Beaufort Securities Breakfast Alert: Ashtead Group, Concepta, Merlin Entertainments


Today's edition features:

Concepta (LON:CPT)

Ashtead Group (LON:AHT)

Merlin Entertainments (LON:MERL)


"US tech stocks rebounded overnight as bargain hunters searched for oversold situations in what was otherwise a rather subdued trading environment. The trend was initially set through early morning business in Asian and then picked up across Europe, which the Nasdaq duly followed sufficient to see it lead gains amongst the major averages. All closed in the positive following weakness of the previous sessions, with some treating the valuation-based sell-off as a buying opportunity given the continuing flow of strong earnings reports. The wider market registered some gains amongst the energy and housing sectors, but elsewhere shares drifted on low volumes. Flat Producer Price data provided little in the way of new clues ahead of today’s policy statement from the Fed which is scheduled for 18:00hrs GMT, although futures continue to suggest a greater than 90% expectation for a 25bp hike. This means focus is more likely to centre on any hints coming from the accompanying statement, as to whether the recent lack of inflationary pressures or risk of tempering growth might push the Central Bank’s next move out to the year-end or, perhaps that a push for monetary ‘normalisation’ might end reinvestment of maturing securities in an effort to reduce the balance sheet. Unconvinced either way, Treasuries displayed a continuing lack of direction, with the benchmark ten-year yield again wavering by less than a basis point at 2.206%. Asian equities ended more mixed this morning, although the Nikkei pushed into the positive as some computer and hardware plays spiked as much as 5%, while its more traditional sectors mostly trod water; the ASX was firm as oversold banks again found buyers, while the two principal Chinese indices remained in the red as the Country’s Industrial Output data for May slightly disappointed with growth of just 6.5% for the year. The cloud overhanging the UK market darkened somewhat further yesterday on data from the ONS confirming UK inflation had risen to 2.9% in May, its highest since 2013, up from 2.7% in April, with economists having expected the figure to remain flat. For investors, this has the makings of a perfect conundrum, with approaching political deadlock, rising inflation and slowing growth. Although few expect the Bank of England to respond with higher rates at tomorrow’s policy meeting, the situation was uncomfortable enough for Sterling to rally modestly as gossips suggested a 2017 rate hike might be on the cards after all. The STOXX Europe 600 by comparison rose convincingly as tech shares rallied and fresh demand was found for consumer services plays. Oil prices on Tuesday built on the previous day’s modest gains, supported by reports that Saudi Arabia will cut its supplies to Asia and the U.S., even if most remain sceptical that production cuts led by Middle Eastern and Russian producers can alleviate obvious market oversupply emanating from US shale producers. A large stream of macro releases is due today, including UK Average Earnings for May, the ILO Unemployment rate and Claimant Count. The EU provides Industrial Production and Employment Change numbers, while the US offers its weekly MBA Mortgage Applications, May Retail Sales and the FOMC’s Economic Projections. Scheduled UK earnings and trading statements are due from WH Smith (SMWH.L), Bellway (BWY.L), Biffa (BIFF.L), Norcros (NXR.L), Gym Group (GYM.L), Mulberry Group (MUL.L) and Charles Stanley (CAY.L). President Macron’s was at pains to emphasise during his meeting with Theresa May yesterday that the EU’s door ‘remains open’ for the UK to reconsider Brexit; the gesture was enough for some to speculate whether indeed it might be time for the Government, given the continuing and damaging political and public disarray on the subject, to be brave enough to consider proposing another Referendum in order to secure a firmer mandate. Meanwhile, the EU’s first warning shot across the UK’s bows, with its declaration that it wants to take back financial clearing from London was heard loud and clear in the City, as it also pondered reports that the number of citizens applying for citizenship in the Eurozone had risen sharply. Whatever, London is set to remain in the doldrums today, with pressure remaining on Sterling as traders await news from the Fed. The FTSE-100 is set to open just 5 to 10 points down. "

- Barry Gibb, Research Analyst




The FTSE-100 finished yesterday's session 0.15% lower at 7,500.44 whilst the FTSE AIM All-Share index was up 0.60% at 972.47. In continental Europe, the CAC-40 finished up 0.40% at 5,261.74 whilst the DAX finished 0.59% higher at 12,764.98.

Wall Street

In New York last night, the Dow Jones rose 0.44% to 21,328.47, the S&P 500 firmed 0.45% to 2440.35 and the Nasdaq gained 0.73% to 6220.37.


In Asian markets this morning, the Nikkei 225 had risen 0.1% to 19,919.35, while the Hang Seng lost 0.31% to 25,771.13.


In early trade today, WTI crude was down 1.05% to $45.97/bbl and Brent was down 0.9% to $48.28/bbl.



