Today's edition features:
• Bezant Resources (LON:BZT)
• ValiRx (LON:VAL)
"Did we learn anything new from Philip Hammond yesterday? Not really! All issues and revised projections (growth targets out to 2019, budget deficit, 5-year reduced borrowing, etc.) had been so well leaked beforehand, that the FTSE-100 remained with the 35-point trading range set up prior to his speech. Markets took the various swinging measures, including a reduction in the tax-free dividend allowance mostly in its stride, although Sterling momentarily wavered on news that the OBR sees UK inflation peaking at 2.4% in 2017, which probably puts paid to any expectation that Governor Carney will seek to raise the BoE's base rate during 2017. Overall, the Chancellor's message painted a relatively confident picture, despite warning his foot is remaining firmly on the austerity 'pedal', given that he seeks to balance the books in the next parliament, which starts in 2020, and wants to keep his warchest full in case the economy has an onset of nerves following the triggering of Article 50 by the end of this month. Bored with that, market eyes have now fallen back on the imminent European and US central bank meetings. Ultraloose monetary policy has, of course, underpinned years of stock market gains, and given that President Trump has also managed to remove the word 'deflation' from the lips of policy makers globally while also enhancing earnings expectations, its resilience is likely to last rather longer than might be expected during a more regular phase of tightening. Yesterday's ADP National Employment Report reinforced this view, adding confidence ahead of Friday's monthly non-farm payrolls report, which is the last major piece of economic data the Fed will consider ahead of its FOMC meeting on 14th and 15th March. No rate move is expected from the ECB at 12:45hrs today, although its following speech is expected to offer signals regarding its giant bond-purchase program, possibly pointing to evidence the Eurozone economy is picking up, although most consider Mario Draghi is unlikely to announce major changes to the stimulus program ahead of key upcoming French and Dutch elections. US equities ended mixed, putting in just fractional movements, as energy stocks weighed on the Dow following oil prices tumbling over 5% in the wake of strong US inventory data, leaving just the NASDAQ to register a minute gain. Traders remained unimpressed with the President picking up on another of his major campaign pledges yesterday, as he pushed his White House team to map out a plan for US$1 trillion in infrastructure spending, designed to pressure the 52 States to streamline local permitting, favour renovation of existing roads and highways over new construction and prioritize projects that can quickly undertake the works. Asian shares were knocked during this morning's trading by news that Chinese Consumer Inflation had slowed to its lowest in two years, while weakness in commodity prices also weakened the ASX, leaving just the Nikkei to put in a modest rise as it pivoted on US$ strength. UK macro data due today is limited, with the RICs Housing Price Balance reported first thing as unchanged February on January at +24, while the US provides its Import and Export Price Index releases. UK corporates due to detail earnings or trading updates include Aviva (AV..L), WM Morrison (MRW.L), Old Mutual (OML.L), Domino's Pizza (DOM.L), Countrywide (CWD.L) and DS Smith (SMDS.L). Market eyes will also be on Theresa May who today is attending a EU Summit in Brussels while David Davis fields Brexit questions in the Commons. Somewhat anticlimactic following yesterday's Budget, London is seen locking in recent gains, particularly amongst oil plays, with the FTSE-100 seen down 25 points in early trading."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.06% lower at 7,334.61, whilst the FTSE AIM All-Share index added 0.13% to stand at 916.38. In continental Europe, the CAC-40 finished up 0.11% at 4,960.48 whilst the DAX was 0.01% higher at 11,967.31.
Wall Street
In New York last night, the Dow Jones fell 0.33% to 20,855.73, the S&P-500 eased 0.23% to 2,362.98 and the Nasdaq rose 0.06% to 5,837.55.
Asia
In Asian markets this morning, the Nikkei 225 had risen 0.3% to 19,312.23, while the Hang Seng fell 1.1% to 23,520.47.
Oil
In early trade today, WTI crude was up 0.64% to $50.60/bbl and Brent was up 0.87% to $53.57/bbl.
Headlines
Tax-free dividend allowance slashed
Businesses owners who pay themselves in dividends on top of a small salary will be hit by a change announced in the Budget. From April 2018, the Total amount of dividends that company directors and shareholders can receive tax-free will fall from £5,000 to £2,000. The Federation of Small Businesses called the move "a further disincentive for businesses to invest and grow". The change is the biggest tax raiser in Chancellor Philip Hammond's Budget. It will net an increasing amount for the Treasury, bringing in £930m in 2021-22. It means a basic rate tax payer who receives £5,000 in dividends will have to pay an extra £225 tax from April 2018. A higher rate tax payer will pay an extra £975.
Source: BBC News
Company news
CORRECTION: Bezant Resources (LON:BZT, 2.12p) – Speculative Buy
Yesterday we published a comment stating that a "fully commercial processing plant could be in production within 12 months". However, we have been informed by the company that it can be done in only 4 months from a construction decision. As a result, assuming Bezant decides to progress with development of its Choco platinum and gold project sometime in 1H17, and funding allowing, we should see production in 2017.
