Beaufort Securities Breakfast Alert: Anglesey Mining plc, International Greetings plc, Keras Resources, Merlin Entertainments, ValiRx Plc


Anglesey Mining (LON:AYM)

Keras Resources (LON:KRS)

ValiRx (LON:VAL)

IG Design (LON:IGR)

Merlin Entertainments (LON:MERL)

Patisserie Holdings (LON:CAKE)

"Oil is in focus today ahead of OPEC’s 171st ordinary meeting scheduled to open in Vienna at 11:00hrs local time, followed by the secretary-general holding a press conference at 16:00hrs. Crude prices weaken around 4% during yesterday’s European and US sessions, only to recover somewhat in the early hours of Wednesday after Iran and Iraq indicated a willingness to hold production levels steady as their contribution toward the Organisation’s proposal to trim output by 32.5m to 33.0m barrels per day. Still someway from Saudi Arabia’s own demand for a broadly-based cut in which all major contributors participate, and given that non-member, Russia, is expected to be absent, hopes of a successful outcome have faded somewhat. With Trump apparently set to appoint key supporter and Wall Street veteran, Steven Mnuchin, 53, as Treasury Secretary US equities rose fractionally across the board, with weakness in energy stocks, due to WTI plunging to a two-week low, compensated by a strong run in healthcare. Asia by comparison was mostly weaker, with only the US$-dominated Hang Seng remaining marginally positive, while the Shanghai Composite fell sharply away as traders again considered the potential impact of Trump’s proposed import tariffs on Chinese-made goods, as the Nikkei closed unchanged following marginally better October industrial output data and the ASX was pressured by a general sell-off amongst its oil stocks. Traders in Europe this morning will be examining the European Council President, Donald Tusk’s, response to a letter from UK MPs in which he stated that the EU cannot enter side-talks regarding the status if citizens until the UK actually triggers Article 50. This adds to the lack of Brexit transparency already fostered by Theresa May’s government and is considered to be behind the decline in GfK’s long-running consumer confidence index, which fell 5 points in November and now stand at 16 points below the level reached this time last year, albeit contrasting sharply with the positive UK mortgage data released yesterday which pushed the housebuilding sector up in the process. While OPEC takes centre stage, analysts will be pouring over the Bank of England’s stress test results this morning, with a particular focus on RBS as the most vulnerable of the majors, having factored in deep recessionary scenarios including a plunge in house prices, a halving of oil and a spike in unemployment. The FTSE is due to release its quarterly review and the Eurozone is also due to produce its flash inflation estimate. UK corporates expected to release earnings or trading updates include Biffa (BIFF.L), Brewin Dolphin (BRW.L), Britvic (BVIC.L), Greene King (GNK.L), RPC Group (RPC.L), Sage Group (SGE.L), Telford Homes (TEF.L) and Zoopla (ZPLA.L). The FTSE-100 is seen to be 5 points up in early trading. "

- Barry Gibb, Research Analyst



The FTSE-100 finished yesterday's session 0.40% lower at 6,772.00, whilst the FTSE AIM All-Share index closed 0.42% worse-off at 818.28. In continental Europe, the CAC-40 finished 0.91% higher at 4,551.46 whilst the DAX was 0.36% up at 10,620.50.

Wall Street

In New York overnight, the Dow Jones gained 0.12% to 19,121.60, the S&P-500 gained 0.13% to 2,204.66 and the Nasdaq was up 0.21% at 5,379.92.


In Asian markets this morning, the Nikkei 225 had gained 0.01% to 18,308.48, while the Hang Seng gained 0.39% to 22,822.39.


RBS worst hit in Bank of England stress test

RBS has missed key hurdles in a Bank of England stress test, forcing it to devise new plans in case of a financial crisis. The toughest stress test yet measured the UK's seven biggest lenders against a global economic crash. RBS performed the worst and was forced to draw up a new capital plan, which has been accepted. The bank said it had "agreed a revised capital plan... to improve its stress resilience". It said the change came "in light of the various challenges and uncertainties facing both the bank and the wider economy highlighted by the concurrent stress testing process". The bank said the test applied a hypothetical adverse scenario to the group's balance sheet as at 31 December 2015, and that it had taken a number of actions since then, including the ongoing run down of "risk-weighted assets".

