Markets
Europe
The FTSE-100 finished yesterday's session 3.58% higher at 6,360.06, whilst the FTSE AIM All-Share index closed 1.27% better-off at 697.56. In continental Europe, markets ended in the green, recovering some of the loss incurred during the immediate aftershock of Brexit. A rally in oil and commodity prices led to gains in basic resource stocks. France's CAC 40 and Germany's DAX rose 2.6% and 1.7%, respectively.
Wall Street
Wall Street extended gains for the second consecutive day as concern over Brexit appeared to ease. Additionally, a rally in oil prices boosted investor sentiment. The S&P 500 increased 1.7%, with the energy sector gaining the most.
Asia
Equities are trading higher following a rally in global markets as concern surrounding Brexit subsided. The Nikkei 225 rose 0.1%, supported by a weaker yen. The Hang Seng was trading 1.6% up at 7:00 am.
Oil
Yesterday, Brent oil prices rose 4.2% to US$50.61 per barrel. WTI prices also increased 4.2% to US$49.88 per barrel.
Headlines
UK consumer confidence remains steady in June
As per GfK, UK consumer confidence remained at -1.0 in June, unchanged from the previous month and better than the market expectation of -2.0. GfK conducted the survey prior to Brexit, and plans to conduct an additional mid-month survey to gauge the impact of UK's decision to leave the EU.
Company news
Bunzl (LON:BNZL, 2,230.0p) - Buy
Yesterday, Bunzl issued a trading statement for the six months ended 30th June 2016. The company expects revenues for H1 2016 to grow 9% y-o-y at actual interest rates. The revenues are expected to increase 6% at constant exchange rates due to the impact of acquisitions. Bunzl purchased two businesses in the UK and Belgium yesterday. The first one being The Classic Printed Bag Company Limited, a Christchurch-based firm, involved in the development and distribution of bespoke retail packaging for non-food retailers in the UK, Hong Kong and elsewhere in Europe. In addition, Bunzl acquired Polaris Chemicals SPRL, a distributor of cleaning and hygiene supplies based near Brussels. Bunzl completed the purchase of Mo Ha Ge and Inkozell after receiving clearance from the German competition authority. For the year to date, the company acquired five businesses at a total cost of approximately £80m.
Our view: Bunzl's performance in H1 2016 has been in line with the expectations. Bunzl continued its plan of acquiring quality firms to expand business; it completed five acquisitions during the period. The purchase of Mo Ha Ge and Inkozell is an important development for Bunzl, as they both would expand the company's healthcare-related operations in Germany. Bunzl entered the German market through its acquisition of Bäumer in 2014. Moreover, the company has an active pipeline for acquisitions and expects to complete further acquisitions in H2 2016. We expect Bunzl's strong competitive position to remain intact due to the significant acquisitions thus far. We believe more such opportunities could emerge and consolidate its fragmented markets. We remain confident that the company will continue to grow robustly in H2 2016, riding on the success of its recent acquisitions. Therefore, considering the positives, we maintain a Buy rating on the stock.
Dixons Carphone (LON:DC., 335.40p) - Buy
Yesterday, Dixons Carphone declared its preliminary results for the year ended 30th April 2016. During the period, revenues increased 3% y-o-y to £9.7bn, with like-for-like (LFL) revenue growth of 5%. Revenue from the UK and Ireland increased 2% to £6.4bn, with LFL revenue growth of 6%. Pre-tax profit for Dixons soared 17% to £447m, resulting in an EPS of 29.3p as compared with 25.5p in the previous year. Free cash flow stood at £202m (FY 2015: £89m) and the net debt remained broadly flat at £267m. On the operational front, Dixons Carphone purchased Simplifydigital, a mobile and broadband switching website. The company proposed a final dividend of 6.50p, taking the full year dividend to 9.75p, 15% higher than the last year.
