Today's edition features:
• Amryt Pharma (LON:AMYT)
• DekelOil Public Limited (LON:DKL)
• Provident Financial (LON:PFG)
"Ahead of today’s Fed Interest Rate Decision and Policy Statement, Tuesday’s Conference Board data blew positive winds over US equities by suggesting July saw a spike in consumer confidence to 121.1 from a revised 117.3 in June and nearing to the peak of 124.9 reached back in March. Amongst the major averages both the Dow Jones and S&P-500 shook off their recent lacklustre mood to put on reasonable gains, although the NASDAQ was left nursing disappointment from Alphabet results that followed Monday’s close managed to finish only a little better than unchanged. While Industrials and Consumer Discretionaries fared well following better than expected results from Caterpillar, AK Steel and McDonald's, tech issues including Computer Hardware (Arca sub-sector index down 2.3%) and Biotechnology (-1.2%), came under pressure. Global oil majors, however, found themselves broadly supported during the US session as light, sweet crude for September delivery improved US$1.04, or 2.2%, to US$47.38/bbl on the NYME nearing its one-week high, while the global benchmark Brent gained 2.1% to US$49.61 following yesterday’s OPEC statement in which Saudi pushed for compliance on agreed output cuts. With the API later suggesting US crude supplies declined by 10m barrels last week, four times that predicted by the US DoE, Brent spike further still during this morning’s late Asian trading to US$50.60. Treasuries saw a significant move to the downside, with yield on the benchmark ten-year note jumping by 7.4 basis points to 2.328% from Monday’s close. Asian shares were mostly higher, helped by an improved appetite for risk which pushed up the dollar and commodity prices on Tuesday, although caution on tech issues still pushed the KOSPI into the negative toward closing. Elsewhere, the S&P/ASX 200’s miners and energy stocks benefitted from improved global pricing while the Nikkei rebounded on Yen weakness. European stocks pushed higher on Tuesday, with Financials being buoyed by news from Germany and Greece. For the former, the DAX 30 ended 0.45% up, having been boosted by the closely followed IFO Institute data, which described corporate sentiment as "euphoric" as the index for Europe's largest economy surged to a record high of 116.0 in July. The figures reflect not just strong private and public consumption, but also resurgent investment spending, seemingly undeterred by recent Euro strength. For the latter, the country’s return to the international bond markets following a three-year absence, starting with a five-year bond sale yesterday, convinced some investors that the worst scenario for the common currency bloc had now passed, boosting banking stocks in the process. Greece sold EUR3 billion of an August 2022 bond yielded 4.625% which, compared with the existing 2019 instrument at 3.2%, demonstrates most nevertheless still need to be paid a good premium to extend their risk duration. The STOXX 600 rode on this news, rising some 0.41% with the CAC-40 and IBEX-35 leading Continental gains. London’s FTSE-100 also benefitted from the IMF’s improved Chinese economic outlook, which took copper prices up nearly 3% and dragged mining majors like Antofagasta, Glencore and Anglo American with it, while Michael Kors’ takeover bid for Jimmy Choo sent the shares up 17%. The UK has a good batch of macro data releases scheduled for today, including its June BBA Mortgage Approvals, Q2 GDP Preliminaries and its quarterly Index of Services. Nothing is expected from the EU, although the ECB’s Sabine Lautenschläger is due to make a speech, while the US offers its weekly MBA Mortgage Applications, June New Home Sales and EIA Crude Stocks Change figures. The Fed is due to publish its Interest Rate Decision followed by its Monetary Policy Statement at 19:00hrs BST. Many UK corporates are due to release earnings or trading updates this morning, including ITV (ITV.L), GlaxoSmithKline (GSK.L), Fresnillo (FRES.L), Hammerson (HMSO.L), GKN (GKN.L), Marston’s (MARS.L), Compass Group (CPG.L), Joules Group (JOUL.L), Paypoint (PAY.L), Tullow Oil (TLW.L) and Antofagasta (ANTO.L). Somewhat losing faith in President Trump, investors are unlikely to be swayed by his apparent ‘Major Trade Deal with the UK’ enthusiasm, preferring instead to focus on hard the GDP numbers (consensus forecast of +0.3% QoQ and 1.7% YoY) due this morning and the Fed statement this afternoon. Ahead of this. The FTSE-100 is seen opening just 5 points either side of unchanged. "
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.77% higher at 7,434.82 whilst the FTSE AIM All-Share index was up 0.96% at 978.84. In continental Europe, the CAC-40 finished 0.65% higher at 5,161.08 whilst the DAX finished up 0.45% at 12,264.31.
