Beaufort Securities Breakfast Alert: Armadale Capital PLC, Amryt Pharmaceuticals, Cyan Holdings PLC, Evgen Pharma, Hummingbird Resources Ltd, Ryanair, Solo Oil PLC, Tertiary Minerals plc


Today's edition features:

Armadale Capital (LON:ACP)

CyanConnode (LON:CYAN)

Hummingbird Resources (LON:HUM)

Solo Oil (LON:SOLO)

Tertiary Minerals (LON:TYM)

Amryt Pharma (LON:AMYT)

Evgen Pharma (LON:EVG)

Ryanair Holdings (LON:RYA)

"Markets quickly recovered their composure following the Prime Minister of Italy's shock resignation yesterday, with all major global indices closing in the positive. Near-term focus remains on the impact of international reflation, with investors asking whether the ECB's meeting on Thursday will be brave enough to conclude that the European economy is now sufficiently strong to propose cutting back the amount of bonds it stockpiles from the EUR80bn it has been buying every month since March. While such a possibility was signalled by Mario Draghi in an interview with Spanish newspaper El Pais last week, any tapering of its purchases would likely accelerate further the current sell-off in government bond markets, spiking yields and threatening stability of highly-indebted countries, like Italy, while also stunting growth in the region's more prosperous regions. Whatever, the expectation that Trump may oblige the Federal Reserve to effectively 'look the other way' as let the economy 'run hot' despite rising inflation continues to boost equities at the expense of Treasuries, as the Dow Jones hit yet another record high yesterday and technology stocks returned to favour sufficiently to push the NASDAQ up over 1%. Riding on the back of Wall Street, Asia was also firmer across the board, although the Shanghai Composite ended only just in the positive, as the traders considered Trump's latest criticisms of Chinese policy on social media to be a sign of tough trade and tariff negotiations to come. Almost adopting a 'if you can't beat them, join them' approach, the Bank of England's Mark Carney yesterday also entered the debate, calling on policy makers to pursue a better mix of fiscal, structural and monetary policies, noting that for too long central banks have been "the only game in town"; he also repeated earlier guidance provided by his officials that the Bank will be prepared to let annual inflation drift above its 2% target in order to support economic growth. Having seen this morning's BRC November same-store retail sales post 0.6% growth year-on-year, with the overall figure up 1.3%, no further significant macro data is expected from the UK today, although the US will release Factory Orders this afternoon. UK Corporates due to provide earnings or trading updates include Ashstead (AHT.L), Imagination Technologies (IMG.L), Northgate (NTG.L), On the Beach (OTB.L), Ultra Electronics (ULE.L), Vianet Group (VNET.L) and Wolseley (WOS.L). London is seen opening nervously this morning, with the FTSE-100 seen down 12 points in opening trade."

- Barry Gibb, Research Analyst



The FTSE-100 finished yesterday's session 0.24% higher at 6,746.83, whilst the FTSE AIM All-Share index closed 0.17% up at 815.32. In continental Europe, the CAC-40 finished 1.00% higher at 4,574.32 whilst the DAX was 1.63% better-off at 10,684.83.

Wall Street

In New York last night, the Dow Jones added 0.24% to 19,216.24, the S&P-500 gained 0.58% to 2,204.71 and the Nasdaq was up 1.01% to 5,308.89.


In Asian markets this morning, the Nikkei 225 had risen 0.42% to 18,351.17, while the Hang Seng firmed 0.75% to 22,673.44.


In early trade today, WTI crude was down 1% to $51.27/bbl and Brent was down 0.78% to $54.51/bbl.


Carney warns about popular disillusion with capitalism

The Bank of England Governor Mark Carney has warned that people will turn their backs on free and open markets unless something is done to help those left behind by the financial crisis. In a speech, he said: "Globalisation is associated with low wages, insecure employment, stateless corporations and striking inequalities." In many advanced economies there are "staggering wealth inequalities," he added. Mr Carney was speaking in Liverpool. He told his audience that politicians and central bankers must act to ensure people do not lose faith in the current system. "Turning our backs on open markets would be a tragedy, but it is a possibility," he said. "It can only be averted by confronting the underlying reasons for this risk upfront."

