The Markets
Market opening: The UK market is likely to open lower this morning. FTSE 100 futures were trading 27 points down at 7:30 am.
New York: Wall Street extended gains for the second consecutive day following European Central Bank’s (ECB) decision to maintain interest rates. The S&P 500 inched up 0.1%, with the telecommunications sector gaining the most.
Asia: Equities are trading lower amid the possibility of the Fed hiking interest rates. The Nikkei 225 shed 2.2%, with the yen strengthening against the dollar, hurting export-driven stocks. The Hang Seng was trading 0.8% lower at 7:00 am, with the August PMI at its lowest since 2009.
Continental Europe: Markets ended in the green as the ECB cited the possibility of an expansion to the quantitative easing (QE) programme. Meanwhile, an improvement in oil prices boosted investor sentiment. Germany’s DAX and France’s CAC 40 rose 2.7% and 2.2%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices increased 1.1% and 0.4%, respectively. The spread between the two varieties stood at US$3.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.59% higher yesterday at 734.74.
Today’s news
Draghi hints at expanding QE programme
ECB’s President Mario Draghi stated that the bank would keep its monthly asset purchase programme unchanged at €60bn. He further reported that ECB would raise the amount of any one share of bond issued that is purchasable by the bank to 33 percent from 25 percent. Draghi hinted that the ECB could take its bond buying program beyond September 2016, if required
Company News
Beowulf Mining (LON:BEM) – Speculative Buy
Beowulf Mining, the mineral exploration and development company focused on the Kallak iron ore project in northern Sweden and its Swedish portfolio of exploration projects announced today an update on its application for an exploitation concession on the Kallak North’s iron ore project in Sweden. The Swedish Government’s Department of Enterprise and Innovation has invited the Group to give its views on the findings made by the County Administrative Board’s (CAB) announcement as published on 7th July 2015. Beowulf has been given a deadline of 14 September 2015 to make a final statement. Of note is that the Government of Sweden has stated in the media that a decision on the Exploitation Concession for Kallak North can be expected by autumn 2015. The concession area has been previously designated as an Area of National Interest (ANI) for minerals given the scale and quality of the defined resource.
Our view: The above update on the concession on the Kallak North’s iron ore project is an important step forward for the Group as it has been in discussions with CAB and the Swedish Government regarding its application, for more some time now. We remain optimistic that a positive decision will be forthcoming in the short term. The company’s recent change in leadership and management approach has set a positive development tone. Despite the downward pressure on the benchmark iron ore prices on the back of oversupply and slowing economic activity in China, we note that high quality iron ore products continue to fetch premiums relative to the benchmark 62% Fe. As such, we reiterate our Speculative Buy rating to the stock.
Beaufort Securities acts as corporate broker to Beowulf Mining plc
Motif Bio (LON:MTFB) – Speculative Buy
Motif Bio, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday announced that the US Food and Drug Administration (‘FDA’) has granted Fast Track designation for iclaprim intravenous to treat Acute Bacterial Skin and Skin Structure Infections (‘ABSSSI’) and Hospital Acquired Bacterial Pneumonia (‘HABP’). The FDA’s Fast Track programme is designed to aid the development and accelerate the review of new drugs that are intended to treat serious or life-threatening conditions and demonstrate the potential to address unmet medical needs. Drugs with Fast Track designation typically qualify for priority review, which expedites the FDA review process and market approval. Companies that receive Fast Track designation for a drug benefit from more frequent interactions with the FDA during clinical development and can submit completed sections of their New Drug Application (NDA) on a rolling basis.
Our view: The above development is an important one for Motif. Coming on the back of Qualified Infectious Disease Product (‘QIDP’) designation for iclaprim in late July, Fast Track designation means the company will benefit from greater FDA support and remains on track to meet the Phase III development timeline. A designated development drug benefits from more frequent interactions with the FDA during clinical development and is permitted to submit completed sections of their New Drug Application (‘NDA’) on a rolling basis in order to expedite approval. In approving these novel antibiotic developments, the FDA is recognising the acute clinical need for such new products, while also effectively acknowledging a high expectation of their future commercialisation. The QIDP designation will make iclaprim eligible to benefit from certain incentives as provided under the Generating Antibiotic Incentives Now (‘GAIN’) Act. These incentives include FDA priority review, eligibility for fast-track status, and if ultimately approved by the FDA, iclaprim would be eligible for an additional five-year extension of Hatch-Waxman exclusivity, for a Total of 10 years of market exclusivity, starting from the date of NDA approval. Beaufort retains its ‘Speculative Buy’ recommendation on Motif Bio with a price target of 110p per share.