Wall Street
In New York last night, the Dow Jones closed 0.47% higher at 21,613.43, the S&P 500 climbed 0.29% to 2,477.13 and the Nasdaq inched 0.02% higher to 6,412.17.
Asia
In Asian markets this morning, the Nikkei 225 was 0.41% at 20,036.97, while the Hang Seng was moderately higher at 26,861.09.
Oil
In early trade today, WTI crude was up 1.04% to $48.39 per barrel and Brent was 0.82% higher at $50.61 per barrel.
Headlines
New diesel and petrol cars face 2040 ban
New diesel and petrol cars and vans will be banned in the UK from 2040 in a bid to tackle air pollution, the government is set to announce. Ministers will also unveil a £255m fund to help councils tackle emissions from diesel vehicles, as part of a £3bn package of spending on air quality. The government will later publish its clean air strategy, favouring electric cars, before a High Court deadline. Campaigners said the measures were promising, but more detail was needed. They had wanted government-funded and mandated clean air zones, with charges for the most-polluting vehicles to enter areas with high pollution, included in the plans. After a protracted legal battle, the government was ordered by the courts to produce new plans to tackle illegal levels of harmful pollutant nitrogen dioxide. Judges agreed with environmental campaigners that previous plans were insufficient to meet EU pollution limits. Ministers had to set out their draft clean air strategy plans in May, with the final measures due by 31 July.
Source: BBC News
Company news
Amryt Pharma (LON:AMYT, 22.75p) – Speculative Buy
The biopharmaceutical company focused on innovative therapies that transform the lives of patients with rare and orphan diseases, yesterday announced the publication of a long-term extension study evaluating the benefits of Lojuxta (lomitapide) in the treatment of Homozygous Familial Hypercholesterolaemia (‘HoFH’), a rare, genetic, life-threatening disease, which impairs the body's ability to remove LDL cholesterol (‘LDL-C’ or ‘bad’ cholesterol) from the blood. Lojuxta is an approved treatment for adult patients with HoFH, which was in-licenced by Amryt in December 2016. The study, which followed patients for up to 5.7 years results, showed Lojuxta as being highly effective in lowering LDL-C levels, with acceptable tolerability and no new safety signals. Notably, the majority of patients achieved the recommended LDL-C target level for all adult patients with HoFH. The study results have been published recently by Circulation, an international, peer-reviewed journal in a paper entitled, "Long-Term Efficacy and Safety of the Microsomal Triglyceride Transfer Protein Inhibitor Lomitapide in Patients with Homozygous Familial Hypercholesterolemia". It was published by Dirk Blom et al and analysed data in 19 HoFH patients who had previously completed the pivotal phase 3 study (Cuchel et al) in lomitapide. The primary end-point of the study was LDL-C lowering versus the start of the study when receiving standard therapy, assessed at Week 126 (2.4 years) with safety being assessed to the study end at a maximum of 5.7 years. The efficacy was maintained with a mean reduction in LDL-C of 45.5% versus baseline and no new safety signals were identified. The most common adverse events reported were gastrointestinal, but the incidence of treatment related adverse events was lower in the extension study than those observed in the pivotal phase 3 trial (42.1% versus 84.2%).