Uber chief to take leave from company

Uber boss Travis Kalanick plans to take time away from the company, and could return in a diminished role. It comes after a review of management and practices at the firm, which is facing a number of scandals including complaints of sexual harassment. Uber's board on Sunday voted in favour of the recommendations from the review. But two days later, board member David Bonderman made a sexist remark at a meeting about the recommendations and has now stepped down. In the email to staff, Mr Kalanick said the decision to take leave, which also comes after the sudden death of his mother in a boating accident, is part of an effort to create "Uber 2.0". "For Uber 2.0 to succeed there is nothing more important than dedicating my time to building out the leadership team," Mr Kalanick wrote. "But if we are going to work on Uber 2.0, I also need to work on Travis 2.0 to become the leader that this company needs and that you deserve." Mr Kalanick's email did not say how long he would be away from the firm.

Source: BBC News


Company news

Concepta (LON:CPT, 11.88p) – Speculative Buy

The pioneering UK healthcare company and developer of a proprietary platform and suite of products targeted at the personalised mobile health market with a primary focus on women's fertility and specifically unexplained infertility, yesterday announced it had received its first sales order for myLotus Fertility Products while also providing a trading update. It detailed receipt received of a RMB 1.95million (£225,000 at exchange rate of RMB 8.33: £1) order from its partner in China, HuanZhong Biotech Co.Ltd and the Board confirmed its anticipation of further sales orders in line with its partner agreement. Notwithstanding the significant progress made to date, however, the Company's original business plan envisaged commencement of sales during the first quarter of 2017. Given the receipt of the above order, the Board has re-appraised its sales forecast for 2017, and now believes turnover for year ending 2017 will be below market expectations. In response, it has delayed spending and initiated tight cost control, this will result in the losses for the year being broadly in line with current market expectations.

Our View: Of course any slippage in the commencement of projected sales is a disappointment. But the delays experienced in its scheduled hospital trials have largely been beyond Concepta’s control, while both the viability and need for its innovative product offering remains wholly intact. Of course, the exact pace at which traction might be gained in such a highly sensitive area of personal health will always be uncertain. Personal recommendation based on familiarity, from both medics and individual patients, is what drives buying confidence when dealing with new innovative concepts in wholly unpenetrated markets. Indeed, it can be expected to power significant interest from the large population of women suffering unexplained infertility in the country once the trials have satisfactorily completed. As such, yesterday’s announcement marks an important milestone resulting from close co-operation with Concepta’s Chinese partners, who have assisted in refining its market entry strategies into China. Through its Shanghai offices, the Company continues to actively manage the profile and development of its myLotus brand; this first order allows it to test its three identified routes to market (IVF clinics, direct to consumer and hospitals) and the Board expects to make further announcements as it looks to expand its distribution network. It is now also in a position to activate its supply chain and leveraging core UK elements configured to provide a scalability. This is the result of a significant investment in regulatory processes and physical assets enabling its modular systems to expand capacity in line with demand. With ISO13485 accreditation in place, management also continues to prepare for commercial launch in the UK and Europe towards the end of the year. To put the scale of these opportunities into perspective, the Chinese market potential has been estimates to be worth around £250m, while the larger European opportunity is around £350m. Indeed, the total global opportunity addressed by Concepta’s current product offering is estimated to be worth as much as US$2 billion. Further out, its technology platform is expected to be developed into a much wider opportunity for personalised monitoring and self-diagnosis. Beaufort has reset its projections as a result of the Trading Update, moving its 2017E and 2018E Revenue estimates to £1.3m (from £2.7m previously) and £6.0m (from £8.25m) respectively, with revised earning of 0.71p and 2.10p. Recognising the value already created and the scale of the opportunity, however, Beaufort retains its Speculative Buy rating on the shares, while trimming its price target from 26p to 22p/share.

Concepta plc - Revised Summary Forecasts

Year to December (£m) Revenue EBITDA EBITA Net Profit (Loss) EPS (p) P/E * (x)

