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Beaufort Securities Breakfast Alert: Bellway, Minco, MySQUAR Limited, Solo Oil PLC

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Today's edition features:

Minco (LON:MIO)

• MySQUAR (LON:MYSQ)

• Solo Oil (LON:SOLO)

Bellway (LON:BWY)

 

"U.S. stocks, the Dollar and government-bond yields pulled sharply back on Tuesday, with the principal equity indices suffering their steepest declines of the year. The Dow Jones Industrial Average was hit in excess of 1% for the first time in five months, with the S&P 500 and Nasdaq tumbling even more. Doubts regarding Trump’s ability to garner sufficient support from House Republicans this week to dismantle the Affordable Care Act came to the fore; seen by some as a proxy on his mandate to govern, concerns quickly spread to his ability to force through ambitious tax, policy and budgetary measures on a reasonable time schedule. As a result, touch-sensitive investors holding overweight equity positions on heady valuations needed little encouragement to lock in some of their substantial profits. Financials led the falls, tracking bond yields, with industrials following behind. The US$ retreated for the fifth consecutive day, similarly hitting its lowest level against the international basket in four months. European sentiment followed the US markets south during afternoon trade, with early strength deserting the Stoxx Europe 600 to see it close down 0.5%. The FTSE-100 did likewise, having been hurt earlier in the session by higher than expected Consumer Inflation figures that were released mid-morning and saw February prices hitting 2.3%, their fastest pace in nearly three and a half years, breaching the BoE’s 2.0% target in the process having spiked from 1.8% the previous month. Unless wage growth is seen to catch up rapidly and Governor Carney holds sufficient nerve to keep base rates unchanged while Theresa May commences Brexit negotiations, consumer spending, the key economic driver for the UK, could start to stall. Sterling not surprisingly rose sharply against the US$, although its gains against the Euro were limited given increasingly perceived diminishing chances of Le Pen now claiming victory at the forthcoming French Presidential elections, following Monday evening’s televised debate. Asian stock markets followed suit this morning, as the region also examined its optimism around the 'Trump trade'. Japan's Nikkei Stock Average was down over 2% to a three-week low ending a whisper from the key 19000-point support on surging Yen, with the ASX and Hang Seng closing just a little way behind. There are no significant UK macro releases due today, but the EU is due to provide its Current Account data for January, while the US follows later this afternoon with MBA Mortgage Applications, its Housing Price index and Existing Home sales. UK corporates due to release earnings or trading updates include Kingfisher (KGF.L), Ferrexpo (FXPO.L), Softcat (SCT.L), Cello Group (CLL.L) and EG Solutions (EGS.L). Investors will also be awaiting news from the Scottish Parliament later today, with Members due to vote on a second Independence Referendum. London accordingly is set for a nervous opening this morning with the FTSE-100 see down around 40 points in early trade."

- Barry Gibb, Research Analyst

 

Markets

Europe

The FTSE-100 finished yesterday's session 0.69% lower at 7,378.34, whilst the FTSE AIM All-Share index lost 0.72% to stand at 919.82. In continental Europe, the CAC-40 finished down 0.19% at 5,002.43 whilst the DAX was 0.75% lower at 11,962.13.

Wall Street

In New York yesterday, the Dow Jones fell 1.14% to 20,668.01, the S&P 500 shed 1.24% to 2344.02 and the Nasdaq dropped 1.83% to 5793.82.

Asia

In Asian markets this morning, the Nikkei 225 had fallen 2.01% to 19,064.07, while the Hang Seng fell 1.43% to 24,241.44.

Oil

In early trade today, WTI crude was down 1.82% to $47.34/bbl and Brent was down 0.39% to $50.76/bbl.

 

Headlines

The women still working into their 70s

The proportion of women working into their 70s in the UK has doubled in the last four years and is starting to catch up with men. Analysis of official data reveals that 5.6% of women only stopped working after the age of 70 in 2012. This had risen to 11.3% in 2016. Worries over pension income and a motivation to stay active have pushed up working ages. An estimated 15.5% of men stopped work in their 70s in 2016. Changing laws and workplace regulations, such as the end to age discrimination and the right to request flexible hours, have also helped people to work for longer as longevity increases.