Company news

Anglesey Mining (LON:AYM, 3.49p) – Speculative Buy

Anglesey Mining announced today that it will issue 12M new ordinary shares at a price of 2.585p for total proceeds of £310,200. The funds will be used for continued development of its 100% owned Parys Mountain zinc-copper-lead deposit in North Wales, UK and for general working capital purposes. Parys Mountain is a significant zinc, copper and lead deposit with small amounts of silver and gold, with a current resource estimate of 2.1Mt grading 6.9% combined base metals in the indicated category and 4.1Mt grading 5.0% combined base metals in the inferred category.

Our view: We are encouraged with the above announcement and continued the support for Anglesey Mining. We now look forward to results of the updated scoping study and continued development of the Parys Mountain project. In the meantime, we maintain our speculative buy on the stock.

Keras Resources (LON:KRS, 0.47p) – Speculative Buy

Keras Resources announced today it has completed the initial 600m Reverse Circulation (RC) drill programme on its 100% owned Klondyke gold project located in the Pilbara Region of Western Australia. Results, which are expected within the next six weeks, will confirm targets for resource definition drilling to begin in early 2017 and add to the existing JORC-compliant inferred resource of 5.6Mt grading 2.08g/t Au. The current resource is confined less than 30% of the known strike length of the main shear zone. Of note is that visible gold was identified in one of the drill holes. Keras also has the right to mine the contiguous Haoma tenements covering some 650ha with discovery potential based on high grade historical drill results including 3m grading 17.58g/t Au, 4m grading 59.48g/t Au and 11m grading 7.23g/t Au.

Our view: We are encouraged with the visible gold identified in one of the holes and look forward to results from the initial drill programme. We are also encouraged with the on-going development and potential for additional resources at Klondyke. Additional resources could potentially elevate Keras to a stand-alone owner-operated gold miner in Western Australia. We look forward to further updates on Klondyke drilling and mapping programmes. In the meantime, we maintain our speculative buy on the stock.

ValiRx (LON:VAL, 6.64p) – 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 update on clinical progress of both its lead compound, VAL201 and also VAL401. It confirmed that over the last quarter VAL201 continued to perform well in its ‘Phase I/II dose escalation study to assess safety and tolerability of VAL201 in the treatment of prostate cancer and other solid tumours’. This is a dose escalation and pharmacokinetic study to assess the safety and tolerability of VAL201 in patients with advanced stage prostate cancer. The study's aim is primarily to assess VAL201's safety and secondary tolerability and in addition, to examine the activity of VAL201 in patients with advanced prostate cancer. The study is a titration, open label, dose-escalation trial designed to identify a maximum tolerated or administered dose (MTD/MAD). Q4’2016 has also been ground breaking in terms of VAL401's clinical development. As announced on 3 November 2016 following the clinical team meeting held in November in Tbilisi, the Group announced that the first dosing of patients had commenced in VAL401'S Phase II trial for the treatment of lung cancer and other oncology indications. ValiSeek, the joint venture between ValiRx and Tangent Reprofiling Limited, reported that as a first patient had proceeded sufficiently through the dosing phase of the protocol, a second patient was approved to also commence dosing and that the screening procedure for further enrolment was underway.

Our view: Following the success of the VAL201 trial so far, it is to be expanded in patient numbers with the inclusion of several new study centres and this extension will have a strong focus on the effects it has on advance prostate cancer with a wider scope for patient inclusion. No dose limiting toxicity (‘DLT’) has been observed to date, nor have any therapeutically related serious adverse events. Mild fatigue and temporary injection site rashes are the only adverse effects seen in treated subjects. The conclusions that can be drawn is that VAL201 has met and currently exceeds the predicted safety and tolerability criteria set for the trial and that so far the vast majority of patients who have completed the study showed stable disease on imaging and following treatment, with more subjects still being followed. Furthermore, the majority of subjects on a large dose have shown significant changes in PSA levels related to their treatment with VAL201. Analysis of samples is ongoing and initial observations are that the clinical results correlate with the pre-clinical model systems and projections. During the quarter, ValiSeek also announced (9 November 2016) that it had received notification that a third US patent had been allowed by the US Patent Office covering the use of VAL401 in the treatment of lung adenocarcinoma. Since then, the Group has received notification of a fourth US Patent Grant Allowance. It also remains possible that a further update regarding VAL401’s safety and tolerability indications could be available before the end of this year. In anticipation of this and further progress elsewhere, Beaufort retains its Speculative Buy recommendation on ValiRx.

