Markets
London
The FTSE-100 finished yesterday's session 0.66% lower at 7,024.01, whilst the FTSE AIM All-Share index closed 0.05% down at 826.72.
Wall Street
In New York overnight, the Dow Jones gained 0.09% to stand at 18,144.2, the S&P-500 strengthened 0.11% to 2,139.18 and the Nasdaq lost 0.15% to close at 5,239.02.
Asia
In Asia this morning, the Nikkei 225 had fallen 0.42% to 16,770.08, while the Hang Seng edged 1.16% lower to 23,135.89.
Oil
At 6.00am, WTI crude was off 0.76% at $49.80/bbl and Brent was down 0.71% to $51.44/bbl.
Headlines
Tesco removes Unilever brands in row over rising prices
Tesco (LON:TSCO) has stopped selling dozens of its most famous household brands to its online shoppers because of a dispute with its biggest supplier, Unilever (ULVR.L). Included are Marmite, PG Tips tea, Pot Noodles and Surf washing powder. The row is said to have developed when Unilever - which says it faces higher costs because of the fall in sterling - attempted to increase wholesale prices. The products are still being sold in stores but Tesco said its shelves were running short of several products. It said it was "currently experiencing availability issues on a number of Unilever products". "We hope to have this issue resolved soon," the company added. However, it did not indicate when that might be. Sterling has dropped by 16% against the euro since the UK's Brexit vote. Unilever is the UK's biggest food and grocery manufacturer with many famous brand names. Those currently absent from Tesco's website also include Comfort fabric conditioner, Hellmann's mayonnaise and Ben & Jerry's ice cream.
Company news
Ariana Resources (LON:AAU, 1.78p) – Speculative Buy
Ariana Resources, the gold-silver exploration and development company operating in Turkey, announced yesterday further results from its Phase 1 drill programme at the Kiziltepe project. Kiziltepe is being advanced towards production through a JV agreement (50:50) with Proccea Construction, mine completion is expected in Q4 2016. The Company completed 1,086m of RC drilling at the Arzu Central area, targeting the extension of the mineralised vein system beneath cover between Arzu North and Arzu South areas. The best intercepts from the latest round of drilling returned 10m grading 2.4g/t Au plus 28.3g/t Ag, 15m grading 1.5g/t Au plus 16.4g/t Ag, 6m grading 2.3g/t Au plus 55.2g/t Ag and 5m grading 1.2g/t plus 34.5g/t Ag. Preparations for Phase 2 drilling programme are now complete with an initial 3,500m of drilling planned to commence in late October.
Our view: The Phase 1 drill results confirm the continuity of mineralisation and could potentially extend the Arzu South open-pit design by a further 200m towards the northwest. As such, 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 continue to focus on the mineralisation within 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
Domino's Pizza (LON:DOM, 353.50p) - Buy
Domino's Pizza plc (Domino's), has issued a strong trading update relating to the period from 27 June 2016 to 25 September 2016. Domino's comment that the Group continued to trade well during the quarter building on the very strong first half. Trading in the core UK business was strong, driven by continued investment in their digital platform and store opening programme. System sales in the UK increased by 10.5%, supported by the 21 new stores opened in the period, bringing the total year to date to 51. Of these, 34 were stores where the trading area was split between units. Working with franchisees on their store openings remains one of the key planks of the Group's strategy, with its current total of 920 stores still leaving substantial growth capacity. As indicated in half year results, the Group is facing some very tough comparators in the second half of the year, with LFLs in Q3 2015 at 14.9% and Q3 2016 at 3.9%. Domino's two year LFL sales growth in Q3 was robust at 19.4%. System sales through digital channels were strongly ahead, up 18.1% compared to Q3 last year. Over 81% of delivered sales in the year to date have been online, with 64% placed through the app or mobile website.
Our view: Whilst the comparatives remain challenging, the continued strong sales performance means the Board is confident its forecast full year results will be in line with market expectations. Given the strong new store performance of the business in the third quarter, Domino's raise their UK openings expectation from 70 to up to 80 new outlets in 2016. We note the business continues to trade well with a strong sales uplift across the Group during the period. The Group believe their continued investment in e-commerce, the international expansion and the launch of the new Italiano range taking them to new customers, will help to drive performance for the remainder of the year. The new store programme provides a strong platform for future growth. We retain our Buy recommendation.
Marston's (LON:MARS, 139.20p) – Buy
Marston's, a UK's leading pub operator and independent brewer, has provided a trading update for the year ended 1 October 2016. During the period, its Destination and Premium division saw like-for-like ('LFL') sales up +2.3% against comparative period (FY2015), including LFL food sales growth of +1.7% and wet LFL sales +2.3% ahead. Operating margin remains in line with last year. The Group completed 22 new pubs and bars and 6 lodges during the period. In Taverns division, managed and franchise pub LFL sales were +2.7% higher than last year. In Leased division, LFL profits are estimated to be around +2.0% ahead of last year. In Brewing division, its own-brand volume increased +13% during the year and the Group said profits are in line with management expectations. Marston's CEO, Ralph Findlay commented "Marston's has delivered another year of solid progress with underlying growth across all of our pub divisions and continued outstanding performance from our market-leading beer business." Company will announce its preliminary results on on 24 November 2016.
