Today's edition features:
Angle (LON:AGL)
Rosslyn Data Technologies (LON:RDT)
Sky (LON:SKY)
"Friends and neighbours. Having drawn swords with Mexico regarding The Wall, the White House appears to have concluded the most obvious way to ensure they do finally end up paying for its construction, is to simply impose punitive import taxes on their US-bound goods and services. Meanwhile, having failed to appoint a Commerce Secretary, Donald Trump has declared that today he will personally discuss the framework for a post-Brexit trade deal with Theresa May when they meet this afternoon. The devil, of course, will always be in the detail, but nevertheless, these talks are much more important for the UK (whose exports, valued at US$125bn, representing 17% of its international trade) than it is for the US (who send just US$65bn back across the Atlantic, representing less than 0.5% of their GDP). So the Prime Minister will need to tread lightly when raising the point she has already made to an assembly of House and Senate Republicans, that neither of their countries can afford to forget their responsibility in shaping world affairs, such as helping to defeating the ideology that drives Islamic extremism. The Dow Jones gleaned enough confidence from the President's continuing actions to ensure a third straight daily rise, keeping it firmly above the 20,000 marker, although the NASDAQ and S&P-500 but closed with fractional losses. The start of the extended Chinese New Year holidays meant that the Shanghai Composite was closed and a good number of the region's other bourses had shortened sessions, resulting in particularly low Asian volumes. That said, the Nikkei still found cause to celebrate a slower than expected decline in its consumer prices, suggesting its battle against deflation may finally be bearing fruit, with a modest gain, although the ASX notched up the territory's strongest performance. Europe had been hoping that Greece's talks with its creditors that took place yesterday would result in a breaking of the bailout deadlock; in the end no conclusion was reached, unfortunately deferring discussion regarding their aid package to another session which finance ministers insist should be concluded before the elections in the Netherlands and France get underway. No significant macro data is expected from the UK today although the EU will provide M3 and Private Loans figures, before the US releases another heavy batch of statistics, including Q4 GDP, Personal Consumption, Durable Goods Orders and the Michigan Consumer Sentiment Index. Investors in London will also be anticipating Moody's scheduled report on the UK's Sovereign Debt Rating today, which is likely to leave the equity market opening this morning rather lacklustre, with the FTSE-100 seen rising some 20 or so points in early trade."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.04% lower at 7,161.49, whilst the FTSE AIM All-Share index closed 0.05% higher at 875.68. In continental Europe, the CAC-40 finished down 0.21% at 4,867.24 whilst the DAX was 0.36% higher at 11,848.63.
Wall Street
In New York last night, the Dow Jones gained 0.16% to stand at 20,100.91, the S&P-500 shed 0.07% to finish on 2,296.68 and the Nasdaq eased 0.02% to 5,655.18.
Asia
In Asian markets this morning, the Nikkei 225 gained 0.22% to 19,445.01 and the Hang Seng slipped 0.06% to 23,360.78.
Oil
In early trade today, WTI crude was flat at $53.78/bbl, while Brent was down 0.12% to $56.17/bbl.
Headlines
Tesco to buy food wholesaler Booker Group
The UK's biggest supermarket group, Tesco (TSCO.L), has agreed to buy UK's biggest food wholesaler, Booker Group (BOK.L), in a £3.7bn deal. The firms said the deal would create the "UK's leading food business". They added that combining the companies would bring benefits for "consumers, independent retailers, caterers, small businesses, suppliers, and colleagues". Under the terms of the deal, Booker shareholders will end up owning about 16% of the combined group. "Tesco has made significant progress in turning around our UK retail business," said Tesco chief executive Dave Lewis. "This merger with Booker will further enhance Tesco's growth prospects by creating the UK's leading food business with combined expertise in retail, wholesale, supply chain and digital."
