Today's edition features:
• Prairie Mining (LON:PDZ)
• Tiziana Life Sciences (LON:TILS)
• Burford Capital (LON:BUR)
• Petards Group (LON:PEG)
"With most investors waiting for the Fed to deliver its expected rate hike from 0.75% to 1.00%, which is due at 18:00hrs GMT today, traders instead focussed on Saudi Arabia notifying OPEC that it raised output back to above 10 million barrels a day in February. This reversed about one-third of the cuts it made the previous month, having trimmed more than required in January with a view to leading the way in the international production agreement that was designed to re-balance world markets. With Fed Funds still indicating the chance of the rate cut above 90%, however, the principal focus has reverted from the rate itself to Janet Yellen’s forward looking statements and, in particular, whether she flags the possibility of either a more aggressive stance or perhaps the need to increase her guided number of moves in 2017 from three to four during today’s FOMC deliberations. So it was the S&P 500 energy sector that was responsible for leading US markets downward yesterday, falling 1.8% in early trade as crude dropped 2.1% to US$47.40/bb on its way for its seventh consecutive daily decline before recovering somewhat during the Asian session. Amid severe East Coast winter storms, this helped push the three principal US equity indices into the red, all with similar minor negative moves in otherwise featureless trading. The sell-off in the oil market stoked demand for government bonds, reversing early losses as investors sought a safe haven, sufficiently to pressure the 10-year Treasury yield down to 2.593% from the 2.609% it reached on Monday, its highest settlement since 2014. Asian equities again traded in a very narrow range, with only the ASX registering a modest gain, while the other regional markets moved fractionally negative in low volume trading. With an eye on the Dutch elections the Stoxx Europe 600 declined 0.4% yesterday, with traders eyeing the outcome during the early hours of Thursday morning primarily to confirm late reports that support for the Geert Wilders’ Far Right party has indeed slumped, as this will likely set expectations for the highly sensitive French Presidential election which is due to take place on 23rd April. While Sterling appeared to ignore Scotland's chief minister Nicola Stugeon calling for another Referendum on leaving the U.K., traders instead anticipated the continuation of the Bank of England’s dovish tone at its policy meeting on Thursday, chasing the currency down 0.6% against the US$ to an eight-week low. UK macro news due for release today includes the ILO Unemployment Rate and Average Earnings for January, while the EU provides its Q4 Employment Change numbers. The US is scheduled to detail a large batch of statistics, including MBA Mortgage Applications, February Retail sales, Consumer Prices, Business inventories and the NAHB Housing Market Index, although all this will be overshadowed by the FOMC’s Economic report and Fed’s rate decision that follows. UK corporates are also due to provide earnings or trading updates include Biffa (BIFF.L), Robert Walters (RWA.L), STM Group (STM.L), Marshalls (MSLH.L) and Hikma Pharmaceuticals (HIK.L). London equities are expected quietly this morning, with the FTSE-100 expected to regain most of yesterday’s modest losses, rising as much as 10 points in early trading."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.12% lower at 7,357.85, whilst the FTSE AIM All-Share index lost 0.22% to stand at 917.70. In continental Europe, the CAC-40 finished down 0.51% at 4,974.26 whilst the DAX was 0.01% lower at 11,988.79.
Wall Street
In New York yesterday, the Dow Jones fell 0.21% to 20,837.37, the S&P-500 lost 0.34% to 2365.45 and the Nasdaq gained 0.35% to 5856.82.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.14% to 19,581.12, while the Hang Seng eased 0.1% to 23,804.28.
Oil
In early trade today, WTI crude was up 1.76% to $48.56/bbl and Brent was up 1.49% to $51.68/bbl.
