Today's edition features:
• Arian Silver (LON:AGQ)
• AFC Energy (LON:AFC)
• CityFibre Infrastructure (LON:CITY)
"The health of corporate America ensured U.S. equities sustained their strong start on Tuesday. Impressive quarterly reports were delivered by a number of large-cap companies amid more general optimism, as investors await further details regarding the President’s planed tax cuts along with broad confidence that Macron will succeed in becoming France’s next President. The Nasdaq spiked up more than 0.7%, sending the index above 6,000 for this first time ever, while the Dow Jones rose more than 200 points, with results from Caterpillar driving the construction sector as Dupont and McDonald’s also pleased both at the top and bottom lines, leaving just Coca-Cola missing analyst’s best expectations. Banking, Biotech, Chemical, Computer Hardware and Networking Stocks all performed well. Economic releases, however, presented more of a mixed bag, with new home sales seeing a substantial increase in March contrasting a separate report from the Conference Board that showed a larger than expected pullback in consumer confidence for April, although the index still remains at a strong level. More than 190 S&P components are expected to have reported by the end of the week, with other big names scheduled to release quarterlies this afternoon including Boeing, PepsiCo, Procter & Gamble, Twitter, United Technologies. But against this background, Trump was forced yesterday to delay his push to secure federal funds to build his promised border wall with Mexico, in order to eliminate a sticking point as lawmakers work to avoid the looming government shutdown. Asian traders this morning also expressed relief that relieved that, other than staging a brief military drill as the USS Michigan nuclear submarine docked in Busan, no significant gestures were received from Pyongyang as North Korea’s 85th People’s Army Day drew to a close. This allowed the region to extend its gains for the third day, picking up a hint from positive US and European closes during early morning trade, with Japan putting in the strongest performance, although the ASX and Hang Seng were not far behind and, more modestly, the Shanghai Composite also reversed early losses to end in the positive. European stocks also closed higher yesterday as French manufacturing sentiment strengthened to a near six-year high in April, leading the Stoxx Europe 600 to rise 0.2% while recording its fifth consecutive session of gains. The FTSE-100 put almost as much on, as safe-haven assets, like Gold and Government Bonds, continued to retreat. There is no UK or EU macro data due today, although Theresa May hosts Jean-Claude Juncker and EU chief Brexit negotiator Michel Barnier in London. The US releases MBA Mortgage Applications and EIA Crude Stocks change numbers. UK corporates due to report earnings or trading updates include Antofagasta (ANTO.L), Fresnillo (FRES.L), CRH (CRH.L), Standard Chartered (STAN.L), The London Stock Exchange (LSE.L), GSK (GSK.L), Boohoo.com (BOO.L) and Tullow Oil (TLW.L). Investors will also be keen to hear more from the EU’s foreign policy chief, Federica Mogherini, following reports that Brussells wishes to expand its dialogue with Russia on key foreign policy issues, the first significant sign of a thaw in relations and a move that seemingly reflects growing concerns regarding the U.S.’s unpredictable international policy. London equities are seen having trouble sustaining recent upward momentum, with mining giant BHP Billiton cutting its annual guidance for coking coal and copper this morning, the FTSE-100 to be down 10 or so points during opening trade. "
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.15% higher at 7,275.64 whilst the FTSE AIM All-Share index was 0.47% up at 957.29. In continental Europe, the CAC-40 finished up 0.17% at 5,277.88 whilst the DAX was 0.10% higher at 12,467.04.
Wall Street
In New York last night, the Dow Jones rose 1.12% to 20,996.12, the S&P 500 firmed 0.61% to 2388.61 and the Nasdaq gained 0.7% to 6025.49.
Asia
In Asian markets this morning, the Nikkei 225 had risen 0.93% to 19,257.42, while the Hang Seng firmed 0.58% to 24,598.85.
Oil
In early trade today, WTI crude was down 0.18% to $49.47/bbl and Brent was down 0.13% to $52.03/bbl.
Headlines
Boohoo online fashion retailer sees its profits double
Annual pre-tax profits at online fashion retailer Boohoo (BOO.L) have almost doubled to £31m - up from just under £16m last year. Its sales have jumped by 51% to almost £300m, thanks to new overseas markets. The Manchester-based firm puts its success down to "combining cutting-edge, aspirational design with an affordable price tag". Its booming sales growth has also been reflected in its share price, which has more than trebled in the past year. On its stock market flotation in 2014, it was valued at £560m. It is now worth about £2bn. The firm has gone from strength to strength in recent years, while its High Street rivals have had to deal with increasing competition from Boohoo and other online retailers.
Source: BBC News
Company news
Arian Silver (LON:AGQ, 0.93p) – Speculative Buy
Arian Silver Corporation, a Mexico focused resource exploration company, announced today that it will allow its option with Tierra Nuevo Mining Ltd over the Noche Buena gold and silver tailings project to lapse unexercised. As a result, the Company will now focus on its recently acquired lithium projects in Zacatecas State, Mexico. Metallurgical and mineralogical test works undertaken by Resource Development Inc (RDI) of Denver, Colorado (USA) demonstrated that the tailings were highly refractory and include gangue minerals that would inhibit extraction of gold and silver as well as attract penalties levied by potential purchasers of any concentrate produced.