Company news

Armadale Capital (LON:ACP, 3.75p) – Speculative Buy
Armadale Capital announced yesterday that KMP Mining (fomerly AMS) has completed its due diligence and exercised its option to form a Joint Venture with Armadale to develop and operate the Mpokoto gold project in the DRC. On 28 September, Armadale entered into a binding Heads of Agreement (HoA) with KMP. Following successful completion of its due diligence KMP will proceed with Phase I of the joint venture agreement and earn an initial 25% interest through spending US$1.25m on the project. Upon completion of Phase I, KMP will have 30 days to decide to proceed with Phase II, which entails arranging 100% funding of Mpokoto in return for an additional 60% interest. The Mpokoto project comprises four mining licences and has a combined mineral resource estimate of 678,000oz grading 1.45g/t Au.

Our view: We are encouraged with KMP's decision to proceed with the JV agreement following its due diligence. Armadale's management can now focus on development of its Mahenge Liandu graphite project in Tanzania. We look forward to the revised Definitive Feasibility Study and other work that will potentially drive KMP into Phase II of the JV agreement and ultimately bring Mpokoto into commercial production. In the meantime, we maintain a Speculative Buy rating on the stock.

CyanConnode (LON:CYAN, 0.21p) – Speculative Buy
CyanConnode, the world leader in narrowband RF networks for Omni Internet of Things communications, yesterday announced a further purchase order from Larsen & Toubro to expand the deployment of CyanConnode's smart metering solution at Tata Power Mumbai with an additional 4,700 smart meters. This third purchase order from L&T, for CyanConnode's Advanced Metering Infrastructure ('AMI') solution, is part of a larger framework agreement between Tata Power and L&T and follows previous orders of 10,000 consumer meters in Mumbai. The framework agreement will enable Tata Power to 'call off' further deliveries quickly over the next 12 months, without going through a full procurement process. The purchase order is to provide hardware for the implementation of CyanConnode's narrowband RF mesh AMI solution, providing bidirectional communication between Tata Power's meter data management system and its consumers' meters. CyanConnode's communication platform enables automated meter reading, regular and accurate billing as well as providing customers with energy consumption information. The order is for the deployment of both single phase and three phase smart meters. Tata Power continues to grow and now has over 2.6 million consume, including over 660,000 in Mumbai. They have recently been awarded the distribution franchise for Jamshedpur circle from the Jharkhand State Electricity Board.

Our view: Smart metering is on the cusp of dramatic global expansion. Given the scale of such significant, long-term installations, major groups adopting such technologies generally chose to limit their dependence on a single supplier by sourcing alternative providers of equivalent, usually wholly compatible, equipment from other independent producers. In placing a third such order with CyanConnode, however, in order to expand deployment at Tata Power Mumbai, L&T is effectively recognising that no peer is capable of matching CyanConnode's cost-optimised narrowband RF mesh solution. This is particularly relevant, given the fact that the Group also offers effective 'future proofing' through its standards-based solution, which permits rapid integration of converged networks in order to facilitate applications in smart cities and IoT, into which India expects to evolve in coming years. As such, the country continues to be a focus market for the Group and is now in a leading position with an established in-country team as well as a large partner eco-system. Indeed, this was validated earlier this month, as members of the management team attended the UK Department of International Trade's delegation to India, led by Prime Minister May and participated in a Federation of Indian Chamber of Commerce and Industry held in Sweden, where Indian Power Minister, Piyush Goyal, discussed his vision to make India 100% smart in the next 5-6 years. The global opportunity in provision of such a benchmark standard for the evolving industry was detailed in a major report from Beaufort earlier this year, which provided a comprehensive review of CyanConnode's vision. The note points out the World Bank's extraordinary demonstration that it is three-times cheaper for utilities to save 1kWh of electrical energy by improving network efficiencies than investing in new generating capacity. Such losses in developing regions, along with the need for much better demand response in developed territories, are now the single most pressing issue for utility groups worldwide. The note goes on to show that a comprehensive and cost effective solution can be found through the implementation of sophisticated smart metering programmes, such as that offered by CyanConnode. As such, the report concluded this now represents a giant, unfulfilled, scalable and truly global growth opportunity with the potential to attract large, long-term and exceptionally sticky customers. Recent equity issuance has build-up working capital that will be required by the Group in the coming months as it captures and facilitates larger contracts, such as the £10m initial order from Iran, with much of the new capital taken up by into firm, long-term related and supportive partners. Beaufort's assessment of the enlarged, post-raise, post-acquisition Group now suggests a valuation of some £125.3m. Accordingly, it keeps the shares on a Speculative Buy recommendation with a price target of 0.6p/share.

