Today's edition features:
• Amryt Pharma (LON:AMYT)
• Fox Marble Holdings (LON:FOX)
• Speedy Hire (LON:SDY)
• HSS Hire (LON:HSS)
"The US Dollar rallied yesterday following a three-day losing streak. The WSJ Dollar Index, which measures it against a basket of 16 currencies, rose in response to the Fed’s Patrick Harker pointing to that March’s FOMC meeting as the likely one for the next rate hike. Being the principal barometer of confidence in the new administration, this spurred the Dow Jones and Nasdaq Composite to record levels at the open on Tuesday, while the S&P 500 was less than five points away from hitting another all-time high, before all three indices gave some of their gains back by the close. Crude prices sold off for the second day, weighed down by concerns of rising US shale production offsetting cuts by other major producing territories, while gold prices hovered close to a three-month high, as France’s leader of the far right National Front and Frexit campaigner, Marine Le Pen, was predicted to lead the first round of Presidential voting in April, ahead of an expected run-off in May. Indeed, survival of the Eurozone looks set to become investors new preoccupation in coming weeks, following Le Pen’s ‘Trumpian’ rendition of ‘presidential commitments’, which include reintroduction of the national currency, while the IMF yesterday warned that Greece once again risks ejection from the Euro amid stalled bailout talks, in the process sending a clear signal that it cannot be relied on to once again offer support for Europe’s failing states. Picking up the signal from the US equities, Asian markets also closed firmer across the board, with the Nikkei enjoying early weakness against the US$ while financials rallied to lift the ASX; the Shanghai Composite also recovered early losses, generated by news that China’s foreign exchange reserves had fallen below US$3tr for the first time in six years, in to end firmer. No significant macro releases are expected from the UK or Europe this morning, while the US is only due to provide MBA mortgage applications. Corporates expected to publish earnings or trading updates include Dunelm (DNLM.L), GlaxoSmithKline (GSK.L), Rio Tinto (RIO.L), Redrow (RDW.L) and Smurfit Kappa (SKG.L). With little new to divert investors at this morning’s London opening and no fireworks anticipated at today’s second Brexit bill vote, the FTSE-100 is expected to simply emulate the overnight markets, rising 5 to 10 points in early trading. "
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.20% higher at 7,186.22, whilst the FTSE AIM All-Share index closed 0.52% better-off at 900.76. In continental Europe, the CAC-40 finished down 0.49% at 4,754.47 whilst the DAX was 0.34% higher at 11,549.44.
Wall Street
In New York last night, the Dow Jones rose 0.19% to stand at 20,090.29, the S&P-500 firmed 0.02% to 2,293.08 and the Nasdaq added 0.19% to 5,674.22.
Asia
In Asian markets this morning, the Nikkei 225 had gained 0.48% to 19,002.56, while the Hang Seng added 0.38% to stand at 23,421.19.
Oil
In early trade today, WTI crude was down 1.17% to $51.56/bbl and Brent fell 0.84% to $54.59/bbl.
Headlines
Government criticised over transparency of energy schemes
MPs have said the government must do more to demonstrate the value for money of green energy schemes which are ultimately paid for by bill payers. The influential Public Accounts Committee (PAC) said it was promised in 2014 an annual report on the impact of these policies on energy bills. But it has not seen once since. The PAC also repeated previous concerns about over-optimistic forecasting in the Department for Business, Energy and Industrial Strategy (BEIS). The government's Levy Control Framework is supposed to control the cost of three low-carbon generation schemes, funded by levies on energy companies, which consumers pay for through their energy bills. The PAC concluded that the framework had "suffered from a lack of transparency, rigour and accountability" and the forecasting of its costs had been poor.
