Beaufort Securities Breakfast Alert: Biffa PLC, Bushveld Minerals Limited, Bellway


Today's edition features:

• Bushveld Minerals (LON:BMN)

Bellway (LON:BWY)

• Biffa (LON:BIFF)


"Downbeat US data yesterday afternoon took the shine off of a relatively strong morning performance amongst the European bourses, leaving them mixed by the close as the US$ tumbled ahead of the Fed policy meeting announcement. Reflecting a steep drop in energy prices, the Labor Department reported consumer prices had edged down by 0.1% in May after rising by 0.2% in April, rather a shock given that economists had been predicting an unchanged figure. Retail Sales also somewhat disappointed with a 0.3% decline in May, against expectations of a 0.1% improvement. Such weakness in underlying prices and a cautious consumer, at a time when the unemployment rate has fallen below the long-term sustainable rate, presents something of a dilemma for Fed policy makers. When it came, the FOMC delivered the 25bp cut expected, taking rates to their highest since 2008. The tone of its statement, however, appeared to wipe out any remaining hopes amongst those still hanging on to the hope of two more hikes being delivered in 2017, while pushing expectation for the one remaining move out closer to the year end. Unspectacular but still resilient appeared to be Janet Yellen's message on the US economic outlook, as she also set out plans to start shrinking the Fed's US$4.5tr balance sheet this year. US equities, that had shown a lack of direction showing just fractional moves ahead of the announcement, with weakness in energy stocks being the only real feature in response to a sharp decline in crude prices for July delivery that plunged US$1.71 to US$44.75/bbl, weakened slightly on the news with NASDAQ tech stocks the principal casualty. Treasuries by comparison moved sharply higher ahead of the announcement with the yield on the benchmark ten-year note down by 9.4 basis points at 2.113% before closing at 2.138%, its lowest since November. This spread caution to the Asian markets this morning, dragging all regional bourses into the red. The ASX, which had enjoyed a 4-day winning streak was the biggest faller, although profit-taking was also seen in Hong Kong and Korea while the Nikkei Stock Average was knocked by the US$ selloff. Early yesterday, European equities found themselves celebrating strong employment data, with both the EU and UK registering record high numbers. But having performed strongly up to the US data release, the Stoxx Europe 600 eventually closed down 0.3%, with only the Xetra Dax remaining in the positive while both the CAC40 and IBEX35 tumbled sharply back into the red. Having been brave enough to brush off early concerns over Tuesday's inflationary spike, traders instead focussed on an optimistic statement from Bellway to drive a rally in oversold housebuilders and then track upward moves being enjoyed by its European cousins until it too succumbed to the same concerns as Sterling's rally continued. While it appears that the ECB remains in no rush to move its own interest rates while the Bloc's inflation continues to slumber, the Euro appears set to rally further with investors reportedly having now taken their most bullish positions on the single currency in six years. Investors will have further large batches of macro data to contemplate today, with the UK due to provide its May Retail Sales figures, the BoE's Interest Rate Decision plus its Monetary Policy Summary. The EU details its April Trade Balance, while the US offers its NY Empire State Manufacturing Index, Initial Jobless Claims, Import and Export Prices Indices, the Philadelphia Fed Manufacturing Survey, Industrial production and Capacity Utilisation figures. UK corporates due to release earnings or trading statements include Safestore Holdings (SAFE.L), Consort Medical (CSRT.L), Drax Group (DRX.L) and Majestic Wines (WINE.L). There is no expectation of the Bank of England raising its current 0.25% base rate today, although traders will scour the Summary statement for evidence of higher expectation of such a move later this year. London equities are seen opening weaker this morning, with the FTSE-100 losing around 20 points in early trading."

- Barry Gibb, Research Analyst




The FTSE-100 finished yesterday's session 0.35% lower at 7,474.40 whilst the FTSE AIM All-Share index was up 0.10% at 973.46. In continental Europe, the CAC-40 finished down 0.35% at 5,243.29 whilst the DAX finished 0.32% higher at 12,805.95.

Wall Street

In New York last night, the Dow Jones rose 0.22% to 21,374.56, the S&P-500 lost 0.1% to 2,437.92 and the Nasdaq fell 0.41% to 6,194.89.


In Asian markets this morning, the Nikkei 225 had fallen 0.34% to 19,815.63, while the Hang Seng shed 106% to 25,601.68.