Hummingbird Resources (LON:HUM, 19.25p) – Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced today that it has secured a US$55m debt facility with Taurus Funds. The facility comprises a US$45m Senior Secured Term facility (with an interest rate of 7.75%) and a US$10m Cost Overrun facility (with an interest rate of 11%) and will be used to finance Hummingbird's Yanfolila gold project in Mali. The existing bridge loan facility of US$15m also with Taurus, has been increase to US$25m and extended to 8 April 2017. With the project funding risk now removed management can focus on construction of Yanfolila with its estimated capex of US$88m. Hummingbird states that the project remains on schedule and within budget for first gold pour by the end of 2017.

Our view: This is a major milestone for Hummingbird, the company has significantly de-risked Yanfolila by securing 100% funding following the recent US$71m equity raise combined with the above announcement. The company can now focus on mine construction and continues to target its first gold pour by end of 2017 and 132,000oz of gold production within the first full year of operation. Christmas has apparently come early for Hummingbird shareholders and we look forward to further developments as the construction phase proceeds. In the meantime, we maintain a Speculative Buy rating on the stock.

Solo Oil (LON:SOLO, 0.26p) - Buy
Solo has published an operational update for Tanzania. The Ntorya-2 well, where Solo has a 25% fully funded interest and which is the main catalyst for the stock, is on track and expected to be spudded mid-December. The drilling pad has been prepared (by Aminex, operator with 75%) and the rig has been independently inspected and passed. Also news is that the Kiliwani North operation is now receiving regular gas payments from TPDC. Solo has a 7.125% working interest in Kiliwani North and we expect its share of gas sales to cover Tanzanian operating costs and contribute very significantly to corporate G&A.

Our view: The imminent spudding of NT-2 is very positive, albeit expected, news. As a reminder, NT-2 follows the NT-1 discovery well in 2012 which flow tested 20mmcf per day gas and 139 barrels per day of condensate with very good pressure. NT-2 is the first of two high impact appraisal wells planned over the next 6 months which together are targeting c.1.5TCF. We can now look forward to regular newsflow as NT-2 progresses.

Tertiary Minerals (LON:TYM, 1.15p) - Speculative Buy
Tertiary Minerals announced it has sold its under the radar gold projects in Finland. Consideration is £15k in cash and £85k in shares, plus an additional cash component which depends on the number of ounces discovered. $1 per ounce of inferred resources defined, $2 per indicated ounce and $3 per measured ounce. Tertiary also retains a 2% royalty. The acquirer, whose shares Tertiary will own, is Aurion Resources a TSX-V company focused on gold in Finland. The transaction is conditional on the licences being successfully transferred, although we imagine this is simply a process.

Our view: This looks like a decent deal for Tertiary, especially since it gets paid for any gold ounces discovered, and any gold produced. Tertiary is now a pure play fluorspar company with a strategic portfolio of projects, all in sound mining jurisdictions.

