Today's edition features:
• Sunrise Resources (LON:SRES)
• Everyman Media Group (LON:EMAN)
• Hutchison China MediTech (LON:HCM)
• Quadrise Fuels International (LON:QFI)
"Markets remain tense in anticipation of a series of key announcements this week. The big one is the FOMC meeting, which starts today and concludes tomorrow with its interest rate decision at 18:00hrs. With Fed futures suggest a 95% chance of a 25bp hike most think it is already in the bag, suggesting there would be something of a shock reaction if Janet Yellen fails to deliver. More realistically perhaps, the Fed Chair could send a shiver down the markets spine by signalling either the need for more aggressive policy or the possible need for more than the 3 moves she has already guided for 2017. The yield on the benchmark 10-year U.S. Treasury note edged higher last night to 2.591%, according to Tradeweb, from 2.582% Friday. Beyond this, the flood of news continues with The Bank of Japan, Bank of England and the Swiss National Bank are all set to hold meetings this week, while Dutch voters head to the polls tomorrow, with the outcome expected to be declared early Thursday. This, of course, is the first of a series of key votes in the Eurozone this year and investors will be watching to see how well Geert Wilders' anti-establishment, Party for Freedom, performs to determine the Dutch political landscape and reassess populist and anti-euro candidate Marine Le Pen's chances of winning the French presidency in the first round on 23rd April. While En Marche's Emmanuel Macron is seen accompanying the National Front's leader to the second round on 7th May, opinion polls consistently give him a 20%+ lead in such a run-off, an outcome that would likely significantly narrow the currently wide 10-year OAT-Bund spread. just as Parliament clears the way for Brexit, Scotland's chief minister Nicola Stugeon has called for another Referendum on leaving the U.K. due, apparently, to concerns about leaving the EU single market; traders suggest, however, her move had been widely anticipated and, given the event is still seen some 18 months away, so far has failed to hurt Sterling. More immediately, however, a dovish tone from the Bank of England on Thursday, would likely set it sliding downward. With all eyes on the Fed, US equities drifted featureless in a tight range, ending mixed with just fractional mixed moves amongst the principal indices. Asian equities ended similarly, although most closed marginally in the red, with Japan's Toshiba the principal feature with its shares tumbling upon announcing a further delay in releasing its earnings report; the Shanghai Composite trod water despite Chinese value-added industrial output, a proxy for economic growth, expanding to 6.3% in the first two months of 2017, exceeding expectations. No significant UK macro data is due today, although the EU provides Industrial Production data and its ZEW Survey, while the US is scheduled to release Producer Prices and its Redbook. UK corporates due to release earnings or trading updates include Prudential (PRU.L), Antofagasta (ANTO.L), TP ICAP (TCAP.L), French Connection (FCCN.L), SIG (SHI.L) and Ocado (OCDO.L). Equities in London are expected to trade lightly at the opening, with the FTSE-100 seen rising 5 to 10 points in early business."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.33% higher at 7,367.08, whilst the FTSE AIM All-Share index added 0.40% to stand at 919.73. In continental Europe, the CAC-40 finished up 0.13% at 4,999.60 whilst the DAX was 0.22% higher at 11,990.03.
Wall Street
In New York on Friday, the Dow Jones fell 0.1% to 20,881.48, the S&P-500 firmed 0.04% to 2,373.47 and the Nasdaq gained 1.61% to 5,875.79.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.04% to 19,625.75, while the Hang Seng firmed 0.05% to 23,840.64.
Oil
In early trade today, WTI crude was up 0.02% to $48.41/bbl and Brent was up 0.08% to $51.39/bbl.
Headlines
Rents fall for first time in six years
The average monthly rent for newly-let properties has fallen for the first time since late 2010, according to estate agency Countrywide. The drop has been due to a big recent increase in the supply of properties becoming available, mainly in London. That was due to some landlords rushing to buy last year before a 3% stamp duty surcharge came into effect. The average new tenancy in England, Wales and Scotland fell 0.6% in the year to February, to £921 a month. The main factor was a big drop in rents in London and the south east of England. In the capital they fell by nearly 5% in the past year to an average of £1,246 a month, and in the south east of England they fell by nearly 3% to £1,152. Everywhere else rental levels continued to rise. "Rents are growing in most of the country but falls in London and the south east are dragging down the national growth rate, " said Countrywide's research director Johnny Morris. "Early signs point towards 2017 being a rare year where rents rise faster in the north of the country than in the south."
