Today's edition features:
• AFC Energy (LON:AFC)
• IG Design (LON:IGR)
A nervous opening is expected this morning as investors attempt to assess the impact of President Trump being forced to take his Bill designed to replace Obamacare off the table, as the White House was forced to admit defeat in its first legislative priority on Capitol Hill. The withdrawal came despite desperate, last minute calls to lawmakers in the House of Representatives, raising serious questions regarding his ability to unify Republicans sufficiently to keep his pro-growth reforms from tax to infrastructure spending on the road. Tensions will remain high, as Wednesday the Administration’s attention turns his proposals to build a border wall between Mexico and the US. And, if that is not enough to worry about, the same day this week will also focus on a historic event, Theresa May triggering Article 50 and, in so doing, kick-off two years of divorce negotiations with the European Union. Although the Healthcare Bill was not formally withdrawn until after the US markets closed on Friday, doubts over its ability to succeed had already led to volatility, with the S&P500 falling 1.4%, its worst weekly decline of the year. After starting on the upside, the country’s three principal indices closed mixed in anticipation of Friday, with the NASDAQ ending positive helped by Micron Technologies while elsewhere oils and financials met gentle selling. With the new week’s market openings led by Asia this morning, however, more selling was evident with all major regional bourses trading in the red, led by Japan dropping over 1.5%, hitting its lowest point since early February as US$ falls were reflected in almost a 1% spike in the Yen, as the Euro also raced to almost a four-month high. Chinese equities remained weak despite reports the nation’s Industrial Profits had grown 31.5% in January-February, leaving both the Shanghai Composite and Hang Seng nursing minor losses. Recent good macro and political news that has bolstered European sentiment, helping an oversold STOXX 600 outperform, will be boosted further this morning on news that German Chancellor Angela Merkl’s conservatives scored a clear victory in the small state of Saarland, knocking optimism amongst centre-left challengers that changes in national sentiment could force her from office at September’s Federal Election. There is no UK macro data due for release today, although the EU provides personal loans and M3 Money Supply for February, followed later in the afternoon with the Dallas Fed Manufacturing Business Index from the US. The Fed’s Charles Evans and FOMC’s Robert Kaplan are both also due to make speeches. London’s major financial news today will the Bank of England’s scenarios for the latest of its stress tests, this time for the Royal Bank of Scotland which fails at its previous assessment. Elsewhere, UK corporates scheduled to release earnings or trading updates only include second liners, such as Inspired Energy (LON:INSE), YouGov (LON:YOU), GLI Finance (LON:GLIF), and Gama Aviation (LON:GMAA). Traders will also be seeking more information following OPEC apparently warning its Members regarding compliance with agreed oil-production cuts, following recent media reports of widespread cheating. Light sweet crude for May delivery traded down again on the NYME, despite suggestions of a further, deeper production cut being considered by the Organisation, amid reports that nearly two dozen non-American producers may limit output during the second half. London equities will be sold down from the opening this morning, with the FTSE-100 seen falling over 55 points in early trading. "
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished Friday's session 0.05% lower at 7,336.82, whilst the FTSE AIM All-Share index added 0.03% to stand at 917.90. In continental Europe, the CAC-40 finished down 0.24% at 5,020.90 whilst the DAX was 0.20% higher at 12,064.27.
Wall Street
In New York on Friday night, the Dow Jones fell 0.29% to 20,596.72, the S&P 500 shed 0.08% to 2343.98 and the Nasdaq gained 0.19% to 5828.74.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 1.45% to 18,982.39, while the Hang Seng lost 0.3% to 24,284.18.
Oil
In early trade today, WTI crude was down 0.02% to $46.78/bbl and Brent was down 0.3% to $49.70/bbl.
________________________________________
Headlines
BT fined record £42m for late installations
BT has been hit with a record fine from telecoms regulator Ofcom and has set aside £300m to repay providers for delays in installing high-speed lines. Ofcom has issued the firm with a £42m fine, which it said was the largest it has ever handed down. It found BT's Openreach division had cut compensation payments to telecoms providers for delays in installing the lines between early 2013 and late 2014. Openreach said it "apologised wholeheartedly" for the mistakes. The investigation found BT had broken rules about its "significant market power" by cutting the payments. Gaucho Rasmussen, Ofcom's investigations director, said: "These high-speed lines are a vital part of this country's digital backbone. "We found BT broke our rules by failing to pay other telecoms companies proper compensation when these services were not provided on time. "The size of our fine reflects how important these rules are to protect competition and, ultimately, consumers and businesses."
