Today's edition features:
Advanced Oncotherapy (LON:AVO)
"Investors appear to have rapidly accepted the Fed's more hawkish tone as one of the inevitable costs of participating in more expansive economic policy. Its almost 'close your eyes and trust in Trump'! Confidence in Thursday's the European session, during which the Euro hit its lowest point against the US$ since the beginning of 2003, saw the zone's main indices move sharply ahead with London itself not far behind. This spilt broadly into North American trading, seeing the Dow and other main markets recapture roughly half of Wednesday's losses. The price continued to be paid, of course, through global bond markets, whose sell-off continued on Thursday having wiped out an estimated US$1 trillion of value from international government debt since 8th November. Asian markets also rallied, reversing modestly weaker openings into small gains by the close, led by the Nikkei which continues to celebrate more than a 13% fall in the Yen versus the US$ since the presidential election. Traders appeared neither surprised nor concerned by the seemingly uneventful meeting of Leaders of the European Union in which the various institutions and national governments began to argue over their individual responsibilities during forthcoming Brexit negotiations, although the principal findings amply demonstrated just how complex the issues actually are the extended period required to reach agreement. One point of accord was found, however, regarding the new security threat posed by Trump's call for the Continent to shoulder a greater responsibility for its own military and defence duties, resulting in approval for forward planning to increase spend in these areas. Meanwhile, Greece's refusal to back down in its escalating conflict with creditors, as judges on Thursday approved annual bonuses for poorer pensioners and tax relief for the Aegean Islands that have received refugees, sparked angry exchanges with Germany and highlighted again the extent of policy disagreement between member states. Today is expected to see rather lacklustre trading in London, as investors await macro releases including the CBI Industrial Trends Survey and Bank of England Quarterly Bulletin; the Eurozone is due to publish its Harmonised CPI figures, while the EU is due to provide Housing Starts before the Fed's Jeffrey Lacker speaks. Corporates due to provide earnings or trading updates include Bilby (BILB.L), MySQUAR (MYSQ.L), Trinity Mirror (TNI.L) and United Carpets (UCG.L). The FTSE-100 is seen moving 5 points either side of unchanged in opening trade this morning."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.72% higher at 6,999.01, whilst the FTSE AIM All-Share index closed 0.24% lower at 823.41. In continental Europe, the CAC-40 finished 1.05% higher at 4,819.23 whilst the DAX was 1.08% higher at 11,366.40.
Wall Street
In New York last night, the Dow Jones added 0.3% to stand at 19,852.24, the S&P-500 gained 0.39% to 2,262.03 and the Nasdaq rose 0.37% to 5,456.85.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.67% to 19,403.81, while the Hang Seng lost 0.07% to 22,043.67.
Oil
In early trade today, WTI crude was up 0.51% to $51.16/bbl and Brent was ahead 0.48% to $54.28/bbl.
Headlines
Sky and 21st Century Fox agree £18.5bn takeover deal
Broadcaster Sky and 21st Century Fox have reached agreement on the terms of a takeover deal. Rupert Murdoch's 21st Century Fox will pay £11.7bn for the 61% stake it does not already own. Sky shareholders will receive £10.75 in cash for each share, valuing the entire company at £18.5bn. The deal comes amid concerns that Rupert Murdoch, who also owns the Sun and the Times newspapers, will have excessive influence over UK media. Karen Bradley, the Culture Secretary, will have 10 days to decide whether the Fox bid raises public interest concerns, in this case media plurality, starting from when the companies notify the competition authority. She has the power to ask Ofcom, the media watchdog, to examine the deal.
Source: BBC News
Company news
Advanced Oncotherapy (LON:AVO, 50.00p) – Speculative Buy
Advanced Oncotherapy, the developer of next-generation proton therapy systems for cancer treatment, yesterday released a new video on the Company's website to provide investors with an inside look at the groundbreaking technical development of the LIGHT system at its testing facility in Geneva. The video can be viewed here: www.avoplc.com.
