Today's edition features:
• James Cropper (LON:CRPR)
"Has Donald Trump’s luck finally started to run out? Just at the time when the populist revolution that threatened to engulf Europe appears to be fading? That’s the question investors are now asking, pointing at the enormous valuation gulf that has opening between the two trading blocks. Based on forward earnings multiples, the spread between S&P 500 and the Stoxx Europe 600 is near to its widest point in five years. It would only take a signal from the President that some of his ambitious reflationary proposals, ranging across tax, policy and budget, could have to be watered down in order to have a chance of being pushed past Congresses’ arch-conservatives, and the French electorate to convincingly reject Maine le Pen’s candidacy in the presidential polls that take place one month today, to reverse the tide of money that has flowed due west for so long now. Sure, it requires a brave asset manager to take the plunge right now, but background data is certainly supporting a more positive scenario for Europe. In February, for example, IHS Markit's eurozone composite purchasing managers index hit a near six-year high; even Mario Draghi from the ECB has started to sound more confident that the threat of deflation is passing; fourth quarter results from the region’s blue-chip corporates showed a net 20% of the 450 companies tracked by UBS beating earnings expectations, the best result for six years! Meanwhile, as bourses around the world have been setting new record highs, the European blue-chip index still sits 10% below its 2015 peak. Perhaps these thoughts were occupying trader’s minds yesterday, as the principal US indices once again closed softly mixed ahead of today’s key healthcare reform vote in the House of Representatives. Being seen as a barometer of Trump’s administration, the passing of his bill designed to trim departmental costs that accounted for a giant 16.9% GDP in 2016 would most certainly be taken as a big positive by the markets. Asian equities this morning simply reflected US sentiment, with the principal Chinese indices both down, the Nikkei recovering modestly from the previous day’s sharp fall inspired by Yen weakeness, while the ASX enjoyed a modest rebound in its minerals and financials stocks. Crude futures also rebounded during the Far Eastern session after new data showed U.S. gasoline and distillates stocks declined in the latest reporting week, signalling that US refiners’ crude demand is set to rise. UK macro data due for release today includes the sensitive February Retail Sales figures and the CBI Distributive Trades Survey, while the US provides a batch of statistics including Initial Jobless Claims and February New Homes Sales, which will be followed mid-afternoon by the EU releasing its March preliminary Consumer Confidence figures. Coming shortly after the FOMC meeting, the markets do not anticipate any particular fireworks being provided by the Fed Chair, Janet Yellen, when she addresses a meeting in Washington, although the FOMC’s Neal Kashkari is also due to speak at 18:00hrs GMT, which could add some flavour to last week’s less hawkish tone, particularly given suggestions in the overnight press that the Fed may be willing to allow inflation to trend higher before responding with discount rate moves. UK corporates due to release earnings or trading updates include Next (NXT.L), Curtis Banks Group (CBP.L), Sopheon (SPE.L), Ted Baker (TED.L) and Futura Medical (FUM.L). Investors will also be keen to receive any further updates regarding the supposed terrorist attack that took place in Westminster yesterday afternoon.The FTSE-100 was trading down 13 points at 8:15 this morning."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.73% lower at 7,324.72, whilst the FTSE AIM All-Share index lost 0.64% to stand at 913.89. In continental Europe, the CAC-40 finished down 0.15% at 4,994.70 whilst the DAX was 0.48% lower at 11,904.12.
Wall Street
In New York yesterday, the Dow Jones fell 0.03% to 20,661.3, the S&P 500 rose 0.19% to 2348.45 and the Nasdaq added 0.48% to 5821.64.
Asia
In Asian markets this morning, the Nikkei 225 had advanced 0.25% to 19,089.28, while the Hang Seng eased 0.03% to 24,312.89.
Oil
In early trade today, WTI crude was up 0.75% to $48.40/bbl and Brent was up 0.67% to $50.98/bbl.
Headlines
Next sees first annual profit fall in eight years
Next (NXT.L) has reported its first fall in annual profit for eight years and warned of "another tough year ahead". Pre-tax profit at the clothing and homeware retailer dropped 5.5% from £836.1m to £790.2m last year. The firm, which had already warned profits would fall, said it remained "extremely cautious" about trading. It said shoppers were shifting their spending away from clothing, at the same time as inflation was rising and incomes were being squeezed. The profit fall in 2016 is the first for the retailer since the financial crisis of 2008. Sales at Next's bricks-and-mortar business fell 3% to £2.3bn, as the retailer said shoppers continued to shift away from the High Street. Its online and catalogue business did better, with sales growing 4% to £1.7bn. Next chairman John Barton said: "Trading conditions in the year ahead will continue to be tough, however I believe that by focusing on our core strengths, as we did during 2008, we will see Next emerge from this period stronger than before."
