Today's edition features:
• Hummingbird Resources (LON:HUM)
• Legendary Investments (LON:LEG)
• Finsbury Food Group (LON:FIF)
"Surprisingly weak July NY Empire State Manufacturing Index data, coming out at 9.8, against expectations of 15.0 and compared with June at 19.8, rather set US equities on the back foot from the open yesterday. Having touched new all-time highs on Friday, both the Dow Jones and S&P-500 trod water, choosing instead not to take any significant new positions until more companies detail their quarterly earnings. The list of those expected to report this week is long, including American Express, Bank of America, Goldman Sachs, General Electric, IBM, Microsoft, UnitedHealth and Visa. What limited trading features there were on Monday, however, comprised buying of Steels, following Trump’s suggestion he will seek protectionist measures to protect domestic plays against international dumping in the US, while beaten-up consumer discretionaries and gold stocks found demand, with the latter pushing the Arca Bugs index up 1.3%, as the precious metal for August delivery climbed US$6 to US$1,233.5/oz; semiconductor and transportation shares showed weakness. Producing its results after the market close, however, tech major Netflix released pleasing subscriber growth numbers as the migration away from traditional free-to-air TV continues to gather pace, which was sufficient to push the shares up 8.5% in after-market trading. Treasuries remained almost stationary with the 10-year benchmark yield moving just 1 basis point lower to 2.309%, its fifth decline in six sessions. Asian shares, however, were broadly weaker as their session drew to a close this morning. Australian stocks were the worst hit, with the S&P/ASX 200 index down over 1% as the country’s heavily weighted banks met strong selling once again sufficient to set the sub-index back by more than 2%. The Shanghai Composite fell again following Monday's hit, while the Nikkei suffered as the Yen gained against a weaker US$ pushing the index below the 20,000 level once again. European shares remained in a relatively good mood for most of yesterday’s trading, as they tracked Friday’s positive US close and then saw mining stocks boosted by news that China’s quarterly growth had topped expectations. This was short-lived, however, first dipping on news core Eurozone consumer prices had remained unchanged for the month of June and then again in the afternoon as the release of dull US data deflated optimism. The STOXX 600 eventually closed flat on the day, with both the CAC 40 and Xetra Dax ending with fractional losses as general weakness amongst financials, industrials and consumer stocks was somewhat offset by buying of mining and telecom stocks. During this morning’s Asian session, the Euro moved above US$1.15 in Asia for the first time since May 2016, driven by expectation of a slower future pace of US rate increases while the ECB is seen preparing to reduce its monetary stimulus; its policy statement due on Thursday is seen potentially reinforcing this expectation ahead of President Mario Draghi’s speech at Jackson Hole next month. Seen only rarely these days, but London managed to outperform its continental peers on Monday having remained in positive territory for the whole day, significantly due to its heavy weighting in mining stocks which make up 88% of the index’s weighting in basic materials companies and represent 8% of the FTSE100. Elsewhere amongst smaller issues, rebounds were also seen by Carillion and Micro Focus with both appearing to have entered oversold territory. A large amount of macro data is scheduled for release from the UK today, including the highly sensitive June Retail Producer and Consumer Prices and the DCLG House Price Index, followed by a speech from the BoE Governor, Mark Carney, at 14:30hrs BST. The EU provides its July ZEW Economic Sentiment Survey, while the US offers June its Export and Import Price Indices, its weekly Redbook, NAHB Housing Market and finally its API Weekly Crude Oil Stock. UK corporates due to release earnings or trading updates include British Land (BLND.L), NCC Group (NCC.L), Alliance Pharma (APH.L), IG Group (IGG.L), Royal Mail (RMG.L), Scapa Group (SCPA.L), and BHP Billiton (BLT.L). Feeling nervous ahead of today’s release of inflation data and following a weak Asian close, London is seen opening weaker this morning, with the FTSE-100 seen down 20-25 points in early trading."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 closed 0.35% higher at 7,404.13 whilst the FTSE AIM All-Share index was up 0.15% at 955.66. In continental Europe, the CAC-40 finished 0.10% down at 5,230.17 whilst the DAX finished 0.35% lower at 12,587.16.
