Today's edition features:
• AstraZeneca (LON:AZN)
• Biffa (LON:BIFF)
"The big news overnight was not Janet Yellen hiking the US discount rate, but her surprisingly dovish tone and the Dutch electorate's clear rejection of populism. Around midnight the Euro surged over 1.3% against a tumbling US$, as markets digested the Fed Chair's comments and traders took Mark Rutte being returned to office as a sign that Emmanuel Macron can now divisively defeat Maine Le Pen in the French Presidential run-off due on 7th May which, in turn, should convincing narrow the presently wide OAT-Bund spread. But with Treasury yields following the Dollar south, the absence of any increase to the Fed's current guidance of just three US rate moves or possibility of more aggressive policy during 2017, powered stocks upward yesterday evening, with all three principal indices rising convincingly as energy stocks reversed declines of the previous six sessions boosted by a surprise inventory drawdown, as new funds also found their way back into miners on higher commodity prices and tech stocks following positive broker reviews. Investors in Asia similarly sent equities higher following indications of a measured response from the Fed in countering inflation. The Nikkei reversed a 0.6% fall in early trading, turning modestly higher after lunch as the Bank of Japan held its own main policies steady. News that China's Central Bank only raised certain of its key Short-Term Rates was taken particularly positively as both the country's principal indices rose sharply higher, while the ASX was also supported by demand for minerals stocks. U.K. unemployment fell to a four-decade low in the three months through January according to data published yesterday, but wage growth after inflation slowed sharply signalling that Britons are still facing a living standards squeeze despite apparently robust labour markets. Against this, nobody is expecting the Bank of England to make a base rate change today, holding it at 0.25%, nor will it change its existing £435bn asset purchase facility. In fact, traders anticipate Governor Carney's tenor echoing Yellen's dovish, given that he does not wish to stress the financial markets on the eve of Government triggering Article 50. This is likely to mean that recent Sterling weakness will remain, as investors weigh up the possibility that interest rates remain on hold throughout the whole of 2017, despite the fact that Brexit devaluation has already ensured inflation breaches the BoE's 2% target, most likely in Q2, with the possibility it goes on to peak well beyond its guided 2.4% before the year end. This suggests the need to adopt more aggressive policy early in 2018. Meanwhile Philip Hammond's embarrassing climb-down on his proposed higher stamp duty for the self-employed focusses investors not only on the fact that he now has to find a way to plug the £2bn budgetary gap this creates by 2022, but also highlights the fact that Theresa May's Administration is finding support amongst her own MPs flagging just ahead of her preparing to present significant new legislation as she invokes Article 50. Signs that she will face additional Brexit hurdles from her own party as negotiations for the separation get underway can only build upon weakening confidence in Sterling. No other significant macro news is expected from the UK today, although the EU provides February Consumer Prices and the US follows this afternoon with various disclosures, including Housing Starts, Building Permits, Initial Jobless and the Philadelphia Fed Manufacturing Survey. UK corporates due to release earnings or trading updates include J Sainsbury (SBRY.L), Balfour Beatty (BBY.L), EMIS Group (EMIS.L) and Onesavings Bank (OSB.L). London equities are seen taking their hint from the US close and a likely strong showing from Europe this morning, with the FTSE-100 seen rising over 35 points in early trade."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.15% higher at 7,368.64, whilst the FTSE AIM All-Share index added 0.17% to stand at 919.25. In continental Europe, the CAC-40 finished up 0.23% at 4,985.48 whilst the DAX was 0.18% higher at 12,009.87.
Wall Street
In New York last night, the Dow Jones rose 0.54% to 20,950.1, the S&P-500 firmed 0.84% to 2,385.26 and the Nasdaq gained 0.74% to 5,900.05.
Asia
In Asian markets this morning, the Nikkei 225 had inched up 0.03% to 19,583.3, while the Hang Seng was firmly ahead with a 1.52% gain to 24,155.05.
Oil
In early trade today, WTI crude was up 0.57% to $49.14/bbl and Brent was ahead 0.64% $52.14.