Source: BBC News
Company news
Concepta (LON:CPT, 17.00p) – Speculative Buy
The UK healthcare company targeting the personalised mobile health market with a primary focus on women's fertility, yesterday announced that it has signed a technology transfer and licence agreement with Selective Antibodies Ltd, a UK based diagnostics company, for the development of a stress test. This is part of the Company's new product development for its proprietary myLotus home self-testing platform that helps women with unexplained infertility to conceive. This remains in line with the strategy set out at the time of the Company's admission to AIM In 2016. Under the Agreement, Concepta will, inter alia, be granted the rights to intellectual property developed by Selective Antibodies, comprising licensed patents and associated knowhow, for the measurement of small molecules in bodily fluids. The key terms of the Agreement include, (i) Cost - Concepta will pay Selective Antibodies for the development of the test and for technology transfer, plus a royalty based on sales of products developed using the IP. Work on the product development will start on 1st March 2017 and, (ii) Terms of agreement - subject to fulfilment of obligations on each party, up until the date 5 years beyond the expiry of the patents to which the IP relates. This will be used to expand Concepta's existing myLotus platform capabilities (which includes measurements of a woman's personal hCG and LH hormone levels), enabling users to also monitor stress through quantitative measurement of their levels of stress hormones of which cortisol is the key one. Stress is a common cause of several health conditions and is widely recognised as a key factor, which can significantly impact both male and female fertility factors.
Our view: Concepta's key differentiator in the mobile health and personalised healthcare sector has been to develop a platform that grants users the ability to quantify their personal results from home diagnostic tests, with the initial focus helping women with unexplained infertility to conceive. As such, the myLotus platform opens the door to wider health monitoring at home to improve individual health parameters, seeing the real-time effects of medical interventions and using the data collected to adjust treatment accordingly. This first collaborative project is focused on stress, which has a significant documented impact on both male and female fertility. With Selective Antibodies' innovative method of measuring very small molecules in bodily fluids, the opportunity is to working with them to develop supplementary products which link to its core fertility business. Importantly, Concepta remains on track for the launch of myLotus into the Chinese market in H1 2017, having appointed an experienced country manager before Christmas and with regulatory approval and manufacturing agreements in place. With ISO13485 accreditation in place, management continue to prepare for the commercial launch of myLotus in the UK and Europe towards the end of the year. To put the scale of these opportunities into perspective, the Chinese market potential has been estimates to be worth around £250m, while the larger European opportunity is around £350m. Indeed, the total global opportunity addressed by Concepta’s current product offering is estimated to be worth as much as US$2 billion. Further out, its technology platform is expected to be developed into a much wider opportunity for personalised monitoring and self-diagnosis with yesterday’s agreement. Beaufort reiterates its Speculative Buy rating on the shares, with a price target of 26p.
Beaufort Securities acts as corporate broker to Concepta plc
Amryt Pharma (LON:AMYT, 17.11p) – Speculative Buy
Amryt Pharma, the pharmaceutical company focused on best-in-class treatments for rare and orphan diseases, yesterday announces that it has been granted a patent in Japan for its lead drug candidate, AP101 (Episalvan), for the treatment of Epidermolysis Bullosa (‘EB’). This follows similar patent grants secured in the US (September 2016) and in Europe (March 2016) as well as other patent grants in other territories, including Canada and Australia. EB is a rare and distressing genetic skin disorder which causes exceptionally fragile skin, affecting approximately 500,000 people worldwide, for which there is currently no treatment available. Amryt Pharma’s CEO, Joe Wiley, commented “We are delighted to announce that AP101 (Episalvan) has been granted a patent in Japan for the treatment of EB, widening the scope of our potential marketplace.”
Our view: Expanding its geographical reach for EB into Japan is a positive move for Amryt. In the US and EU where the Group already been granted patents with orphan drug designation, there are approximately 30,000 and 35,000 patients respectively. In Japan, the Minister of Health, Labour and Welfare has also granted orphan drug status and, according to DebRA Japan, a nonprofit support association for EB patients, there exists approximately 2,000-3,000 patients in Japan. Globally there amounts to some 500,000 people living with EB for which the market opportunity is estimated to be worth around €1.3bn per annum. Amryt expects to enter a pivotal Phase 3 clinical trial of AP101 (Episalvan) for EB in late Q1 2017. The Group has already received marketing approval for its AP101’s treatment of partial-thickness wounds from the European Commission in January 2016, having successfully demonstrated accelerated healing compared to standard therapy. Recently, the Group has also announced positive pre-clinical study results for its drug compound, AP102, for treating patients with resistant acromegaly. Acromegaly is a rare and very distressing disorder which leads to excess growth of the body’s tissues over time and it also has orphan drug designation from the US FDA. Amryt is now progressing AP102 towards clinical trials commencing this year. Amryt has an attractive mix of approved, late stage and early stage products focused on rare and orphan conditions where there is significant unmet need. They have made excellent progress in the short time since its Admission through Reverse Takeover of Fastnet Equity plc on 18 April and expect this to continue going forward. Despite making excellent progress over the past 9 months, the shares still to trade below the placing price of 24p and now offer scope for a significant re-rating. Beaufort continues to recommend the shares as a Speculative Buy.
