Markets
Europe
The FTSE-100 finished yesterday's session 0.53% lower at 6,665.63, whilst the FTSE AIM All-Share index closed 0.01% higher at 801.65. In continental Europe, markets ended in the negative territory as oil prices retreated after the International Energy Agency lowered the global oil demand forecast for 2016 and 2017. Investors remained concerned over the prospect of an interest rate hike by the Fed. France’s CAC 40 and Germany’s DAX declined 1.2% and 0.4%, respectively.
Wall Street
Wall Street ended in the red as weak oil prices led to loss in energy stocks. Investors remained cautious ahead of the Fed’s meeting next week. The S&P 500 dropped 1.5% in yesterday’s trading session.
Asia
Equities are trading lower, tracking the global markets, due to concern surrounding the global central bank’s weak attempt to fuel growth. The Nikkei 225 fell 0.7% amid uncertainty over the Bank of Japan’s policy meeting next week. The Hang Seng Index was trading broadly flat at 7:00 am.
Oil
Yesterday, WTI prices declined 3.0% to US$44.90 per barrel, and Brent oil prices dropped 2.5% to US$47.10 per barrel.
Headlines
UK inflation remains steady in August
As per the Office for National Statistics, the UK’s consumer price index expanded at 0.6% y-o-y in August following similar growth in July. The agency stated rising food prices and air fares were partly offset by cheaper hotel room prices. Meanwhile, the retail prices index (RPI) measure of inflation, which includes mortgage interest payments, dropped to 1.8% in August from 1.9% in July.
Company news
Ariana Resources (LON:AAU, 1.85p) - Speculative Buy
Ariana Resources, the gold-silver exploration and development company operating in Turkey, announced today its initial drill results for its Phase 1 drilling programme recently completed at the Kiziltepe project. Kiziltepe is being advanced towards production through a Joint Venture agreement (50:50) with Proccea Construction, mine completion is expected in Q4 2016. The Company completed 843m of RC drilling at the NW end of the Arzu South, targeting the extension of the mineralised vein system beneath cover and towards the Arzu North target area. The best intercepts were 7m grading 8.5g/t Au plus 26.2g/t Ag, 11m grading 3.7g/t Au plus 75.4g/t Ag and 13m grading 3.2g/t Au plus 37.7g/t Ag. In addition, new veins (referred to Arzu South Parallel) were tested over 300m and the best intercepts were 4m grading 3.5g/t Au plus 49.6g/t Ag, 6m grading 2.1g/t Au plus 27.4g/t Ag and 6m grading 1.0g/t Au plus 12.6g/t Ag.
Our view: The Phase 1 drill results are encouraging and could potentially extend he Arzu South open-pit design by a further 200m towards the northwest. The Arzu Central target area has the potential to significantly increase the current resource base and extend the life of mine beyond the current eight years. We look forward to results from Phase 2 drill programme which will focus on drilling deeper holes to complete testing of the mineralisation in the Arzu central area. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Ariana Resources plc
ValiRx (LON:VAL, 6.38p) - Speculative Buy
ValiRx Plc, the life science company which focuses on clinical stage cancer therapeutic development, taking proprietary & novel technology for precision medicines towards commercialisation and partnering, yesterday provided a quarterly Q3’2016 update on its clinical progress. The release covered progress on its two most advanced compounds and the sale of TRAC. The Group’s lead compound, VAL201, continues to perform well in its Phase l/ll Clinical Trial in patients with hormone resistant prostate cancer. It had already confirmed in June 2016 that VAL201 had shown a high degree of safety. Since then VAL201 continues to show no drug related significant adverse events and all subjects have tolerated the compound well at the levels of compound administered up to now. The studies continue to show preliminary indications of VAL201 positively effecting subjects' disease profile. These positive indications also extend to include some subjects at an early stage in their therapeutic dose ranging and elevation safety studies. Work continues on the design of a trial for VAL201's use in treating the debilitating female condition, endometrioses and other endometrial conditions. The associated partnerships - both commercial and technical - are expected to be in place before the final reporting of the current 'safety and tolerability-focused' Phase I/II clinical trial completes. Q3’2016 has also been an important quarter for ValiRx’s second compound, VAL401. Full regulatory and ethics approval was received for ValiSeek's clinical trial site at the Medulla Immunotherapy and Chemotherapy Clinic, Tbilisi, to test VAL401 as an oral treatment of late stage non-small cell lung adenocarcinoma. Since these regulatory approvals were received, the site initiation visit has been carried out, introducing the team at Clinical Accelerator to the site, and ensuring the clinicians understand the protocol and recruitment requirements. During this quarter, ValiSeek also received notification of a New Zealand patent grant allowance for the key VAL401 patent, including claims covering both the composition of the formulation and its use as a treatment against adenocarcinoma. This first non-US patent grant underlines ValiSeek's intention to create an international project and world-wide commercialisation. In July, ValiRx sold its subsidiary, ValiRx (Finland) Oy (‘ValiFinn’), the company holding its Finnish-based TRAC Technology, to Sovicell Science for Life GmbH, for a cash consideration of €0.8 million. In February 2015, ValiRx had acquired TRAC for a consideration of €75,000. This transaction represented an opportunity to commercialise a part of the Group's portfolio, whilst freeing up resource and management time. ValiRx will continue to have Finnish representation via its other Finnish subsidiary, ValiRx Oy, whilst retaining a royalty-free license to use the technology in its therapeutic developments.
