Europe
The FTSE-100 finished yesterday's session 0.48% lower at 6,986.40, whilst the FTSE AIM All-Share index closed 0.26% worse-off at 825.30. In continental Europe, the CAC 40 index ended the day 0.36% higher at 4,553 and the DAX closed 0.47% up at 10,761.
Wall Street
In New York overnight, the Dow Jones rose 0.43% to stand at 18,223, the S&P-500 gained 0.47% to finish at 2,151 and the Nasdaq was up 1.00% at 5,310.
Asia
In Asian markets this morning, the Nikkei 225 rose 0.76% to 17,365.
Headlines
Manufacturing exports boosted by pound
Manufacturing exports have received a significant boost from the weakness of sterling, according to the the latest report from the CBI. The Industrial Trends Survey showed that export volumes grew that their fastest pace for two and a half years in the three months to October. The pound has fallen by nearly a fifth against the dollar since the EU referendum at the end of June. Export orders are expected to rise further over the next three months. However, manufacturers are worried about a potential shortage of skills. Nearly a quarter of the 459 firms which responded to the CBI survey said that "skilled labour availability" could limit output over the next few months.
Company news
Legendary Investments (LON:LEG, 0.21p) – Speculative Buy
Legendary Investments, the proactive investment company that focuses on making early stage investments in and assisting companies which exhibit the potential to generate significant return, yesterday announced that its 7.1% owned investee company, Virtualstock Holdings Ltd (‘VS’) has been appointed by the Shelford Group to deploy its technology platform, The Edge, to engage with NHS trusts’ suppliers. The Shelford Group is an academic healthcare organisation comprised of 10 leading NHS multi-specialty trusts, employs over 100,000 people with a turnover more than £10bn, making up over 13% of acute trusts' turnover across England. The Shelford Group will deploy VS's cloud-based module catalogue management solution, part of The Edge, for a faster, cost-effective and consistent e-Catalogue solution ensuring procurement is efficient and effective, providing a solution to what Lord Carter described as one of the major issues affecting the NHS. VS first launched in the health sector last year at Guy's and St Thomas' NHS Foundation Trust (a member of the Shelford Group). VS was cited in The Carter Report as exemplary of best practice in employing digital technology to deliver significant cost reductions, through supply chain optimisation and procurement process efficiencies with Guy's and St Thomas. VS is in ongoing talks with other hospitals with an aim to roll out the platform across all trusts throughout England. Legendary Investments’ Executive Chairman, Zafar Karim commented “In a few short years, Virtualstock has gone from winning its landmark contract with Tesco to being adopted by other leading retailers. Momentum in this sector continues to grow. Significantly, Virtualstock's sector agnostic nature enabled it to win its first NHS client just over a year ago, and now, its systems have been cited as "exemplary" and are to be deployed in the NHS by the Shelford Group further afield. Legendary's strategy of searching for deep value, its patient opportunism and its proactive investment strategy is now starting to pay off.”
Our view: They have done it! Virtualstock’s successful trial of its ‘The Edge’ platform with Guy’s and St Thomas’ Foundation, the UK’s largest trust hospital, has now paved its way to full roll-out across all of the Shelford Group. Healthcare is a giant opportunity. Indeed, in an independent report for the Department of Health that was published on 5th February 2016, Lord Carter suggested that savings totalling £5bn annually could be made if waste and unwarranted price and product variation across acute trusts are resolved. A sample of 22 trusts exposed that they used 30,000 suppliers, 20,000 different product brands and more than 400,000 manufacturer products. Procurement-led efficiency initiatives specified by Lord Carter will aim to deliver savings of up to £1bn per year (out of £5bn) by 2020. Lord Carter's report concluded that catalogue management, enabling control, compliance and reduced product and price variation, continues to be serious issue for the NHS. The Shelford Group will be the first group of trusts to collaborate in the adoption of a single catalogue management solution to address the key recommendations in Lord Carter's report. The potential full deployment of The Edge platform, which includes order management, will give all stakeholders end-to-end visibility of the supply chain, order status and procurement performance. This enables the discovery of new, recommended suppliers while guaranteeing best practise creating Virtualstock’s revenues recurring and its customers ever more sticky. Not just the healthcare sector, being relatively unknown outside the UK, Virtualstock already has a track record of ensnared a good number of the nation’s hardest household-name retail taskmasters – nothing less than the likes of Tesco (Virtualstock revenues have expanded several-fold on the originally contracted rate over the past two years), Argos, Office Depot and Maplin for example, providing the tools to optimise supply chain operations, while delivering significant cost savings. This is a client list that peers many times the size of Virtualstock would die for! Full year 2016 result announced on 8 September illustrated Virtualstock stood out as Legendary’s exceptional investment. Nick Jenkin’s, the founder of moonpig.com decision to invest in the Company, based on a £58m valuation, allowed Legendary to record a net gain on the Group’s fair value of investments of £2,391,000 (2015: net loss of £235,000). Beaufort’s analysis (see note of 16th May 2016) apportioned the bulk of the portfolio value to Legendary’s 7.1% holding of Virtualstock at £12.5m. Legendary continues to trade at a discount to Beaufort’s estimated ‘sum-of-parts’. With relatively near-term potential to create significant additional investor value, Beaufort repeats its Speculative Buy recommendation on the shares and confirms a target price to 0.5p/share.
