights (715,000 passengers) between September 2017 and March 2018, implying c.8% of the whole year flights. The total cost to the Group for such cancellations amounted to some €25m in H1.

Our view: Ryanair reported strong results for the H1 FY2017 despite experienced a material disruption in its pilot rostering function in early September 2017, along with compensation associated to it. The results were supported by +11% increase in customer number, industry record load factor and improvement in unit costs excluding fuel (fallen by -2% excluding €25m one-off EU261 provision). Looking ahead, given flights cancellations, compensations and potential increase in pilot's pay, Ryanair provided a revised full year guidance. Subject to normal level of disruptions, Ryanair now targets passenger traffic of 129 million (previously: 131 million) for the full year (H1: +11%, H2: +4%), and average fare decline of -4% to -6% (previously: -5% to -7%). Unit costs excluding fuel is now expected to increase by +3% (previously: -1%) as a result of €25m flights cancellation provision and a further €45m for increased pilot pay (if accepted). Overall, however, the management reiterated its full year profit after tax guidance in the range of €1.40bn to €1.45bn, subject to close-in H2 bookings, the absence of any further security events, ATC strikes or negative Brexit developments. With respect to the pilot pay rise, the Group said this will cause up to €100m additional cost for the full year but "will not significantly alter the substantial unit cost advantage we have over all other EU airline competitors". Beaufort remains encouraged by the Group's ability continuing to offer lower fares while improving its profit, backed by its "lowest passenger costs" capability. Now that the issue regarding pilot rostering has been addressed, the Group can carefully take advantage from collapsed competitor airlines (e.g. Monarch, Air Berlin, and Alitalia) to expand its market share. Beaufort maintains its Buy rating on the Shares, and set a target price of €19.00.

 

Accesso's landmark deal with SEVEN marks strategic growth in the Saudi Market

Accesso Technology Group PLC (AIM:ACSO, OTC:LOQPF) chief executive Steve Brown joins Proactive's Stephen Gunnion with details of a significant partnership with Saudi Entertainment Ventures (SEVEN). Brown noted the collaboration highlights accesso's strategy to grow its global footprint,...

24 minutes ago