Markets
Europe
The FTSE-100 finished yesterday's session 0.14% higher at 6,868.96, whilst the FTSE AIM All-Share index closed 0.48% higher at 784.29. In continental Europe, markets ended sharply higher, driven by gains in basic resource stocks. Furthermore, positive corporate earnings released fuelled buying. Germany’s DAX and France’s CAC 40 advanced 0.6% and 0.4%, respectively.
Wall Street
Wall Street ended in the green, as oil prices rallied amid speculations that major oil producers would freeze production. Additionally, positive economic data and upbeat earnings released boosted investor confidence. The S&P 500 increased 0.2%, with the energy sector losing the most.
Asia
Equities are trading mixed, as some Fed officials reiterated the possibility of hiking interest rates in the coming months. The Nikkei 225 gained 0.4%, while the Hang Seng was trading 0.3% down at 7:00 am.
Oil
Yesterday, WTI prices increased 3.1% to US$48.22 per barrel, while Brent oil prices rose 2.1% to US$50.89 per barrel.
Headlines
Retail sales in UK jump in July
As per the Office for National Statistics, the UK’s retail sales grew 5.9% y-o-y in July, above economists’ forecast of a 4.2% rise, after gaining 4.3% in June. Sales, excluding auto fuel, surged 5.4% y-o-y in July compared with the 3.9% growth in June. The increase in sales was primarily led by warmer weather conditions and a weaker pound.
Company news
Concepta (LON:CPT, 11.88p)– Speculative Buy
Concepta's AIM Admission followed a reverse takeover from Frontier Resources International plc and renaming back on 25th July. Injected into the corporate shell was a pioneering UK healthcare company and developer of a proprietary platform and suite of products targeted at the personalised mobile health market with a primary focus on women's fertility and specifically unexplained infertility. Yesterday, the Company announces its unaudited results for the six months ended 30 June 2016. Operational highlights for the period included the disposal or dissolution of all oil and gas related subsidiaries of the legacy business, while the new management undertook a strategic review while completing the acquisition of Concepta plc for £3.026 million comprising 30,343,950 New Ordinary Shares and £0.75 million in cash. Its MyLotus brand is a unique offering that allows quantitative and qualitative measurement of a woman's personal hCG and LH hormone levels in urine samples. It has defined its route to market as, (i) Regulatory approvals for launch in China in place - first order from distributor with payment in advance expected following hospital testing in Q3 2016 and, (ii) CE-Marking for UK and Europe to follow in 2017. The Company’s cash balance at the period end was US$1.335m (H1 2015: US$0.02m), while incurring losses of US$0.336m from continuing operations (H1 2015: US$0.504m).
Our view: Concepta has fills an important need for a significant number of apparently fertile women who, for apparently unexplained reasons, consistently fail to conceive. The pregnancy and ovulation testing markets are well established and global, with significantly the largest brand being Clearblue, the flagship of Swiss Precision Diagnostics GmbH, a 50:50 JV with Procter & Gamble. But such products are incapable of measuring the personal hCG and LH hormone levels necessary to optimise fertility cycle timing and thereby provide a genuine alternative to the IVF clinic. The global revenue opportunity for Concepta runs into billions of dollars and its initial target markets in China and Europe are estimated to have potential in the region of £600m alone. Concepta’s proprietary home-testing/point-of-care equipment also lends itself to wider family home-health monitoring to improve individual health parameters including chronic stress, inflammation, urinary tract, healthy pregnancy progression etc. Indeed, Concepta find itself in a unique position to come in at the ground floor of the fast growing global connected healthcare sector, which is set to be worth US$61bn by 2020. Beaufort places a Speculative Buy recommendation on the shares.
Beaufort Securities acts as corporate broker to Concepta
Kingfisher (LON:KGF, 364.70p)– Hold
Kingfisher provided a trading update for Q2 FY 2016 ending 31st July 2016. During the period, sales advanced 8.4% y-o-y to £3.0bn in reported basis, or 3.2% at constant currency basis, while like-for-like (LFL) sales expanded 3.0% at constant currency basis, compared with Q2 FY 2015. In the UK and Ireland, sales rose 5.1% to £1.4bn in reported basis, with an LFL sales growth of 7.2%. Sales from France rose 10.4% to £1.1bn in reported basis, while LFL sales declined 3.2%. Sales from Other International grew 12.8% to £539m on a reported basis, with LFL sales increasing 7.0%. On the operational front, Kingfisher completed disposal of the remaining 30% economic interest in B&Q China following the regulatory approval and received net cash proceeds of £63m. The company has returned £150m (44 million shares) to date to shareholders since year end through share buyback.