Source: BBC News
Company news
Angle (LON:AGL, 46.25p) - Speculative Buy
The specialist medtech company, yesterday made two RNS announcements. Firstly releasing its unaudited interim financial results for the six months ended 31 October 2016, and secondly the planned interim evaluations of two separate 200 patient ovarian cancer studies, in Europe and the United States. The financial results themselves, detailing revenues of £0.2 million (H1 2016: £nil) and losses from continuing operations of £2.7 million (H1 2016: loss £2.3 million), came as no surprise. Having raised £10.2 million (£9.6 million net of expenses) from major institutional investors during the period, its cash balance at 31 October 2016 was £9.7 million (30 April 2016: £3.8 million). Operationally, however, the Group was very busy. It initiated clinical studies in Europe and the US for the Group's first clinical application for detection of ovarian cancer in women with a high risk pelvic mass. It also undertook extensive work towards FDA clearance in metastatic breast cancer while increasing research use with a wide range of leading cancer centres throughout Europe and North America evaluating and adopting Parsortix into their clinical studies. Chairman, Garth Selvey noted that "There is still much to do, but the goal remains to layer additional supportive scientific data from clinical studies incorporating Parsortix use on top of our hard-won reputation in the international research environment. This, we believe, is the gateway to competing effectively in a very large and growing liquid biopsy market."
Our view: The interim evaluation was ANGLE's big news. It supports potential for its first clinical application to out-perform standard of care for the detection of ovarian cancer, particularly in relation to specific avoidance of false positives. There is also an opportunity to use Parsortix to obtain molecular information to guide therapy prior to surgery, which is not possible with existing approaches. Adopting the Parsortix system and a panel of RNA markers, the prospect is for hospitals to be able to meet a key medical need in triaging women before surgery to ensure patients with cancer get the care they need. Patient enrolment into the European study is now over 90% and is expected to be completed in February 2017. The US study patient enrolment is ahead of schedule with approximately 70% of the required patient sample enrolled and currently on target to be completed by the end of April 2017. Headline data from the full studies is expected to be available in Q2'2017. Once the European study is complete, their hospitals with accredited laboratories will be able to design a laboratory developed test ('LDT') based on the RNA markers identified, thus enabling ANGLE to start generating revenue from clinical sales of the instrument and cassettes. ANGLE will then seek to undertake a further European study to validate the clinical utility of a Parsortix RNA assay. The successful validation of such an assay would allow ANGLE to sell instruments and ovarian specific assay kits to all European hospitals without the requirement for an LDT. The United States study is intended to provide additional patient data, which will be important for subsequent FDA clearance of an ovarian-specific assay, while similarly supporting the development of LDTs. A further multi-site United States 'validation study' will be needed to secure FDA clearance for the ovarian application, which will then enable the sale of the application throughout hospitals in the United States. Based on this, Beaufort's financial model sees ANGLE achieving limited revenues and remaining in quite deep losses until FY'2018, before ramping sharply upward the following year to become cash flow positive for the first time. Based on a cash position of around £6.5m by the end of the current year, Beaufort considers the Group will be in the position to demonstrate a strong sales growth trajectory and modest positive earnings before tapping shareholders once again for additional funding. During this time, Beaufort also believes that ANGLE will have been recognised as the only viable, non-invasive cancer detection test for hospitals and medical institutes. This will accrue significant value to Parsotix. Beaufort retains its Speculative Buy recommendation on ANGLE plc.
Rosslyn Data Technologies (LON:RDT, 7.75p) – Speculative Buy
The leading global data technology company, which has developed smart technologies that are enabling companies of all sizes to turn their complex data into meaningful information, yesterday announced its interim results for the six months ended 31 October 2016. Financial highlights included Group revenues of £1,666,577, with two revenue items together totalling some £250,000 concluded just outside the period end (2015: £1,821,517) with EBITDA loss decreasing 17% to £1,074,174 (2015: £1,290,170). Loss before tax decreased 18% to £1,081,665 (2015: £1,316,412), leaving net Cash at 31 October 2016 £0.7m (2015: £2.6), which increased to approximately £878,000 as at 25 January. Operationally, management noted that subscription revenues remain strong, with customer churn at below 5%. During the period, RDT was the only non-US company selected as one of three Finalists for the 'Microsoft Global Partner of the Year - Data Platform' award; customer wins include a major logistics company, a global media company and extensions into new territories for defence contractor clients. The Strategic Partnership with Genpact, a leading Global BPO firm, is deepening and the recently announced global relationship with Dun and Bradstreet has generated a significant amount of interest and leads. The Board confirmed it remains focused on achieving cash flow break-even during the current financial year, while the sales pipeline remains healthy and is growing with new partners being added and direct clients being at the forefront. In his statement to shareholders, CEO Roger Bullen noted "…increased recognition has led to us being presented with potential acquisition opportunities, which, I believe, adds a further exciting avenue for us to explore when appropriate. The Company is now, more than ever I think, better positioned to take full advantage of the growth within the data analytics arena."