Our View: Highly reassuring! This long-term study confirms the efficacy of lomitapide seen in the pivotal phase 3 trial. Adding lomitapide to other lipid-lowering therapies is highly effective in sustainably reducing LDL-C levels with acceptable tolerability and no new safety signals. Indeed, so effective is the treatment that some patients were even able to discontinue or reduce the frequency of lipid apheresis - a procedure similar to renal dialysis that removes LDL-C directly from the blood. This clear opportunity, which is already accruing substantial revenues and cash generation through its exceptional licensing deal, has further potential to expand its international symptomatic recognition along with additional scope to broaden marketing authorisation through a paediatric investigation plan (‘PIP’). Beaufort’s prudently discounted valuation for Lojuxta alone exceeds Amryt’s current market capitalisation! But for Beaufort, that’s only part of the story. European investors are clearly failing to grasp the very significant financial and commercial benefits available for Orphan or Rare Disease drug developers. So much so in fact, that sector-focussed Amryt Pharma finds no quoted peers in London, yet a good basket of NASDAQ-listed comparables are seen to command a significant premium despite mostly being pre-revenue and somewhat earlier in their development. Such anomalies can and, of course, do rapidly correct. Given that Amryt’s lead indication (AP101) has a demonstrable market opportunity of US$1.35bn, is fully funded to the point of delivering ‘Topline Data’ in about one year from now, while its high-margin licensing revenues are profitably building-out alongside a robust pipeline, such an event appears overdue. Beaufort retains its Speculative Buy recommendation along with a price target of 62p/share. Click here to see Beaufort’s Initiation Research on Amryt Pharma.
Beaufort Securities acts as Retail Investment Advisor to Amryt Pharma plc
DekelOil Public Limited (LON:DKL, 11.75p) – Buy
The operator and 100% owner of the profitable and vertically integrated Ayenouan palm oil project in Côte d'Ivoire, yesterday confirmed formal commencement of operations at Guitry, its second project in Côte d'Ivoire, in which the Company holds a 100% interest. As with Ayenouan, Guitry is to be developed into a vertically integrated palm oil operation including nursery, company-owned estates and a mill producing crude palm oil ('CPO') from fresh fruit bunches grown by both the Company and local smallholders. Detailed planning has already been completed, including the Nursery which will have a capacity of 1 million plants per year (6,000 ha of oil palm estates equivalent); Estate Development, which has secured rights to develop oil palm estates over approximately 24,000 ha of brownfield land - primarily old cocoa and oil palm estates; Extraction Mill, where the Company will undertake a feasibility study for a 15-30 tonne/hour CPO extraction; Tax Exemption, for which an application for a corporate tax exemption for the Guitry project will be made; and Project Funding, for which development capital over the next 12 months is not expected to exceed €250,000.
Our View: Offering shareholders an opportunity to capitalise on its valuable and proven management experience! DekelOil’s stated strategy is now to transform itself into a leading West African-focused palm producer. Replicating that already gained from turning Ayenouan into a highly cash generative operation, DekelOil sees the opportunity to move forward its 100%-owned Guitry project as compelling. Indeed, Guitry prospectively has the potential to become a much larger and more profitable operation than Ayenouan. Having proven its first vertically integrated model, the Board is determined to move the concept forward by building a portfolio of other vertically integrated palm oil projects in West Africa. Having established how to de-risk a successful operation, which then plays an important role in the local economy, the business model can attract interest and support potential partners, financing vehicles and banks with regards to providing development capital for Guitry. While it is likely to fund an initial portion of future development from internal cash flow, the majority will likely be obtained by introducing a project partner, in a similar manner to that seen with Ayenouan. While these discussions have commenced with no partner yet selected, this strategy will provide comfort to shareholders who, while applauding the Board’s expansion strategy, do not wish to see the Company’s recently declared progressive dividend strategy impacted. Indeed, in projecting DekelOil producing as much as £2.7m free cashflow during 2017E, followed by around £6m the year after, DekelOil is seen providing shareholders with dividend yields of 1.7% and 2.0% for the two periods, while also rapidly reducing balance sheet debt. Beaufort considers yesterday’s news ideally demonstrates management willingness to move its ambitious planning forward without exposing shareholders to a raised risk profile. With the shares trading on forward earnings multiples of 7.3x and 5.7x respectively, Beaufort retains its Buy recommendation on DekelOil, repeating its price target of 23p/share.
