The markets
Europe
The FTSE-100 finished yesterday's session 0.15% higher at 6,353.52, whilst the FTSE AIM All-Share index closed 0.17% better-off at 733.56. Continental markets advanced as oil prices trimmed initial sharp losses despite the Doha talks collapsing. Germany's DAX and France's CAC 40 increased 0.7% and 0.3%, respectively.
Wall Street
Wall Street recorded profit as oil prices pared initial losses, even after global oil producers failed to reach a production freeze in the Doha meeting. The S&P 500 added 0.7%, with energy gaining the most, followed by consumer discretionary and healthcare.
Asia
Equities are trading in the green as oil prices steadied amid reports of a workers' strike in Kuwait, which impacted the country's daily oil output. The Hang Seng was trading 0.7% higher at 7:00 am. Nikkei 225 recovered its previous day losses and closed 3.7% higher as investors assessed the damage from the series of earthquakes in Japan last week.
Oil
Yesterday, WTI and Brent Crude Oil prices declined 1.9% and 0.4%, respectively. The spread between the two varieties stood at US$3.1 per barrel.
Headlines
Osborne cautions against economic damage due to Brexit
British Chancellor George Osborne warned voters of the economic ramifications in the country following Britain's exit from the EU. The minister quoted figures from the Treasury to indicate the economic loss that the country would eventually suffer due to lower trade, business and investment with the EU, the world's biggest trading bloc. He further added that breaking away may cost each household up to £4,300 a year by 2030.
Angle (LON:AGL, 70.50p) - Speculative Buy
ANGLE plc, the specialist medtech company, yesterday announced that the results of the University of Southern California ('USC') Norris Comprehensive Cancer Center's ongoing work with ANGLE's Parsortix system have demonstrated the potential for the use of Parsortix as a liquid biopsy for metastatic breast cancer. USC head to head patient data will be presented today at AACR 2016 (the American Association for Cancer Research Annual Meeting 2016), which demonstrates a statistically significant correlation in metastatic breast cancer between analysis of CTCs ('circulating tumour cells') harvested from a simple blood test using Parsortix with similar analysis of tissue obtained from invasive biopsy of a secondary cancer site. The Directors believe that the data demonstrates the potential for the Parsortix liquid biopsy (simple blood test) to replace the invasive biopsy. In the USC study, the tissue from the invasive biopsy and the CTCs from the Parsortix liquid biopsy harvest were both subjected to Illumina's whole-transcriptome analysis using total RNA sequencing ('RNA-Seq'). RNA-Seq can accurately measure gene and transcript abundance, and identify known and novel features of the transcriptome. RNA-Seq analysis has been completed on three sample types covering metastatic tissue biopsy, Parsortix harvested CTCs and, as a control, peripheral blood for each of eight patients. This strategy enables measurement of thousands of genes at once in order to generate a comprehensive picture of cellular function. For every one of these patients, CTCs were successfully harvested and RNA-Seq analysis successfully completed. This analysis demonstrated a statistically significant correlation between the expression signature of 192 genes in the Parsortix harvested CTCs with similar analysis of tissue obtained from an invasive biopsy of a secondary cancer site.
Our view: Yet more highly significant trial results from ANGLE plc! These suggest that by using Parsortix, the same clinically relevant information may be obtained from a patient blood test as from an invasive metastatic biopsy regardless of its location in the patient. Importantly, this comparison of overall gene expression using Parsortix harvested CTCs and the metastatic biopsy was undertaken for different druggable pathways. Sixty-six potentially clinically actionable genes (i.e. gene targets against which a drug is already available either FDA approved or in clinical trials) were investigated and again produced no statistically significant difference in gene expression between CTCs and invasive tissue biopsy, covering 9 unique pathways. This suggests that the Parsortix system has the potential to be a useful tool for identifying drug targets in metastatic breast cancer and might be utilised to assess the effectiveness of drugs under development in clinical trials. More specifically, these results open a new opportunity for an RNA-based clinical application; they create another highly differentiated liquid biopsy application for Parsortix in a key area of medical need, which cannot be addressed by ctDNA and where there is an obvious need to improve patient care while also reducing healthcare costs. Replacement of the metastatic biopsy for breast cancer with a Parsortix blood test would be non-invasive, cheaper and faster, and could be repeated more frequently, thereby providing 'real-time' information for therapy selection reflecting disease progression. And for ANGLE at least, perhaps, this is the most significant point. In recent months, the medtech world has become aware of a number of new, innovative, but early stage, non-invasive tests (be they derived from blood, saliva, sweat, antibodies etc.) that are apparently capable of elementary and accurate detection of cancer. Through significant development and extensive clinical trials will be required across a wide range of indications for such tests to achieve broad international acceptance by medical and insurance providers, in coming years much earlier and elementary testing for cancer detection does appear set to become a reality. The fact remains, however, that detection in the form of a simple 'probably yes' or 'probably no' is, in fact, of only limited use unless the test is also capable of capturing or harvesting the same cancer cells for laboratory analysis. Without this, doctors will remain unable to ascertain key information, including in fact, identifying cancer itself along with the extent to which it is aggressive or benign and therefore how to treat it. ANGLE is the only such detection technology that is capable of offering analysis and so much more likely to become the ultimate standard for detection of cancer. Beaufort retains its Speculative Buy recommendation on ANGLE plc.
