• Bodycote (LON:BOY)
• Fuller, Smith & Turner (LON:FSTA)
• Motif Bio (LON:MTFB)
Markets
Europe
The FTSE-100 finished Friday's session 0.28% lower at 6,775.77, whilst the FTSE AIM All-Share index closed 0.04% better-off at 811.21. In continental Europe, the CAC-40 finished 0.52% down at 4,504.35 whilst the DAX was 0.20% lower at 10,664.56.
Wall Street
On Wall Street on Friday, the Dow Jones fell 0.19% to 18,867.93, the S&P-500 slid 0.24% to 2,181.90 and the Nasdaq rose 0.23% to 5,321.51.
Asia
In Asian markets this morning, the Nikkei 225 had risen 0.66% to 18,086.88, while the Hang Seng was off 0.04% at 22,336.03.
Oil
In early trade today, WTI crude was up 1.23% to $46.25/bbl and Brent was ahead 1.3% to $47.47/bbl.
Headlines
Theresa May wants post-Brexit UK at 'cutting edge'
Theresa May is to reach out to business leaders by pledging an extra £2bn a year in funding for scientific research and development by 2020. In a speech to the CBI, Mrs May will outline a new fund that will back areas such as robotics and biotechnology and help commercialise new discoveries. The investment will help put post-Brexit Britain at the "cutting edge", the prime minister is to say. Delegates will call on Mrs May to offer more "clarity" over Brexit. Mrs May's speech to the Confederation of British Industry in London comes two days before the government delivers its first post-EU referendum budget, in the form of the Autumn Statement. She is to promise a new approach that is about "stepping up, not stepping back" when it comes to intervening in the economy. Speaking about a new industrial strategy challenge fund, she will say: "Britain has firms and researchers leading in some of the most exciting fields of human discovery. "We need to back them and turn research strengths into commercial success."
Company news
Bodycote (LON:BOY, 587.00p) – Buy
Bodycote, a global provider of subcontract thermal processing services, on Friday provided trading update for the 4 months ended 31 October 2016. During the period, Group revenue advanced by +12.7% (-3.1% at constant exchange basis) against the comparable period (4 months ended 31 October 2015) due to the favourable foreign exchange. It comprised of +10% growth (-4.2% at constant exchange basis) in Aerospace, Defence & Energy revenues and +14.7% rise (-2.2% at constant exchange basis) in Automotive & General Industrial revenues. Aerospace revenues was helped by higher levels of growth in Europe, partly offset by weaker USA. Ongoing weak demand in Oil & Gas resulted in sector revenues nearly halved year-on-year. The run rate appears to have stabilised at approximately £20m (at current exchange rates) being 3% of Group revenues. Car and light truck revenues increased as the Group continued to benefit from its investment in new capacity, particularly in North America, while heavy truck revenues declined. Global general industrial demand remained on the trend seen over the last 18 months as it continued to be impacted by the ongoing weakness in a wide range of industrial sectors. On the operational front, the Group acquired number of new sites during the period with annualised sales of £14m. Net debt as at 31 October 2016 stood at £12.1m (30 June 2016: £5.5m). The Group will announce full year results on 28 February 2017.
Our view: Bodycote delivered a trading update that was in line with expectations. The Board reiterated its full year guidance while noting that it does not anticipate "any near term changes in demand patterns" in the areas that it operates. Market conditions in the supply of heat treatments, metal joining, hot isostatic pressing and coatings services continue to be challenging and, Group's short forward orderbook limits the visibility. Acquisitions made during the period will make minimal contribution to FY2016, but will be realised as integration completes in coming months, and given the strength of its portfolio and financial position, Bodycote is fundamentally strong as the cycle turns more favourable. Trading on a FY2016 P/E multiple of 16x, followed by 14.5x, with a FCF yield of 5.1% and 6.2% and yields of 2.8% and 3% respectively, the shares are priced cheaply relative to its peers for such a high-quality engineering operation. Beaufort maintains its Buy rating on the shares.
Fuller, Smith & Turner (LON:FSTA, 992.50p) – Buy
Fuller, Smith & Turner ('Fuller'), an independent family brewer and operator of pubs & hotels, on Friday announced its half year results for the 26 weeks ended 24 September 2016 ('H1 FY2017'). During the period, revenue advanced by +11% to £197.6m and pre-tax profit increased by +1% to £21.4m, against comparable period (H1 FY2016). Excluding the exceptional items, such as acquisition costs, reorganisation costs and interest charge on our pension deficit, EBITDA increased by +9% to £36.3m, while adjusted pre-tax profit rose +6% to £22.8m. Adjusted earnings per share therefore also grew by +6% to 32.44p. Net debt to EBITDA remained flat at 3x. On the operational front, like-for-like ('LFL') sales for Managed Pubs and Hotels advanced by +3.4%, supported by further growth in food, with a rise in operating profit before exceptional items of +6%. Tenanted Inns operating profit before exceptional items marginally down 1% and LFL profit declined -2%. The Fuller's Beer Company was boosted by the craft beer brands and saw operating profit before exceptional items grew by +8%, although total beer and cider volumes fell by -4%. The Group acquired 2 new Managed Pubs and added 16 boutique hotel rooms during the period and increased its portfolio of premium brands. Fuller's CEO, Simon Emeny commented "There is no doubt that the UK economy is facing some significant challenges. The impact of increases in business rates and the National Living Wage, combined with uncertainty around the UK's departure from the EU, make for changing times ahead. However, Fuller's has a long-term, strategic vision, a solid balance sheet and a predominantly freehold estate, which is well-invested and supported by excellent, engaged team members and dedicated, skilled management. These are the qualities needed to continue to delight and excite our customers, provide a good return for our shareholders and attract the best new recruits to our business." The Group declared an interim dividend of 7.25p per share, up +5%, to be paid on 3 January 2017.