Our view: Kingfisher delivered excellent performance in Q2 FY 2016. The company recorded an increase in sales on both reported and LFL fronts. Kingfisher’s growth was led by a rise in sales of tools to tradesmen in the UK and a surge in sales in its Polish division. Wet weather conditions and extensive industrial activities led to fall in sales in the company’s French business. The Group’s ONE Kingfisher plan announced in March 2015 to create a unified, unique and leading home improvement offer while driving digital capability and optimising operational efficiency is making good progress and remains ahead of schedule. The company continued to enhance shareholder value through its share buyback programme. However, Brexit has created uncertainty in the market and dampened investor confidence. We would like to wait and assess Kingfisher’s performance in the near future, and thus maintain a Hold rating.
National Grid (LON:NG., 1,081.50p) - Buy
National Grid provided an update on Mid-Period Review (MPR) for the RIIO-T1 price control, conducted by UK energy regulator Ofgem. The areas covered under MPR are related to specific outputs, with eight-year allowances in Gas Transmission and Electricity Transmission. Following the review, Ofgem proposed that allowances adjusted to reflect that some outputs are no longer required, which would result in a reduction of £169m in Gas Transmission and £38m in Electricity Transmission. Ofgem also proposed to approve £21m of the request related to the enhancement of system operator outputs. These changes are expected to be implemented April 2018 onwards.
Our view: The aforementioned update highlights Ofgem’s proposal to scrap some of the power and gas projects undertaken by National Grid. The scope of MPR is narrow, with no changes to financial parameters of the framework. National Grid delivered excellent performance in FY 2016 on both financial and operational fronts. The company benefitted from the electricity price difference in Britain and continental Europe, which lifted the trading volumes on its network. National Grid recorded robust growth in the UK and generated savings of over £330m for customers in the first three years of regulated price control (RIIO). The company made substantial progress with rate filings in New York and Massachusetts. Value-added metric, which reflects the key component of value delivery to shareholders, was strong with value added in the year totalling £1.8bn or 47.6p per share. National Grid is selling majority stake in its UK gas distribution business. After the sale, the company expects to deliver higher growth and maintain a strong balance sheet to fund its investment programme. In light of the above argument, we maintain a Buy rating on the stock.
Physiomics (LON:PYC, 0.03p) - Speculative Buy
Following the announcement on 31st March 2016 of its intention to acquire BioMoti Limited, Physiomics yesterday announced it has signed a Share Purchase Agreement with BioMoti. The acquisition remains conditional on the Company completing a successful placing to raise a minimum of £1m to develop the new joint Group's drug discovery and development pipeline. BioMoti's platform technology, Oncojan creates nanoparticles which package cancer drugs into sustained release delivery vehicles which are then coated with tumour targeting protein called CD95R (https://www.biomoti.com/technology/). BioMoti's lead asset, MOTI1001, contains the drug paclitaxel which has been approved for many years and is widely used to treat various types of cancer, therefore mitigating the risk of development. In pre-clinical mouse models of ovarian cancer MOTI1001 has shown significantly greater ability to shrink tumours than paclitaxel alone and also appears to be significantly more tolerable. The Consideration for the acquisition will comprise, (i) 50% of the entire issued share capital of the Company immediately prior to Completion (but for clarity prior to the issue of any ordinary shares in connection with the Placing) and: (ii) £50k in cash (subject to certain completion accounting adjustments to reflect the actual levels of cash and liabilities in the Company at completion). For the period ended 30 November 2015, BioMoti Limited had a turnover of £2,062 made a loss for the financial year of £9,700 and its gross assets were valued at £2,331. Completion is expected to occur on or before 31 October 2016.