Source: BBC News
Company news
Sunrise Resources (LON:SRES, 0.10p) – Speculative Buy
Sunrise Resources published an update on its CS Deposit, a pozzolan and perlite project in Nevada. Sunrise has found a new area now called the Tuff Zone 1.7km south of the Main Zone. Like the Main Zone, the Tuff Zone tests positive for use as a natural pozzolan and has areas of potential perlite which need lab testing. The Tuff Zone is 1.2km long and 200m wide so has large tonnage potential.
Our view: The CS Project is developing into Sunrise's most important project if not there already. Yesterday's announcement is important in giving the project scale/longer life and more material to choose from if it becomes a mining operation. There are two important news events coming soon, the first is ASTM testing to get pozzolan certification. These tests are underway at a leading accredited cement and construction industry materials testing laboratory. Second is the CS Deposit's Scoping Study which should be ready in the next few weeks. We know already that there is a good local pozzolan (cement) market in California and Nevada. Perlite has multiple applications, also has local markets and as a high value product is potentially exportable, but only if necessary. We also understand that Sunrise is using one of the US's leading experts in pozzolan and perlite who provides both technical and marketing expertise. We look forward to these upcoming catalysts and maintain our Speculative Buy recommendation.
Beaufort Securities acts as corporate broker to Sunrise Resources Plc
Everyman Media Group (LON:EMAN, 109.50p) – Speculative Buy
Everyman Media ('Everyman'), the operator of Everyman cinemas across the UK, yesterday announced a preliminary results for the 52 weeks ended 29 December 2016 ('FY2016'). During the period, revenue advanced +45.5% to £29.6m, adjusted EBITDA grew +131.9% to £4.0m and the Group made pre-tax profit of £540,000 (FY2015: loss £734,000), against the comparative period (FY2015). Profit after tax was £61,000 (FY2015: loss £556,000), due to income tax expense of £479,000 (majority from corporation tax and expenses not deductible for tax purpose) compared to a credit of £178,000 last year, leading to basic and diluted earnings per share of 0.1p (FY2015: loss 1.08p). Net cash generated from operating activities was £5,515,000 (FY2015: £2,959,000), while net cash outflows were £10,393,000 (FY2015: £16,169,000). Cash and cash equivalents at the period end stood at £1,566,000 (FY2015: £9,173,000). On the operational front, the Group opened 4 new Everyman cinemas, bringing Total estate to 20 sites, and exchanged lease agreements on 4 new venues. Everyman's Chairman, Paul Wise, commented "With four new venues opening during the year, together with the completion of some significant refurbishments and the full year impact of our 2015 expansion, 2016 marked a step change in the growth of the business. Through revenue growth and improved efficiencies, the business delivered an overall performance ahead of the Board's expectations for the year".
Our view: Everyman has delivered a strong performance for FY2016. Group's results came ahead of its Board's own expectations, having already guided full year performance "above market expectations" at the trading update in January 2017. Driven by its continued expansion program, Everyman has expanded its market share to 1.64% (2015: 1.12%), according to ComScore. Looking down the key performance indicators, total admissions increased by +39.6% to 1.7 million visitors, while both Box Office and Food & Beverage spend per head improved to £10.94 (FY2015: £10.60) and £5.55 (FY2015: £5.35), respectively, supporting revenue growth. Post the period, the Group said trading to date has been "strong" and has therefore revised managements' own expectations upwards for FY2017 and beyond. In FY2017, the Group is expected to open leased Stratford-Upon-Avon site in Q2 and a permanent site in Kings Cross (replacing temporary) in late 2017. The Group's cash and cash equivalents has fallen to £1.6m at the period end, while it has agreed a new loan facility of £20m on 10 March 2017 to replace its £8m loan facility signed in March 2016. Everyman maintains rich pipeline of further new venues and said it will finance its ongoing expansion from current resources including the loan facility, retained earnings and where appropriate, further financing. Although there are concerns for squeeze in household disposable income driven by inflation that is likely to impact consumer confidence somewhat (Office for Budget Responsibility forecast for UK inflation to reach 2.4% in 2017), Beaufort remains confident in the managements' ability to deliver another year of quite exceptional growth, based on anticipated openings and momentum being built at its existing sites. The share price has increased by +28.8% year-to-date but, in view of the positive progress and strong pipeline, Beaufort again reiterates its Speculative Buy rating on the shares.