Our view: Dixons Carphone delivered excellent performance in FY 2016, with positive contributions from most divisions. In the UK and Ireland, the Rugby World Cup boosted the company's sales. While, demand for fridges and freezers helped in offsetting the slowdown in the computer market. The Nordics business recorded 6% growth in revenues despite the challenging commercial environment and aggressive competitive pricing. Connected World Services, a small unit that sells its technology to other retailers, performed well after signing a deal to test its systems in Sprint stores in the US. The company plans to launch the technology in 500 Sprint stores and expects a contribution of US$40–50m to annual earnings by 2020. The acquisition of Simplifydigital would enable the company to significantly improve its Services business; Dixons Carphone would provide independent advice and allowing it to become a trusted partner in customers' homes for responsive, accessible, expert and affordable technology support. The company's solid cash position paved way for higher dividends payable to shareholders. In view of Dixons Carphone's encouraging LFL revenue growth, increasing market share and operational progress, we maintain a Buy rating on the stock.
Fox Marble (LON:FOX, 10.25p) - Speculative Buy
Fox, the AIM listed group focused on marble quarrying and finishing in Kosovo and the Balkans region, yesterday provided an update on its order book. It detailed a further €400,000 purchase order submitted by Pisani plc along with a sales agreement signed with Marble Dino Sh.p.k., a trader of marble and other commodities and is involved in the purchase, shipping and resale of the material in the Balkans. The agreement is for the supply of €1,500,000 worth of marble slabs during 2016 and 2017, of which €250,000 is expected be recognised during the 2016 year with the balance in 2017 and has received an advance payment of €25,000. Fox Marble's 2016 order book now stands at €4.6 million and its Kosovo factory is nearing completion with new equipment now installed.
Our view: Putting past disappointments behind them. Fox Marble's business opportunity always was exciting. But a run of unfortunate, hindering events together with a 2015 order book that failed to match expectations and culminated in a heavily discounted fund raise in May left CEO, Chris Gilbert, with a lot to prove. The signs are that he is starting to deliver. The order book is now building out and key strategic long-term distribution agreements are being put in place. Progress at the factory site will bring the Company closer to self-sufficiency with completion promising increased margins and direct sales opportunities across multiple distribution networks, including the Balkans locally. With major capital costs already mostly taken care of, the recently strengthened balance sheet is now focused on developing deep relationships within global distribution networks, the real prize being found in management's ambition to become a regular, premium supplier to huge markets in the Middle East, North America, India and Europe. Despite global economic uncertainty, demand for premium-quality marble continues to increase with prices remaining firm and rising. Given the size and quality of Fox's resource and operational facility, a comprehensive distribution network now appears to be the final missing piece in the Company's strategic jigsaw. Assuming management can successfully put such arrangements in place, there appears little to stand in the way of the Company delivering a quite dramatic improvement in visibility and depth of its order book in coming years. These earnings, in turn, should be capable of dropping rapidly to the bottom line, of which the management has already indicated its willingness to distribute in the form of dividends. Beaufort retains its Speculative Buy rating on Fox Marble.
IG Design (LON:IGR, 161.0p) - Speculative Buy
IG Design (formerly known as International Greetings), is a designers, manufacturers, importers and distributors of gift packaging and greetings, stationary and play products. The Group yesterday announced its preliminary results for the year ended 31 March 2016 ('FY2016'). During the period, revenue advanced +3.5% to £237m, while at like-for-like foreign exchange basis, it grew +4.4%. Overall gross margin improved by +0.8%, resulting underlying pre-tax profit (before exceptional items and long term incentive plan charges) increased by +18% to £10.8m. Adjusted fully diluted earnings per share, consequently, also expanded by +15% to 13.2p. The Group cash generated from operation rose +16% to £20.7m, while net debt reduced by -40% to £17.5m. On the operational front, the Group has made good progress expanding across all geographies, where non-UK revenue by customer destination now stood at that 66% (FY2015: 67%). Australia and USA saw +66% and +34% jump in profits, respectively, in local currency. The Group has successfully launched Star Wars licensed products in the period and said sales volume for Star Wars, Spiderman, Minions and Peppa Pig products were high. IG Design has also completed a sale of property in Aberbargoed, Wales for £1.45m. IG Design's CEO, Paul Fineman commented "I am delighted to report that the Group has delivered another year of strong growth with all metrics again exceeding our financial, commercial and operational goals. We have, once again, demonstrated our ability to turn profit into cash and successfully deliver fast payback on investments made, allowing us to increase dividends from 1p to 2.5p". As previously announced, the Group increased final dividend to 1.75p per share, bringing full year dividend to 2.5p per share (FY2015: 1.0p per share).