In early trade today, WTI crude was down 0.07% to $44.70/bbl and Brent was up 0.06% to $47.03/bbl.



EU mobile roaming charges scrapped

A European Union (EU) law to abolish roaming charges for people using mobile phones abroad comes into force today. The new rules mean that citizens travelling within the EU will be able to call, text and browse the internet on mobile devices at the same price they pay at home. The European Commission said the end of roaming charges was one of the greatest successes of the EU. But a UK consumer group warned phone users could face "unexpected charges". Until now roaming, or connection, charges have been added to the cost of calls, texts and internet browsing when consumers from one EU country travelled to another and connected to a mobile network there.

Source: BBC News


Company news

Bushveld Minerals (LON:BMN, 9.50p) – Speculative Buy

Bushveld Minerals, the vanadium producer with a diversified portfolio of tin and coal assets in Southern Africa, announced today completion of the Uis tin project acquisition. All conditions have now been fulfilled between Bushveld's wholly owned subsidiary, Greenhills Resources, and a consortium of Namibian shareholders to acquire the latter's 49.5% interest in Uis tin project in Namibia. Erongo Tin holds the remaining 50.5% of the issued share capital of Dawnmin, which is the 85% owner of the Uis tin project with the remaining 15% held by Small Miners of Uis, a Namibia Government owned subsidiary. Erongo will spend up to A$2m to complete a scoping study on the project including the acquisition of processing equipment where deemed appropriate. The Uis tin project comprises three mining licences (ML 134, ML 129 (B1 and C1) and ML 133) the most significant of which is ML 134 with an estimated historical resource of 70.3Mt grading 0.14% Sn. Under terms of the agreement, Bushveld will acquire 49.5% interest for consideration equal to 41M Bushveld ordinary shares. The Group also has the option to acquire an additional 1% interest in Dawnmin for a total consideration of US$1.2m, plus a further option to earn an additional 20% in Dawnmin following Erongo's completion of the scoping study and subject to certain milestones.

Our View: The above transaction fits nicely into Bushveld's strategy of consolidating a critical mass of mineable low-cost tin resources and creating a platform for Greenhills Resources as a standalone tin producer with strategic partners. The Uis tin project is located in a past producing area comprising cassiterite and tourmaline bearing pegmatites that has been mined intermittingly between 1924 and 1994. We look forward to further updates on the Uis tin project as well as results from the scoping study. In the meantime, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as a corporate broker to Bushveld Minerals plc


Bellway (LON:BWY, 3,020.00p) – Buy

Bellway, the UK housebuilder, yesterday provided its trading update for the period from 1 February to 4 June 2017. The Group's number of active outlets during the period was +6% higher at 237 (2016: 223) and reservation rate increased by +13% to 221 per week (2016: 196 per week). It has made significant investment in land, with 10,250 plots contracted (2016 – 8,600 plots) and said all land are in place to meet next year's growth target. In addition to this, the Group agreed heads of terms, and solicitors instructed, to purchase a further 5,500 plots. For the full year, the Group expect housing completions ahead of its target, approaching +10% growth (2016 – 8,721) year-on-year. Average selling price is on track to achieve around £260,000 (FY2016: £252,793), while operating margin is expected slightly in excess of 22% (2016 – 22%). Depending on the timing of land opportunities, the Board expects net bank debt to be less than £50m at the end-FY2017. The total order book, of which 70% is contracted, stood at 5,819 homes (5 June 2016: 5,346 homes) and includes forward order book valued at £900m (2016: £846m) due for completion beyond 31 July 2017. Bellway's CEO, Ted Ayres, commented "Robust market conditions, together with a clear operational focus, is enabling Bellway to continue increasing its contribution to the supply of much needed new homes. We have made a significant investment in land and work in progress over a number of years and this, together with a strong balance sheet and substantial operational capacity for expansion, should ensure that Bellway is well positioned to deliver further volume growth, this year and beyond. This successful implementation of our disciplined growth strategy is leading to ongoing enhancements in shareholder value".

