"There is was, gone. Having swallowed Kraft in a 2015 deal engineered by Warren Buffett, Heinz enlivened Friday's otherwise lacklustre trading by putting a US$50/share deal on the table for Unilever (LON:ULVR). Most thought the 'merger dance' between the two giant consumer groups had only just begun. Following Unilever's initial rejection, a formal proposal was expected to emerge in less than one month ahead of an improved 'final' offer being made in order to finally arrive at a recommended deal. In the process, this sparked speculative excitement from peers like Reckitt Benckiser (LON:RB.) and PZ Cussons (LON:PZC), prompting traders to asking if this might be the starting gun for a new 2017 wave of M&A, led by US groups enjoying the recent Trump-inspired strength of the US$. Huge potential synergies were eyed from such a merger, that would only need Unilever to lift operating margins half way to Heinz's own for the deal to wash its face on the initial terms while also creating a consumer powerhouse to rival Nestlé. An extended period of regulatory abeyance would, of course, be anticipated as swinging conditions are set by international monopolies authorities and politicians, although a team as experienced as Heinz's would have already second-guessed the likely outcome. So Sunday morning's surprise 'amicable' withdrawal, having concluded that a protracted public battle for control would cause more damage than good, comes as a big surprise, big enough in fact to consider that behind the scenes a deal is still being cooked? This time maybe on a friendly basis, emerging perhaps in a few months with a more generous outcome for Unilever shareholders? Donald Trump's rather bazaar weekend rally in Florida does not appear to have knocked the market's confidence in his determination to deliver on reflationary campaign pledges. Following Wall Street upward but uninspiring close on Friday, the Asian markets were generally mixed, with the Chinese markets leading the gains, as the Nikkei trod water and ASX suffered some modest profit taking in minerals groups and financials. UK Macro data due today includes the Rightmove House Price Index and the CBI Industrial Trends Survey for February, with nothing other than a scheduled speech from the FOMC's Loretta Mester due from the US London equities appeared not particularly concerned by Friday's Retail Sales data, which confirmed UK consumers are starting to feel the Brexit pinch, slipping for the third consecutive month, after hitting a 14-year high in October, leaving them to primarily to reflect on corporates due to report earnings or trading updates including Bovis Homes (LON:BVS), Dorcaster (DAR.L), Feedback (LON:FDBK), Fishing Republic (LON:FISH) and Hammerson (LON:HMSO). Overall, however, the UK markets are seen continuing to bask in the reflection of Friday Unilever bid with traders, who appear convinced that there is more to the Unilever story than presently meets the eye, seen pushing the FTSE-100 to a 20 point gain in early trading."
- Barry Gibb, Research Analyst
The FTSE-100 finished Friday's session 0.30% higher at 7,299.96, whilst the FTSE AIM All-Share index added 0.14% to stand at 907.94. In continental Europe, the CAC-40 finished down 0.65% at 4,867.58 whilst the DAX finished at 11,757.02.
In New York on Friday, the Dow Jones rose 0.02% to 20,624.05, the S&P-500 firmed 0.17% to 2,351.16 and the Nasdaq finished up 0.41% at 5,838.58.
In Asian markets this morning, the Nikkei 225 had risen 0.09% to 19,251.08, while the Hang Seng firmed 0.52% to 24,157.77.
In early trade today, WTI crude was up 0.26% to $53.54/bbl and Brent was up 0.29% to $55.97/bbl.
Stellar Diamonds (LON:STEL, 7.12p) - Under Review
Stellar has announced exclusive heads of terms over a new agreement with Octea which means the transaction is no longer a reverse takeover. The economics remain similar for both parties (Stellar Diamonds and Octea) but instead of being a takeover of Octea's Tonguma license, the transaction will be in the form of a Tribute Agreement. These are common in Australia where a mining company might allow a third party to mine non-core deposits in return for a royalty. The Stellar - Octea tribute agreement means that Stellar remains responsible for funding and operating the mine, Stellar markets the diamonds and effectively controls the business and cashflows. Stellar must pay Octea a 10% revenue royalty (after any government royalty) once it has recouped the "development capital". Other details include a one-off $5m payment to Octea, 5 years after start of development. Despite this change, Stellar shares remain suspended until funding is announced.