Beaufort Securities acts as corporate broker to DekelOil Public Limited
Provident Financial (LON:PFG, 2,163.00p) – Hold
Provident Financial (‘Provident’), the leading non-standard lender in the UK, yesterday announced its interim results for the 6 months ended 30 June 2017 (‘H1 FY2017’). During the period, revenue advanced by +8.4% to £619.4m against the comparative period (H1 FY2016). As total costs surged by +30.3% due to increase in operating and administrative costs, pre-tax profit fell by -45.6% to £90.0m leading to basic earnings per share of 46.2p, down -46.3%. On an adjusted basis (excluding amortisation of acquisition intangibles and exceptional items), both pre-tax profit and basic earnings per share dropped by -22.6% to £115.3m and 60.3p, respectively. Annualised return on assets fell by -2.6% to 13.1% impacted by the trading disruption in home credit and the investment to support medium-term growth in Vanquis Bank. Gearing stood at 2.7x (H1 FY2016: 2.3x). Vanquis Bank (50% of revenue) saw +27% growth in new customer bookings, +13.6% and +15.3% increase in customer numbers and receivables. The Group said loans pilot is progressing well. The Consumer Credit Division (‘CCD’, 42% of revenue) was impacted by the disruption from the change in home credit operating model. Its performance was deteriorated by higher than expected agent vacancies due to attrition and reduced agent effectiveness during the migration of the home credit business to an employed workforce. The Group said Satsuma, the online small-sum, short-term loan, has made a “very good progress” in developing the further lending and digital capability. Customer number fell by -8.5% while average receivables rose +3.6%. Moneybarn (8% of revenue) registered +15% growth in new business volumes with strong increase in both customer number (+27.8%) and average receivables (+32.2%). Provident’s CEO, Peter Crook, commented “Whilst I remain disappointed by the higher than expected operational disruption to trading in the home credit business, the new business model was deployed as planned during the first week in July. I am confident in the strategic rationale for the change and the business is working hard to improve customer service and collections performance ahead of the seasonally busy fourth quarter. The group has continued to exercise strong discipline around credit and not observed changes in customer behaviour in relation to either demand for credit or credit performance”. The Group declared an interim dividend of 43.2p (H1 FY2016: 43.2p), to be paid on 30 November 2017.
Our View: As foreshadowed in the Group’s trading update on 20 June 2017, H1 results were disappointing. As expected, this was predominantly due to the operational disruption in CCD where its adjusted pre-tax profit for the period dived -85.5% to just £6.3m. The division’s performance deteriorated in response to an unexpected shortfall of agent moving to a fully-contracted basis, while the remaining agents’ effectiveness also became disturbed during the transition, resulting in overall impairment rising by +64.1% or £45.1m. Away from the home credit operation, Vanquis Bank, Moneybarn and Satsuma all showed a continued strong demand with unchanged credit standards. Vanquis Bank recorded positive adjusted pre-tax profit despite recording costs associated with a step-up in new customer bookings and an additional year-on-year investment of c.£10m to augment the medium-term growth potential of the business. Moneybarn saw strong growth in new business volumes, while Satsuma increased overall credit issued by approximately 40%. Looking ahead, the Group said Vanquis Bank, Moneybarn and Satsuma are trading in line with current market expectations and are “well set” to deliver profit growth in the H2. For home credit operation, the Group will focus on embedding the new model and on collections activity during the Q3 in preparation to deliver a more normalised performance in the seasonally busy Q4. The Group reiterated full year guidance for CCD's pre-exceptional profits at £60m. The Group’s gearing of 2.7x was well within its banking covenant limit of 5.0x, while its cash position remains sufficient to fund contractual maturities and projected growth in the business until the seasonal peak in 2018. Whilst we see various growth opportunity in Vanquis Bank and Moneybarn such as through entry into near prime customer segment and unsecured loan market along with cross-selling enabled by the growing customer numbers, we remain cautious over the effectiveness of CCD’s new operating model as it stands over 40% of the Group’s revenue. That said, however, the worst scenario of Provident which is still considered a well-managed specialist lender is probably now largely painted on its share price. While it is possible that a further, final provision may need to be to resolve CCD’s current problems this year, based on a 2018E forward adjusted earnings multiple of just 12x together with a 6.5% yield, there may shortly be an opportunity to become positive on the shares once again. At this time, however, Beaufort retain its Hold rating on the shares with a 2200p price target.