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Beaufort Securities Breakfast Alert: ASOS plc, Bushveld Minerals Limited, Ryanair

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Today's edition features:

• Bushveld Minerals (LON:BMN)

• ASOS (LON:ASC)

Ryanair Holdings (LON:RYA)

 

"Overnight equity markets regained a little traction while the Yen and gold prices strengthened as investors chose safety-first investments in the wake of Monday's St. Petersburg explosion. Caution remains the watchword, with a number of catalysts contributing to the recent more downbeat tone, including the lack of positive surprises now coming from the raft of U.S. economic data, uncertainty ahead of today's Fed minutes and Friday's US Non-Farm Payrolls, as well as the unpredictable meeting scheduled between President Donald Trump, and Chinese leader Xi Jinping on Thursday and Friday this week. Much in-line with expectations, February U.S. factory orders rose, while the Institute for Supply Management index of factory activity registered at 57.2 in March, the seventh consecutive month of industrial expansion. This follows data more cautionary news, however, on Monday that car sales unexpectedly fell in March, hitting auto stocks both sides of the Atlantic. Having slipped some 15 points on yesterday's opening, the Dow Jones Industrial Average still managed to scrape a minor gain, driven primarily by demand for manufacturing stocks like Caterpillar, by the close, with the two other principal US indices doing likewise. Asian markets largely followed suit with the Shanghai Composite leading gains in the hope that the coming meeting will clarify the prospective US-Sino trade relationship, although the Hang Seng failed to share in this excitement, ending with a fractional loss; the Nikkei and ASX managed minor gains. The FTSE-100 closed 0.54% higher yesterday at 7321.82 at the end of a fairly quiet day, supported largely by continuing softness in the Pound which itself followed a weak Construction Purchasing Managers' Index, released mid-morning, adding to the caution generated from Monday's lackluster UK manufacturing data. This also pushed safety-first investors back into gold stocks, while other miners also make gains on a rebound in base metals prices; oil prices recovered somewhat ahead of today's weekly inventory data from the US, along with continuing speculation of another planned OPEC production cut prior to the start of the US driving season. UK macro data due for release today includes March Markit Services PMI numbers, while the EU provides similar figures for its region. The US does likewise, while also contributing MBA Mortgage Applications, ISM Non-Manufacturing PMI and ADP Employment Change followed later by its FOMC minutes. UK corporates due to release earnings or trading updates includes McCarthy & Stone (MCS.L), HSS Hire (HSS.L), International Consolidated Airlines (IAG.L) and Gooch & Housego (GHH.L). With little other market drama anticipated on the opening, London is likely to track sentiment from the US and Asia, with the FTSE-100 see rising 20 to 25 points in opening trade."

- Barry Gibb, Research Analyst

 

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Markets

Europe

The FTSE-100 finished yesterday's session 0.54% higher at 7,321.82, whilst the FTSE AIM All-Share index gained 0.20% to stand at 930.91. In continental Europe, the CAC-40 finished up 0.30% at 5,101.13 whilst the DAX was 0.21% higher at 12,282.34.

Wall Street

In New York last night, the Dow Jones rose 0.19% to 20,689.24, the S&P-500 firmed 0.06% to 2,360.16 and the Nasdaq gained 0.07% to finish at 5,898.61.

Asia

In Asian markets this morning, the Nikkei 225 had fallen 0.01% to 18,809.20, while the Hang Seng slipped 0.19% to 24,215.97.

Oil

In early trade today, WTI crude was up 0.63% to $51.35/bbl and Brent was up 0.52% to $54.45/bbl.