Wall Street
In New York last night, the Dow Jones fell 0.04% to 21,629.73, the S&P 500 eased 0.01% to 2459.14 and the Nasdaq gained 0.03% to 6314.13.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.63% to 19,992.28, while the Hang Seng slipped 0.21% to 26,414,79.
Oil
In early trade today, WTI crude was down 0.11% to $45.97 and Brent was down 0.06% to $48.39/bbl.
Headlines
Netflix says it now has 104 million subscribers worldwide
Netflix shares surged on Monday after the firm said it now had about 104 million subscribers, a larger-than-expected number that boosted revenues. Company leaders said the gains were a sign that investment in new shows and movies was paying off as online television becomes more popular. The firm is behind shows such as 13 Reasons Why, about teen suicide, and political drama House of Cards. Boss Reed Hastings said it was "the rewards of doing great content". Netflix shares rose more than 10% in after-hours trading following the announcement of its second-quarter earnings. Company leaders said new content creation was critical to competing against other online rivals such as Amazon and YouTube, as well as traditional television. They said generating new content also meant streaming services were expanding the size of the overall market. "The largely exclusive nature of each service's content means that we are not direct substitutes for each other, but rather complements," company leaders wrote in a letter to shareholders. "The shift from linear TV to on-demand viewing is so big and there is so much leisure time, many internet TV services will be successful."
Source: BBC News
Company news
Hummingbird Resources (LON:HUM, 27.50p) – Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced today a review of the Company’s activities during Q2 2017. During the period, construction of the Yanfolila mine in Mali continued to progress on schedule and on budget with several aspects of development now completed including process design and detailed engineering. Construction is 56% complete with 73% of the estimated capex spend committed (90% of Capex committed on the process plant construction) as the Company continues to target first gold pour by end of 2017. During Q2 2017, Hummingbird acquired a further 5% interest (to 80%) in Yanfolila as well as the 1% royalty from La Petite Mine d’Or SARL (LPMDO) for a total consideration of US$2m to be paid in shares on 31 March 2018. As at 17 March 2017, Hummingbird had US$70m in cash and the US$60m debt facility with Coris Bank International Group is now fully drawn down.
Our View: We continue to be encouraged with the progress being made at the Yanfolila site with approximately 56% of the construction now complete and continues to be on schedule and on budget. We look forward to commencement of pre-production mining in Q3 2017 as the contract mining fleet is currently on site assisting with the construction of the Tailings Storage Facility. We also note that once Yanfolila is in production management will be in active exploration mode with the aim to increase the life of mine reserve beyond 10 years through further work on the more than 1Moz of gold not yet included in the current reserves. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Hummingbird Resources plc
Legendary Investments (LON:LEG, 0.14p) – Speculative Buy
The Board yesterday confirmed that one of its portfolio of companies, VirtualStock Holdings Limited (‘VS’), has completes strategic funding round with Notion Capital, a trading name of The Fund Incubator Limited. VS, has attracted an investment of £4.5m from this leading European B2B SaaS Venture Capital firm, in order to support its next phase of growth. The financing round values VS at £66m. VS's goal is to transform global B2B supply chains and marketplaces through its ability to seamlessly and rapidly connect systems together. VS's core platform (‘The Edge’) is already used by leading retailers including Tesco, John Lewis, Sainsbury's, Argos and Dixons Carphone to support their digital and omni-channel strategies. The Edge brings increased transparency and simplicity to a company's supply chain meaning customers can take advantage of the ever-increasing opportunities that an omni-channel environment presents. As well as the country's leading retailers, VS also counts the leading NHS Trusts amongst its clients; within this, it now operates in partnership with NHS Shared Business Services to incorporate The Edge into its systems is intended to help realise up to £1bn of annual savings through transforming the end-to-end procurement process.