Amryt Pharma (LON:AMYT, 18.5p) – Speculative Buy
Amryt Pharma plc, the clinical stage specialty pharmaceutical company focused on best in class treatments for orphan diseases, yesterday announced that it has secured an agreement with Aegerion Pharmaceuticals, Inc. ('Aegerion'), the NASDAQ-listed biopharmaceutical company, for the exclusive rights to sell Aegerion's drug, LOJUXTA (lomitapide), across the European Economic Area, Middle East and North Africa, Turkey and Israel. Under the Licence Agreement, Amryt will make royalty payments to Aegerion, paid quarterly, based on a percentage of sales, and once-off commercial milestone payments, subject to achieving certain sales targets. The Licence Agreement has an initial term until 1 January 2024, and upon expiry, Amryt has option to extend the Agreement for a further 5 years with the right to extend in further 5 year periods, subject to certain conditions. Amryt will also take on the ongoing regulatory and post-marketing obligations and commitments in support of LOJUXTA. LOJUXTA was approved in the EU since 2013 for the treatment for Homozygous Familial Hypercholesterolemia ('HoFH'), a very rare life-threatening genetic disorder that impairs the body's ability to remove LDL cholesterol ("bad" cholesterol) from the blood. This typically results in extremely high blood LDL cholesterol levels leading to aggressive and premature narrowing and blocking of arterial blood vessels manifesting as cardiovascular disease. If left untreated, heart attacks, strokes or sudden death may occur in childhood or early adulthood (mean life expectancy of 18 years, while with current treatment options including statin drugs, PCSK9 inhibitors and apheresis (a blood filtration technique similar to dialysis), life expectancy increase to average 45-48 years but there are not adequate to control LDL cholesterol levels in some patients, particularly those with the most severe genetic mutations. Amryt's CEO, Joe Wiley commented "We are delighted to announce this landmark licensing deal. It transforms Amryt into a fully-fledged commercial orphan pharma company and comes only eight months after Amryt's IPO in April. This agreement is tremendously exciting and underlines our clear focus on building our portfolio of medicines to treat rare and orphan diseases, where there is large unmet medical need. We look forward providing a further update in due course".

Our view: Another significant announcement from Amryt, following last Friday's €20m Facility Agreement reached with the European Investment Bank. Yesterday's Licence Agreement will add to the Group's growing portfolio of orphan products and has effectively transformed Amryt into fully-integrated sustainable, commercial pharmaceutical Group. Management said LOJUXTA is expected to be immediately cash generative and its ongoing regulatory and post-marketing commitments will all be funded from the own cashflow, rather than at Group level given that it requires relatively limited additional commercial, medical and regulatory infrastructure. Royalties on net sales are "not single digit but not substantial" said Rory Nealon (CFO/COO) during analyst meeting, while noting EBITDA margin to be expected should be around 20% of revenue, although "much higher than 40%" at the gross level. HoFH is a very rare, genetic disorder which starts in utero and causes premature cardiovascular disease. Historically, HoFH was estimated to occur in about 1 in 1 million people worldwide, but more recent studies suggest it may affect up to 1 in 300,000 people. The total market for LOJUXTA for HoFH indication is estimated at €50m and in Q3 2016, Aegerion generated US$22m in net product sales of lomitapide, of which, 15% was from prescriptions written outside of the US. Of this, 30% comes from Brazil and 70% was from the territories now being licensed to Amryt. With currently available treatment showing limited efficacy for some patients in controlling their LDL cholesterol levels, there is significant potential for the LOJUXTA to become a mainstay treatment for patients, having showed a 40-50% reduction in LDL cholesterol at 26 weeks after dosage during Phase 3 clinical trial, following which it remained stable at 126 weeks. The Licence Agreement for LOJUXTA will be cash generative from the day one and has significantly de-risked the Group. With Amryt's impressive Board of Directors, we believe the Group is proceeding in its plan to replicating Shire Pharmaceutical's original model. Following the €20m Facility Agreement from EIB announced on Friday, the Group is fully funded, and yesterday's announcement marks the start of a new stream of announcements going forward. The Phase III clinical trial for Episalvan in Epidermolysis Bullosa is expected to commence in Q1 FY2017 and we look forward to further updates in due course. We are excited by the Group's recent progress and reiterate our Speculative Buy rating on the shares.