Headlines
Ikea drivers living in trucks for months
Lorry drivers moving goods in Western Europe for Ikea and other retailers are living out of their cabs for months at a time, a BBC investigation has found. Some drivers - brought over from poorer countries by lorry firms based in Eastern Europe - say their salary is less than three pounds an hour. They say they cannot afford to live in the countries where they work. One said he felt "like a prisoner" in his cab. Ikea said it was "saddened by the testimonies" of the drivers. The drivers the BBC spoke to were employed by haulage companies based in Eastern Europe, which are paid to transport Ikea goods.
Source: BBC News
Company news
Prairie Mining (LON:PDZ, 37.50p) – Buy
Prairie Mining has published excellent results from the Debiensko Scoping Study, its premium hard coking coal project in Poland. Based on a $142/tonne hard coking coal price, the Scoping Study delivers an NPV8 of $1.16bn, post tax. Other highlights include annual production of 2.6Mt of hard coking coal, operating costs of $47/t and steady state EBITDA of $282m. This will be an underground longwall operation with panels 250m by 1.6km. Upfront capex of circa $500m is helped by an existing rail connection, and makes Debiensko a very attractive project in terms of capital intensity (capex/annual production). It's size (mid to large scale) and low cost means it is a Tier 1 project.
Our view: These are very good numbers which clearly demonstrate the commercial and strategic value of Debiensko. Although scoping level, previous owners did a feasibility study on Debiensko and it borders two operating coking coal mines. As a result we regard the operating costs, capex and annual tonnage estimates to closely reflect what a feasibility study will produce. For example the mining inventory for the first 14 years are resources in the indicated category, the coal seams are classified by the Polish system as very easily and easily mineable, and the faulting scenario is well understood due to historical mining of the upper seams. The point is, we don't expect any surprises as Debiensko is fast tracked through to feasibility stage and construction, currently targeted to start in 2019.
We initiated on Prairie on March 1st at 27p with a 90p target, anticipating good Scoping Study results. This morning's result exceeds our Debiensko NPV of $750m (albeit using a slightly higher coal price) and we upgrade our target price to 104p. Given the low operating cost and low capital intensive nature of Debiensko, plus the fact Europe imports most of its coking coal, we believe it has high commercial and strategic value and should be easily financeable. We reiterate our BUY recommendation.
Beaufort Securities provides Investor Relations services to Prairie Mining plc
Tiziana Life Sciences (LON:TILS, 190.68p) – Speculative Buy
Tiziana Life Sciences (‘Tiziana’), a clinical stage biotechnology company developing targeted drugs for cancer, autoimmune and inflammatory diseases, yesterday announced that it has appointed Dr. Arun Sanyal to its Scientific Advisory Board. Dr. Sanyal, MD is the Professor of Medicine, Physiology and Molecular Pathology, Division of Gastroenterology, Hepatology and Nutrition at the Virginia Commonwealth University School of Medicine, published over 300 papers in leading medical journals and periodicals throughout his career.
Our view: Tiziana has strengthened its Scientific Advisory Board by adding Dr. Arun Sanyal, a distinguished professor and a key opinion leader in liver diseases such as non-alcoholic fatty liver disease (‘NAFLD’) and Nonalcoholic steatohepatitis (‘NASH’). His knowledge and expertise in the field will help support the development of the Group’s foralumab (NI-0401), a clinical, fully human engineered anti-CD3 antibody being developed as an oral therapy in NASH and autoimmune diseases. NASH is liver inflammation and damage caused by a build-up of fat in the liver; it is part of a group of conditions called NAFLD. It occurs when the accumulation of liver fat is accompanied by inflammation and cellular damage, which can lead to fibrosis (scarring) of the liver and eventually progress to cirrhosis, portal hypertension, liver cancer and liver failure. There is currently no approved therapy for NASH, and according to iHealthcareAnalyst, Inc., the global treatment market for NASH is forecasted to reach US$19.5bn in 2025, growing at a CAGR of +10% from 2016 to 2025. Foralumab has already demonstrated consistent efficacy via oral administration in humanised mouse models (pre-clinical studies), giving it a potential for treating diseases with currently unmet needs. Beaufort retains its Speculative Buy rating on the shares.