Amphion Innovations (LON:AMP) – Speculative Buy
Amphion Innovations, the developer of medical and technology businesses, yesterday announced its unaudited interim results for the six months to 30th June 2015. Management noted that at period end, Group Net Asset Value per ordinary share was 12.0p, representing an increase from 0.7p (US$0.01) per Ordinary Share at 31 December 2014. It closed with approximately US$1.7m in cash, having reduced Total liabilities by US$2.1m. Post period, two of the Group’s major partner investments raised significant new investment through equity placements (Motif: £22m in July; Kromek: £11m in August). This should ensure both are funded through 2016’s anticipated development programmes without further recourse to equity. Upon release of the results, Richard Morgan, CEO of Amphion Innovations, commented “We are committed to working closely with Motif to help it achieve its goals. In addition, we now have the opportunity to move forward one or two other Partner Companies and, for the first time in many years, to begin to explore the possibility of adding to Amphion’s portfolio. We look forward to the future with renewed confidence and to being able to report further progress with Motif, DataTern, and other Partner Companies in due course.”
Our view: Amphion’s high value portfolio of early stage tech, IP and physical science investments appears significantly undervalued. It is, of course, presently dominated by the recent and very successful quotation of Motif Bio, whose opportunity has now been highlighted by the entrance of several blue chip institutions into the Company’s share register. Elsewhere, however, clear value can also be ascribed to its other minority holdings, which include close to 12% of AIM-quoted Kromek, plus private equity participations in AXCESS Intl. Firestar Software, m2m Imaging, PrivateMarkets and WellGen, all of which made progress during the period. These are being prepared for independent market quotation or trade sale, with m2m Imaging possibly at the front of this queue. The 100%-owned and consolidated DataTern, which was awarded a favourable ruling from the FCCA in Q2 2014’s MicroStrategy case, could even result in a financial award or settlement before the end of 2015. The value of the Group’s current direct holding in Motif Bio alone is more than 50% higher than Amphion’s entire market capitalisation. Adding the remaining quoted (at market) and private interests (using the most recent FMV assessment) before subtracting all outstanding debt, suggests a prudent value of Amphion of almost £29m, or over twice its market capitalisation. Interestingly, recent IPO’s of early stage other tech/biotech development vehicles (like PureTech, Allied Minds, etc.), suggest the market is happy to pay between a 1.2x and 1.3x premium to FMV for such investments. Notwithstanding this, Amphion is presently a cheap way into Motif Bio, while also finding itself positioned to offer exciting news flow from its portfolio in the coming months, including potential ‘bonanza’ opportunity from favourable IP litigation. We retain a Speculative Buy rating.
Collagen Solutions (LON:COS) – Speculative Buy
Yesterday, Collagen Solutions informed that its long-term client NovaBone Products LLC (‘Novabone’) has received approval for a novel device by the US Food & Drug Administration (FDA), to be used in delivery of its collagen bone graft product MacroForm. The system is designed for surgeons who need controlled and accurate delivery of collagen bone grafting material to surgical sites. The MacroForm technology enables the delivery of bone marrow aspirate and other bioactive formulations to a graft in a ready to use, minimally invasive cannula. In the past one year, NovaBone has developed six new collagen products using company’s regenerative technology and expertise in creating innovative and cost friendly devices. Collagen Solutions supplies medical grade collagen to its clients including NovaBone, to create collagen components.
Our view: Collagen Solutions is the developer and manufacturer of medical grade collagen components for use in regenerative medicine, medical devices and in-vitro diagnostics. The news of NovaBone receiving an approval strengthens Collagen Solutions’ long-term partnership with its client. As a huge supplier of medical grade collagen, the company would gain from the introduction of this product. Last week, Collagen Solutions was selected to participate in a new research project aimed at developing novel new treatments for the Parkinson’s disease, headed by the Centre for Research in Medical Devices (CÚRAM). The company joining such a valued consortium validated its brand name for developing and supplying high quality products. Further, the company is paving the way for strong and long standing partnerships with its customers, including Globus Medical, by entering into several strategic arrangements at an early stage. Meanwhile, the company continues to invest in people and facilities as it expands the sales pipeline. In view of the developments surroundings Collagen Solutions, we maintain a Speculative Buy rating on the stock.
Horizon Discovery Group (LON:HZD) – Speculative Buy
Yesterday, Horizon Discovery Group (Horizon) informed that it has entered into an agreement with Redx Pharma on treatments for colorectal cancer. The disease is the fourth most common cancer and the second most common cause of cancer death in the UK. Both of the companies would be working on Redx’s pan-RAF inhibitor programme. As per the agreement, Horizon would use its proprietary gene editing, cell line and drug discovery technology platforms to help Redx use its inhibitors effectively. The costs for the project would be distributed proportionately and the financial details remained undisclosed.