Rex Bionics (LON:RXB, 22.50p) – Speculative Buy
Rex Bionics, the pioneer of the REX Robot technology that enhances the mobility of wheel-chair users and enables robot assisted physiotherapy exercise, announced that it has commenced a new clinical trial with volunteers who have had a stroke or head injury more than three months previously and have difficulty standing and walking. Above one-third of people who survive a stroke or head injury need help in walking while some will never regain the ability to stand without assistance. This affects the patient's ability to participate in rehabilitation, their long-term health, and the ability to do work, social and leisure activities. The trial has received ethics clearance and is being conducted by the Australian Institute of Neuro-rehabilitation and the University of Newcastle (Australia) and is supported by The Newcastle Permanent Charitable Foundation and Rex Bionics. Rex Bionics’ CEO, Crispin Simon commented “Congratulations to AIN and their partners on being the first clinical research group to establish a trial using REX to treat stroke and brain injury. It is exciting to consider the possibility of functional improvement in a condition, like stroke, where so many people live with a severely compromised quality of life.”
Our view:This is a positive progress for Rex Bionics. The stroke represents significantly large market where in 2012, the total financial costs of stroke in Australia alone were estimated to be A$5bn. There are over 420,000 people living with the effects of stroke in Australia with 30% of these are of working age. 65% of those living with stroke also suffer a disability that impedes their ability to carry out daily living activities unassisted. On 26 August, the Group announced its full year 2016 audited result which reported that revenue jumped by +156% as it sold seven REX units and loss for the period reduced by -8%. The Group also raised £2.3m through equity fundraising on 10 August to be used to maintain commercial momentum during strategic re-positioning and review of further fundraising opportunities. Fundraising included £1m investment by Maxhealth Medicine Group Co., Ltd, a large regional medical equipment distributor in China associated with the Group's exclusive distributor MAAB International. Such raising is expected to extend the Group's cash runway into the Q2 2017. However, as noted by the management, additional funding will continue to be required. We believe it will be highly beneficial for Rex to gather more attractions from the organisations such as charity and military, and secure such funding through strategic partnerships for stable business development and commercialisation opportunity. Wintergreen Research Inc stated that the market for robotic exoskeletons for medical applications is forecasted to reach US$2.1bn by 2021 from US$16.5m in 2014. These numbers clearly reflect the huge potential and growth opportunities for the Group. Beaufort retains its Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Rex Bionics PLC
GlaxoSmithKline (LON:GSK, 1,642.59p) - Buy
GlaxoSmithKline plc announced that it has submitted a Biologics License Application for its candidate shingles vaccine, ShingrixTM, to the United States FDA, seeking approval for the prevention of herpes zoster (shingles) in people aged 50 years or over. The candidate vaccine is a non-live, recombinant vaccine to help prevent shingles and its complications. The phase III clinical trial programme showed that by reducing the incidence of shingles, the candidate vaccine also reduced the overall incidence of postherpetic neuralgia (PHN), a form of chronic pain associated with shingles. Regulatory approval is being sought for the vaccine to be given intramuscularly in two doses, with a two to six-month interval between doses. Dr Emmanuel Hanon, Senior Vice President and Head of Vaccines R&D, GSK said: "Shingles is a common and potentially serious condition. It can cause lasting pain and other complications such as scarring or visual impairment, which can severely impact the quality of people's lives. The risk of developing shingles increases with age and it is estimated that up to one in every three people is at risk. Today's file submission puts us a step closer to making this vaccine available to help protect more people from shingles and the complications associated with it."
Our view: At its Investor Day on 6 May 2015, GSK outlined a series of expectations for its performance over the five-year period 2016-2020. This included an expectation that new Pharmaceutical and Vaccine products, launched in the last three years, together with contributions from current pipeline assets, Nucala (mepoluzimab) and Shingrix (zoster), are expected to generate sales of at least US$6bn per annum by 2020 on a CER basis. Reuters are quoted that Shingrix could be up to US$1bn pa sales, so it could be a large contributor to the forecast US$6bn. We retain our Buy recommendation.