Fox Marble Holdings (LON:FOX, 9.63p) – Speculative Buy
Fox Marble, a natural stone extraction Company focused on marble quarrying and finishing in Kosova and the Balkans region, yesterday confirmed that it has entered into a US$1.8m per annum sale and purchase agreement with Mahadev Marmo PVT Ltd ('Mahadev') in India. The agreement follows the satisfactory delivery and completion of a block marble sample order shipped in December 2016. Mahadev is India's second largest green marble export house, exporting to countries such as Italy, Australia, Canada, Hong Kong, Taiwan, China, Japan, America, and Middle East. It owns fully mechanised developed quarries in Udaipur in Rajasthan-the Western State of India with an annual production capacity of 100,000 ton marble blocks and 125,000 sq.m. of slabs. The sale and purchase agreement is for Fox to supply Mahadev a minimum quantity of its Illirico Selene marble over a 3 year period valued at c.US$1.8m per year. The Group anticipated that the block marble will be shipped at the rate of c.1,000 tonnes per month once Fox’s quarry operations re-open in March 2017, following the annual scheduled winter shutdown (January - March) due to the usual cold weather conditions. Fox Marble’s CEO, Chris Gilbert, commented “This new relationship with Mahadev has been the result of many months of work to establish a secure supply chain in India and we look forward to working with them during the course of 2017, where we anticipate receiving further significant orders.” Mahadev’s Shankar Singh Sisodia commented “we are pleased to be working with a prestigious company such as Fox Marble which supplies high grade marble from Europe. The Indian market has always been welcoming of marble product from other parts of Europe, therefore I am confident that the demand for materials from Fox Marble will likely be high.”
Our view: That’s more like it! Excellent news! Yesterday’s sale and purchase agreement is more like the size of agreement investors have been waiting for. It represents the Group’s first sizeable Indian customer and hold significant potential for expansion in this giant territory. Fox Marble mines offer what is effectively an infinite, high-grade resource in a low cost, EU-accession territory; it supplies a somewhat under-serviced US$10bn/year market which resembles a cottage industry providing multiple tiers of product value-added, that finds itself relatively insulated from the violent pricing swings that so often characterises commoditised minerals, like Oil or Iron Ore. With the new factory finally up and running (a third gangsaw, which will optmimise factory efficiencies, will be installed in 2017), investors are now anticipating yet further progress with other major distribution hubs, such as in the US, Middle East and China, leading eventually to long-term, high volume demand visibility. In light of yesterday’s new agreement, the Group has upgraded its forecast for its FY2017 order book from €2.9m to €4.1m. As such it has taken an initial step toward fulfilling its original promise of becoming a wholesale supplier of significant scale. This Mahadev agreement will allow Fox to demonstrate its ability to supply distributors with their required volume and grade on competitive terms, and in so doing gain trust and credibility from a much wider range global partners – hopefully to becomes one of the default suppliers-of-choice should, for example, a San Francesco contractor receives an order for half an acre of pure white Sivec destined for a new Middle Eastern hotel. Having risen to this point, however, the rewards should become quite exceptional as low, largely fixed operating costs will see additional revenues trickle almost straight down to the bottom line. Management has already suggested this will be quickly returned to patient shareholders in the form of dividends. In the hope and expectation of the Board delivering a more confident message for its future with release of its finals in Q2’2017, Beaufort retains its Speculative Buy recommendation on Fox Marble’s shares.
