Beaufort Securities Breakfast Alert: United Utilities, Pets at Home, Advanced Oncotherapy, Daily Mail & General Trust, Mariana Resources


The FTSE-100 finished yesterday's session 0.04% higher at 6,265.65, whilst the FTSE AIM All-Share index closed 0.12% better-off at 734.38. In continental Europe, markets ended in the green, led by a rally in commodity shares, as Brent Crude Oil prices touched US$50 per barrel and copper prices improved. Moreover, gains in auto stocks offset losses in banking stocks. Germany's DAX and France's CAC 40 gained 0.7% each.
Wall Street
Wall Street ended broadly unchanged in a thin volume trading session. Energy shares were under pressure after oil prices failed to sustain the peaks achieved during yesterday's trading session. Investors awaited comments from Fed Chair Janet Yellen on possibility of an interest rate hike. The S&P 500 closed flat with the materials sector losing the most and utilities leading the gainers.
Equities are trading higher, as investors await US economic data and comments from Fed Chair Yellen. The Nikkei 225 rose 0.4% on hopes of additional stimulus from the Bank of Japan after a fall in consumer price index in April. The Hang Seng was trading 0.7% higher at 7:00 am.
Yesterday, Brent and WTI oil prices declined 0.3% and 0.2%, respectively. The spread between the two varieties stood at US$0.1 per barrel.

UK consumer confidence improves in May
As per GfK, consumer confidence index rose to -1 in May from -3 in April, the weakest since December 2014, beating the market expectations of a reading of -4. The sentiment is negatively impacted by vote on Brexit on 23 June 2016.

Company news

Advanced Oncotherapy (LON:AVO, 7.50p) - Speculative Buy
Advanced Oncotherapy, the developer of next-generation proton therapy systems for cancer treatment, yesterday announced that it has signed an agreement with a fund advised by Metric Capital Partners LLP, a pan-European private capital fund manager, whereby Metric Capital will invest £24 million in a financing facility to support AVO's provision of vendor financing for the installation of the Group's first LIGHT machine in Harley Street. Funding for this clinic, the London Proton Therapy Centre Limited, will come from AVO and its partners in equal amounts in the form of equity totaling £6 million plus the provision of a vendor loan arranged by Advanced Oncotherapy to LPTC. The Agreement is subject to customary representations and undertakings. AVO will pay a cash interest of 250 basis points per annum above 3 month LIBOR (subject to a minimum LIBOR of 150 basis points) payable quarterly and payment in kind ('PIK') interest of 850 basis points payable at maturity or convertible into ordinary Advanced Oncotherapy shares at 10p per Ordinary Share (subject to customary adjustments for convertible instruments). In addition, the Company has agreed to issue to Metric Capital each year during the life of the Agreement warrants over 14.5 million Ordinary Shares exercisable at 16p per Ordinary Share. The Agreement has a term of 5 years and requires any future equity capital injections to be carried out on terms similar to or better than the conversion rights of the PIK interest described above. Of the £24 million financing, £11 million will be received shortly following signing. The second tranche of £13 million will be available for drawdown on completion of a £25 million cash or capital injection to fund the development of a manufacturing base. Should these milestones not be achieved by the end of March 2017, the initial £11 million tranche will become repayable by September 2017. Metric Capital will have the right to consent to certain reserved matters and the right to appoint a director to the Board of both Advanced Oncotherapy and LPTC and, in certain circumstances ADAM SA, a wholly owned subsidiary of Advanced Oncotherapy.

Our view: This is significant and important news for AVO. Not only does it tell us that a senior institutional lender has taken a very close look at the Group and concluded that LIGHT is viable and that its expect its first installation in Harley Street to rapidly become capable of generating strong cash flow, but also that AVO is both sufficiently confident and advanced in its planning to establish a general provision of vendor financing for its prospective international customers. Such proton beam centre financing routes are already routinely used by first generation suppliers to provide the facilities demanded by hospitals and medical practitioners around the globe, so in this respect this is a natural step forward. Moreover, given that AVO is sticking rigidly to its development schedule, whereby the first commercial sales of LIGHT should begin in 2017 whereafter they are expected ramp up in response to significant demand, this facility is likely to become actively used. As has been explained in numerous research documents, Beaufort's commercial scenario for LIGHT is that the cost, safely, operational and size advantages its brings to the world of proton therapy, will effectively render 'first generation' systems all but obsolete; its development will also very significantly expand the international market for such systems from some US$2.5bn annually right now, to a figure potentially ten-times as large as LIGHT becomes the obvious successor to the similarly-priced but now relatively antiquated X-ray radiation systems that have a global installed base in excess of 20,000 units. In this respect, LIGHT uniquely faces a giant and accelerating global opportunity. Beaufort remains a very enthusiastic supporter of Advanced Oncotherapy and repeats its Speculative Buy recommendation on the shares.

Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc

Daily Mail & General Trust (LON:DMGT, 664.0p) - Buy
Yesterday, Daily Mail & General Trust (DMGT) declared its half-year results for the six months ended 31st March 2016 (H1 2016). During the period, revenues increased 3% to £950m on a reported basis. Operating profit fell 8% to £138m. Pre-tax profit slipped 11% to £129m, leading to an EPS of 27.9p, 11% lower than the H1 2015 levels. Net debt increased by £17m to £719m, while net debt/EBITDA ratio stood at 2.0. On the operational front, the company made acquisitions worth £20m and disposals totalling £112m. The company announced the retirement of Chief Executive Martin Morgan's retirement and appointment of Paul Zwillenberg, effective 1st June 2016. DMGT declared an interim dividend of 6.7p compared with 6.5p in H1 2015, to be paid on 2nd July 2016.

Our view: DMGT delivered satisfactory performance in H1 2016, negatively impacted by the weak print advertising market. The first half results were positively influenced by the Gastech event and a stronger US dollar relative to sterling. The company's B2B business led the growth and generated 76% of the operating profit. Daily Mail continued its portfolio management activity throughout the period. The company acquired stake in many firms including ETSOS, PAR Framework, Exhibition Management Services and LivingSocial. The acquired companies are functioning in diversified fields and are expected to enhance Daily Mail's prospects in terms of offerings and access to a range of customers. In addition, DMGT disposed some of its non-performing segments to improve its margins. We remain concerned about DMGT's print advertising segment. Nonetheless, we are confident about the company's prospects owing to growth in other divisions and continuous initiatives to enhance its portfolio. Therefore, we maintain a Buy rating on the stock.

Mariana Resources (LON:MARL, 3.75p) - Speculative Buy
Yesterday, Mariana Resources provided an update on the ongoing diamond drill program at the high grade Hot Maden project in Turkey. The company confirmed high-grade gold–copper mineralization in the chalcopyrite–pyrite-bearing breccia from 262m downhole in hole HTD-52, 140m downdip of the discovery hole HTD-4 intersection. This new extension lies outside the current mineral resource model. Mariana received exceptional gold–copper assays from exploration drilling in the southern target area, located 400m south of the existing resource area and within the northern extension to the pre-1923 vein mining area.

Our view: The aforementioned exploration and drilling results at the Hot Maden project continue to intersect new gold–copper and zinc mineralisation. The hole HTD-52 has confirmed the presence of deeper resource extension below discovery hole HTD-04 and that holes HTD-51 and HTD-53 have showcased further potential to the south in the new discovery area. Mariana observed multiple high-grade quartz sulphide vein and veinlet zones towards the South. The company plans to target this area for exploration owing to the presence of high-grade mineralisation. We are buoyed by Mariana's exploration results and await further updates. Therefore, we maintain a Speculative Buy rating on the stock.

Pets at Home (LON:PETS, 261.60p) - Buy
Pets at Home, the UK's leading specialist retailer of pet food, pet accessories, veterinary and grooming services, yesterday announced its preliminary results for the 52 weeks ended 24 March 2016 ('FY2016'). During the period, Group revenue advanced +6.7% to £777.8m, comprised of +4.6% increase in merchandise revenue to £696.5m and +29.2% growth in services revenue to £81.3m, against comparable period (FY2015). Like-for-like ('LFL') revenue growth for the Group was +2.2% during the period, comprised of +1.5% and +10.4% LFL growth in merchandise and services, respectively. Gross margin improved by +0.3% to 54.5%, resulting statutory pre-tax profit increased by +3.7% to £90.2m. Consequently, basic earnings per share jumped +11.2% to 15.1p per share. Free cashflow stood at £77.8m and net debt was -£155.8m at the period end. On the operational front, VIP club members jumped by +40.6% to 4.5m, while VIP card swipe rate (as % of revenue) stood at 64%. The Group opened 20 Pets at Home superstores, 6 Barkers stores and 1 Whiskers 'n Paws trial format, 50 veterinary practices and 60 grooming salons, in line with its targets. The Group also acquired 2 specialist veterinary referral centres during the period and additional 2 post the year end. Pets at Home's CEO, Ian Kellett commented "We have enjoyed 25 very successful years as a business and enter our 26th year confident in the future. The pet market has proved over time to be more resilient than general retail, so whilst consumer confidence may be more fragile, we believe our drive to become more specialist and most loved by customers will deliver further progress". The Group proposed a final dividend of 5.5p per share, bringing full year dividend to 7.5p per share, up by +39%.