Source: BBC News
Company news
James Cropper (LON:CRPR, 1,390.00p) – Buy
James Cropper, a maker of fine paper and Technical Fibre Products, yesterday provided a trading update for the 52 weeks ended 1 April 2017 (‘FY2017’). The Group said both the Paper and Technical Fibre Products businesses had “healthy” sales growth during the period that it now expects the full year results to be “moderately ahead” of the Board’s previous expectations, while additional modest gains may also be realised from the capitalisation of development costs in its 3DP division, the treatment of which is currently under consideration.
Our view: This is a positive news for James Cropper. The Group now sees better than expected result for the FY2017, boosted further by favourable foreign exchange movements. Moreover, it confirmed the outlook for FY2018 is “encouraging” with growth expected across all three businesses. James Cropper’s three businesses includes 1) James Cropper Paper, 2) Technical Fibre Products (‘TFP’), and 3) James Cropper 3D Products (‘3DP’). At the H1 FY2017, the Group said its Paper division continue to see opportunities for its packaging and photo quality papers for both domestic and overseas markets, while it has brought several new products and solutions to market this year. TFP division saw demand across aerospace, energy and defence markets continuing to be strong with further commercial opportunities to provide materials for fuel cell technologies, fire protection, aircraft primary structure solutions and supporting advances in key areas of defence. Formally launched in September 2016, its 3DP division have commenced number of development projects and prototyping activities during the period. In light of this positive progress, Beaufort reiterate its Buy rating on the shares.
Regeneus (ASX:RGS, A$0.14) – Update
Occasionally, a particularly interesting international company catches the eye of one of Beaufort’s analysts, either because it looks much too cheap or, perhaps, has exciting new opportunities or technologies. Regeneus Ltd, which is quoted on the Australian Stock Exchange (ASX:RGS) appears to tick each of those boxes. It is a clinical-stage regenerative medicine company developing a portfolio of innovative cellular therapies targeting significant unmet medical needs in both human and animal health markets. Its initial focus is on osteoarthritis (OA), cancer, inflammatory skin conditions and wound healing. The Company’s product pipeline, which comprises a diversified portfolio of clinical-stage products is underpinned by proprietary stem cell and immuno-oncology technologies. Recent half-year results to end-December 2016, highlighted a very successful period for the Company, with efforts of the past 18 months culminating in a strategic collaboration and licensing agreement with AGC Asahi Glass (‘AGC’) (TYO: 5201), one of Japan’s leading biopharmaceutical manufacturers. Under the terms of the collaboration dated 28 December 2016, AGC has the exclusive rights to manufacture Progenza in Japan and a 50% interest in Regeneus Japan, which is the exclusive licensee of the clinical development and marketing rights for Progenza for osteoarthritis and all other clinical indications in Japan. Regeneus received US$5.5 million as an upfront payment and is entitled to a further US$11 million upon meeting specific development and approval milestones. Progenza is a scalable stem cell technology platform. Financial highlights for the period, boosted by the AGC receipt, included Regeneus producing a first reported profit of A$3.8 million (FY2016: loss A$3.1 million). Despite this, quarterly cash operational consumed (before A$2.7 million R&D tax incentive) was maintained at A$1.5 million, suggesting it now has funding visibility out for the next 18 months.
Our view: It is during this coming 18 months that things get really exciting! Regeneus’ focus will remain on unlocking value in its clinical-stage human and animal pipeline products. It will do this through generation of positive clinical data, technology development and partnering through a series of different channels. It will, of course, continue its advanced clinical partnering negotiations with Progenza in Japan, while completing clinical milestones under the AGC collaboration and commencing donor procurement and process development for its manufacture for Phase II trials before the end of FY2017. During Q4’2017 it also aims to commence an ARC-funded Progenza chronic pain study and report of its osteoarthritis STEP trial. Further out during H2 FY2018, Regeneus should also have completed its recruitment and report on both the ACTIVATE clinical trial and the CryoShot canine pre-pivotal OA trial. Phew! That’s quite a list. Of course, other drug development groups do occasionally present similarly impressive programs, but it is hard to find one that is also capable of pointing at a balance sheet that will carry it right though current programs while generating positive earnings for both this year and next. Sure, the current year earnings multiple of just 6x is flattered by the AGC’s upfront payment, but the opportunities developed and the pipeline presented suggest the equity presently trades at less than half what it could achieve based on valuations amongst its London-quoted peer group. Definitely one to keep an eye on!