 

Headlines

Donald Trump tells banks he will give laws a 'haircut'

President Donald Trump has promised sweeping reforms to "horrendous" US banking regulations that were introduced after the financial crisis. "We're going to do a very major haircut on Dodd-Frank," he said, referring to the Wall Street and consumer protection rules Barack Obama enacted in 2010. Dodd-Frank aimed to prevent banks taking on too much risk and to separate their investment and commercial arms. But Mr Trump said he wants "some very strong" change to help the bank sector. "We want strong restrictions, we want strong regulation. But not regulation that makes it impossible for the banks to loan to people that are going to create jobs," the president told a group of about 50 business leaders at a White House meeting. "We're going to be doing things that are going to be very good for the banking industry so that the banks can loan money to people who need it." Mr Trump had promised during his election campaign to relax rules on big banks, and subsequently ordered a review of the industry's regulations.

Source: BBC News

 

Company news

Bushveld Minerals (LON:BMN, 7.32p) – Speculative Buy

Bushveld Minerals, a diversified mineral development company with a portfolio of vanadium, iron ore, tin and coal assets in Southern Africa and Madagascar, announced today that it has signed a MoU (Memorandum of Understanding) between its 100% owned subsidiary Lemur Holdings and Sinohydro Corporation. The MoU is in regards to the development of a 60MW coal power plant and associated 200km transmission line in southern Madagascar with the coal from Lemur's mining permit area potentially supply fuel for the power plant. Objectives of the MoU include: the development of a BFS (Bankable Feasibility Study) and PIP (Project Implementation Proposal) at cost to Sinohydro within 12 months, preparation of a EIA for the project by both parties, preparation of EPC and O&M contracts for the power plant and EPC contract for the transmission lines within 18 months and cooperation between both parties to secure both debt and equity funding for the project.

Our view: Whilst the proposed power plant and coal mine are still at the conceptual stage the signing of a MoU sets out clear objectives for both parties moving forward. Sinohydro and its parent company PowerChina bring a wealth of technical expertise required to build and operate coal fired power plants. We look forward to completion of the BFS, at cost to Sinohydro, which will help define the economics of the project and note the potential positive social impact this project could have to an area with limited power. As such, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as a corporate broker to Bushveld Minerals plc

 

ASOS (LON:ASC, 5,971.00p) – Buy

ASOS, a global online fashion retailer, yesterday announced interim results for the 6 months ended 28 February 2017 ('H1 FY2017'). During the period, Group revenues advanced by +37% to £911.5m, while it increased by +31% on a constant exchange rate basis ('CE'), against the comparative period (H1 FY2016). On a reported basis, Total retail sales rose by +38% (CE: +31%) to £889.2m, comprised of +18% growth in the UK to £340.8m and +54% (CE: +42%) growth in international to £548.4m. Within international retail sales, US saw +62% (CE: +39%) growth to £124.3m, EU rose +48% (CE: +36%) to £248.9m, while Rest of World ('ROW') recorded +59% (CE: +53%) growth to £175.2m. Retail gross margin during the period fell to 47.0% (H1 FY2016: 47.4%), and due to increased investment, operating cost increased by +38% to £413.0m, in line with last year's operating cost ratio of 45.3%. Pre-tax profit therefore rose by +14% to £27.3m, leading to diluted earnings per share of 26.3p, up +15%. Cash and cash equivalents rose +14% to £2154.3m. On the operational front, the Group confirmed that it is on course for transition of its warehouse site from Eurohub 1 to Eurohub 2, with relocation completed last month. ASOS's CEO, Nick Beighton, commented "These are a strong set of results, showing great progress across the business. Given the current momentum we are seeing, ASOS is making good progress towards its ultimate goal of becoming the world's no. 1 destination for fashion-loving 20-somethings". The next trading update (for 4 months to 30 June 2017) is planned to be released on 13 July 2017.