Our view: IG Design delivered an excellent set of results for the FY2016, having exceeded its objectives in profit generation, cash generation and earnings per share growth. The Group further strengthened its balance sheet with net debt reduced impressively by -40%, taking its leverage 1.0x (FY2015: 1.8x). The Group's ongoing investments in manufacturing efficiencies particularly bore fruit in Asia, with record levels of cracker, gift bags and cards manufacturing, while Mainland Europe saw gift wrap manufacturing volumes at their highest ever level. Having installed new wrap converting facilities for gift wrap manufacturing platform in the USA on time and on budget, with the region witnessing record sales and trading profit levels for FY2016, we think there is further upside potential for the Group. The management has clear vision for profit growth through global expansion and offering multi-category, design-focused products. The Group accordingly hiked the FY2016 dividend by +150%, which was almost 5.3x covered by underlying earnings. Management has confirmed a minimum cover of 3x, which suggests shareholders might look forward to higher dividends in future years. As such, we are encouraged by the IG Design's performance and given progress in its diversifying global portfolio activity; we see no significant impact to its finances from the BREXIT outcome. Post the period, the Group secured "flexible and competitive" global funding arrangements for all wholly owned businesses. Beaufort reiterate its Buy rating on the stock.
Watkin Jones (LON:WJG, 103.0p) - Speculative Buy
Watkin Jones, the leading UK developer and constructor of multi occupancy property assets focussed on the student accommodation sector, yesterday announced it had received planning consent to progress with its redevelopment of Duncan House in Stratford. The proposed redevelopment, which is located in Stratford High Street E15, consists of 511 beds (420 beds and 91 studios), 44 residential units and 30,000 square feet of academic space. The total gross development value of the scheme is around £100 million. Watkin Jones is in advanced negotiations with University of London, one of the world's most prestigious academic institutions and their funding partners, to forward sell the student part of the Duncan House scheme as per the Group's business model. The residential units will be sold in a separate transaction. The development is expected to be completed in 2019.
Our view: Another positive step! Coming hard on the heels of Watkin's IPO, however, investor questions are presently centering more around the Brexit outcome and its various company scenarios. But as far are Watkin Jones is concerned, the impact of separation from the EU is not expected to be significant. The number of EU students in the UK stands at around 125k (roughly 5%) and these are usually able to study on the same fees basis as our own 'home students'. Should, in a 'worse case' outcome, EU students find themselves financially disincentivised from seeking a future UK education, the net impact on Watkin Jones should not be material. Occupation of its accommodation remains significantly oversubscribed by other international students, who tend to favour the security and conditions it offers compared with more traditional options. Given also that the Group pre-sells its developments to asset managers who remain desperate to secure such high-yield collateralized income, its business opportunity very much remains intact. Indeed, this alternative asset class offers both excellent cash flow visibility and highly stable property-sector yields from operations that are well insulated from underlying economic activity. As such, it is able to forward-fund projects though a long list of hungry institutional buyers – creating an ideal high return, high visibility, capital light model that is almost unique in the world of residential development. With just 6% of the UK's total full-time student population currently occupying PBSA (purpose built student accommodation), at a time when government legislation is limiting HMO (houses in multiple occupation) supply and introduced higher stamp duty on buy-to-let property, the sector is expected to enjoy quite significant growth for years to come while capital growth continues to sharpen returns. The shares have been knocked by the Brexit outcome, which now presents investors with an important buying opportunity. The Group is set to deliver double digit earnings growth (implying a 2016E P/E of 8.8x, followed by 7.7x) for the next several years, combined with a generous progressive dividend. With significant net cash in hand at IPO, management was confident enough to project a current year yield to September 2016 of over 4% (based on second-half payment only), followed by 6.2% for full year 2016/17; beyond this, surplus generation could also find its way into shareholder's pockets through specials as well. Beaufort sees good value in Watkin Jones and now formally places a price target of 125p on the shares, which it recommends to both income and growth investors.