Speedy Hire (LON:SDY, 51.25p) – Hold
Upgrade HSS Hire (HSS.L 69.00p) from Hold to Speculative Buy
The UK's leading tools, equipment and plant hire services company, operating across the construction, infrastructure and industrial markets, yesterday issues an update on its trading performance for the year ending 31 March 2017. Group revenues for the third quarter, on a like for like basis (pre-disposal), were 10.6% ahead of the prior year, in part benefitting from the timing of the Christmas holiday period. Management’s recovery plan to improve the efficiency of operations remains on track with reduced overheads, and rental assets and net debt both lower than at the half year end. It also went on to confirm the integration of the brand, business and assets of Lloyds British Testing Ltd acquired on 19 December 2016 is progressing well, with a number of revenue and cost synergies expected to be realised. The results of Lloyds British will not, however, materially affect the FY17 underlying profit before tax.
Our view: This is good news for Speedy but, in reality, HSS is now the UK hire-sector’s most obvious choice! Speedy has successfully implemented a number of customer service initiatives which have led to improving revenue and the retention of major framework contracts; these include a contract renewal, and scope extension, with Carillion Plc, which in total could be worth up to £45m over three years. As a consequence of the improving revenue trend and better operational efficiency, the Board anticipates that adjusted profit before tax for the full year will be ahead of its previous expectations. Beaufort sees this improvements being reflected both in current year operating margins and revenues, which demonstrated a sharp improvement on the +5.2% LFL recorded in the first half. Revised full year pre-tax profit forecasts to March 2017E and March 2018E of £14.5m and £18,2m, implying earnings/share of 2.3p and 2.8p, suggest the shares on multiples of 23x and 18.9x with yields of 1.4% and 1.6% respectively are, however, reasonably up with events. Indeed, having retained a ‘Hold’ recommendation since last summer, during which time the shares doubled, the opportunity appears to have been missed. That said, however, another sectorial opportunity appears to be staring investors in the face - HSS Hire. The switching chart between the two shares below highlights their considerable divergence since November.
Being more directly related to the UK housebuilding and RMI sectors, rather than the longer-term infrastructural contract work which tends to dominate Speedy, HSS Hire is a more obvious beneficiary of the activity stimulation proposed through yesterday’s Housing White Paper. Its complex operational change programme, for which the completion is expected this quarter, was supported by last December’s equity placing which also provided flexibility to continuing building-out its fleet while bolstering its balance sheet. Trading for the first 9 months of the year, in which the Group detailed an increase in market share by advancing revenues by +11% (comprised of +2% in Rental and related revenue and +67% in Services), showed that progress is being made. Adjusted EBITA in fact rose by +5.8% to £14.6m with EBITA margin improved by +1.2% to 5.7% (against the H1 FY2016). The over-publicised slowdown in RMI activity in H2’2016, however, knocked sentiment for players like Travis Perkins, SIG etc., resulting in HSS shares tumbling almost 30% from their November recent peak of 96p. Based on guidance HSS provided back in December, Beaufort has decided to marginally upgrade in 2016E EBITA estimate from £20.7m to £21.0m, but more significantly hike its 2017E EBITA number from £23.8m to £25.2m, suggesting earning/share of 2.1p followed by 5.2p respectively. Although HSS brings with it an uncomfortably high level of debt (around £240m at 9M’2016), its much-discussed take-out of by Speedy now stands to be enhancing for 2017/18E even if one assumes a reasonable bid premium is included. Russell Down, Speedy’s CEO, always insisted that he rebuffed Toscafund’s original proposal of merging the two operations because their timing wasn’t right, but never formally ruled out such an approach in the future. A combined entity, as well as potentially accruing significant operational savings would, in theory, be considerably less cyclically exposed. The timing looks right and, given that HSS shares appear not to have recognised that it must be a net beneficiary of the White Paper, the shares now appear attractive both in terms of fundamentals and a re-emergence of speculation. Beaufort retains its Hold recommendation of Speedy Hire, advising investors to instead switch into HSS Hire which it today upgrades to Speculative Buy.