Source: BBC News

 

Company news

Minco (LON:MIO, 2.25p) – Speculative Buy

Minco, the exploration and development company currently engaged in zinc-lead exploration in Canada, announced late yesterday a possible offer by Dalradian Resources. The offer is for Minco’s 2% NSR royalty on the Curraghinalt gold deposit in Northern Ireland, which is currently being developed by Dalradian. As part of the proposed offer, Minco will receive 15.5M new Dalradian shares in total, at a ratio of 0.0243 shares for every one Minco share, valued at c C$20m (£12m) following demerger of Minco’s subsidiary Buchans Resources. Pursuant to the possible offer, Minco shareholders will be issued 11.6M new shares of Dalradian representing 75% of the total shares, with the remaining 25% of the total being issued directly to Buchans, which would then wholly owned by Minco shareholders.

Our view: The proposed offer for Minco’s royalty on Curraghinalt is structured as an offer for the entire issued share capital of Minco, following the demerger of Buchans. Minco noted that there is no certainty that the royalty disposal will be completed or that a possible offer will be made by Dalradian. We look forward to further announcements regarding the above offer. In the meantime, we maintain a Speculative Buy on the stock.

Beaufort Securities acts as corporate broker to Minco plc

 

MySQUAR (LON:MSQL, 1.48p) – Speculative Buy

The Myanmar-language social media, entertainment and payments platform whose principal activity is to design, develop and commercialise Myanmar-focused internet-based mobile applications, yesterday announced it has successfully integrated and utilised the carrier billing service (purchases are made by deducting from the phone balance) of Telenor Myanmar, the leading Norwegian telecommunications provider operating in Myanmar since 2014, for MySQUAR's mobile applications and games. Telenor will earn a share of revenues as part of the integration.

Our view: This is an important and positive step! Telenor is a major international telecommunications provider in Myanmar with a market share of about 37%. It has a strong subscription base with 18.2 million mobile customers as of the end of 2016 and has extended its LTE (4G) network to six new cities. At present, MySQUAR users make purchases using mobile top-up phone cards which can be inconvenient, the online billing services of Red Dot Payments or the carrier billing service of MECTel which has limited market coverage and a smaller subscription base. Although the Telenor integration has been subject to three or so months delay from best expectations, it will now provide MySQUAR with access to Telenor's large subscription base for enhanced distribution and marketing opportunities; in-app purchases will now be easier for MySQUAR users that are also Telenor subscribers. Revenue is anticipated to increase with this integration and this more convenient payment option. To qualify for Telenor's carrier billing services, MySQUAR's user flows (the path taken by users through the mobile interface to complete a payment process), authentication and security features were evaluated to ensure it meets Telenor's international standards. MySQUAR is one of the few mobile value-added service providers able to meet their requirements, further validating the quality and specification of its products and services. Beyond this, the Group continues to seek new partnerships and strategies to diversify and build its user base and monetisation channels, which could potentially include similar carrier billing services to be signed with MPT and Ooredoo. This integration and revenue share agreement providing through a streamlined payment process is expected to contribute significantly towards monetisation results for MySQUAR during the current financial year and thereafter. Indeed, this should reinforce confidence in management’s stated expectation of achieving cash flow breakeven on a monthly basis before the end of the second half with the potential for first net profits during the year to June 2018. Considering MySQUAR’s track-record of over-delivering on its operational promises, we believe yesterday’s news is something unlikely to have been missed by its numerous and very cash-rich global peer group, who remain determined to continue ensnaring players in virgin territories that have successfully participated in an online user ‘landgrab’. In this respect, MySQUAR appears quite dramatically undervalued; Beaufort retains a price target of 21.0p/share and repeats its Speculative Buy recommendation, although it does recognise that the terms of the remaining issued CLNs do at this time continue to create a potential stock overhang which some fear are acting as a drag on the share price. MySQUAR’s half year results to end-December 2016 are expected to be released in the next two or three weeks.