Our view: ASOS delivered a strong performance during the H1 FY2017, with solid growth across all regions. Its results continue to benefit from the weaker Sterling against other currencies, particularly the US dollar and the Euro, leading to pre-tax profit beating Bloomberg consensus analysts' forecast by +£0.2m. UK sales maintained its +18% growth amid more promotional market. Both the US and EU continue to grow well, while ROW significantly accelerated its sales growth during the latter 2 months to 28 February, driven by further price and proposition investments. Looking down the KPIs, the Group has expanded its number of active customers by +29% year-on-year to 14.1 million (of which, UK passed the 5 million active customer mark), with both average basket value and average order frequency improved by +3% and +4%, respectively. Total visitors increased by +27% and total order rose by +33% during the period, implying conversion rate of 2.9% (H1 FY2016: 2.8%). Looking ahead, given the strong performance, the Group has upgraded its reported sales growth guidance for FY2017 once again to c.30%-35% from c.25%-30% previously. Capex estimate remained unchanged at £150-170m, while the management said pre-tax profit is anticipated to be broadly in line with current market consensus of £72m-£84.5m (£78.25m mid-point, £80.6m mean). Medium-term reported sales growth guidance remained unchanged at c.20-25% per annum. Yesterday's sharp fall in its share price following the announcement was possibly associated to ASOS's flat pre-tax profit guidance given upgraded revenue, as well as its house broker (Numis Securities) trimmed FY2017 pre-tax profit forecast by -2% to £78.0m, reflecting number of cost headwinds (transition costs for Eurohub 2, sourcing inflation etc.). While ongoing investment into price for topline growth may reduce the margin further, given management's confidence in future and continuing strong global sales expansion, the share price has quickly recovered by the close. Beaufort expects the UK performance will likely to remain impacted by relatively dull consumer confidence and rising costs, but stronger international sales, which now stands over 60% of the total retail sales, will move the Group forward. Beaufort reiterate its Buy rating on the share, although we continue to preference boohoo.com over ASOS.

 

Ryanair Holdings (LON:RYA, EUR14.67) – Buy

Ryanair, a low-cost European short-haul airline company, yesterday provided a traffic update for March 2017. During the month, passenger traffic increased by +10% y-o-y to 9.4 million customers, while the load factor remained flat y-o-y to 94%. The rolling annual traffic to March rose +13% to 120.0 million customers. Passenger traffic represents the number of earned seats flown, while load factor represents the number of passengers as a proportion of the number of seats available for passengers.

Our view: Ryanair reported strong passenger traffic and load factor data for March, despite the absence of Easter and repeated ATC and some handling strikes which resulted in flights cancellations and reduced passenger traffic by c.100,000 customers. Ryanair said the good result was driven by lower fares and the continuing success of its 'Always Getting Better' customer experience programme. These strong statistics follow last month's +10% increase in passenger traffic and +2% improvement in load factor. The result means Ryanair has achieved its FY2017 guidance of 120.0 million (FY2016: 106.4m) passenger traffic and full year load factor was +1% ahead of its guidance to 94%. At its Q3 FY2017 result announced in February, the Group said it expect average fare to fall by c.-15% in Q4, and upgraded full year ex-fuel unit cost saving to c.-4% (previously guided c.-3%) given Q3 saw better than expected ex-fuel unit cost saving of -6%. Overall, the management reiterated its FY2017 profit after tax guidance of €1.30bn-€1.35bn, subject to normal levels of disruption. For the FY2018, Ryanair stated that the challenging pricing environment is expected to continue, which the Group hopes to tackle by boosting passenger traffic and further reducing unit costs. The management also said at its Analyst's conference call that it expects load factor to stabilise at around 93% to 93.5%, going forward. The Group has hedged over 85% of FY2018 fuel at an average price of US$49bbl which is set to deliver fuel savings of c.€65m in coming year. Beaufort is encouraged by the Group's ability offering lower fares while still retaining its net profit guidance. The key differences for Ryanair is its capability to continue lowering its unit costs, while delivering "lowest passenger costs" amongst its EU peers, at the time of traffic growth and when competitors are "forecasting flat or rising" costs. This gap between Ryanair and its rivals will enable Group to maintain momentum and continue winning market share. Beaufort retains its Buy rating on Ryanair.

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