Today's edition features:
• Prairie Mining (LON:PDZ)
• Hastings Group Holdings (LON:HSTG)
"Reopening today after the extended Labor Day and May Day Bank Holiday weekend, national and geo-politics remain on the agenda. Culminating this coming Sunday with the second round of the French Presidential Election (7th May), although anything but a quite resounding win for Macron will be quite a shock, while also anticipating a significantly rebuilt Tory majority at the forthcoming UK General Election (8th June), investors have been buying into this optimism. Last week, in fact, international markets put on quiet an exceptional performance with, for example, the S&P-500 up 1.58%, the FTSE-100 +1.26%, the Eurofirst 300 +2.36% and the Nikkei 225 + 3.09%. Investors have also been riding stronger than expected quarterlies from US corporates which, was driven significantly by big tech stocks, was enough to allow the Nasdaq to achieve another record high yesterday, while the other principal indices largely trod water. Apple, for example jumped 2% touching a new peak for its own shares, ahead of reporting results this afternoon, although financials also benefitted from more Trump comments regarding his proposals to lighten sector regulation imposed through Obama's Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010. There does still remain one or two macroeconomic shadows over the markets, however, not least last week's release of US growth of Q1'2017, which slowed to its weakest since 2014; although some point to bad weather conditions during the period as a reason for disappointing activity levels, others are more convinced the economy is losing momentum. They will be seeking answers this week, with news from the Federal Reserve's two-meeting which starts today and the important US jobs report this Friday. Such concerns applied some late pressure on the Asian closings, with only the Nikkei managing to close in the positive helped by further declines in the Yen, while the Shanghai Composite led the other regional bourses down as it detailed its April Caixin Final Manufacturing PMI Falling to Seven-Month Low, which also knocked sentiment for the Hang Seng and ASX. The UK today is due to release Markit Manufacturing PMI data for April, while the BRC Shop Price Index is also scheduled for late this evening. The EU provides the same PMI as well as its March unemployment rate, followed later by US numbers, including its Redbook Index, April Total Vehicle sales and weekly API Crude Stocks. UK corporates scheduled to publish earnings or trading updates, include BP (BP..L), Just Eat (JE..L), Shire (SHP.L), Bovis Homes (BVS.L) and Trinity Exploration & Development (TRIN.L). Importantly, however, significant new reports from Greek officials and the country's international creditors first thing this morning, that they have reached an agreement on austerity measures and economic overhauls the country must implement to keep its bailout program going, clearing the way for debt-relief talks, will generate broad relief for the European region and help set the tone for today's opening. The FTSE-100 is seen rising between 20 and 25 points in early trading."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished Friday's session 0.46% lower at 7,203.94 whilst the FTSE AIM All-Share index was 0.20% up at 963.72. In continental Europe, the CAC-40 finished down 0.08% at 5,267.33 whilst the DAX was 0.05% lower at 12,438.01.
Wall Street
In New York last night, the Dow Jones last traded down 0.13% to 20,913.46, the S&P-500 firmed 0.17% to 2,388.33 and the Nasdaq gained 0.73% to stand at 6,091.6.
Asia
In Asian markets this morning, the Nikkei 225 had risen 0.68% to 19,440.92, while the Hang Seng rose 0.27% to 24,680.47.
Oil
In early trade today, WTI crude was down 0.23% to $48.73/bbl and Brent was down 0.1% to $51.47/bbl.
Headlines
BP profits helped by higher oil prices
The recent increase in oil prices has helped BP (BP..L) to record a healthy profit for the three months to March. The $1.4bn (£1.1bn) profit, on the replacement cost measure, compared with a $485m loss a year earlier. Oil prices have been about 35% higher in the first three months of the year compared with a year ago, boosting revenue from BP's core oil and gas production division. BP chief executive Bob Dudley said: "Our year has started well." He added: "BP is focused on the disciplined delivery of our plans. First quarter earnings and cash flow were robust."