Our View: Bellway reaffirmed that its performance since the H1 continue to be strong. With the much-repeated positive sector dynamics, including a structural UK housing shortages, low unemployment, high mortgage financing availability, ultra-low interest rates, government incentives (Help to Buy) for new property purchases, together with Housing White Paper indicating potential 'use it or lose it' policies to boost annual completions to the Government's desired level of 225k-275k homes, against the current level of c.170k, all provide continuing support to the housebuilding sector. The shares are currently valued at FY2017E P/E of 8.7, P/NAV of 1.77x along with dividend yield of 3.9% which is undemanding. Given improved outlook and continuing confidence for FY2017 and beyond, supported by the strong forward order book of £900m, we believe the Group remain well positioned for further growth in the year ahead. Beaufort maintain its Buy rating on the shares, although our top pick in the sector remains Taylor Wimpey and Persimmon.


Biffa (LON:BIFF, 193.25p) – Buy

Biffa, a leading UK integrated waste management company, yesterday announced its results for the 52 weeks ended 24 March 2017 ('FY2017'). During the period, net revenue (revenue excluding Landfill Tax) advanced by +8.3% to £898.8m, comprised of; +3.3% organic growth and +5.0% from acquisition, against the comparative period (FY2016). On an underlying basis, EBITDA margin improved by +0.7% to 13.9% which resulted in EBITDA growth of +12.6% to £137.7m. Operating profit grew by +18.1% to £73.8m as operating margin rose by +0.8% to 7.5%, leading to significant jump in pre-tax profit of £45.1m, up +112.7m, or profit after tax of £35.8m, up +251.0%. On a statutory basis, loss after tax was £10.9m (FY2016: £5.1m), primarily reflecting Biffa's IPO costs of £29.0m and the impact of the reduction in the real discount rate on landfill provisions charge of £17.9m (FY2016: nil). Underlying free cash flow stood at £28.8m (FY2016: £35.9m), cash and cash equivalents amounted to £56.4m (FY2016: £106.0m), while net debt at the year-end was £246.1m (FY2016: £505.9m), implying net debt to EBITDA of 1.8x. On the operational front, the Group completed 5 acquisitions (total investment: £25.7m) and signed an exclusive partnership agreement with Covanta, a leading developer and operator of Energy from Waste (EfW) recovery facilities, to jointly explore 2 potential EfW projects in Leicestershire and Cheshire. The Group was admitted on the main market of the London Stock Exchange in October 2016 through IPO raising £262m. Biffa's CEO, Ian Wakelin, commented "Biffa delivered a strong performance in the year that also saw our successful listing on the main market of the London Stock Exchange. Our expectations for the year ahead remain unchanged and we look forward with confidence". The Group declared its maiden dividend of 2.4p per share, to be paid on 28 July 2017.

Our View: Biffa delivered FY2017 results in line with expectation and with pre-close trading update announced in March. The Group's all 4 divisions; Industrial & Commercial (58% of net revenue), Resource Recovery & Treatment (12% of net revenue), Municipal (20% of net revenue), and Energy (10% of net revenue) performed well. In particular, Industrial & Commercial division showed strong performance with organic growth of +5.9% driven by new customer wins, a further +3.1% revenue growth led by the 5 acquisitions, together with a significant margin improvement of +1.7% during the period. Looking ahead, the Board confirmed that its expectations for the FY2018 remain unchanged with strong pipeline of acquisition opportunities. Outlook for Industrial & Commercial division is encouraging as continued revenue and margin growth will drive organic growth, while the Group retains its strong acquisition pipeline. Resource Recovery & Treatment division also has positive outlook due to contribution from new facilities more than offsetting modest landfill decline. Outlook for Municipal division on the other hand is "stable", while Energy division expect landfill gas volumes continue to fall at a rate of c.7% - 7.5% pa in line with expectation as the volume will continue to decline over time as landfill waste inputs reduces. Energy prices remain uncertain and the Group therefore forward sell its generation with c.95% of wholesale electricity prices already hedged for FY2018. Biffa operates in a highly-fragmented environment, which means a number of reasonably sized acquisition opportunities regularly become available and, when well selected, these can create short-term and not insignificant enhancement to earning, while building out its dominance in its operation. Biffa's model is for strongly managed, highly visible cash generative returns, some of which are given back in the form of income with the remainder targeting expansion. Given the results were in line with expectation with unchanged outlook, a traditional business that is opportunistically positioned both as an industry leader and sector consolidator deserves a higher rating than the FY2018E P/E multiple of 11.1x and EV/EBITDA of 6.2x presently awarded, especially when it comes with a 3.4% dividend yield. Beaufort repeats its Buy recommendation with a price target of 235p on the shares.

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