Centrica (LON:CNA, 234.60p) - Buy
Yesterday, the company provided a trading update for Q1 2016, ahead of its 2016 Annual General Meeting. During the period, the company recorded higher net promoter scores and lower complaints in its customer-facing businesses compared with 2015. Furthermore, it returned to profitability in the UK business and the cash collection continued to improve. Although UK Home energy supply accounts were down 1.5% in the first quarter, primarily due to significant long-term contracts roll-off, new propositions are planned to be launched in the second quarter. Overall 2.25 million residential smart meters have been installed in the UK and more than 3 million are planned to be set up by the end of 2016. The business in North America was particularly good amid exceptionally warm weather. On the financial front, the company expects the adjusted operating cash flow to be over £2bn in 2016. Group capital investment, including small acquisitions, is expected to be no more than £1 billion in 2016, of which around £500 million would be in E&P. The company's £750m per annum cost-efficiency programme remains on track, with £200m efficiency savings expected to be delivered in 2016. Other plans include a direct headcount reduction by around 3,000 in 2016, with around 800 being recorded in the first three months of the year.
Our view: The company continued to perform well amid improving customer service, strong operational performance, lower costs, and the launch of new products that help customers manage their energy usage. The impressive performance came in despite challenging market conditions triggered by falling commodity prices. Although customer numbers are falling, the company has responded with job and other cost cuts. In addition, the company is planning to attract new customers through a price cuts with the third such cut already becoming effective on March 16. We believe Centrica is moving in the right direction and the steps it has taken should help mitigate continuing difficult conditions. Centrica has also submitted a formal response to the Competition and Markets Authority pertaining to an investigation into the supply and acquisition of energy in Great Britain. Overall, the company continues to make good progress on its strategic priorities and remains on track to achieve targets set out at its Preliminary Results in February 2016. Beaufort maintains its Buy rating on the stock.
CityFibre Infrastructure Holdings (LON:CITY, 57.00p) - Speculative Buy
Yesterday, CityFibre Holdings released its final results for the year ended 31st December 2015. The company's turnover for the year jumped 67% to £6.4m and the gross profit improved 68% to £5.5m. Furthermore, gross margins expanded to 86% from 85% in 2014. A total contract value of £23.2m was added during the period, up 109% from a year ago. The company's net loss for the period too contracted to £6.4m from £7.0m in 2014. On the operational front, the direct fibre connected customer premises rose to 1,200 and the completed route kilometres of the ducted fibre stood at 743 km. During the period, the company also acquired 24 city metro and national network assets from KCOM Group for a cash consideration of £90.0m. After the period, the company secured a package of £180.0m to fund the acquisition and future development of the assets, comprising £80.0m though placing and £100.0m in committed debt facilities. Year-to-date in 2016, 101 new customer connections and 107 kilometres were added on the legacy CityFibre footprint. In addition, the company added £37.5m in TCV, including the £25.0m minimum commitment from the acquisition. The company's combined footprint (including projects under construction) comprises 2,150 route kilometres of metro duct and fibre assets as well as 1,100 route kilometre national ducted backbone network addressing 26,000 public sector sites, 7,400 cell sites, 260,000 businesses and 3.7m homes across 37 towns and cities.