Our view: Although yesterday’s release was largely just a summary of news that the market was already aware of, it does underline the progress the Group is presently making. Having put necessary financing in place earlier this month, raising £1,200,000 of gross proceeds through the issue of 20,000,000 new ordinary shares at a price of 6 pence per share (which are due to be Admitted on 16th September, along with an agreement with YA Global Master SPV Ltd pursuant to which it has agreed to subscribe for convertible loan notes with an aggregate principal amount of up to US$3.75 million (‘CLNs’) in 3 tranches of up to US$1.25 million each. The First Tranche of US$1.25 million has been drawn down already, the Second Tranche may be drawn down at the discretion of the Group between 90 and 180 days from the date of the first and the Third Tranche may be drawn down, at the discretion of the Group, after 270 days but no later than 360 days from the same date. This provides adequate resource to progress VAL201’s associated commercial and technical partnerships that are expected to be in place before the final reporting of the current 'safety and tolerability-focused' Phase I/II clinical trial completes, while VAL401’s first results from patient dosing can also be expected in coming months. Beaufort retains its Speculative buy recommendation of the shares.
Beaufort Securities acts as corporate broker to ValiRx
Amryt Pharma (LON:AMYT, 20.50p) - Speculative Buy
Amryt Pharma plc, the clinical stage specialty pharma company focused on best in class treatments for orphan diseases, has presented its interim financial statements for the six month period ended 30 June 2016. The first six months of 2016 have been transformational for the Company. On 18 April 2016, the Company successfully concluded its first two acquisitions of Birken and Som and on 19 April 2016, Amryt was admitted to trading on AIM and the ESM market of the Irish Stock Exchange following the reverse takeover (RTO) of Fastnet Equity Plc and raised £10 million gross. These events were important strategic milestones in realising the Company's vision of becoming a significant player in the underserved orphan disease market. The Directors are particularly excited by the prospects of its lead product Episalvan®, a potential treatment for a rare and distressing hereditary skin disorder called Epidermolysis Bullosa or EB. In the short period since the formation of the Company, it has finalised its protocol design for the proposed pivotal phase 3 study in EB and have submitted it to the European Medicines Agency (EMA) for approval. Amryt has also been granted a meeting with the FDA in early Q4 2016. The Company anticipate that this phase 3 study will, subject to regulatory sign-off, enrol its first patient in Q1 2017. Given the unique characteristics of its EB product and the lack of any available treatment options currently, the Company believes this market offers a significant commercial opportunity.