IG Design (LON:IGR, 289.90p) – Speculative Buy
IG Design Group, a leading designers, manufacturers, importers and distributors of gift packaging and greetings, stationary and play products, yesterday announced its interim results for the 6 months ended 30 September 2016 (‘H1 FY2017’). During the period, its sales advanced +21.5% to £145.5m, consists of +5.6% organic growth, +7.1% from Lang Companies Inc. acquisition and +8.8% from favourable foreign exchange translation, against the comparable period (H1 FY2016). Gross profit margin has improved by +3%, resulting pre-tax profit before exceptional items and long-term incentive plan charges jumped by +57.5% to £8.2m, leading underlying earnings per share to grew by +50% to 9.6p. Net debt at the period-end stood at £76.4m, reduced by -2.1% and the Group continue to target average debt to EBITDA of less than 2.5x. On the operational front, the Group has changed its name from International Greeting to IG Design reflecting its international exposures giving better clarity to its stakeholders. The Group also acquired Lang, a highly complementing US-based supplier of high-quality gift and speciality products, on 11 July 2016 and said initial integration completed successfully. IG Design’s CEO, Paul Fineman commented “we are continuing to drive growth from very solid foundations and still identifying further investment opportunities with fast payback to continuously improve efficiencies and enhance capabilities across all territories. The Group remains committed to creating sustainable value for our shareholders through both organic growth and, when the opportunity arises, through carefully considered acquisitions”. The Group declared an interim dividend of 1.75p per share, up +133.3%, to be paid on 17 January 2017.

Our view: IG Design greeted investors with positive and confident H1 results, delivering a financial performance ahead of expectations. All regions traded profitably, and this was achieved both organically and through acquisition of Lang, while being further supported by the favourable foreign exchange rate. Margin improvement was primarily due to the acquisition but there were also some elements of organic growth. In UK, sales fell by -3.6% due to scheduling of certain customer deliveries into the second half of the year while profit increased by +4% despite foreign exchange impact. Continental Europe saw sales growth of +11% in constant currency and +25% increase in profit. In Australia (JV), sales declined by -6% in constant currency due to the timing of some customer delivery requirements, although profit jumped by +54% helped by product mix and operational efficiency. The USA recorded strong organic sales and profit growth of +21% and +36%, respectively. Looking ahead, current momentum in sales and gross margin is expected to be maintained into the second half. Given its strong order book, the Group said it is set to deliver financial results “materially ahead of market expectations” for the FY2017 and was confident enough to upgrade its full year dividend guidance to 4p per share (FY2016: 1.5p). The shares are valued on FY2017E and FY2018E P/E multiples of 18.2x and 16.5x with dividend yields of 1.4% and 1.7%, respectively. Considering the successful acquisition of Lang, the Group’s strong cashflow and balance sheet along with its upgraded financial guidance, we remain impressed with the progress the Group is achieving. Its business remains well balanced and largely insulated from macroeconomic and political uncertainties. In light of this, Beaufort reiterates its Speculative Buy rating on the Shares.

Merlin Entertainments (LON:MERL, 438.20p) – Buy

Merlin yesterday provided shareholders with an update on its trading performance for the 47 weeks ended Saturday 19 November 2016. It confirmed that underlying trading in the Midway Attractions Operating Group had remained consistent with that reported at the 29 September update and that the Resort Theme Parks Operating Group enjoyed a strong Halloween period, helped by favourable weather. The LEGOLAND Parks Operating Group continued to demonstrate positive momentum following two years of exceptional growth, although trading in Florida remains soft due to challenging market conditions. The Board stated that good progress had been made towards Merlin's 2020 milestones, including the opening of LEGOLAND Dubai on 31 October and Madame Tussauds Istanbul on 28 November. Management went on to advise that the Group anticipates reporting ‘good profit growth in 2016, in line with expectations’. 2016 Preliminary results will be reported on 2 March 2017.