Our view: If the BioMoti deal completes, Physiomics risk profile and prospective funding needs will change quite significantly. But that said, there is significant potential value in developing an oncology pipeline alongside existing and new opportunities in base modelling and simulation. And the existing pharmaceutical base development and simulation business continues to record important progress. Since March 2015, for example, it has confirmed the first contract for a clinical version of its Virtual Tumour model with global pharmaceutical company, Merck Serono, a (4th) large pharma customer for its Virtual Tumour (pre-clinical) model and a new speciality pharma customer for PK/ PD modelling of a new drug combination in the pain space and a subsequent extension of this contract, along with the 5th, 6th and 7th extensions to a Virtual Tumour project with a major global pharmaceutical company with which has now been a client for over 4 years. Credibility and momentum of Virtual Tumour Clinical, however, will take time to build into the high-margin repeat business envisaged by the Company’s original business plan so the new management now headed by CEO, Dr Jim Millen, is seeking to bolt on a new complementary arm that can create value by both exploiting its existing skills/development tools as well as generating additional newsflow. This will be created through Virtual Tumour being utilised to increase value of internal drug candidates via optimised regimens while targeting CD95L might also provide a way to personalise cancer treatment to appropriate patients. Additionally, Physiomics could employ its modelling techniques to predict the patients who would benefit most from drug candidates, and the Oncojan™ platform could be used in conjunction with Virtual Tumour to develop further targeted therapies for different cancer indications and drug combinations. So Physiomics is most certainly set to become a rather more exciting prospect. It needs to be recognised, however, that the proposed raise in this funding round will likely only suffice for a quite limited period and that the enlarged Group can be expected to seek additional support from shareholder as its projects progress. Beaufort places a Speculative Buy recommendation on the shares.
Premier Oil (LON:PMO, 76.50p) - Speculative Buy
In its Interims, Premier has raised its production guidance for FY2016 to 68-73k boepd and reported that it will be free cash-flow positive in H2 with oil prices above US$45 per barrel. Recent production has exceeded 95k boepd, helped by the 14k boepd from the first producer well on the Solan field. The second and final producer well on the Solan field is expected to be tied in shortly and to reach production of 20-25k boepd. The Catcher development project (Premier: 50% operating interest) remains on track for first oil in H2 2017. The subsea installation campaign is ahead of plan, while all six development wells drilled to date have met or exceeded predictions for reservoir quality while flow rates have been at or above prognosis. Negotiations on refinancing are reported as making good progress. The negotiations centre on amending covenants and extending debt maturities. The company anticipates negotiations to conclude and new agreements in place during H2 2016.
Our view: The debt restructuring was anticipated to take time but the Company have indicated that ‘Good progress is being made with the company's lending group over amendments to the medium term covenant profile and resetting of debt maturities’. With continuing production growth (Solan, EON assets acquisition) and Catcher on target for product 2017, we maintain our Speculative Buy stance on the Company.
Tullow Oil (LON:TLW, 239.60p) - Speculative Buy
Tullow Oil has announced that first oil has flowed from the Tweneboa, Enyenra, Ntomme (TEN) fields offshore Ghana. First oil has been reached on time and on budget three years after the Plan of Development was approved in May 2013. The TEN start-up process is now well advanced and Tullow expects oil production to ramp-up gradually towards the FPSO capacity of 80,000 bopd through the remainder of 2016. Tullow estimates that TEN average annualised production in 2016 will be approximately 23,000 bopd gross (net: 11,000 bopd). Tullow is the operator of the TEN fields and holds a 47.175% stake. Tullow's joint venture partners are Anadarko Petroleum Corporation (17%), Kosmos Energy (17%), Ghana National Petroleum Corporation (15%) and PetroSA (3.875%).
Our view: This is an important moment for Tullow as production begins from the TEN fields. It is also pleasing to report the delivering of this project on time and on budget. This brings to a close a period of heavy investment for Tullow, and we look forward to seeing debt (US$4.7bn) reduction. It is important that production at least meets guidance for real impact on the debt reduction. Tullow Oil is one of Beaufort Securities Tips for the Year, and whilst we retain a Speculative Buy on the Company, short-term investors may wish to lock in some profits.