Our View: Beaufort has written extensively about VirtualStock and the global opportunity its unique supply chain software brings. VS delivers an agile supply chain technology platform that allows its clients to quickly adapt to the challenges of digitisation without turning to traditional systems integration, thereby reducing cost and risk while accelerating operational benefits. VirtualStock has already demonstrated this in two very significant sectors from where it has already accumulated a highly impressive portfolio of ‘blue chip’ clients. Beaufort’s own valuation of VS, which presently stands at £240m, is much higher than that implied through Notion Capital’s strategic investment. But while that suggests Notion got itself an absolute bargain, its funding injection will ensure it has adequate financial resource to sustain its timely growth acceleration through enhancement of its range of client solutions, while expanding reach into new markets. Termed “the best possible partner for us” by VS’s CEO, Andrew Mills, this new relationship also offers access to the ‘Notion Platform’ which has been designed to support its portfolio businesses through a range of value added services. Legendary Investments’ holding in Virtualstock has been reduced from 7.1% to 6.8% as a result of this funding injection; simply valuing this participation on the basis of Notion’s own funding injection provides a 15% or so premium to LEG’s current market capitalisation. But in expectation of its participation in VS becoming more realistically valued within LEG’s portfolio, Beaufort retains its Speculative Buy recommendation on the shares along with its 0.7p price target.
Beaufort Securities acts as corporate broker to Legendary Investments plc
Finsbury Food Group (LON:FIF, 114.00p) – Hold
Finsbury Food Group (‘Finsbury Food’), the UK speciality bakery manufacturer of cake, bread and morning goods for the retail and foodservice channels, yesterday provided its pre-close trading update for the full year ended 1 July 2017 (‘FY2017’). During the period, revenue advanced by +0.3% to £314.3m (FY2016: 52 weeks £313.5m) on a reported basis, while it fell by -1.1% on a constant currency basis, against the comparative period (52 weeks FY2016). The performance was comprised of -1.4% decline in the UK Bakery division due to retail food market deflation, offset by +17.3% growth in overseas division (50% owned European business) on a reported basis. The Group said it is “confident” to deliver profits in line with market expectations. Finsbury Food’s CEO, John Duffy, commented “The hard work undertaken in prior periods has ensured that we have maintained our course, with the benefits of having a diversified business across channels and geography coming to the fore. Considering the pressures the industry faces, we are very pleased to have grown revenue and are confident that the Group is well positioned to maintain its strong market position and continue to deliver shareholder returns”.
Our View: Finsbury Food’s performance during FY2017 demonstrated resilience against deflationary pressures that impacted UK retail food market during the period, most particularly in the first half. The UK Bakery division (FY2016: 88% of revenue) suffered a -2.9% drop in sales during H1 which was followed by a +0.1% improvement in H2 as the prices began to recover. By contrast, the overseas division (FY2016: 12% of revenue) continued to benefit from Sterling’s devaluation, boosting divisional revenue by +15.1%, which together with +2.2% organic growth, amounted to +17.3% growth for the year. Although clearly overseas division’s reported revenue growth in the H2 FY2017 was obviously dramatically slower than the +32% achieved during H1 FY2017, this was against the strong comparative period (H2 FY2016) which registered c.+39% growth year-on-year. Whilst we do recognise that the Group’s ongoing investment will continue to bear fruit as it claws further modest margin improvement, UK market conditions nevertheless remain challenging with persistent cost pressure on rising commodities such as butter and wheat, worsen by the weaker Sterling. The Shares are presently valued on a FY2017E P/E multiple of 11.4x, EV/EBITDA of 6.7x, along with dividend yield of 2.6%. Beaufort remains a long-term supporter of this high-quality business but for now prefers to wait for signs of improved opportunity (including further price inflation) before recommending the shares once again. Beaufort reiterates its Hold on Finsbury Food Group with a target price of 125p.