Beaufort Securities acts as corporate broker to MySQUAR Limited

 

Solo Oil (LON:SOLO, 0.60p) – Speculative Buy

Solo has announced it is investing in private company Helium One, a helium project developer focused on the Rukwa project in Tanzania. Helium One also has several other helium projects in the area where gas seeps with very high helium concentrations have been recorded. Rukwa itself has unrisked prospective resources of 99 bcf, and considering helium sells for approximately $145/mcf, Rukwa has potential to be a very high value project. Also important is the favourable supply demand dynamics in the helium market. Demand grows at circa 3% per annum while the price has doubled over 10 years and the US strategic reserve, an important supplier of helium, plans to cease supplying the market from 2021. Solo investment consists of £1.2 million in cash and £1.35 million in shares for 10% with a 90 day option to buy a further 10% for £4m, half cash, half shares.

Our view: The helium market is a $6 billion market and growing steadily. Although we are unfamiliar with the helium market (main suppliers, consumers and global project pipeline) the fact that Rukwa looks to have very high concentrations of helium which is rare, suggest it could have significant advantages over helium gathered as a bi-product in hydrocarbon production. The improving supply demand dynamics and very high value of helium versus natural gas are also obvious attractions. Helium One's 2017 work programme will prepare the ground for drilling in 2018. Meanwhile we look forward to learning more about what appears to be a very exciting investment. We have a Speculative Buy recommendation on Solo.

Beaufort Securities acts as corporate broker to Solo Oil PLC

 

Bellway (LON:BWY, 2,836.58p) – Buy

Bellway, the UK housebuilder, yesterday announced its interim results for the 6 months ended 31 January 2017 (‘H1 FY2017’). During the period, the Group sold 4,462 homes, up +6.5% at an average selling price of £256,140 (H1 FY2016: £257,280), resulting revenue to advance by +5.9% to £1,148.5m, against comparative period (H1 FY2016). The lower average selling price was due to higher proportion of social housing sold, which has risen by almost +69% to 919 (H1 FY2016: 544 homes). Operating profit rose +8.6% to £252.6m, supported by +0.6% improvement in operating margin to 22%. Pre-tax profit consequently grew +9.3% to £247.6m, leading earnings per share to climb by +10.2% to 163.9p. During the period, net asset value per share has increased by +16.6% to 1,612p, while return on capital employed fell by -2.5% to 25.1%. The Group contracted 6,287 new plots during the period. Net debt at the period-end stood at £175.1m (end-FY2016: net cash £26.5m). Bellway’s Chairman, John Watson commented “Bellway's strong operational focus and consistent execution of its growth strategy has resulted in a record number of legal completions in a first half year and another excellent financial performance. The emphasis on volume growth, together with a further rise in the operating margin, has resulted in earnings increasing by over 10% to 163.9p per share, the highest achieved by the Group in a first half trading period.” The Group declared an interim dividend of 37.5p per share, up +10.3%, to be paid on 3 July 2017.

Our view: Bellway delivered encouraging half-year results, achieving record volume and EPS growth. With the much-repeated positive sector dynamics, including a structural UK housing shortages, high mortgage financing availability, ultra-low interest rates, government incentives (help to buy) for new property purchases, together with Housing White Paper indicating potential ‘use it or lose it’ policies to boost annual completions to the Government’s desired level of 225k-275k homes, against the current level of c.170k, all provide continuing support to the housebuilding sector. Post period-end, as at 12 March 2017 customer demand remains strong with +18% increase in the reservation rate to 246 homes per week. The forward order book as at 12 March 2017 rising further to 5,465 plots (13 March 2016 - 5,048 plots) while the value increased by +18% to £1,415.4m. Looking ahead, the Group expect number of homes sold for the full year to grow by “at least 5%”, while overall average selling price to grow by some 3% to c.£260,000 (FY2016 - £252,793), despite Bellway increased proportion of social homes to 21% of the total (H1 FY2016: 13%), in line with Government’s push toward more affordable housings and the management’s previous guidance. The operating margin for the full year is expected to be maintained at c.22%. The shares are currently valued at FY2017E P/E of 8.6x, P/NAV of 1.40 along with dividend yield of 3.9%. Given Bellway’s continuing confidence for FY2017 and beyond, along with a £1.4bn forward order book, focused on volume growth with “controlled” and “responsible” growth strategy, Beaufort maintain its BUY rating on the shares, although our top pick in the sector remains Taylor Wimpey and Persimmon.

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