Source: BBC News
Company news
Prairie Mining (LON:PDZ, 30.50p) - Buy
Prairie has published an announcement which shows that Jan Karski is a coking coal project. Since Prairie's other project Debiensko is also coking coal, this means Prairie is a pure coking coal play, the only one of its kind. This should widen the potential investor base for Prairie Mining shares and remove or significantly reduce any environmental concerns investors may have. In fact the test results announced this morning show that coal from Jan Karaki's main seam (391) produces a ultra low ash (< 3%) semi soft coking coal which has environmental benefits. It essentially allows steel furnaces to reduce the amount of fuel they burn, thereby reducing CO2 emissions and their overall cost of fuel. This is especially important in the EU. Other key properties of seam 391 include a CSR of 51.5 (higher than benchmark semi soft coking coals), a coking coal yield of 75%, and an estimated 10% premium selling price over benchmark semi-soft coking coals.
Our view: This is unexpected and very good news. Jan Karski was previously regarded as a high quality thermal coal project with some coking coal, now it is coking coal with a much smaller thermal element. We know of no other pure coking coal plays. Its location in Central Europe, which imports the majority of its coking coal, provides additional value. And given the large size, high margin and strategic importance of Prairie's two projects, we would expect Prairie to now be on the radar of the international coal majors. We reiterate our BUY recommendation.
Beaufort Securities acts as Retail Investment Advisor to Prairie Mining plc
Barclays (LON:BARC, 212.25p) – Buy
On Friday, the Transatlantic Consumer, Corporate and Investment Bank released Q1'2017 results. CEO, James Staley stated: "This has been another quarter of strong progress towards the completion of the restructuring of Barclays." Group profit before tax more than doubled to £1,682m driven by improved profitability in the Core and materially lower losses in Non-Core of £241m (Q1'16: £815m). Core basic earnings per share increased to 7.2p (Q1'16: 5.8p). Barclays UK Return on Tangible Equity (RoTE) improved to 21.6% (Q1'16: 20.5%), with 2% income growth driving an improved cost: income ratio of 52% (Q1'16: 53%). Net interest margin (NIM) improved 7bps to 3.69% with net interest income increasing 1% to £1,511m. Barclays International RoTE improved to 12.5% (Q1'16: 9.5%) as profit before tax increased 32% to £1,356m. Consumer, Cards and Payments RoTE was 36.4% (Q116: 23.4%) while the Corporate and Investment Bank RoTE improved to 8.2% (Q1'16: 7.3%). The Group's attributable loss in respect of discontinued operation of £801m, was due to an impairment of Barclays' holding in BAGL allocated to acquisition goodwill of £884m. Group RoTE decreased to 1.8% (Q1'16: 3.8%) due to a 7.2% dilutive impact from the impairment of Barclays' holding in BAGL allocated to acquisition goodwill. Management stated, however, it was on track to achieve regulatory deconsolidation, with further selldown subject to regulatory approval. Tangible net asset value per share increased to 292p (December 2016: 290p) primarily due to profits generated in the period, while the Common Equity Tier 1 ('CET1') ratio increased to 12.5% (December 2016: 12.4%), with strong organic capital generation partially offset by the redemption of USD preference shares, purchase of shares for employee share awards and pension contributions.