2016A** - -2.56 -2.56 -2.42 -3 -

2017E 1.3 -1.85 -1.93 -2.05 -1.98 -

2018E 6 1.2 1.02 0.84 0.71 17.3

2019E 14.25 3.43 2.99 2.29 2.1 5.8

1 GBP = US$1.27

*Based on share price of 12.25p

**Period of II months

Source: Beaufort

Beaufort Securities acts as corporate broker to Concepta plc


Ashtead Group (LON:AHT, 1,600.00p) – Buy

Ashtead Group, an international equipment rental company with national networks in the US and the UK, yesterday announced its results for the 12 months ended 30 April 2017 (‘FY2017’). During the period, on a statutory basis, revenue advanced by +10% to £3,186.8m and pre-tax profit rose +8% to £765.1m, leading to earnings per share growth of +8% to 100.5p, against comparative period (FY2016). On an underlying basis, rental revenue advanced by +13% to £2,901.2m, EBITDA rose +12% to £1,504.4m, operating profit grew +7% to £897.6m and pre-tax profit climbed +7% to £793.4m leading earnings per share to improve by +7% to 104.3p. Net debt at the period end increased to £2,528m (FY2016: £2,002m) due to acquisitions, investment and currency impact, while net debt to EBITDA on the other hand was maintained at 1.7x (FY2016: 1.7x) reflecting growth in earnings. Return on investment stood at 17% (FY2016: 19%). On the operational front, the Group invested £1.1bn of capital in the business (FY2016: £1.2bn) and in addition, invested £437m (FY2016: £65m) on 15 bolt-on acquisitions. The Group has also spent £48m on share buyback programme. Ashtead’s CEO, Geoff Drabble, commented “Based on our plans we will, once again, see strong free cash flow which will provide us with further flexibility to enhance shareholder value. So, with both divisions performing well and a strong balance sheet to support our plans, the Board continues to look to the medium term with confidence”. The Group declared a final dividend of 22.75p, bringing total full year dividend of 27.5p, up +22%, to be paid on 15 September 2017.

Our View: Ashtead delivered a good result for the FY2017, in line with consensus Analysts’ estimates. The financial performance was helped by strong constant currency growth, with its underlying rental revenue increasing by +13%, which was then boosted by the weaker Sterling on a reported basis. Both the Group’s Sunbelt (US and Canada – c.87% of revenue) and A-Plant (UK – c.13% of revenue) divisions performed well with EBITDA up +29.6% and +11.5%, respectively, coming with satisfactory margin improvement in Sunbelt (+1.1%), albeit offset by a -1.0% decline in A-Plant, resulting +0.9% growth overall to 47.2%. Post the period, the Group said its market remain “good” with its customers increasingly relying on the flexibility of rental. Spring season has seen a “good seasonal uplift” in fleet on rent, as well as “record levels” of physical utilisation for this time of year. In FY2018, Ashtead expects similar level of capital expenditure (£1bn to £1.2bn), while maintained its target for net debt to EBITDA in a range of 1.5x to 2x. The Board remain confident over its medium-term outlook and reiterated its guidance of “double-digit growth” in the US through to 2021, while comfortably increasing the dividend by +22%. The Shares are valued at FY2018E and FY2019E P/E multiple of 14.0x and 12.8x along with dividend yield of 1.7% and 2.0%, respectively. Given confident outlook, strong balance sheet and an encouraging market environment, Beaufort reiterates its Buy rating on the Shares.


Merlin Entertainments (LON:MERL, 489.50p) – Buy

Merlin Entertainments (‘Merlin’), the European entertainments company operating the world’s second-largest visitor attractions, yesterday provided its year-to-date trading update. The Group confirmed that its trading to date has been “broadly” in line with expectations, while continue to make “good” progress towards its 2020 New Business Development milestones. On the operational front, the Group opened c.250 accommodation rooms in LEGOLAND Florida and LEGOLAND Billund, with more rooms on course to be opened in the rest of the year. LEGOLAND Japan was opened on 1 April 2017 ahead of schedule and on budget. Three Midway Attractions have been opened to date and additional 2 sites in Chongqing (SEA LIFE Centre) and Berlin (Little Big City) are scheduled to open in June and July, respectively. Merlin Entertainments’ CEO, Nick Varney, commented “I am pleased that we are making good progress towards our 2020 New Business Development milestones. That said, the impact of recent terror attacks on our London attractions is unclear at this stage. What is clear however is that London has bounced back before, and will do again. I have every confidence in the longer term resilience and growth trajectory of the market. London is very much open for business, welcoming visitors from the UK and from around the world to this exciting and vibrant city. I remain confident in the company's underlying growth prospects”. Merlin is scheduled to announce Interim results on 4 August 2017.

Our View: Merlin’s year-to-date performance has been broadly in line, while the Group remain on track to achieve its 2020 milestones, which was reassuring. The shares, however, fell by some -2.7% yesterday as investors became more nervous about the impacts of the recent terror attack in the UK, which the Group said it resulted in a further weakening in domestic demand, while also remain cautious on trends in foreign visitation over the coming months as there is typically a lag between holiday bookings and visitation. Although these external factors can create short-term impacts on performance and sentiment, Merlin’s well-diversified global portfolio enabling it to mitigate such effects, having generated more than 66% of revenue (or over 70% of profits) in FY20016 from outside the UK. As the terror threat level turn milder, weakness in Sterling will continue to attract foreign visitors to the UK, while expected to encourage more domestics towards ‘staycation’. Beaufort believes Merlin remain well-position to leverage its strong brand recognition, portfolio diversity and on-going global expansion strategy. The shares are valued at FY2017E and FY2018E P/E multiple of 22.1x and 19.1x along with dividend yield of 1.5% and 1.8%, respectively. Beaufort retains its Buy rating on the shares. Merlin Entertainment is one of our Tips for 2017 recommendations.

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