Our view: Despite the tough second half comparatives, Marston's has delivered strong LFL sales and profit growth across all its divisions. Destination and Premium division was supported by encouraging growth in room income. Post the period, the trading continued at similar levels to the year-end, where in the last 10 weeks of the period, LFL sales for Destination and Premium grew +1.8% and Taverns up +2.0% while new pub-restaurants, lodges and Revere premium pubs all continue to perform strongly. Looking ahead, in FY2017, the Group has strong pipeline of sites for current level of expansion and planning to open 22 pubs and bars and 5 lodges at least, with majority of the openings in the H2. Given the shares currently traded at FY2016E and FY2017E P/E at c.10.3x and 9.9x along with dividend yield of c.5%, it remains attractive and Beaufort therefore reiterate our Buy rating on the shares.
Quadrise Fuels International (LON:QFI, 10.62p) – Speculative Buy
Quadrise Fuels International ('Quadrise') the emerging manufacturer and supplier of a low-cost emulsion fuels alternative to heavy fuel oil (one of the world's largest fuel markets, with volumes of over 450 million tonnes per annum) in the global shipping, refining, steam and power generation markets, yesterday announced its final results for the year ended 30 June 2016 ('FY2016'). During the period, loss after tax remain flat at £4.8m (FY2015: £4.9m) and total assets was £8.8m at the period-end (FY2015: £12.6m) as it included further investment in R&D, operations support facility and balance payment for a commercial-scale MSAR Manufacturing Unit. The Group had no debt and cash reserve of £4.3m at the period-end (FY2015: £8.4m). On the operational front, post the period, Marine Operational and Letter of No Objection ('LONO') Trial commenced in July 2016 which is progressing well, with completion of the trial expected by mid-2017. Quadrise is targeting commencement of commercial rollout during H2 2017. The Group signed a MoU for a Power Operational Trial with the Kingdom of Saudi Arabia in August 2016 with combustion trial expected to start late 2017. The Group has also further extended its Joint Development Agreement & Exclusive Commercial Agreement with Akzo Nobel, a world leader in surface chemistry, to at least 2018. In a separate announcement, the Group announced a proposed fundraising to raise c.£4m through the issue of new ordinary shares of 1p each in the capital of the Group at 10p per share and a proposed open offer of further new ordinary shares to existing shareholders to raise up to an additional £1m. The majority of proceed will be used towards commercial and operational support to develop the core projects to enable the migration to commercial operations, as well as help strengthen its capital base prior to entering the commercial phase. Quadrise's executive Chairman, Mike Kirk commented "This has been a year of substantial progression for Quadrise, with our key trial projects in the marine and power markets having reached defining stages. We believe that the successful completion of the current trials should be the last remaining steps to being able to develop substantial commercial markets."
Our view: Quadrise progressed well in both Marine MSAR and Power MSAR programmes. For the Marine MSAR, the Group is now pending operational and LONO trial success which leads to commercial supply opportunity, expected during 2017. For Power MSAR, the Group signed a MoU with Kingdom of Saudi Arabia for a collaboration to progress a 'Production to Combustion' trial with commencement of the trial anticipated before the end of 2017. Moreover, Quadrise and Akzo Nobel, a world leader in surface chemistry, has recently extended its Joint Development Agreement and Exclusive Commercial Agreement to at least 2018. These contracts, originally signed in November 2013, replaced the original Alliance Agreement between Quadrise and Akzo Nobel that was entered into in 2004. Such contract demonstrates credibility of the Qadrise and its MSAR technology, as well as the strength of its IP which is jointly owned by the Quadrise and Akzo Nobel. Successful fund raising and Maersk's LONO trials will potentially lead to Quadrise becoming a global technology supplier and royalty collector of a new, prospectively ultra-high volume fuel introducing a cheaper and more environmentally friendly alternative to heavy fuel oils. The Group's current market capitalisation reflects only a fraction of this value. While recognising that the outcome of the marine MSAR trials will likely be binary for any investment in Quadrise, Beaufort nevertheless retains it Speculative Buy recommendation on the shares.
Tissue Regenix Group (LON:TRX, 16.50p) - Speculative Buy
The Group has issued its interim results to 31st July 2016. Tissue Regenix delivered revenue of £631k during the six months to 31st July 2016, a 150% increase over the comparative period. The continued focus on adoption and advocacy was rewarded with further Medicare approvals (93% covered) and the first Group Purchasing Order agreement, both significant steps for the continuing success of DermaPure®, and highlights the growing commercial traction DermaPure® has gained within the competitive US wound care market. Alongside this, TRX continued to progress with its European market entry and expect to be in a position to launch their first orthopaedic product, OrthoPure™ XT, into this market in H1 2017, with CE mark submission expected to be made a full six months ahead of schedule. The pre-tax loss was £5.4m (31 July 2015, £4.0m). At the interim date the Group had £13.5m cash (2015, £24.9m).
Our view: Tissue Regenix is a leading medical devices company in the field of regenerative medicine. The Group's patented decellularisation ('dCELL®') technology removes DNA and other cellular material from animal and human tissue leaving an acellular tissue scaffold which is not rejected by the patient's body which can then be used to repair diseased or worn out body parts. The potential applications of this process are diverse and address many critical clinical needs such as vascular disease, heart valve replacement and knee repair. During this interim period Tissue Regenix Group has made significant progress in operations across both the US and EU, highlighted by a twofold increase in revenue in the US, confirming the Group's ability to successfully commercialise products, whilst also identifying further market entry opportunities. The next twelve months promise some significant milestones for Tissue Regenix, including the launch of its first orthopaedic application in Europe, the launch of its second wound care product, SurgiPure™ XD into the US and the ongoing regulatory submissions to the German authorities for decellurised tissues to be treated at GBM-V. Alongside this, the continued growth of DermaPure®, as evidenced by these results, and the ongoing development of their orthopaedic business within the US ensure that Tissue Regenix remain on track to end their year accomplishing the Group's corporate goals. We retain our Speculative Buy stance on the Group.