Today's edition features:
• KEFI Minerals (LON:KEFI)
• Oncimmune Holdings (LON:ONC)
• Reckitt Benckiser (LON:RB)
"Like magic, Donald Trump has pulled the next rabbit out of his hat, promising a 'phenomenal' corporate tax announcement in the next 'two or three' weeks. Its likely to come with his February State of the Union Address to Congress on 28th February, but investors are not seen having the patience to wait for the formal pronouncement. A steadier, but still rather shell-shocked, Euro permitted oversold French bonds to rally, having been preceded on Friday by news from China that its January exports rose 7.9% on last year accompanied a 16.7% leap in imports, which altogether was enough to power all three principal US indices to new record highs having already been boosted by a flow of strong corporate earnings releases. European politics, of course, remains the obvious 'fly-in-the-ointment', with most pundits now seemingly resigned to France's National Front leader, Marine Le Pen, succeeding to May's Presidential run-off. This, however, along with the undoubted complications faced in driving the President Trump's reflationary proposals through Congress, appears to have been temporarily pushed to the back of investor's minds, with early morning trading in Asia firmer right across the board, having had nerves calmed by President Trump informing Xi Jinping that the US would respect his 'One China' policy while also welcoming Japan's Abe to the White House. This leaves Europe simply to follow suit this morning, with all markets expected to open firmer once again. Macro releases due to today are few in number, with nothing coming from the UK, while Germany produces just its Monthly Buba report and the US details the outcome of its 3 and 6-month Bill Auctions. No significant UK corporate earnings or trading updates are due either, although some second-liners like Fidessa Group (FDSA.L), Lok'n Store Group (LOK.L), Plastics Capital (PLA.L) and Surface Transforms (SCE.L) are scheduled, which leaves London to just follow the international lead with the FTSE-100 seen rising between 10 and 15 points in early morning trade."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished Friday's session 0.40% higher at 7,258.75, whilst the FTSE AIM All-Share index improved 0.13% to stand at 900.56. In continental Europe, the CAC-40 finished up 0.04% at 4,828.32 whilst the DAX was 0.21% higher at 11,666.97.
Wall Street
In New York on Friday, the Dow Jones rose 0.48% to 20,269.37, the S&P-500 added 0.36% to 2,316.1 and the Nasdaq gained 0.33% to 5,734.13.
Asia
In Asian markets this morning, the Nikkei 225 had added 0.37% to 19,451.31, while the Hang Seng improved 0.42% to 23,674.11.
Oil
In early trade today, WTI crude was down 0.15% to $53.78/bbl and Brent was down 0.11% to $56.64/bbl.
Headlines
The Co-Op Bank puts itself up for sale
The Co-op Bank says it is putting itself up for sale and is inviting offers to buy all of its shares. It says the sale is something it had always considered as a "potential outcome" of its turnaround plan. The banks says its "customer-led ethical position, attractive product set, multi-channel approach and four million customers constitute a strong franchise with significant potential". The bank is 20% owned by the wider Co-Operative Group consumer business. Dennis Holt, bank chairman, said: "Customers value the Co-operative Bank and our ethical brand is a point of difference that sets us apart in the market. "While our plan has been impacted by lower for longer interest rates, the costs associated with the sheer scale of the transformation and the legacy issues we faced in 2013, there is considerable potential to build the Bank's retail franchise further using the strength of the brand, its reputation for strong customer service and distinctive ethical position." The bank said it needed to build its capital base to meet longer term UK bank regulatory capital requirements, but that its capacity to do so had been constrained by the ongoing impact of low interest rates.
Source: BBC News
Company news
KEFI Minerals (LON:KEFI, 0.39p) – Speculative Buy
KEFI has announced it has conditionally raised £5.6m which may contribute to the upcoming mine build. Depending on the timing of financial close for the mine, a larger or smaller proportion of the £5.6m could go towards the equity component of the mine funding. On its own, we estimate the money will provide KEFI with circa 18 months working capital. KEFI has also announced a 17:1 share consolidation and that some of the funds will go towards increasing its footprint in Saudi Arabia. The £5.6m will come from directors, Lycopodium and Landstead.