Operational Highlights include:
• Appointment of a highly experienced Board and management team
• Wholly owned subsidiaries Birken AG and SomPharmaceuticals
• EU approved drug for the treatment of partial thickness wounds
• Promising pipeline of orphan drug candidates for EB, acromegaly and Cushing's disease
• Submitted proposed pivotal phase 3 study protocol in EB to the EMA for approval
• Obtained meeting with the FDA for early Q4 2016 to consider phase 3 EB study protocol
• Clinical research organisation identified to conduct the phase 3 study which, subject to regulatory sign-off, the Company anticipate will commence in Q1 2017
• Patent granted in the USA for the use of Episalvan® in the treatment of EB
• Application made to the FDA for orphan designation for AP102 for the treatment of acromegaly with a response expected in Q4 2016
• Pre-clinical study to complete in the coming weeks which, if positive, will support the Company’s application for orphan designation for AP102 in Europe from the EMA
Financial Highlights include:
• Placing, at 24 pence per share, raised gross proceeds of £10.0 million (€12.6 million) through the issue of 41,673,402 new ordinary shares
• H1 2016 financial expenditure in line with management expectations
• €11.7 million cash balance at 30 June 2016 and €10.7 million at 31 August 2016
Our view: Since the RTO, the Company has made excellent progress in both its EB and acromegaly (AP102) development programs. In particular the Company has been finalising the protocol for the pivotal phase 3 study in EB and has submitted this protocol to the European Medicines Agency (EMA), the regulatory authorities in Europe, and have scheduled a meeting with the US Food and Drug Administration (FDA) for Q4 2016. Amryt has also finalised its selection of clinical research organisation for its phase 3 study and, subject to regulatory sign-off, the Company anticipate that the study will enrol its first patient in Q1 2017. The Company currently expects the study to be completed within 18 months of commencement with top line data available in H1 2018. It is also pleasing to know that the key patent for the use of Episalvan® in the treatment of EB has been granted in the US. Amryt already has a similar patent in Europe for the treatment of all partial thickness wounds. Both of these patents have an expiry date in 2030. Combined with the Company’s existing patent portfolio which covers the extraction method and the formulation of its product, we believe Amryt has a very robust patent portfolio which will protect Episalvan® for a considerable period of time. It is our view that the commercial potential for Episalvan® in EB is compelling, given the size of the market and the fact that there is currently no treatment available for this disease which causes considerable suffering. The severity of EB varies, but all patients suffer from the common characteristic of skin and mucous membranes that blister or shed in response to even minimal friction or trauma. The skin of an EB patient is often so fragile that it can stick to even non adhesive dressing material resulting in further suffering for the patient and damage to their skin. We believe that the that the unique characteristics of Episalvan® could significantly improve the quality of life for EB sufferers since the product not only increases wound healing but also offers further benefits such as forming a barrier between the wound and the dressings. This significantly reduces the opportunity for dressings to stick to the wound, which is a common and painful occurrence for EB sufferers. During the period the Company applied for orphan designation for its acromegaly (AP102) product with the FDA and the Company are expecting a response by the end of the year. Also, Amryt commenced a diabetic study with its AP102 product which if positive will support its application for orphan designation in Europe from the EMA and the Company expect that this study will be complete in the coming weeks. Amryt has an attractive mix of approved, late stage and early stage products focused on rare and orphan conditions where there is significant unmet need. They have made excellent progress in the short time since the RTO on 19 April and expect this to continue in the second half of the year. We recommended Amryt in the latest edition of The Beaufort Scale last month at 15.625p and still below the fund raise price of 24p and, at circa 20p we see plenty of scope for further re-rating and we continue to recommend a Speculative Buy.
esure (LON:ESUR, 292.60p) - Hold
The Board of esure announced the conclusion of its strategic review and its intention to pursue a demerger of Gocompare.com Holdings Ltd. (to be re-named Gocompare.com Group Plc) from esure through a separate listing on the main market of the London Stock Exchange. The costs arising from the demerger are anticipated to be around £19m. The proposed demerger is subject to the approval of shareholders and relevant regulatory approvals. The esure Board intends to recommend that the company’s shareholders vote in favour of the demerger, which, subject to the receipt of all required approvals, is expected to occur in Q4 2016.
Our view: esure’s plan to demerge Gocompare.com would help both entities to reach their full potential. The demerger would create two listed and focused groups, one a leading UK provider of motor and home insurance and the other a leading UK price and product comparison website. The formation of separate groups would allow management teams to focus on pursuing their strategies independently. Last month, esure reported satisfactory performance for H1 2016. The company recorded an increase in gross written premiums in the motor and home divisions. An increase in premium income was supported by rising motor prices and higher customer numbers. However, adverse weather conditions increased the claims, which resulted in lower profit margins. The claims market for the motor market remains weak, which may hamper esure’s earnings. Unpredictable weather conditions and post-Brexit uncertainties add to the company’s concerns. Considering the mixed outlook, we retain our Hold rating on the stock.
Horizon Discovery (LON:HZD, 166.50p) - Speculative Buy
Horizon Discovery (Horizon) licenced its cell-line production technology to the Centre for Process Innovation (CPI) in the UK and the National Institute for Bioprocessing Research & Training (NIBRT) in Ireland. As per the agreement, organisations would be able to access Horizon's bio-manufacturing cell lines for research purposes via CPI and NIBRT.