Hutchison China MediTech (LON:HCM, 2,412.50p) – Buy
Hutchison China MediTech ('Chi-Med'), the China-based healthcare group, yesterday announced s final results for the 12 months ended 31 December 2016 ('FY2016'). During the period, Group revenue (excluding JVs) advanced by +21.3% to US$216.1m, comprised of Commercial Platform (China pharmaceutical business), up +43.3% to US$180.9m offsetting -47.7% decline in Innovation Platform (R&D) revenue to US$35.2m, against the comparative period ('FY2015'). Contraction in Innovation Platform revenue was due to a lower level of milestone payments, service fees and clinical cost reimbursements received from its partner (AstraZeneca, Lilly and NSP) compared to the last year. Operating profit increased by +53.0% to US$20.5m, resulting total net income attributable to Chi-Med to US$11.7m, up +46.3%. Available cash resources at the period-end stood at US$173.7m (FY2015: US$38.8m). On the operational front, the Group has completed NASDAQ listing in March 2016 successfully raised net proceeds of US$95.9m. Its Innovation Platform has had its first successful pivotal Phase III outcome for fruquintinib in Locally Advanced or Metastatic Colorectal Cancer, demonstrated safety and efficacy. Publication of full data results and submission of a new drug application ('NDA') to the China FDA is expected in mid-2017, followed by first launch in China targeted in 2018. Its Commercial Platform saw total net income attributable to Chi-Med up by +180% to US$70.3m, boosted by one-time US$40.4m land compensation and subsidies paid by Shanghai government to its joint venture, Shanghai Hutchison Pharmaceuticals Limited ('SHPL'). Total sales of non-consolidated joint ventures increased by +14% to US$446.5m (FY2015: US$392.7m) driven by continued expansion of coronary artery disease prescription drug business. Chi-Med's Chairman, Simon To, reiterated that the Group's aim remains "to become a large-scale innovative global biopharmaceutical company based in China".
Our view: Chi-Med has made an excellent progress during the FY2016. Financially, the Group delivered revenue of US$216.1m and net income of US$11.7m, both ahead of the guidance (previous guidance: revenue US$190-205m, net income US$0-5m). Operationally, the Group made positive progress at both the Innovation and Commercial Platforms. Commercial Platform contributed to the strong growth in Group financials with +19% growth in net income to US$29.9m (excluding US$40.0m one-time land gain), continue to fund its Innovation Platform. According to Frost & Sullivan, China pharmaceutical industry has a market value of US$196bn in 2015, forecasted to grow at CAGR +15% between 2016 to 2020, having grown at +17% CAGR between 2011 to 2015. Innovation Platforms, on the other hand, has announced early this month a first ever successful pivotal Phase III clinical trial in the Group's history for fruquintinib in colorectal cancer which is expected to submit NDA in mid-2017 and targeting a launch in 2018. Colorectal cancer is the second most common type of cancer in China, with approximately 380,000 new patients per year (CA Cancer Journal for Clinicians 2016), while there currently has no drugs available in third-line colorectal cancer in China. Globally, there was c.1.5 million new patients in 2015, which are estimated to increase to c.1.7 million patients per year by 2020, according to Frost & Sullivan. Upon NDA approval, the fruquintinib drug has potential to significantly enhance the patients' quality of life, which should reflect to Chi-Med's financials in coming years. Chi-Med currently estimates the potential deliverable peak sale of US$110-160m which as per the agreement with Eli Lilly and Company ('Eli Lilly'), net income attributable to Chi-Med amount to US$20-35m. Looking ahead, the Group has provided guidance for FY2017, in line with consensus Analysts' estimate, with revenue in a range US$225-240m, administrative expenses, interest & tax at US$18-19m and net loss of US$13-28m. Net loss was forecasted for FY2017 as a result of increased adjusted R&D expenses (US$85-90m), and lower one-time property gains of US$14-16m (FY2016: US$40.4m). This guidance remains, of course, subject to licencing deals and other factors (e.g. Eli Lilly may decide to exercise its global rights on fruquintinib). The Group's R&D pipeline remain rich with currently 8 oncology drug candidates in 30 active clinical trials (FY2015: 19) globally with 4 pivotal Phase III trials underway, while staying on course to initiate 4 additional Phase III studies during 2017. Chi-Med's strong balance sheet with cash resources of US$173.7m at the period-end, boosted by proceeds from its NASDAQ listing, means the Group is expected to be sufficient to cover development needs "well into 2019", which should enable it to secure better deal from future partnership. In light of the Group's positive progress, Beaufort reiterates its Buy recommendation on the shares.