Beaufort Securities acts as corporate broker to Bezant Resources
ValiRx (LON:VAL, 2.45p) – Speculative Buy
The clinical stage biotechnology company, yesterday provided an update on the clinical development of the joint venture between ValiRx and Tangent Reprofiling Limited. ValiSeek was formed to progress the novel cancer treatment drug, VAL401, into Clinical Efficacy trials for the treatment of lung cancer and other oncology indications. Since the announcement by the Group on 3 November 2016, regarding the commencement of dosing of patients, ValiSeek has made several significant steps of progression within the trial. The Group reported on the acceptance by the ethics committee of the JSC Neo Medi Clinic, Tbilisi, Georgia back on 1 December 2016, to be the Group's second trial site; it now confirms that the Ministry of Health have approved the site and that all contractual/logistical procedures have been finalised. This second site is now actively recruiting patients into the trial. Further to the initiation of the second site, ValiRx announced that it has received approval from the ethics committee of the Research Institute of Clinical Medicine, Tbilisi and is in the process of submitting an application for full regulatory approval from the Ministry of Health in Georgia to initiate this third clinical site in Tbilisi. In light of the Group's earlier experiences, both in terms of recruitment and testing of VAL401, the decision to include the Research Institute as a third site, enables the differing specialities of clinics and investigators to be combined to provide the optimal team. With this third site anticipated to commence recruiting patients by April 2017, the Group will extend its recruitment period into Q2 2017, in order to maximise the potential for the full co-operation between the sites. In addition, ValiSeek has achieved approval of several protocol and documentation amendments and updates both to the ethics committees of all three sites and to the Ministry of Health, Georgia. While clarifying instructions to the clinicians, these updates confirm the intention of a preliminary datalock on completion of the collection of all pharmacokinetic samples. This will enable a mid-trial data release.
Our view: Another significant step forward! The set-up and planning for the addition of a third site is a statement of confidence and evidence that the Group is working towards completing recruitment and collecting good quality data within a reasonable timeframe. The amendment for preliminary datalock is also important as it allow access early data from the trial and to conduct robust analysis of key early safety, tolerability and pharmacokinetic information without compromising the quality of life and survival data that will continue to be gathered. This positive news once again underlines the fact that ValiRx investors are getting an awful lot for their money! The Group operates a low-risk, high return model that is shareholder friendly in the respect that it seeks to partner or out-licence drug candidates, with a view to crystallising value, before reaching the costlier phases of the development. It routinely provides shareholders with tangible progress between modest funding rounds, the latest of which now finances its two lead candidates with respect to additional patient/centre recruitment, trial dosing and product manufacturing out to September. Comparisons with peer groups with similar clinical portfolios, or early stage partnership deals with big pharma seeking entrance into such therapeutic areas, suggests a significant valuation gap has opened. ValiRx shares presently recognise none of the value created over the past 18 months, nor the depth of its therapeutic pipeline. While it is understandable that the market remains concerned regarding the Group's prospective funding needs, it should also recognise that a potentially near-term Big Pharma development collaboration for either VAL201 or VAL401 would likely be at a multiple of the Group's current capitalisation.
Beaufort Securities acts as corporate broker to ValiRx Plc
Dignity (LON:DTY, 2,296.00p) – Hold
The UK's only listed provider of funeral related services, yesterday announced its preliminary results for the 53-week period ended 30 December 2016. Key points included a financial performance better than expected at the start of the year, as guided in November 2016. Deaths were broadly flat at 590,000 (2015: 588,000) and higher than originally anticipated, but its market share decline was larger than seen before, partly due to a strong 2015 comparative. The Group's portfolio expanded through the acquisition of a total of 16 funeral locations and five crematoria in the period, with total investment of £56 million (net of cash acquired) funded from existing cash resources. Since the last trading update, the Group has obtained planning permission for a third new crematorium which is due to commence in 2018/19 and follows the ongoing satellite location programme ongoing with 11 locations opened last year. The Group has also acquired three funeral locations and one small crematorium since the balance sheet date. The Board also reported another good year of pre-arranged funeral plan sales, with active pre-arranged funeral plans increasing to 404,000 (2015: 374,000), helped by trust and insurance based sales. Dignity's underlying operating profit for the period was £37.6 million (2015: £34.6 million), an increase of nine per cent. This was driven by increasing average revenues per cremation, which has been assisted by the increase in the number of cremations performed in the year, while acquisitions also assisted. Total revenues were reported as £313.6m compared with £305,3m, while cash generated from operations was £121.1 million (2015: £125.2 million) stated before external transaction costs of £3.9 million (2015: £3.2 million). The reduction year on year despite an increase in operating profit reflects timing differences of working capital items year on year. The longer-term expectation of profits converting efficiently to cash is unchanged. The Board is proposing a final dividend of 15.74 pence per Ordinary Share, bringing the total dividend for the year to 23.59 pence; another increase of 10 per cent on the previous year.
Our view: Lowering expectations. Given the increased size of the Group and increasing competition in each of its markets, Dignity's management has revised its medium-term target underlying EPS growth rate to eight per cent per annum from the current 10 per cent. As with the previous target, this objective includes the benefit of the reinvestment of cash generated by the business and the Group's ability to lever its balance sheet either to fund acquisitions or return capital to shareholders. The number of deaths was higher in 2016 than the Group originally anticipated, following a significant increase in the number in 2015. Historical data would suggest that deaths in 2017 could be significantly lower than 2015 and 2016, although trading in the first few weeks of 2017 has continued to be strong. As a result, the Board's financial expectations are unchanged for the year ahead and it remains positive about the future prospects, albeit somewhat lowering expectations. The shares have underperformed the FTSE All-Share by more than 15% since Beaufort downgraded to Hold from Buy back in July 2016. Based on modestly revised expectations of 2017E and 2018E eps of 122.6p and 134p respectively, indicating forward multiples of 20x and 18.3x with sub-1% yields in both periods, Beaufort considers the shares of this well run and high visibility Group to be up with events. The recommendation on Dignity remains 'Hold' with a price target of 2480p, although investors might take advantage of the fact that the share price had unexpectedly spiked in the two weeks running up to the results to trim overweight positions.