Beaufort Securities acts as corporate broker to Tiziana Life Sciences plc
Burford Capital (LON:BUR, 750.00p) – Buy
Burford Capital (‘Burford’), a leading global finance provider to the legal market (litigation finance), yesterday announced a results for the 12 months ended 31 December 2016 (‘FY2016’). During the period, Total income advanced by +59% to US$163.4m, including +60% increase in litigation investment income and +253% growth in new initiatives income amongst other incomes, against the comparative period (FY2015). Operating profit rose +61% to US$124.4m and pre-tax profit grew +62% to US$110.3m, while due to tax credit of US$4.8m, profit after tax has jumped +75% to US$115.1m, resulting earnings per share to rose +68% to 52.9 US cents. Return on equity stood at 21.1%, while investment recoveries (cash receipts) amounted to US$216m (FY2015: US$146m). Total debt is US$274m against total asset of US$968m at the period end, implying 0.3x leverage. The Group declared a final dividend of 6.48 US cents, bringing total full year dividend to 9.15 US cents, up +14.4%, to be paid on 16 June 2017.
Our view: Burford registered a strong performance for FY2016, recording its 7th consecutive year of double digit growth. Demand for Burford’s capital remains solid, with record new commitments for litigation finance investment of US$378m (FY2015: US$206m). Concluded litigation investment performance remain encouraging at 60% return on invested capital (ROIC) together with a 27% internal rate of return (IRR). The acquisition of Gerchen Keller Capital (‘GKC’), a Chicago-based investment manager in December 2016 will add GKC’s US$1.3bn asset under management, taking the combined Group to US$2.3bn invested in and available for legal finance. Investment recoveries for the combined Group has already exceeded US$1bn, and together with a strengthened team, scale and financial solutions offering, we expect the growth momentum to be further enhanced going forward. We are encouraged by Burford’s performance in FY2016, which is well-reflected in +236.7% growth in share price year-to-date. Beaufort reiterates its Buy rating on the share.
Petards Group (LON:PEG, 28.54p) – Speculative Buy
The AIM quoted developer of advanced security and surveillance systems, reports its audited results for the year ended 31 December 2016. Revenues rose 17% to £15.3 million (2015: £13.1 million), while gross margin up to 36.3% from 35.2% in 2015, leading to an operating profit increase to £1,095,000 (2015: £935,000 profit) and profit after tax £910,000 (2015: £765,000 profit). Having generated £1 million of operating cash inflows (2015: £1.2 million), cash at 31 December 2016 was £2.3 million (31 Dec 2015: £2.5 million) with the Group holding no bank debt. It’s closing order book was £20 million (2015: £16 million), having grown by £8 million in the second half of 2016 with orders received from Siemens Mobility, Bombardier Transportation, Greater Western Rail, Hitachi Rail Europe and the MOD. Exports increased by 57% to £5.3 million and now comprise over one third of Group revenues. The acquisition of QRO Solutions successfully completed in April 2016 for net cash consideration of £239,000, contributing £78,000 to EBITDA before acquisition expenses.
Our view: In light of the strength of the Group's order book, with some £12 million expected to be shipped and taken to revenue during 2017, together with on-going discussions with both new and existing customers for further projects, the market should remain confident about Petards’ prospects for 2017. Importantly, an improved gross margin also reflects the quality of work being undertaken. On this basis, Beaufort has now upgraded its 2017E and 2018E earnings forecasts, to 2.2p and 2.4p respectively, implying P/E multiples of just 13.4x and 12.3x. Year-end net cash should also build out to over £1m this year, even though working capital and capital expenditure demands remain high. Improving visibility now suggests the valuation gap with larger peers in the support services sector should close, taking it to around a 15.5x, or 34p a share, for the current year. Beaufort retains its Speculative Buy recommendation on the shares.