Evgen Pharma (LON:EVG, 23.50p) – Speculative Buy
Evgen, the clinical stage drug development company focused on cancer and neurological conditions, announced its unaudited interim results for the six months ended 30 September 2016. Operational highlights during the period included (i) First patient dosing (April 2016) in the Group's Phase II clinical trial SAS (SFX-01 after subarachnoid haemorrhage) and patient recruitment rates in-line with expectations; (ii) US Food & Drug Administration granting the Group orphan drug designation (August 2016) for the use of stabilised sulforaphane in subarachnoid haemorrhage; (iii) First clinical site is opened for patient recruitment for the Group's Phase II clinical trial STEM (SFX-01 in the Treatment and Evaluation of Metastatic Breast Cancer), with further sites due to open across Europe in H1 CY 2017 and (iv) Further preclinical data to be presented at the San Antonio Breast Cancer Symposium (December 2016), while positive data from preclinical studies of SFX-01 in various models of the relapsing remitting form of multiple sclerosis presented (September 2016) at leading MS conference. As part of its ongoing strategic review, the Board also continues to assess all options (including MS and a number of orphan indications within neurology) for a potential third clinical programme based on SFX-01. Financial highlights include a total comprehensive loss for the period was £1.7m (30 September 2015: total comprehensive loss £1.2m), with a cash position (including short-term deposits) at 30 September 2016 was £5.5m (30 September 2015: £1.8m); having raise £7.0m gross in the IPO placing of October 2015, the Group remains fully funded to complete its two Phase II studies and to support further preclinical work.

Our view: Quite a year! A number of important milestones have now been passed! The SAS trial is recruiting patients as planned and the STEM trial has now opened for recruitment at it first site in Europe. Both trials are projected to report in-line with expectations in the first half of calendar year 2018. Furthermore, Evgen has secured orphan designation for its lead product in the treatment of subarachnoid haemorrhage, a type of stroke for which there has been no material advance in treatment for over 20 years. In addition to the clinical programmes, the Group presented positive preclinical data for SFX-01 at this year's ECTRIMS, the largest annual conference dedicated to basic and clinical research in multiple sclerosis; the data demonstrated that SFX-01 was superior to the active principle in Biogen's Tecfidera, particularly in the way that it improved neurological recovery in the chronic stage after relapse. Having achieved this for a total loss of just £1.7m is impressive but, more importantly for shareholders, is the fact that management still holds a reserve of £5.5m which is sufficient to complete its current clinical programmes and lay the foundations for the follow-on Phase III trials where required. Given an estimated monthly burn of around £330k during 2017, this should ensure investors have quite a bit of new data to chew over before being asked to dip their hands in their pockets once again, by which time a positive outcome from one or both of the trials should be seen to further lower the risk profile of SFX-01. Orphan status for SAH offers a prospective route to commercialisation valued at US$1.7bn just 12 or so months following Phase II data, while STEM could develop as foundation drug to be used in combination therapy for an indication valued at a multiple of this. Both have high unmet need and offer strategic entry portals to further therapeutic opportunities in oncology and neurology, For a company presently valued at just £17.5m, investors appear not to have fully recognised the value Evgen might deliver over the coming 18 months or so. Beaufort moves its recommendation on the shares from Hold to Speculative Buy.

Ryanair Holdings (RYA.L, EUR14.18) – Buy
Ryanair, a low-cost European short-haul airline company, yesterday provided traffic update for November 2016. During the month, passenger traffic increased by +15% y-o-y to 8.8 million customers, while the load factor improved +2% y-o-y to 95%. The rolling annual traffic to November rose +16% to 115.5 million customers.

Our view: Ryanair reported strong passenger traffic and load factor for November, driven by lower fares and the continuing success of its 'Always Getting Better' customer experience programme. Last month, Ryanair reported a strong H1 results with profit after tax jumping by +7%, helped by reduced cost, improved margin and an increased number of customers travelling along with an improved load factor. This was despite the Group having lowered average fares by -10%, as it also delivered reduced unit costs by -10%, of which, -5% was excluding fuel as the Group took delivery of new lower cost aircraft, cheaper financing and more competitive growth incentives from airports. Looking ahead, the Group said at the interim result, it remains comfortable with its full year net profit guidance of €1.30bn-€1.35bn and the Board also approved a further share buyback of up to €550m from November 2016 to February 2017. Ryanair said it expect passenger traffic of just over 119 million customers for FY2016 (FY2015: 106 million customers) and raised its long-term traffic forecast from 180 million to over 200 million customers per year by March 2024. We believe Ryanair has momentum and remains well-positioned for growth. Beaufort therefore retains its Buy rating on Ryanair.


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