Our view: During the year, the company successfully delivered on its organic growth strategy, along with some fruitful acquisitions that accelerated the footprint expansion by five to seven years. Recently, the company has been seeking acquisitions and partnerships to widen and strengthen its market presence; the addition of former KCOM assets to the company's portfolio, gives it significant presence in 37 cities across the UK. In addition, the contracted revenue on the books doubled, along with the addition of three new cities and expansion in the partner base. Furthermore, CityFibre has a route length of 190 kilometres of ducted fibre across Leeds and Bradford, which would offer its partners coverage in one of the largest metropolitan areas outside London. Thus, with a few impressive contracts, and partnerships with UK's leading broadband service providers, CityFibre is well placed to cater to a large customer base. Therefore, we maintain a Speculative Buy rating on the stock.
International Greetings (LON:IGR, 179.50p) - Speculative Buy
International Greetings, a designers, manufacturers, importers and distributors of gift packaging and greetings, stationary and play products, yesterday provided its trading update for the 12 months ended 31 March 2016. The Group declared another year of double-digit earnings per share growth, with its financial performance ahead of expectations. Operational cashflow and debt reduction continue to reduce its leverage significantly, ahead of expectations. The Group has successfully sold its Aberbargoed property in Wales with proceeds of £1.45m, received on 31 March 2016. On the operational front, the Group has confirmed that all regions have delivered year-on-year growth and an overall outcome ahead of market expectations. In the UK and China, record sales combined with an excellent manufacturing performance has delivered profitability ahead of forecast. In Continental Europe, anticipated headwinds from foreign exchange transaction were successfully mitigated through mixture of sales growth as well as effective management. In the USA, the commercial, operational and financial performance were "encouraging", while in Australia, trading in the second half of the year has significantly enhanced overall total profitability. The Group intends to pay a final dividend of 1.75p per share, bringing full year dividend to 2.5p per share (FY2015: 1.0p per share). Its CEO, Paul Fineman commented "this is a particularly exciting stage of our development in which we remain well positioned for organic growth and continue to seek compelling acquisition opportunities. We are delighted to be meeting our core objectives of growth in underlying EPS and dividends whilst reducing average leverage all ahead of schedule".
Our view: Warm/lovely/kind/fine/excellent greetings to the shareholders! International Greetings delivered an excellent financial performance during FY2016, with operations continuing to grow well across all regions ahead of the market expectations. Record sales were achieved both in the UK and China. While in the USA, phase 2 of its US manufacturing facility investment programme, fast Payback, was successfully implemented. This strategy is expected to accelerate and enhance the Group's capability to profitably grow its share in the world's single largest market. As a result, we expect the Group's USA operation to register further expansion in its export activity to Canada, Mexico and Brazil. A widespread geographic reach provides varied revenue streams with diversification benefits. With the majority of Group revenue derived from UK, Asia and USA (totalled 72% for the FY2015), disruptions resulting from (an unexpected) BREXIT scenario remain relatively limited and based primarily on currency movements. Eyeing the Group's overall performance together with management's confidence in its ability to support a progressive dividend, Beaufort reiterates a Speculative Buy rating on the stock. We look forward to the preliminary results that are expected to be released end-June.
Reckitt Benckiser (LON:RB., 6868.00p) - Buy
Yesterday, Reckitt Benckiser released its quarterly results for Q1 2016. The company's like-for-like sales were 5% higher at £2,303m, primarily driven by a 10% growth in the health division, followed by hygiene(3%) and home(3%) divisions. Trading in Europe/ANZ remained strong, with developing markets, including China and India, continuing to perform well. However, the company faced a tougher business environment in Brazil. The company's financial position has not changed significantly and it remains on track to achieve its FY2016 targets of LFL revenue growth of 4–5%.
Our view: The company performed well in the first quarter of the year and looks to maintain the momentum for the remainder of the year. Demand for its consumer health care products outpaced demand for food and homecare brands. Supported by continued investment in innovation, the company witnessed strong growth across developed and developing markets. The group expects the macro environment to continue to be challenging, although CEO Rakesh Kapoor remains confident in Reckitt's ability to perform in growth and margin expansion through strategic choices across Powerbrands and Powermarkets. Overall, the business is in a healthy condition and the group seems to be making the right moves to ensure that the good performance continues unabated. Given its performance and confidence in its continuing growth, Beaufort maintains a Buy rating on the stock.