Our view: The aforementioned news is a positive development for Horizon. It provides Horizon an opportunity to work with key industry players such as CPI and NIBRT, which ensures that it is offering the best solutions to patients (customers). Moreover, the terms of the licences would allow for further modification of cells accessed through CPI or NIBRT and establishes a potential long-term revenue stream for Horizon. Earlier this month, Horizon entered into a co-development and commercialisation agreement with Ventana Medical Systems (Ventana), Inc., a member of Roche Group. The agreement covers the development, manufacture, and commercialisation of cell-line derivative materials for use as immunohistochemistry (IHC) reference standards in cancer tissue diagnostics. Based on the project requirements, Horizon would co-develop and commercialise IHC reference standards with Ventana to support assay development. The IHC reference standards provide histologists and assay and platform developers reference standards that can be used as renewable and consistent points of reference when optimising and monitoring the performance of their assay. Horizon’s reference standards would now be used increasingly in the IHC market. This is in line with Horizon’s plan to embed OTS products into established and emerging workflows, thereby delivering consistent revenue streams at high margins. Considering Horizon’s ongoing developments, we maintain a Speculative Buy rating on the stock.
JD Sports Fashion (LON:JD., 1,400.0p) - Buy
JD Sports Fashion (‘JD Sports’), the leading retailer of sports, fashion and outdoor brands, yesterday announced its interim result for the 26 weeks ended 30 July 2016 (H1 FY2017). During the period, revenue advanced by +20% to £970.6m, and like-for-like (‘LFL’) sales grew approximately +10%, against comparable period (H1 FY2016). Gross profit margin improved by +0.7% to 48.1% resulting operating profit (before exceptional items) rose by +63% to £77.7m and pre-tax profit jumped +73% to £77.4m. Basic earnings per share increased by +69% to 29.83p. Net cash at period end stood at £231.8m compared to £100.3m a year ago. On the operational front, the Group opened 20 stores in its existing territories across the Europe, due to two multi-store acquisitions of Aktiesport and Perry Sport retail fascias. JD Sports’ Chairman, Peter Cowgill comented “The favourable trends for athletic inspired footwear and apparel in Europe have continued into this year. We are very much at the centre of this market with our success being a positive consequence of the investments we have made over a number of years to develop the JD retail concept. Notwithstanding the demanding comparatives going forward following the strong revenue growth in the previous three years, the positive nature of trading in the second half to date is encouraging.” The Group declared interim dividend of 1.25p (H1 FY2016: 1.20p), up +4.2%, which will be paid on 2 December 2016.
Our view: JD Sports once again announced robust performance, delivering another record breaking half-year result with +73% increase in pre-tax profit and improved gross margin. Improvement in gross margin was helped by stronger Euro on JD's Euro denominated businesses. The LFL sales growth was encouraging and its balance sheet remain strong with £231.8m net cash. Looking ahead, the Group noted that although the level of LFL sales growth seen in recent years cannot be expected to be sustained indefinitely, its UK and international opportunities still clearly remain very strong. Despite the Brexit uncertainties, the Group is confidently going ahead with planned opening of additional JD stores across Europe this year, as well as expansion in Malaysia and Australia also expected. In 2017, however, a weaker Sterling against the US dollar may cause some margin headwinds, against which the Group stated it has some strategy in place to mitigate the worse effects. JD Sports confirmed that to date the second half of FY2017 has been “positive” and “encouraging” and that investors will be provided with a further trading update in January. We are encouraged by the Group’s continuing progress and believe it remains sufficiently financed to continue its international expansion plans without recourse to shareholders. Beaufort maintains its Buy rating on the shares.
Economic news
Germany CPI
Consumer prices in Germany increased 0.4% y-o-y in August, in line with the preliminary estimates, as per final data published by Destatis. On m-o-m basis, consumer prices rose remained unchanged, after a 0.3% increase in July.
UK PPI
The UK producer price index (PPI) output rose 0.1% m-o-m in August, after a 0.3% increase in July, the Office for National Statistics said yesterday. The markets expected a 0.3% rise in prices. On y-o-y basis, output prices increased 0.8% in August, after a rise of 0.3% in July.
Germany ZEW survey
The Centre for European Economic Research/ZEW reported that the German economic sentiment remained at 0.5 in September. The score was expected to increase to 2.5. The gauge of current situation dropped to 55.1 in September from 57.6 in August.