Quadrise Fuels International (LON:QFI, 11.75p) – Hold
The emerging supplier of MSAR emulsion technology and fuel, enabling a low-cost alternative to heavy fuel oil (one of the world's largest fuels markets, comprising over 450 million tonnes per annum) in the global shipping, refining and power generation markets, yesterday announced that the Group has been informed by Maersk Line A/S of a further update relating to the letter of no objection ('LONO') and Marine MSAR operational trial on the Maersk nominated vessel. Further to the announcement made on 2 March 2017, regarding the unscheduled dry-docking of the MSAR trial vessel, Maersk stated that it is continuing its efforts to move the test vessel into a suitable dry dock. Maersk has, however, confirmed that the trial has been successful to date and has also indicated that Wärtsilä will carry out a detailed inspection of the test vessel's engine during the next few months to verify and document the performance of the test vessel while operating on MSAR fuel, with a view to issuing an "Interim LONO" to confirm the fuel is safe and suitable for the Wärtsilä RT-Flex engine type.
Our view: On first reading, yesterday's RNS release was tricky to interpret. But the simple fact is that Maersk's nominated vessel being used for the operational trial had, for reasons unrelated to MSAR, is being forced to make an unscheduled dry-dock visit to carry out certain repairs. Subsequent to this, the vessel will be redeployed and so will no longer be available to bunker at the Algeciras port through which it receives necessary supplies from the CEPSA San Roque refinery. This will affect the trial schedule for an unspecified period. Maersk is currently considering alternative test vessels within its fleet for continuation of the MSAR trial programme, although it is unlikely it will be resumed before Q4 2017. More positively, however, it has also confirmed that it wants to continue to work with Quadrise to explore the commercial options for Marine MSAR after the issuance of the Interim LONO. Indeed, the head of Future Solutions of Maersk Line A/S stated "During the MSAR trial program Maersk has enjoyed a close and professional collaboration with both our technology partner QFI, and supply partner CEPSA, resulting in a smooth operation during which the fuel has performed well." So, while confirmation of the positive trial programme results to date combined with a positive Interim LONO are good signs that Quadrise will eventually be able to progress its plans for commercialisation, yesterday's news means that the projected commencement of commercial roll-out can no longer be 2017, as previously projected by management. This, of course is key given that the Group's two trials (the other being for a major client in Saudi Arabia thought to be Armaco) continue to consume available cash resources. It ended its year to June 2016 with cash resources of £4.3m and subsequently added a further £4.25m (gross) through an equity placing and open offer at 10p/shares last October. In the expectation of receiving first commercial revenues from the Marine programme during 2017, this was considered sufficient to ensure Quadrise would not need to tap shareholders again for additional development/trials funding. Yesterday's news unfortunately, blew such hopes apart. The fact is that both the Marine and Power programmes have reached defining stages and, undoubtedly, the value of Quadrise's technology could be quite exceptional once proven and available for commercial production. But patient investors now understand that they will probably need to wait longer than expected and possibly be call upon to stump up more short-term funding in order to keep their hopes alive. In the expectation of this, Beaufort cuts its recommendation from Buy to Hold, with a view to getting involved again only when timing is more certain and the balance sheet provides sufficient visibility.