Our view: 'Clean' results demonstrated a strong Core Return on Tangible Equity (RoTE) of 11.0% (Q1'16: 9.9%), on an average allocated tangible equity base that was £5bn higher year-on-year, as 12% income growth drove a 20% increase in profit before tax: Barclays UK RoTE increased to 21.6% and Barclays International RoTE improved to 12.5% - reasonably impressive! Despite having already been told that the Group was bringing forward its run-down of non-core operations by 6 months, the sting from shedding African operations and marginally weaker than expected returns from investment banking, particularly in the US where it underperformed peers, appeared to leave some investors disappointed. Some of these hurdles remain, including securing a separation agreement approval from South African regulators; the £884 million impairment on the unit's value, reflects both the cost of stripping it out as well as the fall in its share price as the local economy stuttered. Meanwhile, the tick-up in bad loans to nearly 20%, driven mainly by its U.S. credit-card unit, also needs to be contained. Various litigation issues also continue to over-hang the Bank. It is being sued by the U.S. Justice Department for its alleged role in the sales of toxic mortgage-backed securities, while also being investigated by U.S. and U.K. authorities over how it wooed Middle Eastern investors to pump in cash at the height of the financial crisis. The U.K. Serious Fraud Office is expected to make a decision shortly on whether-or-not to charge the bank. A further probe regarding the CEO's efforts to unmask a whistleblower who complained about a hire the bank made remains outstanding. This presents something of a messy background for an operation that otherwise delivered well against realistic expectations in Q1. As such, the underlying operations continues to look cheap, while remaining well positioned to capitalise on improving international momentum being registered amongst international economies. Considering the Group's structural reform plan is on track to achieve planned critical milestones and most of the above-mentioned outstanding issues should be either resolved or clarified ahead of the Group's next financial report, a valuation of just 10.1x 2018E earnings, a 0.69x Tangible Net Assets, based on an estimated 7.2% (pre-exceptional) forecast RoTE is not expensive, considering it remains on track for end-state capital requirement. Barclays remains on Beaufort's Buy list, with the recommendation that investors use Friday's share price weakness to build underweight positions. Barclays was included on Beaufort's Tips for 2017 recommendation list.
Hastings Group Holdings (LON:HSTG, 302.30p) – Buy
Hastings, a general insurance provider, on Friday provided its trading update for the 3 months ended 31 March 2017 ('Q1 FY2017'). During the period, gross written premiums advanced by +26% to £214.7m against the comparative period (Q1 FY2016), driven by +14% growth in live customer policies ('LCP') to 2.42 million and continuing targeted rate increases. Net revenue climbed +24% to £164.5m due to the earn through of higher average premiums and growing retail income driven by increases in policy numbers. Hastings' CEO, Gary Hoffman commented ""Hastings has once again delivered another quarter of profitable growth. …we look forward with confidence in our ability to deliver against our targets".
Our view: Hastings continues to deliver an impressive performance. The first 3 months of the year were strong with +14% growth in live customer policies, driven by high customer retention and increasing penetration of price comparison websites ('PCW'), recording a 6th consecutive quarter of double-digit growth since the IPO. Its market share of UK private car insurance has risen to 6.7% from 6.0% a year ago. Recent change to the personal injury discount rate ('Ogden rate') from 2.5% to -0.75% has resulted in a hit on profit across the industry, given that it will increase the cost of settling personal injury damages awards, and was therefore followed broadly by premium increments. This, however, may potentially result Hasting to further expanding its market share, as it differentiates itself with an agile, digital and data-driven business model, whose approach focusses on price comparison websites to providing customer with the best suited and most attractive offerings. Looking ahead, Board confirmed that it is "well positioned" to continue its profitable growth and deliver against the targets set. Such targets includes; 1) calendar year loss ratio of 75-79%, 2) dividend payout ratio of 50-60% of adjusted profit after tax, 3) reach customer numbers of 2.5 million by end 2017 but not at the expense of profitability, and 4) net debt leverage multiple of 1.5x by end 2017. Further to this, the Group also set an updated target at its FY2016 full year results to achieve customer numbers of 3.0 million and a net debt leverage multiple of 1.0x during 2019. With our forecast of revenue £715m, pre-tax profit £156m and EPS of 19.4p for FY2017E, the shares are presently valued at FY2017E and FY2018E P/E multiples of 15.8x and 13.9x along with dividend yields of 3.3% and 3.1%, respectively. Hastings remains a high visibility income investment that will benefit from the fact that new competition is now unlikely to crowd out the sector given that new technologies are expected quite considerably alter the sector dynamics over the next one or two decades, while regulation and in-car safety advances will likely continue to reduce the extent of major personal claims in coming years. Hastings fits well for investors seeking both capital appreciation and income. The Shares have performed extremely well with +73.7% grow in the last 12 months, yet the growth momentum remains set to continue. Beaufort repeats its Buy recommendation on the share.