Our view: A high quality Group performing very much in line with expectations. No real surprises since the previous update, when year-to-date growth of 10.6% had been flattered by forex translation, meaning the constant currency rise was 3.7% (including boost from expansion capex). Hopefully the Zika virus hit on LEGOLAND Florida will start to subside going into 2017. At this time we see no reason to adjust full year forecasts, which suggest pre-tax profits of around £275m, producing earnings of 19.8p/share and implying a current P/E multiple of 22.1x and EV/EBITDA of 12.2x, followed by 20.4x and 11.4x. The shares are certainly not ‘bargain basement’ on such valuations but, nevertheless offers long-term global growth with a long-pipeline of projects which will add to a portfolio of assets capable of generating year-in, year out LFL sales growth. On this basis, the shares remains part of Beaufort’s core, long-term growth-company portfolio, although the potential for a more generous dividend policy a couple of years from now (the Group is presently yielding just 1.6% for 2016E) suggests they could in due course attract income investors as well.

Patisserie Holdings (LON:CAKE, 270.0p) – Buy
Patisserie Holdings (‘Patisserie’), a leading UK branded café and casual dining group, yesterday announced its preliminary results for the 12 months ended 30 September 2016 (‘FY2016’). During the period, revenue advanced +13.3% to £104.1m and EBITDA rose +18.1% to £22.2m against comparable period (FY2015). Pre-tax profit jumped by +18.2% to £17.2m, resulting basic earnings per share expanded to 13.74p, up +20.4%. Net cash at period-end increased to £13.3m (end-FY2015: £6.1m), while operating cashflows stood at £22m (FY2015: £18.3m). On the operational front, Patisserie opened 21 new stores during the period, with first store in Northern Ireland, bringing total number of stores to 184 (end-FY2015:166 stores). The average store payback was 23 months and all new stores have been profitable from the first week of trading. Patisserie’s Executive Chairman, Luke Johnson commented “The excellent results for the year show the continuing appeal of our brands, the financial strength of the group and the strong cash generative nature of our business model. We have achieved growth in revenues and profits despite uncertain economic conditions and for the first time we have exceeded revenues of £100m: a significant achievement. We will continue to control costs and manage our supply chain in this period of macro-economic uncertainty, thus I am confident of another successful year of growth”. The Group declared a final dividend of 2p per share, up +19.8%, to be paid on 10 February 2017.

Our view: Sweet full year results from Patisserie! This time the Group delivered its 10th consecutive years of both revenue and profit growth, with the former exceeding the £100m mark for the first time. Higher profitability was achieved through a +0.8% improvement in gross margin to 78.1%, while the Group mitigated its National Living Wage impact of £0.5m by way of more efficient labour rostering method, which virtually offset the increase. The Group’s strong cash generation and balance sheet means Patisserie funded all 21 new stores opened during the period from operating cashflow. Moreover, having paid its first interim dividend since IPO (May 2014) of 1p per share on 24 June 2016, this, together with the final, takes the full year payout to 3p per share, up +79.6%. Management also reiterated its commitment to a progressive dividend policy. Post the period, the Group opened 6 new stores and remains on target to create for 20 new units per annum. Beside store rollout, it is encouraging to see its online channels also expanding rapidly. Digital sales rose by +23% to £3.8m and cake Club membership expanded by +18% to 361,000 members. The Group is now developing a customer loyalty rewards scheme, which it expects to launch in H1 FY2017. With respect to wage costs, the increase to minimum wage from 1 October 2016 will have impact of £0.1m and the Group said it will continue to “monitor and react appropriately” to future increases in the National Living Wage. Despite relatively uncertain macroeconomic conditions, the Group continue to expand healthily driven by its largest brand, Patisserie Valerie, with products ‘going like hot cakes’ as they are seen as “affordable treats in times of uncertainty” as well as a “luxurious indulgence when celebrating”. Concerns over wage pressure and ingredient price inflation persists but, nevertheless given its on-going track-record of expansion, progressive dividend policy and highly sophisticated managements, we remain optimistic. The shares are valued at FY2017E and FY2018E P/E multiples of 17x and 15x, along with dividend yields of 1.3% and 1.6%. Beaufort reiterates its Buy rating on the Shares.

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