Our view: KEFI is working on a number of fronts towards funding the Tulu Kapi mine build by mid 2017. The smaller funding announced this morning allows management to focus on the larger prize. The £4.6m Lanstead facility sees KEFI receive £0.69m upfront and the balance over 18 months. Lanstead's shares are fixed but the price it pays will depend on the prevailing KEFI share price each month. Since we are confident KEFI will achieve financial close for the mine this year (a very significant positive catalyst) we expect Lanstead to pay a higher average price for its shares than current levels. On that basis this is good news for existing shareholders and we maintain our Speculative Buy recommendation.
Beaufort Securities acts as corporate broker to KEFI Minerals plc
Oncimmune Holdings (LON:ONC, 123.50p) – Speculative Buy
Oncimmune Holdings, a leading early cancer detection company developing and commercialising its proprietary EarlyCDT platform technology, on Friday announced its interim result for the 6 months ended 30 November 2016 ('H1 FY2017'). During the period, revenues was lower than expected at £0.1m (H1 FY2016: £0.27m), due to being earlier in the sales process than anticipated, and a gross profit was £0.005m (H1 FY2016: £0.25m), against the comparable period (H1 FY2015). As general administrative expenses (before one-offs and non-cash items) increased to £2.42m (H1 FY2016: £1.61m) in order to build its commercial capabilities (including recruitment of staff, product development and commercialisation activities), the loss for the period widened to £2.3m (H1 FY2016: £0.8m). Cash balance at the period end was stood at £7.6m (H1 FY2016: £1.1m). On the operational front, the Group said CE marked and ISO certified 'kit' version (against central lab-based test) of its EarlyCDT tests is now in final validation stage. For the EarlyCDT-Lung test, the Group has established fully operational 14 distributor base in the US. The Group is in final validation stage for the addition of material new markers to EarlyCDT-Lung test in order to further enhance test performance. The Group confirmed that significant progress has been made on its second-generation fingerprint test and companion diagnostics. Oncimmune has also signed research agreements with Egybiotech, a private research company focused on cancer research, and Aarhus University Hospital in Denmark, for a final clinical validation of EarlyCDT-Liver and EarlyCDT-Ovarian. The Group said "We remain confident for the prospects of Oncimmune and that we have created a company that is strategically valuable in the field of early cancer detection."
Our view: Oncimmune made good operational progress during the period. CE mark and ISO certified EarlyCDT 'kit' tests will enable the Group to expand its distributor discussions into new geographical territories, such as Asia. The kit version is currently expected to be ready in Q2 FY2017. Improvements have been made to its existing EarlyCDT-Lung test which is now near completion and expected to be tested in CLIA lab in Kansas during 2017. Beyond this, EarlyCDT-Liver test is expected to be ready for commercialisation before the end of 2017, while EarlyCDT-Ovarian also in advanced development to follow. Post the period, EarlyCDT-Lung is being used in the world's largest randomised trial for the early detection of lung cancer conducted in collaboration with NHS in Scotland, where the study has completed recruitment of 12,210 high-risk smokers. Encouraging interim data from the NHS screening trial was presented in December 2016 at the 17th World Conference on Lung Cancer in Vienna, where it showed a shift to early and curative cancer (stage 1 & 2) from 20% in normal practice today to 75%. With the Group established a stronger distributor network and a new sales process in the US, an increase in revenue is anticipated for 2017. With cancer being an ever-increasing focus for mankind and early detection a key element for reducing mortality and cost, we believe Oncimmune remains well positioned to generate significant value in the relatively near term. Beaufort retains its Speculative Buy recommendation on the shares.