Our view: Shareholders cheered Pets at Home's strong results for FY2016, which demonstrated good financial and resilient LFL revenue growth. The management's confidence in the Group is well reflected in the +39% hike in full year dividend, representing 50% payout ratio which it intend to maintain for the FY2017. The Group expanded its VIP club members to 4.5 million, of which, 3.3 million of them are active members (those who have used their card in last 12 months), through tailored offers of products and services along with improved club member engagement, which continued to provide support to LFL growth. Looking ahead in FY2017, the Group targets opening a further 15-20 Pets at Home superstores, 45-55 vet practices and 50-60 grooming salons. The management expect gross margins to come under pressure primarily due to direct cost impact of National Living Wage (c.+£2m) and weaker Sterling, given that the Group increasingly sources significant level of purchases in US Dollar. The guidance for capital investment of c.£45m (including exceptional investment of £5m as part of a £8m two year energy saving project) was set, while maintaining 1.5x net debt/EBITDA or 1.75x in case of acquisition/investment. Trading so far in FY2017 remains in line with expectations. The Group's ongoing strategic investments in seamless shopping to enhance its system and website, together with growing loyalty scheme, should support merchandise sales (which enjoys a higher 57% gross margin) in the medium to longer term. Recognising the Group's performance, management confidence and its ongoing investment plans, Beaufort reiterates its Buy rating on the stock.

United Utilities (LON:UU., 955.0p) - Buy
Yesterday, United Utilities declared its results for the year ended 31st March 2016 (FY 2016). During the period, revenues remained broadly flat at £1.7bn. The underlying operating profit fell 9% to £604.1m. Consequently, pre-tax profit decreased by £39m to £408m, leading to an EPS of 47.7p compared with 51.9p in the previous year. Net debt at the end of period stood at £6.3bn. United Utilities accelerated its investment plan, with £799m invested over 2015–16. The company achieved £2.5m net reward on outcome delivery incentives (ODIs). United Utilities has proposed a final dividend of 25.64p, taking the full year dividend to 38.45p, up 2% year-on-year.

Our view: United Utilities delivered good performance in FY 2016 despite new regulated price controls. The company performed well in the operational and environmental areas, benefitting from the systems' thinking operational approach and improved resilience of the network. United Utilities made improvements in several areas including reduction in pollution incidents, achievement of net reward for ODIs and 75% reduction in customer complaints over 2010–15. The company boasts of a robust capital structure with gearing of 61%, within its target of 55–65%. United Utilities has started the 2015–20 investment program on a positive note, with plans to accelerate the program to maintain and improve services for customers and deliver environmental benefits. Moreover, the company retained its world-class rating in the Dow Jones Sustainability Index for the eighth consecutive year, again achieving industry leading performance status in the multi-utility/water sector. United Utilities maintained its dividend policy of targeting an annual growth rate of at least RPI inflation until 2020. In light of the company's progress in FY 2016, we maintain a Buy rating on the stock.

Economic news
US initial jobless claims
The number of Americans that filed their first initial claims for unemployment benefits declined 10,000 to a seasonally adjusted 268,000 for the week ended 21st May, the Labor Department stated yesterday. Economists had forecasted a reading of 275,000. Meanwhile, the four-week moving average of continuing claims rose by 2,750 to 278,500 last week. /p>
US durable goods orders
US durable goods orders increased 3.4% in April, following a revised increase of 1.9% in March, the Commerce Department said yesterday. Excluding orders for transportation equipment, durable goods orders rose 0.4% in April.

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