Headlines
Sainsbury's sales fall at start of year
Underlying sales have fallen at Sainsbury's (SBRY.L) in the first nine weeks of the year, but the newly-acquired Argos reported strong growth. The supermarket's like-for-like sales, which strip out new stores, fell by 0.5% in the period to 11 March. However, Argos sales rose 4.3%, resulting in a 0.3% increase across the Sainsbury's group as a whole. Mike Coupe, chief executive, said the impact of rising cost pressures "remains uncertain".
Source: BBC News
Company news
AstraZeneca (LON:AZN, 4,850.00p) – Hold
AstraZeneca, a global, science-led biopharmaceutical company focused on three main therapy areas – Oncology, Cardiovascular & Metabolic Diseases and Respiratory, yesterday announced that its Lynparza (olaparib) tablets has met primary endpoint in Phase III SOLO-2 trial for the treatment of patients with BRCA-mutated ovarian cancer. The primary endpoint was to show improvement in progression-free survival ('PFS'). Lynparza demonstrated reduced risk of disease progression by 70% with investigator-assessed PFS of 19.1 months compared to 5.5 months with placebo. Whilst PFS as measured by Blinded Independent Central Review ('BICR') showed 30.2 months compared to 5.5 months with placebo. Additionally, Lynparza also showed a statistically-significant benefit in time to second progression or death (PFS2) compared with placebo, as well as improvements in other key secondary endpoints. Safety profile remains generally consistent with previous studies.
Our view: This is a positive news for AstraZeneca. Its Phase III BRCA-mutated ovarian cancer drug, Lynparza, has indicated significantly favourable results compared to placebo, without compromising its safety profile. This follows announcement on 17 February 2017 where the molecule met its primary endpoint for BRCA-muted metastatic breast cancer (Phase III). Ovarian cancer is the 7th most common type of cancer diagnosed and the 8th most common cause of cancer death in women, with risk of developing ovarian cancer increased for those with specific inherited genetic abnormalities, including BRCA mutations. Improvement in progression-free survival, along with a 70% reduction in disease progression means Lynparaza has potential to significantly enhance the patient's quality of life. For now, however, Beaufort's focus remains 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 accordingly maintains its 'wait and see' approach on the shares, retaining its Hold rating on AstraZeneca.
Biffa (LON:BIFF, 191.50p) – Buy
The leading UK integrated waste management company, yesterday issued a pre-close trading update ahead of its full year results announcement for the 52 weeks ending 24 March 2017, scheduled for 14 June 2017. It confirmed underlying trading had been consistent with its expectations at the time of its half-year results in November; the Group continues to make good progress in implementing its strategy to deliver revenue growth and margin expansion. Group underlying EBITDA and operating profit are anticipated to be in line with expectations for the full year. The Industrial & Commercial division has continued to perform well with ongoing revenue growth supported by cost discipline, including the delivery of acquisition synergies. In the second half of the year the division completed or reached agreement on a number of small infill acquisitions. The Municipal, Resource Recovery & Treatment and Energy divisions have continued to perform as expected. Its Board noted the Group remains "well positioned" to grow organically and through acquisition, and is actively seeking a strong pipeline of acquisition opportunities.
Our view: Biffa management provided detailed guidance to analyst regarding full year expectations back in November. Yesterday's update confirms no change of view, with EBITDA expected at around £137.5m and operating profits c.£72.5m. Possibly having only completed small number of 'in-fill acquisitions', the balance sheet may end the period in a slightly stronger than projected position, with net debt below the estimated £265m. Indeed, for Beaufort, this was always the key investment argument for Biffa. It operates in a highly-fragmented environment, which means a number of reasonably sized acquisition opportunities regularly become available and, when well selected, these can create short term and not insignificant enhancement to earning, while building out its dominance in its operating . Noting management confirms that it is 'actively pursuing' such opportunities, Beaufort expects it to deliver greater evidence of such activity this current year. Biffa's model is for strongly managed, highly visible cash generative returns, some of which are given back in the form of income with the remainder targeting expansion. A traditional business that is opportunistically positioned both as an industry leader and sector consolidator deserves a higher rating than the 2017/18E EV/EBITDA of 6.4x or forward P/E multiple of 11.0x presently awarded, especially when it comes with a 3.6% coupon. Beaufort repeats its Buy recommendation and sets a price target of 235p on the shares.