Our view: The benefit of the doubt. Lumpy contracts were the reason H1'2017 compares badly. Two large contacts have slipped into 2H which, although uncomfortable, suggests there is no need to alter full year forecasts for either 2017E or 2018E (Beaufort forecasts revenues of £5.2m leading to a pre-tax loss of £0.8m, followed by £6.4m and a pre-tax profit of £0.1m respectively). On this basis, the Group is valued at less than 1x the 2018E enterprise value, for its advanced analytics SaaS offer which attracts a blue-chip customer base a company twenty times the size of RDT would be proud of. That said, investors will be aware that RDT's balance sheet remains under quite considerable strain, particularly if management see fit to undertake the overdue ramp-up of its sales and marketing effort. They will also have noticed the CEO's results sign-off, in which he highlighted a desire to grab hold of certain identified acquisition opportunities. Presumably, these are vehicles with complementary technologies that might reduce their operational cost by sitting on the RAPid platform, while opening new customer doors; it would be even better if their model also lends itself to being embedded in a customer's product code in order to be sold on an annuity basis, as RDT now doing through SAP Ariba's cloud-based solutions. The good news is that deep relationships like this, and also D&B, have the potential to multiply very significantly and also become exceptionally sticky. The bad is that RDT presently is really too small for them to be willing to jump totally into bed with. So management have presumably recognised they now have to take a big step forward, possibly doubling their size overnight, while also strengthening their balance sheet. Right now that suggests more equity, a lot of it, although credibility could be gained by placing some of this into the hands of strategic investors while also enjoying the continuing participation of existing senior institutional holders. Rosslyn Data Technologies clearly offers its customers something unique, a value-added service that its peers cannot get near to. Sooner or later this will lead to significant monetisation opportunity or result in envious competitors recognising that it is much cheaper and quicker to buy it out, rather than try to emulate it. Beaufort retains its Speculative Buy recommendation on the shares.
Sky (LON:SKY, 1,004.00p) – Buy
Sky, one of the leading European broadcasting and entertainment company, yesterday provided results for the 6 months ended 31 December 2016 ('H1 FY2017'). During the period, on a statutory basis, revenue advanced by +12% to £6,410m but operating profit fell by -12% to £461m primarily due to £314m increase in Premier League costs, against the comparative period (H1 FY2016). Statutory basic earnings per share resulted to fell by -10% to 18.8p. On an adjusted basis, revenue grew +6% and operating profit fell by -9% to £679m resulting basic earnings per share declined by -5% to 28.3p. Net debt at the period end increased to £7.3bn (30 June 2016: £6.2bn), while cash stood at £1.3bn. On the operational front, the Group achieved run rate synergy target of £200m 6 months ahead of the schedule and said further operating efficiency plans is underway. Sky has launched Sky Mobile in UK, Sky+Pro in Germany and Austria, and Sky Adsmart in Italy during the period. The Group achieved a record on demand viewing of 2 billion streams and downloads, and added over 500,000 new customers. Sky's CEO, Jeremy Darroch commented ""We have delivered a strong first half performance across the group, continue to make significant progress against our strategy and remain on track for the full year." As part of the terms of the proposed takeover by 21st Century Fox, Sky will not pay any dividends in 2017.