Our view: The aforementioned agreement showcases Horizon’s ability to enter into exciting deals well supported by its technology platforms and internal resources. The deal would fasten the development of the product as Redx looks for a license partner for the asset. The company is expected to benefit from this contract with a share of future milestones and product royalties. Recently, Horizon announced investment up to £10m in its leveraged R&D business for a span of two years, to identify the next generation of molecular cancer therapeutics. These investments would further broaden its product portfolio and offerings to the customers. We believe the company’s robust technology and innovative ideology would help them achieve their profitability target by 2017. Going forward, Horizon would look out for partnerships for its programmes with therapeutic-focused companies to minimize its risk and widen the revenue stream. We believe the company has long-term potential with increasing demand of its services and expanding product line. We maintain a Speculative Buy rating on the stock.
EasyJet (LON:EZJ) – Buy
Yesterday, EasyJet released its trading update for the year ending 30th September 2015. During the month of August, passenger traffic increased 6.8% y-o-y to 7,064,931 and the load factor improved 0.2 percentage points to 94.4%. On a rolling basis for the 12 months, the number of passengers increased 5.9% to 68,162,955 and the load factor improved 1.1 percentage points to 91.4%. The company raised its pre-tax guidance in the range of £675m-£700m for the year to 30th September 2015, from £620- £660m.
Our view: EasyJet delivered yet another set of solid performance with record number of passengers and load factor for the month of August 2015. The strong results in the past two months have offset the disruptions which the company faced earlier this year. EasyJet delivered on its plan of easy and affordable travel as is evident from the strong passenger numbers growth. The company plans to expand its services by increasing its flight offerings. Recently, several strategic routes were launched including Vienna and Basel that are expected to carry 78,000 passengers annually. The company expects to launch five more routes across different countries, later this year. We believe the company will be able to achieve the profits as per its guidance owing to its expanding network of services and expected decrease in fuel bill in the second half of the year. In view of the above argument, we maintain a Buy rating on the stock.
Booker Group (LON:BOK) – Buy
Yesterday, Booker Group released its trading update for the 10 weeks to 28th August 2015. During the period, Total sales declined 2.0% y-o-y due to a 6.5% fall in tobacco sales. Total sales were negatively impacted by the ban on small stores displaying tobacco products. Non-tobacco sales improved 0.1%. Like for like (LFL) sales for the company decreased 1.8% y-o-y, with tobacco LFL sales 6.6% down, and non-tobacco sales increasing 0.5%. Cash as on 28th August 2015 stood at around £110m. Separately, Booker Group informed that its acquisition of Londis and Budgens has been approved by the Competition & Markets Authority (CMA). The acquisition is expected to complete on or before 14th September 2015. The company would declare interim results for the 24 weeks to 11th September 2015 on 15th October 2015.
Our view: The aforementioned trading update depicts a fairly reasonable performance by Booker Group, considering the business impact due to ban on small stores. The near future holds good promise as clearance for acquisition by the CMA would strengthen the company’s market and provide backing for independent retailers throughout Britain. Londis has 1,630 stores with sales of more than £500m and Budgens, a franchised chain of grocery stores, has 167 branches. The deal would facilitate enhanced access to supply chains and expand the grocery network and convenience stores. The acquisition also gives an opportunity to tap into changing consumer habits and increase scale and operational efficiency, thereby leading to lower prices and better delivery services. Further, the expansion in India is also expected to boost revenues going forward and reduce dependence on the UK essential foods market. Thus, in view of the expected synergic benefits from the acquisition and expanding business line, we maintain a Buy rating on the stock.
Economic News
ECB main refinancing rate
The Governing Council of the European Central Bank (ECB) maintained its main interest rate at 0.05%, matching the market expectations. The deposit facility rate and the marginal lending facility rate were unchanged at -0.2% and 0.3%, respectively.
US initial jobless claims
Number of Americans filing their initial claims for unemployment benefits rose by 12,000 to a seasonally adjusted 282,000 in the week ended 29th August, from last week’s downwardly revised figure of 270,000, the Labor Department said yesterday. Economists had expected claims to increase to 275,000.
US trade balance
US trade deficit narrowed to US$41.9bn in July from a revised reading of US$45.2bn in June, the Commerce Department said yesterday. Economists had expected the trade gap at US$42.2bn in July. Overall imports of goods and services fell 1.1% to US$230.4bn. Exports climbed 0.4% to US$188.5bn.