Markets
Europe
The FTSE-100 finished yesterday's session 0.30% higher at 6,846.58, whilst the FTSE AIM All-Share index closed 0.49% higher at 801.70. In continental Europe markets ended in the green, as a weak euro resulted in gains for export-driven stocks, led by the auto sector. Investors await the outcome of the European Central Bank's meeting this week. Germany's DAX and France's CAC 40 rose 0.6% each.
Wall Street
Wall Street ended broadly flat as mixed US economic reports subdued the prospects of an interest rate hike by the Fed. The S&P 500 closed unchanged, as losses in consumer staple stocks offset the gains in technology and energy stocks.
Asia
Equities are trading mixed as investors digested the Fed's Beige Book to gauge the prospects of an interest rate hike. The Nikkei 225 dropped 0.3% after a strong yen led to losses for export-driven stocks. The Hang Seng was trading 0.5% up at 7:00 am.
Oil
Yesterday, WTI prices rose 1.5% to US$45.50 per barrel, and Brent oil prices increased 1.5% to US$47.98 per barrel.
Headlines
UK economic growth slowed in three months to August
As per the estimates of the National Institute of Economic and Social Research (NIESR), the UK economy expanded 0.3% in the three months to August vis-à-vis 0.4% in the three months to July. This data corroborates views that the UK economy is experiencing a slowdown.
Japan's Q2 2016 GDP revised up
As per Japan's Cabinet Office, the country's economy grew at an annualized rate of 0.7% in Q2 2016, up from the preliminary reading of 0.2%. Private consumption, which accounts for 60% of the economy, increased 0.2%, unchanged from the initial estimate.
Company news
Galileo Resources (LON:GLR, 1.52p) – Speculative Buy
Galileo Resources, the exploration and development mining company, announced yesterday an update on its Concordia Concession in the Northern Cape province of South Africa. The Concordia project, covering an extensive area within the historically prolific Okiep Copper District, has been granted a three-year renewal of its prospecting right by the Department of Mineral Resources. In addition, and further to recent announcements, Minxcon Consulting an independent mining and geological consulting firm, has completed an assessment of exploration potential on 34 possible prospects within the Concordia project. Galileo has prioritised four main areas including the Homeep Trend, Shirley Trend, Henderson prospect and the Klondike prospect. Minxcon has estimated a small portion of the Homeep mineralised trend at 0.9Mt grading 0.89% Cu. As such, Galileo plans an induced polarisation geophysical survey over the Hemeep Trend as well as the other prioritised areas with the first phase of the survey to commence in October.
Our view: While results of the desktop modelling of all the target areas are considered non-compliant and conceptual in nature, they do confirm the presence of Cu mineralisation within the Concordia concession. We are encouraged with the initial results and the potential for additional shallow deposits within the well-known Okiep mining district. We look forward to the next stage of exploration with ground-based geophysical surveys and ultimately resource definition drilling. In the meantime, we maintain our speculative buy on the stock.
Beaufort Securities acts as corporate broker to Galileo Resources PLC
Minco (LON:MIO, 1.38p) – Speculative Buy
Minco, the exploration and development company currently engaged in zinc-lead exploration in Canada and the UK, announced yesterday the start of a 1,400m drill programme at its Moate zinc-lead project in County Westmeath, Ireland. Minco plans to drill six inclined holes focusing on a specific geological target, identified by Minco, with potential for zinc-lead mineralisation similar to the former Tynagh Mine, located 50km to the SW. The Tynagh lead-zinc-copper-silver mine operated from 1965 to 1981 and produced 9Mt grading 7%, 5.5%, 0.5% and 2.6oz/t respectively.
Our view: We are encouraged the announced drill programme at Moate given the similar geological setting as the past producing Tynagh Mine. The Moate target lies 150-200m below the surface and has an estimated strike length of 3.5km and has not been previously drilled. We look forward to the drill results and are encouraged with the recent performance of zinc, up 58% year to date, on the back of shutdown of major mines (Lisheen and Century) as well as curtailments at currently producing mines. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Minco plc
Amphion Innovations (LON:AMP, 3.25p) - Hold
Amphion, the developer of medical and technology businesses, yesterday announced its unaudited interim results for the six months to 30 June 2016. Highlights for the period include Net Asset Value per ordinary share up to 4.3p at period-end from 3.8p as at 2015-year end. The success of the AIM IPO of Amphion's partner company, Motif Bio Plc, and the subsequent increase in the value of Amphion's shareholding in Motif, was the key driver behind this increase. Total Group liabilities remained approximately unchanged over the period at US$29.1 million. Revenue for the period was US$60,000 compared with US$267,601 recorded in the first half of 2015, as management continued to control costs and work with reduced levels of current cash compensation. Total administrative expenses were on par with last year and, as a result, the operating loss for the Period was US$1,505,488 compared with US$1,254,554 as reported in the same period of last year. Having achieved a satisfactory settlement with Berkeley Research Group LLC for US$1.6 million, US$0.6 million remains payable by 31 December 2016. Post period-end, AMP also concluded a new Memorandum of Understanding to merge m2m with another company, while DataTern's Markman Hearing in the MicroStrategy Case was scheduled for 26 September in the U.S. District Court of Massachusetts. Amphion also entered into additional draw-downs of loan facility of US$750,000 and US$2,350,000, with US$6.2 million currently drawn down. CEO, Richard Morgan noted "Since completing the IPO on AIM in April last year, Motif has moved quickly to get two trials underway and announced the dosing of the first patient in March in its pivotal Phase III trial. Motif recently announced that patient enrollment to date is ahead of projections. Motif has a very bright future and is now on its way to potentially becoming a significant player in the antibiotic market, which has a growing need for novel therapies. We are committed to working closely with Motif to help it achieve its goals. In addition, we now have the opportunity to move forward a couple of our other Partner Companies. We look forward to the future with confidence and to being able to report further progress with Motif, DataTern, m2m, and other Partner Companies in due course."