Our view: Sky performed well in the H1, registering encouraging growth across all its market. Momentum seen during Q1 continued throughout Q2, despite there being some pressure on discretionary consumer spending across Europe and a decline in the UK advertising market. In UK & Ireland, revenue at constant exchange rates increased by 5%, while Germany & Austria further accelerated to +10% after having achieved +9% in Q1. Italy saw revenue growth of +9% helped by the sale of the Olympic rights (+4% excluding this, in line with Q1). Net debt increased by £1.1bn to £7.3bn during the period primarily due to earlier payment for the new Premier League deal (£692m). This impact, however, will even out over the full year, as there will be no payment during the second half. The Group continues to maintain a strong financial position with cash of £1.3bn and an undrawn £1bn Revolving Credit Facility committed until November 2021. The next debt due to mature includes a £400m bond in October 2017, which the Group will be financing through cash. Looking ahead, the Group confirmed it is on track for the full year. Sky is also noted that it is working towards a further run rate synergy target along with other additional initiatives to provide some £400m of savings by the end of 2020. Despite the additional £314m cost associated to the Premier League, the Group's strong revenue growth and -1% reduction in operating costs has resulted only a net £65m impact on operating profit against last year. We are encouraged by the Group's progress and reiterate our Buy rating on the shares.
Unilever (LON:ULVR, 3,191.00p) – Buy
Unilever Plc, a consumer goods company manufacturing, distributing and marketing branded and packaged goods, yesterday announced its results for the full year ended 31 December 2016 ('FY2016'). During the period, revenue fell by -1% to €52.7bn at a reported basis (up +4.3% at constant exchange rate basis) against the comparable period (FY2015). Operating profit increased by +3.8% to €7.8bn, supported by +0.5% improvement in core operating margin at 15.3%, and net profit advanced by +5.5% to €5.5bn. Core earnings per share consequently improved by +3.1% to €1.88 (up +7% at constant exchange rate basis). Removing the impact of foreign exchange, underlying sales advanced by +3.7%, ahead of the markets, supported by both price increase of +2.8% and volume growth of +0.9%. At the period end, free cash flow stood at €4.8bn, in line with last year, net debt widened by +9.6% to €12.6bn due to cost of acquisitions, while cash and other current financial assets increased by +€0.8bn to €4bn. Unilever's CEO, Paul Polman commented "We have delivered another good all-round performance despite severe economic disruptions, particularly in India and Brazil, two of our largest markets. This further demonstrates the progress we have made in transforming Unilever into a more resilient business." The Board declared Q4 dividend of 27.68p per Unilever Plc ordinary share to be paid on 15 March 2017, bringing full year dividend to 109.03p.
Our view: Unilever delivered a somewhat disappointing performance against analyst expectations for the Q4 FY2016, despite recording full year underlying sales growth of +3.7%, which continuing to outperform its market. Underlying sales growth for the full year was dragged down from +4.2% at the first 9 months due to weaker final quarter at just +2.2%, which emerged below the consensus analyst's estimate of +2.8% with Personal Care, Refreshments and Home Care divisions weak and only food matching expectations. Margin expansion of +0.5% was encouraging however, driven by +2.1% margin in Home Care segment despite the increased restructuring costs. Underlying sales growth comprised of +4.2% growth in Personal Care, +2.1% increase in Foods, +4.9% rise in Home Care and +3.5% up in Refereshment segment. All segments saw good growth in price while Foods, which is typically slow, the only segment with declined (-0.5%) volume. Regionally, the underlying sales growth for Asia/ AMET/ RUB and the Americas was +4.6% and +6.0%, respectively, slightly weaker than expected, while Europe fell by -0.7%. Looking ahead, the Group said "slow start" is expected in the H1 FY2017 as challenging market conditions are likely to continue before it starts to improve as the year progresses. Unilever has implemented its 'Connected 4 Growth', the next stage of transformation, which will make it simpler, faster and more connected with consumers and customers. The Group said it already starting to see positive results. We expect FY2017E will see margin improvement mitigates weaker organic sales growth. Based on a FY2017E P/E multiple of just 18.7x, a 3.6% dividend yield and 5.2% FCF yield, the shares remain cheap in Sterling terms. Beaufort reiterate Buy rating on the shares with a price target of 3,800p/share.