Our view: Whist the metallurgical results are disappointing in terms of recovery potential from the Noche Buena tailings, we note that this is an inherent risk when attempting to reprocess tailings material. As such, Arian can now focus on its recent acquired lithium prospects. We look forward to more positive updates from the first batch of assay results from the lithium projects which are expected imminently with a preliminary technical report to follow soon afterward. We maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Arian Silver plc
AFC Energy (LON:AFC, 11.50p) – Speculative Buy
The industrial fuel cell power company, yesterday announced a new phase of the its partnership with Industrie De Nora SpA. AFC Energy and De Nora are now expanding this Joint Development Agreement collaboration into Phase 2, following successful Phase 1 completion. As part of this, the two Groups expect to finalise the design of a commercial fuel cell electrode and stack during the current year for commercial application which is capable of mass automated production with warranted performance metrics. Focus will be on the integration of the best performing electrodes from Phase 1 to derive a frozen baseline technology platform. They expect to commence dialogue on terms for a long-term electrode supply agreement building on De Nora's proven know how in the automation of manufacturing processes. Demonstration of the new upscaled and enhanced fuel cell system is planned at AFC Energy's Stade industrial scale fuel cell plant in Germany in the second half of 2017. The validation will include the metrics associated with power output, longevity, efficiency and availability.
Our view: De Nora's track record in industrial electro-chemistry application, capacity for manufacture and the commitment to deliver significantly cuts risks entailed in this ambitious project. Being able to warrant performance of electrodes, in terms of performance parameters and target cost, places AFC Energy, together with its commercial project partners, in a preeminent position to become preferred supplier of fuel cell systems, while also providing targeted industries with the necessary confidence to proceed in adoption of the technology. Within this, AFC expected to offer highest performance in terms of duration of continuous operation, availability based on hydrogen purity standard. Importantly, the partnership with will also allow AFC Energy to set its cost structure (modelled to result in a cost per kWh competitive amongst several of today's conventional and renewable energy generation technologies) by leveraging De Nora's manufacturing, supply chains and procurement strength. Beaufort accordingly repeats its Speculative Buy recommendation, although in consideration of the likely challenges and costs that remain with respect to securing early commercial take-up, the price target for AFC has now been set at 23p/share.
CityFibre Infrastructure (LON:CITY, 55.50p) – Speculative Buy
CityFibre Infrastructure (‘CityFibre’), the leading designer, builder, owner, and operator of fibre optic infrastructure in UK towns and cities, yesterday announced results for the year ended 31 December 2016 (‘FY2016’). During the period, revenue advanced by +140% to £15.4m, against the comparative period (FY2015). Together with +2% improvement in gross margin to 88%, the Group recorded adjusted EBITDA of £2.5m compared to loss of £2.9m a year ago. Operating loss was £5.1m (FY2015: £6.2m), due to higher administrative costs of £18.7m (FY2015: £11.7m). Underlying administrative costs (excluding non-recurring costs and other charges) rose by +31% to £11.1m primarily due to increased average headcount. Loss after tax widened to £12.6m (FY2015: loss £6.4m), which includes financing costs of £7.3m (FY2015: £0.3m). Cash and cash equivalents at the period-end was £16.7m. Net debt stood at £43.1m at period end. On the operational front, CityFibre secured total funding package of £180m in January 2016, comprising £80m from the equity placing, alongside £100m in committed debt facilities. As at 31 December 2016, the Group had drawn £59.8m of its £100.0m debt facilities. The Group added £75.5m in new initial contract value, up +255%, reflecting growth from both organic and through acquisition of network asset from KCOM in January 2016 and Redcentric in September 2016. CityFibre’s CEO, Greg Mesch, commented “CityFibre now has significant presence in 42 cities across the UK and the rapid commercialisation of the Group's assets underlines the strong demand for an alternative to BT Openreach at a national level. We continue to see significant levels of demand from both business and public services sectors alongside increasing interest from mobile operators and residential broadband providers. With the regulatory and political landscapes now both favouring alternative fibre investment, CityFibre has never been better placed to capitalise on expanding its existing footprint and a growing number of near term strategic opportunities”.
Our view: CityFibre delivered excellent progress during the FY2016. The revenue growth was driven by the ongoing expansion in footprint, incremental revenues from both existing and new cities, and through the acquisition of network asset from the KCOM and Redcentric. Such transformational acquisition, according to the management, has accelerated its original business plan by up to 7 years. These are reflected in more than doubling of new initial contract value to £75.5m (up +255%), addition of 29 new cities and increased service provider partner base to 54. Organic revenue grew was also strong, increased by +63% to £10.4m, which had a greater contribution from the Edinburgh project that has been completed during the year. Looking ahead, the Group said current trading is in line with management's expectations and that it remain confident to offers a powerful platform for large-scale expansion into both FTTT and FTTH over the longer term. Facilitating current work programmes suggests net debt will continue to rise sharply over the next two years, possibly approaching the Group’s current market capitalisation by 2019E, but by this time annual revenues should have spiked up to around £50m, according to Beaufort estimates. Having delivered first positive adjusted EBITDA of £2.5m in FY2016, a figure three times as large might be expected for the FY2017, following which a first modest net profit is being targeted. Recurring, relatively low maintenance business with sticky customers provides excellent forward visibility. Assuming revenues rise to some £90m within 5 years, which should be capable of producing a 60% EBITDA margin, DCF methodology suggests a current value closer to 75p/share. Beaufort retains its Speculative Buy recommendation on CityFibre.