Our view: Clearly LIGHT's scientific development work continues to progress well. This is demonstrated by the integration of its proton source and Radio Frequency Quadruple (RFQ) and the high-power testing of proprietary modular accelerating units, the Side Coupled Drift Tube Linacs (SCDTL) and Coupled Cavity Linacs (CCL). Yesterday's video may go some way toward repairing the damage inflicted by the disclosure that two highly prestigious orders sourced through their agent, Sinophi Healthcare, would no longer be installed at the China hospitals originally announced due, amongst other things, to concerns regarding AVO's inability to provide a fixed delivery schedule. But at the very least, it provides shareholders with a peek inside the laboratories in which this 'rocket science' is coming together. There remains, however, many uncertainties. It remains a gamble whether or not a working model of LIGHT can be demonstrated without having to tap shareholders on the shoulder, one more time, for yet more funding (current cash-burn is thought to be around £1.2m/month+). Also, will the relationship with Sinophi, who formally placed the two orders with a total estimated value for AVO of around US$80m, turn ugly and end up in court? Will the advantages that LIGHT apparently offers, in reality, be truly capable of making an establish, cyclotron-based, first-generation proton beam therapy system effectively obsolete, thereby creating giant demand for this smaller, safer and much cheaper Linac-based product? This questions still need to be either proven or answered. So what are we left to conclude? AVO's reputation has taken a blow that will take some time to repair; investors are getting fed up with perpetual slippage on the route to first commercialisation, even though this might be due more to planning, rather than scientific risk; maybe also the Group deserves criticism for being less diligent in selecting partners than might have been expected, although with a high reputation operator like Sinophi this would not normally raise an eyebrow. For Beaufort, all this means that AVO's risk profile has moved up one or two notches, even if the management pointedly insist that its technology now comes with no scientific risk and offers huge commercial potential. As Beaufort has detailed in numerous research notes, it believes LIGHT offers the opportunity to power dramatic expansion of the global radiation market, becoming the natural replacement not only for existing proton systems, but also as the natural replacement in current, rather technologically antiquated and more dangerous, X-ray radiation products as well. Many investors will not actually believe LIGHT can do 'what it says on the tin' until they see it for themselves (in Harley Street or Pebble Mill), so they will probably have to wait until summer 2018. In the meantime, a possible broker/media visit to Geneva or CERN (hopefully Q1'2017) for a presentation of their part-assembled demo model might just be enough to persuade some of the non-believers. Despite the higher risk profile that AVO now presents, Beaufort has decided to retain its Speculative Buy recommendation on the shares in the hope of realising bonanza returns.
Centrica (LON:CNA, 231.20p) – Buy
Centrica, the energy and services company, yesterday provided its pre-close trading update for the full year ending 31 December 2016 ('FY2016'). The Group confirmed that it continues to make good progress against its strategic priorities and said it now expects to exceed its 2016 targets. The Group said adjusted operating cashflow is expected to be in the range £2.4-£2.6bn (FY2015: £2.3bn), beyond its upper +3-5% guidance, and total capital investment (including small acquisitions of less than £100m each) is now expected to be around £900m, within the £1bn limit it set out. Centrica achieved efficiency savings in excess of £300m (previous target: £200m) as part of the Group's £750m per annum cost efficiency programme, with like-for-like operating costs expected to be lower than the prior year. The Group also delivered direct like-for-like headcount reduction of over 3,000, in line with guidance. Net debt at the year-end is expected to be lower than the end-H1, as a result of a strong cash focus and capital discipline. The Group's currently expectation for FY2016 adjusted earnings per share is c.16.5p. Centrica's CEO, Iain Conn commented "We have made considerable progress in reshaping our portfolio and capabilities to deliver a robust platform for customer-focused growth. The Centrica team has performed very well in extremely difficult circumstances. Looking forward we are committed to delivering high levels of customer service, a wide choice of innovative offers and products and enhancing our digital capabilities, as we provide energy and services to satisfy the changing needs of our customers." Centrica will announce its preliminary results on 23 February 2017.
Our view: Centrica reported a strong trading updates for its FY2016, exceeding strategic targets set out at its 2015 preliminary results. The improvement in outlook was supported by the better than expected cost savings from the cost efficiency programme, strong energy marketing and trading performance during the Q4 (including initial contribution from Neas) which benefitted from power price volatility and the optimisation of flexible gas contracts. Its North America energy supply and services operation has also recovered from a poor H1, delivering an anticipated strong performance during H2. Cost savings was well ahead of the target and like-for-like operating expenses are also expected to be reduced year-on-year, despite having been impacted by inflation, foreign exchange movements and investment. Looking ahead into FY2017, the Group said it will remain focused on cash generation and reducing net debt, in line with its target to maintain a strong investment grade credit rating. Centrica's actual financial performance remains subject to weather and commodity prices, but considering significant progress the Group has made on the operational as well as the strategic front during H2, Beaufort reiterates its Buy rating on the shares.
Bunzl (LON:BNZL, 2,068.00p) – Hold
Bunzl plc, the international distribution and outsourcing group, yesterday provided a pre-close trading update ahead of the year ending 31 December 2016. The Group confirmed that overall trading is in line with expectations. Revenue on an actual exchange rate basis is expect to increased by between 14-15%, while on a constant exchange rate basis, it is set to rise by between 4-5% with the Group operating margin remains unchanged against last year. The Group said it is an "important part" of their ongoing strategy to achieve growth through acquisitions.
Our view: No surprise here. The majority of revenue growth for the year will be driven by M&A activities, which was very much in line with expectations. The Group, on the other hand, noted that organic growth has picked up during the Q4 as a result of recent business wins and the reduced impact of price declines in plastic resin based products. The Group has acquired 13 businesses this year for c.£150m, adding annualised revenue of approximately £165m and said its pipeline for acquisitions remains active. Having performed in line with expectation, Beaufort will retain its Hold rating on the stock.