Source: BBC News
Company news
AFC Energy (LON:AFC, 12.00p) – Speculative Buy
On Friday, the industrial fuel cell power company, announced its final results for the year ended 31 October 2016. The Group has developed and successfully demonstrated an alkaline fuel cell system, which converts hydrogen into ‘clean’ electricity. AFC Energy's key project POWER-UP demonstrated the world's largest operational alkaline fuel cell system at Air Products' industrial gas plant in Stade, Germany in January 2016. The Group is now looking to build upon an already established pipeline of commercial opportunities and drive the findings from the development phase of the technology into a technically optimised and commercially relevant fuel cell system. Annual revenues of £1m produced an operating loss of £6.3 million (down from 2015’s loss of £8.6 million). Having raised £3.6 million through placing and offer for subscription in January 2016, the period ended Cash reserves of £2.9 million (31 October 2015: £1.8 million). Highlights for FY2016 included the commissioning of AFC Energy's first industrial scale 240kW fuel cell system and sale of power at Stade, Germany; entry into Strategic Technology Collaboration with Industrie De Nora S.p.A. - one of the largest manufacturers of electrolysers, electrodes, coatings and electrochemical solutions; material improvement in fuel cell longevity and availability, and reduction of stack cost, through Generation 2 fuel cell development programme and; commencement of commercial fuel cell deployment and detailed discussions with several international power utilities, industrial groups and Government bodies. Post period, the Group raised a further £8.1 million before expenses through a placing, subscription and open offer to shareholders.
Our view: 2016 was an important year of consolidation for AFC, with material improvements not only in the fuel cell technology platform, but also in the dialogue with several key commercial and strategic partners for AFC Energy. The corporate value gained from AFC Energy's collaboration with De Nora, and the commencement of commercial project developments with Peel Environmental, are significant and position the Group for an accelerated programme of activities in 2017. During this period, its primary focus will remain the deployment of fuel cell systems in commercial opportunities. Development of this commercial pipeline, will see renewed emphasis on system and cartridge cost reductions to ensure the technology can operate in an increasingly competitive and efficient manner. To achieve this, management continue to review its supply chain and scope for recycling fuel cells, as well as opportunities to improve the design of key components and system engineering. The current year will also see focus on delivering commitments with key partners, including those under the Joint Development Agreement with De Nora where significant advancements in the fuel cell system continue to be made in anticipation of international deployments. Indeed, the AFC story has now moved from technical development and door opening for commercial opportunity, to that of revenue generation. The plunge in international energy prices that took place over two years ago, of course, took the wind out of AFC sails at a time when its operations were consuming significant cash. February’s discounted placing hit the share price further, but at least strengthened the balance sheet sufficiently to suggest the Group will be able to produce its first operating and pre-tax profits before needing to tap shareholders once again, but this time to scale up its operations in response to a good commercial pipeline. This substantially de-risks the investment and, although Beaufort sees this year and next remaining in losses, revenues should ramp to £12m or so during the year to October 2018E, followed by first positive earnings, something in excess of 1p/share the year after. AFC’s technology and forward opportunity is substantial and given balance sheet strength and momentum now being generated, Beaufort retains its Speculative Buy rating on the shares.
IG Design (LON:IGR, 305.00p) – Speculative Buy
IG Design Group, a leading designers, manufacturers and distributors of gift packaging, greetings, stationary and play products, on Friday provided its trading update for the full year ended 31 March 2017 (‘FY2017’). The Group said it now expect revenues to be at record level exceeding £300m, while both profit after tax and earnings per share “significantly” ahead of current market expectations, aided by increased profit, lower interest costs and a strong cash flow. Cash generation is “well ahead” of previously expected levels and therefore the Group will achieve its target annual leverage of less than 2.5x EBITDA, 2 years ahead of plan. IG Design’s CEO, Paul Fineman, commented “We are delighted with our performance in FY17, which will represent a record year for the Group on a number of metrics. A huge breadth of opportunity remains available for us and we have pleasing momentum for the year ahead. We are confident in our ability to drive growth both organically and through strategic acquisitions, and look forward to updating the market on our progress”.
Our view: IG Design greeted its investors yet again with reassurance that it is performing well and its full year results (expected around end-June 2017) are expected to be “significantly” ahead of the market expectations. In Americas, the Group said integration of The Lang Companies Inc. (‘Lang’) is progressing well with the realisation of synergies. Profit growth was particularly strong in the region and confirmed that momentum continued to be strong with “numerous opportunities” for further growth. In Australia (JV), amid more challenging market conditions, the Board expects its performance for FY2017 to be weaker. In response, the Group has invested to reposition itself in less commoditised product areas to focus on higher margin categories, which the Group expect to provide “good growth opportunities” for FY2018 and beyond. In UK, the Group said reorganisation and further integration of its 3 UK businesses (IG UK, SCOOP and ANKER) is already in progress, positioning well to provide enhanced product and service solutions across all categories and customer channels. In Continental Europe, the Group expanded its geographical footprint by focussing on growth retailers within the region, supporting its revenue and profit growth. The Group has already provided its upgraded full year dividend guidance of 4p per share (FY2016: 1.5p) at the interim result. The shares are valued at FY2017E and FY2018E P/E multiples of 19.0x and 17.3x along with dividend yields of 1.3% and 1.7%, respectively. Considering the successful acquisition of Lang, a highly complementary US-based supplier of quality gift and speciality products, on 11 July 2016, we believe its US divisions (FY2016 revenue stood at 40% of the Group) will drive further growth for the Group, while also benefitting from the positive effects of international currency translation. Although there appears to be a technical overhang from Miton Group, who has been progressively reducing its holdings to now below 16% and may act as a drag on the share price, in light of Group’s positive progress and confident outlook, Beaufort reiterates its Speculative Buy rating on the shares. The shares have performed extremely well with approximately +82% growth year-to-date.