Our view: This half-year statement skirted around the main issue. The Group's principal asset and its opportunity to create significant shareholder value rests on its investment in Motif Bio plc. It was something of a shock that Motif failed to achieve its proposed ADS listing on NASDAQ last month. Given iclaprim's undoubted progress, the potential value of its platform development and the fact that Motif's UK valuation appears to be at a dramatic discount to very obvious peers already quoted in the US, investors have been left scratching their heads as to what actually went wrong. Whether it was down to bad 'summer holiday' timing, poor choice of book-runners or some other technical factor remains to be seen. Whatever, having retained its US registration, management certainly does not appear to have given up on the idea and, given how valuable such a novel antibiotic molecule could eventually become, it is almost impossible to believe there are no interested parties out there. Motif really does need, however, to quite quickly raise some US$35m+ in order to keep its second indication in hospital acquired bacterial pneumonia on track. It would not be unrealistic to expect Motif to manage to attract a US 'anchor' investor (be they a specialist or industrial partner) to match major London shareholder, Invesco, in order to get the deal 'back on the road'. But given the fact that signs of distress are there, the eventual pricing of such a transaction could end up at a much deeper discount than might originally have been anticipated. Amphion still represents a cheap way into Motif and brings 'jam tomorrow' promises from the rest of its interesting portfolio. Until we are clear as to the timing of Motif's entrance onto the NASDAQ and exactly where the Offer eventually prices, however, it is hard to retain it with a Speculative Buy recommendation. Beaufort accordingly downgrades Amphion Innovations to 'Hold' while awaiting this outcome.
Ashtead Group (LON:AHT, 1,300.0p) - Buy
Ashtead Group (Ashtead) declared its unaudited results for the first quarter ended 31st July 2016 (Q1 FY 2017). On an underlying basis, rental revenue rose 12% y-o-y to £660.8m during the period and EBITDA increased 9% y-o-y to £340.0m. On a statutory basis, group revenue increased 4% to £707.1m. Pre-tax profit rose 4% to £177.9m, leading to EPS of 23.4p, up 5% from the figure recorded in Q1 FY 2016. Net debt stood at £2,348m as at 31st July 2016 (2015: £1,804m). The net debt to EBITDA ratio declined to 1.7 times (2015: 1.8 times) on a constant currency basis. Return on investment (including goodwill and intangible assets) stood at 18% (2015: 19%). On the operational front, Ashtead spent £64m (2015: £1m) on four bolt-on acquisitions during the period.
Our view: Ashtead exhibited a strong performance in Q1 FY 2017, recording robust growth in revenue and profit. The group reported strong segment performance; the Sunbelt division's revenue increased 3.9% to US$853.1m, while A-Plant's revenue increased 7% to £96m (2015: £90m). Ashtead's strategy remains unchanged, with growth being driven by strong same-store growth, greenfield openings, and bolt-on acquisitions. Strong margins and a healthy balance sheet give the group adequate flexibility to invest in long-term structural growth opportunities and enhance returns to shareholders. Ashtead has spent £17m of its share buyback programme of up to £200m for FY 2017. We are encouraged by the group's progress in Q1 FY 2017 and look forward to further updates. Therefore, we maintain a Buy rating on the stock.
Barratt Developments (LON:BDEV, 492.20p) - Buy
Barratt Development, the largest UK housebuilder, yesterday announced final results for the year ended 30 June 2016 ('FY2016'). During the period, total completions advanced by +5.3% to 17,319 plots and total average selling price expanded by +10.5% to £259,700 (within this, private average selling price rose +10.4%), against the comparable period (FY2015). This resulted revenue grew by +12.7% to £4,235.2m and combined with improved operating margin by 0.5% to 15.8%, pre-tax profit jumped +20.7% to £682.3m. Consequently, basic earnings per share rose to 55.1p from 45.5p in the FY2015. Net cash balance at the year-end stood at £592m (end FY2015: £186.5m), and ROCE (return on capital employed) improved by +3.2% to 27.1%. Total forward sales (including joint ventures) as at 4 September increased by +4.1% to £2,416.5m, or from 10,755 to 11.364 plots. Barratt Developments' CEO, David Thomas commented "Barratt starts the new financial year in a good position with a strong balance sheet, good forward sales and an experienced management team. Whilst we continue to monitor market conditions closely, current trading trends are positive, and I remain confident in the fundamentals of the housing sector and of our business." The Group declared final dividend of 12.3p per share, up +19.4%, bringing full year dividend up +21% to 18.3p. It has also proposed a second special dividend of 12.4p per share.