Our view: Fuller delivered good performance for H1, recording strong LFL sales growth for its Managed Pubs and Hotels division, especially in the Q2 and outperforming the market. The Group said August and September performed well due to the good weather. The fall in LFL profit of Tenanted Inns and volumes was due to underperforming summer season and Brexit-related uncertainties which slowed early activity. For the first 33 weeks, Managed Pubs and Hotels LFL sales increased by +26%, Tenanted Inns LFL profit down by -2% and total beer and cider volumes fell by -5%, in line with management expectation, due to the stronger comparative in which last year's sales were boosted by 2015 Rugby World Cup. As expected, declining volume is due to its largest customer being taken over by another brewer, meaning Fuller now have to urgently find a major new marketing route. Looking ahead, the additional cost impact of National Living Wage in FY2017 (c.£2m) and uncertainty surrounding Brexit persists. We believe in long-term, however, Group's ongoing investments in its staff will help partially offset this by improving retention, which reduces induction costs and improve staff efficiencies. The Group has relatively limited risk of cost inflation as its Managed Pubs and Hotels, The Stable and its beers and ciders sources predominantly the British ingredients. The Group said advanced bookings for the important Christmas trading period are strong. We believe Fuller has a balanced business model and remains well-positioned for long-term growth. Beaufort reiterate its Buy rating on the stock.
Motif Bio (LON:MTFB, 27.25p) – Speculative Buy
Motif Bio, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, on Friday announced the pricing of its underwritten initial public offering of 2,438,491 American Depositary Shares ('ADSs') and 1,219,246 warrants over ADSs ('ADS Warrants') at a public offering price of US$6.98 per ADS/ADS Warrant combination, before underwriting discounts and commissions ('US Offering'). In addition, Motif Bio has granted the underwriters in the US Offering an option for a period of 30 days to purchase, at the public offering price less underwriting discounts and commissions, up to an additional 292,618 ADSs and/or ADS Warrants to purchase 146,309 ADSs to cover any over-allotments. The US Offering is conditional upon the placing of at least 20,000,000 Ordinary Shares together with 10,000,000 warrants over Ordinary Shares (the 'Ordinary Share Warrants') at a placing price per Ordinary Share/Ordinary Share Warrant combination of 28 pence in a European Placement (the 'European Placing'). The Group has received indications of interest from investors which would be sufficient to satisfy this condition. The European Placement launched immediatetly following Friday's mid-day confirmatory announcement. Each ADS represents 20 Ordinary Shares of Motif Bio and the price of each Ordinary Share underlying an ADS is thus equivalent to the price per Ordinary Share in the European Placing (based on an exchange rate of approximately US$1.246 to £1.00). The US Offering and the European Placing (the 'Fundraising') are, in aggregate but excluding any over-allotment, expected to raise US$25m gross. Investors will be allotted one ADS Warrant for every two ADSs subscribed in the US Offering, and one Ordinary Share Warrant for every two Ordinary Shares subscribed in the European Placing. The ADS Warrants and the Ordinary Share Warrants have an exercise price of US$8.03 and 32.2 pence respectively. Closing of the US Offering and European Placing is expected to occur on or about 23 November 2016, subject to customary closing conditions. Invesco Asset Management Limited, a 25% shareholder of Motif Bio, agreed as part of this exercise to subscribe for 1,090,800 ADSs, together with ADS Warrants over 545,400 ADSs, at the public offering price, to ensure its position does not become diluted. Post issue, the total number of issued ordinary shares comprises 180,643,744.
Our view: It's been painful, but at least it's finally been done! Motif has achieved its NASDAQ listing, through which the true value of iclaprim can now be recognised. Quite why the whole exercise has been so tricky for a Group that quite clearly own the rights to such a quite exception and advanced novel antibiotic, which has obvious US peers valued at a multiple of it's now paltry (pre-issue) valuation of £32.5m, is something of a mystery. Even on a post-issue basis, it is less than one-quarter that of Paratek Pharmaceuticals Inc., Motif's most obvious peer, which presently has a market cap of US$294m. Motif management now, quite clearly, must climb back up the ladder of investor credibility. But given the quite exception profile of iclaprim, that should not be too difficult. And with the net proceeds of the fundraising expected to be at least US$20.5 million, this will be sufficient capital to fund (i) the expenses to conducting the molecule's two Phase 3 clinical trials for the treatment of ABSSSI, including the completion of the REVIVE-1 trial; and (ii) working capital, general and administrative expenses, research and development expenses, and other general corporate purposes. The Board notes it will require additional funds to complete the REVIVE-2 trial, for which it suggests opportunity to raise the additional capital through public or private financings and/or other partnering opportunities. Given, however, the fact that patient enrollment for REVIVE-1 has exceeded projections and data readout is now expected in the second quarter of 2017, the point at which big pharma normally comes to the negotiating table, it would be realistic to expect partnering opportunities to present themselves by then. Typically, these would be in the form of an up-front lump sum, followed by milestone/royalty payments on route to commercialisation, sufficient to plug the near-term funding gap. Beaufort strongly believes in the potential for iclaprim, whose platform of prospective indications creates opportunity way beyond those already identified. Recognition of this should herald a significant re-rating for the shares and those shareholders who subscribed the European Offer will, in due course, be seen to have bagged a bargain. Given that the exercise price of the attached 5-year warrants of 32.2p will likely provide some near-term resistance for the shares, Beaufort recommends using this and the improved liquidity thus created in order to build up underweight positions. Beaufort retains a Speculative Buy rating on Motif Bio.