Reckitt Benckiser (LON:RB, 7,025.00p) – Hold
Reckitt Benckiser ('Reckitt'), a multinational consumer goods company operating three main product categories; Health, Hygiene and Home, on Friday, announced its results for the full year ended 31 December 2016 ('FY2016'). During the period, net revenue advanced +11% to £9,891m at actual exchange rate basis against the comparable period (FY2015). On a constant exchange rate basis ('CE'), net revenue climbed +2%, while on a like-for-like ('LFL') basis, it improved by +3%. Gross Margin increased by +1.8% to 60.9% helped by costs and pricing. Operating profit grew by +8% to £2,410m (CE: -3%), due to the exceptional item charge of £367m (FY2015: £133m). Pre-tax profit increased by +8.4% to £2,394m and consequently, diluted earnings per share improved by +6% to 256.5p. On an adjusted basis, operating profit was up +17% (CE: +6%), helped by adjusted operating margin improvement of +1.3% to 28.1%, and diluted earnings per share rose by +17% to 302.0p. Free cashflow stood at £2,036m, while net debt at the period end was £1,391m. On the operational front, LFL sales were positive across all geographical regions with +8% LFL increase in DvM (Africa, Middle East, Turkey, Asia and Latin America). From its product categories, both Health (34% of revenue) and Hygiene (41% of revenue) division grew by +4% LFL basis, while Home (18% of revenue) division fell by -1%. The Group increased its brand equity investment by +£63m at constant exchange rate basis, now stands at 13.2% of Net Revenue, up +0.5%. Separately, the Group announced acquisition of Mead Johnson Nutrition Company, a global leader in infant and children's nutrition products, for US$17.9bn (including Mead Johnson's net debt), subject to shareholder and regulatory approvals (expected to complete by end-Q3 FY2017). The Group said acquisition will bring c.£200m in annual cost savings by the end of the year 3, expected to be accretive to adjusted diluted EPS in the first full year and double-digit accretive by year 3, while return on invested capital projected to exceed Reckitt's cost of capital by year 5. Mead Johnson business is targeted to growth 3-5% per annum in the medium to long term and will strengthens Reckitt's presence in developing markets, particularly China. Reckitt declared a final dividend of 95p per share (2015: 88.7p), bringing full year dividend to 153.2p, up +10%, to be paid on 25 May 2017.
Our view: Reckitt Benckiser reported resilient results for FY2016 with its performance boosted by positive translation impact from weaker Sterling, given that it generates the majority of its earnings from overseas. The Group's revenue (+0.29% ahead), EBITDA (+1.97% ahead) and adjusted earnings per share (+1.02% ahead) all came ahead of the consensus analysts' expectation, although LFL sales growth was below the Group's previous guidance of +4% (Consensus LFL: +3.4%). The underperformance on LFL sales was due to weaker than expected H2 LFL growth, particularly during Q4 (Health -1%, Hygiene +3%), offsetting stronger growth seen in the H1. During the year, the Group suffered from a sharp fall in operating and pre-tax profit as a result of an exceptional charge of £367m (FY2015: £133m), of which, £300m was for compensation payments and other related costs for the health issues, including deaths caused by its humidifier steriliser product, Oxy, in Korea. Notwithstanding the Group's effort to resolve the issue, the reputational damage it has caused in Korea has consequently resulted in -1% fall in Group LFL grow. Looking ahead, the Group expect macro conditions to remain challenging in FY2017, particularly in the H1. For the full year FY2017, the Group has guided LFL growth of +3% with a medium-term target of "moderate" operating margin expansion. The Group has completed the majority of Project Supercharge to achieve annualised cost savings of £150m (upper end of the £100m-£150m previously guided) over three years commencing FY2017. Though fundamentals remain encouraging, the reputational damage the Group is facing from number of issues, such as in Korea and Australia (Nurofen), combined with the impact of commodity driven input costs appreciation expected in FY2017, we see current valuation of FY2017E and FY2018E P/E multiple of 21.6x and 19.7x along with dividend yield of 2.4% and 2.6%, respectively, as a fair reflection of current progress. Beaufort retains its Hold rating on the share while awaiting for more reassuring evidence on macroeconomic front.