Our view: This new agreement should save Stellar the costs of a reverse takeover plus the economics remain attractive for Stellar and its shareholders. Assuming the terms of the tribute agreement remain the same (today was heads of terms not a final agreement), Stellar estimates a post tax NPV 8% of $104m to Stellar. Note that the quantum of cashflows to existing Stellar shareholders will depend on the funding structure and whether existing shareholders take part in potential future fund raises. Stellar is at the due diligence stage with at least one strategic investor, and securing cornerstone funding should be the catalyst for the whole deal to fall into place. Although this is a positive announcement, while the shares are suspended we have our recommendation Under Review.
Beaufort Securities acts as broker to Stellar Diamonds PLC
Premier African Minerals (LON:PREM, 0.78p) – Speculative Buy
Premier African Minerals, the South and Western Africa focused mineral explorer and developer, announced today an update on its RHA tungsten mine and its lithium/tantalum exploration project both located in Zimbabwe. Shaft upgrades have now been completed and terms for the contract mining by African Mining and Exploration (Afmine) have been finalised at RHA. Under terms of the agreement, up to 16,000t of ore per month from underground operations will be delivered to the plant and at the same time 24,000t per month will be delivered from the open pit operations, all commencing in March 2017. The Company also announced assay results form its Zulu lithium and tantalum project where a recent drilling programme was designed to test the 3.5km strike length of the deposits. Lithium mineralisation was intercepted over 15.63m grading 1.54% Li2O, including 4.31m grading 2.16% Li2O (DDH ZDD-3). Drill hole ZDD-15 returned 5.6m grading 1.46% Li2O, including 1.97m grading 2.04% Li2O.
Our view: The conclusion of the mining contract is an important milestone for restarting operations at the RHA tungsten mine. The contractor, Afmine, has also elected to take its second payment of £100,000 in equity. With shaft upgrades now complete and implementation of the XRT ore sorter continuing, we expect commissioning of the mine to begin soon. We are also encouraged by initial drill results at Zulu, while tantalum assay results are still pending we note the high-grade lithium intersected in ZDD-3, up to 3.3 Li2O. We look forward to initial start-up at RHA in the coming weeks and additional drill results from the Zulu lithium and tantalum project. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Premier African Minerals plc
AstraZeneca (LON:AZN, 4,595.00p) – Hold
AstraZeneca, a global, science-led biopharmaceutical company focused on three main therapy areas – Oncology, Cardiovascular & Metabolic Diseases and Respiratory, on Friday announced that its Lynparza (olaparib) tablets met primary endpoint in Phase III OLYMPIAD trial for the treatment of patients with BRCA-muted metastatic breast cancer. The primary endpoint was to show improvement in progression-free survival ('PFS'). Lynparza demonstrated a statistically-significant improvement in PFS for the patients compared to standard of care chemotherapy, while safety profile remains consistent with previous studies. A full evaluation of the OLYMPIAD data is ongoing, with secondary endpoints to include overall survival, time to second progression or death, objective response rate, and effect on health-related quality of life.
Our view: This is a positive news for AstraZeneca. Its Phase III BRCA-muted metastatic breast cancer drug, Lynparza, has indicated more favourable results compared to the chemotherapy, without compromising its safety profile. Metastatic breast cancer is a common disease, with approximately one-third of those diagnosed with breast cancer (approximately one in eight women) progressing to the metastatic stage of the disease (Dr Joyce O'Shaughnessy, The Oncologist 2005:10). As there is currently no treatments available for patients diagnosed with metastatic breast cancer, the primary endpoint for improvement in progression-free survival, meaning even slowing the progression of the disease, has potential to significantly enhance the patient's quality of life. For now, however, our focus is on the success/failure of AstraZeneca's MYSTIC trial (for non-small cell lung cancer), for which, the PFS data readout is expected in mid-2017, followed by final overall survival data during 2018. Beaufort maintains its 'wait and see' approach on the shares and therefore retains its Hold rating on AstraZeneca.