Our view: Barratt's final results were in line with their trading statement of 13 July 2016. There was a differences, however, in terms of its improved post period trading where the Group saw its forward sales including JV improved by +4.1% (at 13 July, -0.4%). Without the JV, it rose impressively by +22.2%, largely driven by affordable housings. The Group said average weekly net private reservations post the period stood at 267 (FY2016: 265), resulting in net private reservations per active outlet per average week of 0.75 (FY2016: 0.71). Barratt's UK wide presence also helped, with strong trading conditions seen in the North and Midlands compared to the South. At this moment, the worst fears of Brexit that were reflected in its share price both during the run up to the Referendum and on the event itself, appear distant. History of course tells us that the housebuilding sector always has been viciously cyclical and that no one should be surprised when conditions, be they economic or political, eventually contrive once again plunge the sector downward. Whatever, the continuing dire shortage of housing stock right across the UK, ultra-low interest rates and excellent mortgage availability, together with generous government buying incentives, suggest such an event remains some way off. Cautious investors will possibly revisit this argument as the UK approaches formal separation from the EU perhaps a couple of years from now, considering then the very real possibility of a hard landing pushing the country into a deep recession. Those who foresee a more optimistic scenario, might instead argue that all Brexit bets to date have been far too cautionary and that UK conditions will continue to support momentum in the housing market for a much longer period. Such uncertainty and contradictions will continue to limit sector valuations, while also demanding shareholders are compensated for this uncertainty with high annual payouts. The Group's three-year dividend plan delivers exactly this, supported by an excellent land bank to confirm the delivery of one third of earnings and a special dividend of £400m in aggregate (made or planned) of £100m, £125m and £175m to November 2017. Barratt is traded at FY2017E P/NAV of just 1.52x along with a dividend yield of 6.8% on a forward earnings multiple of just 9.6x, the shares appear to already be more than discounting every foreseeable caution. The Group presently sits on a strong balance sheet with £590m net cash, attractive forward sales position while management also outlined contingency plans to be effected should conditions demand. Beaufort will continue to review the sector with a view to reacting quickly should storm clouds unexpectantly gather, but for now recommends investors build positions for both income and capital growth. Beaufort retains its Buy recommendation on Barratt Development.
Joules Group (LON:JOUL, 195.0p) - Buy
Joules Group declared results for the 52 weeks ended 29th May 2016 (FY 2016). Group revenue increased 14.2% y-o-y to £131.3m from the level recorded for the comparable period (52 weeks) of FY 2015. Store revenue rose 13.1% to £58.2m and e-commerce revenue increased 17.3% to £30.1m. Wholesale revenue surged 18.3% to £37.2m. On a geographic basis, sales in the UK increased 11.6% to £118.1m and international sales increased 24.7% to £13.2m. Underlying EBITDA rose 28.6% to £13.5m. Underlying pre-tax profit soared 41.5% to £7.5m, leading to underlying EPS of 6.9p, up 42.9% from the figure recorded for FY 2015. On a reported basis, Joules' operating profit declined to £4.8m from £5.1m in FY 2015. The group reported a pre-tax loss of £1.2m, compared with a pre-tax profit of £0.1m in FY 2015. Net cash flow from operating activities stood at £16.9m (FY 2015: £6.0m), including a net working capital inflow of £7.1m. Joules' active customer base increased 33% to 824,000. The group was admitted for trading on the AIM on 26th May 2016. Joules has access to a £25m revolving credit facility provided by Barclays Bank. This facility will mature in May 2020.
Our view: Joules delivered an excellent performance in FY 2016. The group reported strong revenue growth across all divisions. Store revenue increased owing to store openings and an increase in selling space. E-commerce registered strong growth, driven by an increase in website visitors, higher conversion (following the re-launch of its mobile-optimised website) and ongoing customer acquisition activities. Joules continued to increase its global presence, with international revenue representing 10.1% of its total revenue. The company made significant progress during the year in terms of promoting itself as a lifestyle brand across multiple sales channels, both in the UK and globally. The company's growth strategy is focused on increasing customer value, launching new stores in the UK, accelerating international growth and delivering product extensions. A skilled, dedicated workforce and unique product designs support this strategy. Another key event during the period was Joules' debut on the AIM in May 2016. The group's performance thus far in FY 2017 has been in line with expectations. We believe Joules is well equipped to maintain its growth momentum. Therefore, we reiterate our Buy rating on the stock.