Today's edition features:
• DekelOil Public Limited (LON:DKL)
• easyJet (LON:EZJ)
Markets
Europe
The FTSE-100 finished yesterday's session 0.85% higher at 7,474.77 whilst the FTSE AIM All-Share index was up 0.23% at 987.71. In continental Europe, the CAC-40 finished 0.46% higher at 5,130.49 whilst the DAX finished down 0.22% at 12,154.72.
Wall Street
In New York overnight, the Dow Jones closed 0.04% higher at 22,026.1, marking yet another record high. The S&P 500 closed 0.22% lower at 2,472.16 and the Nasdaq was off by 0.35% at 6,340.34.
Asia
In Asian markets this morning, the Nikkei 225 was 0.33% lower at 19,964.13, while the Hang Seng was modestly ahead at 27,541.71.
Oil
In early trade today, WTI crude was down 0.18% at $48.94 per barrel and Brent was 0.17% lower at $51.92 per barrel.
Headlines
Business group urges Brexit transition deal
One of the UK's biggest business lobby groups has urged the cabinet to stop "dancing around the edges" of Brexit. The Institute of Directors (IoD) called on the cabinet to come up with a "transitional agreement" to smooth the move to Brexit. It wants it to bridge the "the Brexit Gap" between leaving the EU and setting up new trading arrangements. It warned that without agreement, business faces "short-term chaotic cliff edges". The group criticised the cabinet for engaging in what it called "a range of speculative arguments over transition". In recent weeks cabinet members have given opposing views on how long a transition period would last and what it would involve. The IoD report Bridging the Brexit Gap: Options for Transition said: "Instead of dancing around the edges, this issue must become a policy discussion for the cabinet. "This could minimise the growing level of confusion and uncertainty in this area." However, Gerard Lyons, an economist and leading figure in the Economists for Brexit group this week described concern about a "cliff-edge" Brexit as "alarmist talk" similar to the fear of the Y2K bug threat to computers at the turn of the millennium.
Source: BBC News
Company news
DekelOil Public Limited (LON:DKL, 12.25p) – Speculative Buy
The operator and 100%-owner of the profitable and vertically integrated Ayenouan palm oil project in Côte d'Ivoire, yesterday held its Annual General Meeting ('AGM'). At the meeting, Youval Rasin, CEO, has made the following statement: "2017 represents DekelOil's fifth year on AIM. We are proud of our record as a publicly traded company as each year has seen us achieve major milestones, all of which are key to delivering on our overall objective to build DekelOil into a leading West African focused palm oil producer. In 2013 DekelOil was first admitted to AIM. 2014 saw the commissioning of our 70,000 tn/yr crude palm oil ('CPO') extraction Mill which, as well as being one of West Africa's largest, is strategically located in an area of Cote d'Ivoire where we identified a shortfall in capacity to process fruit grown by local smallholders. In 2015 we reported a near doubling in CPO produced to 35,770 (2014: 14,242) as well as the introduction of our first institutions onto our shareholder register. In 2016, we announced another full year CPO production record following a 10.4% increase to 39,498 tonnes; while we also secured 100% ownership of Ayenouan via two value accretive acquisitions; as well as two debt refinancings on more favourable terms and the removal of capital notes from our balance sheet post year end, which resulted in a 25% reduction in full year financing costs to €2.1m from €2.8m.”
Our View: Current year momentum is being maintained. Thanks to the growing profitability at vertically integrated Ayenouan, the Board has already announced the adoption of a progressive dividend policy and a maiden final payout of 0.17 pence per ordinary share for the year ending 31 December 201. As was also detailed in the Group’s recent half yearly production update, management expects to report a 22.1% increase in product sales, including CPO, Palm Kernel Oil ('PKO') and Palm Kernel Cake ('PKC'), to €18.8 million (H1 2016: €15.4 million) for the first half. This was primarily due to stronger CPO pricing resulting from higher global prices and increased CPO storage capacity at the Project, which enables an improvement in local pricing terms. As a result, H1 2017 EBITDA is expected to be materially higher than H1 2016's EBITDA of €3.1m. 2017 has also seen DekelOil become a multi-project palm oil company following the formal commencement of operations at Guitry, its second project in Cote d'Ivoire. As with Ayenouan, DekelOil is looking to develop Guitry into a vertically integrated palm oil operation including nursery, company-owned estates and a mill producing CPO from fresh fruit bunches grown by both the Company and local smallholders. In addition, the Group also announced that it had entered into discussions to acquire Norpalm Ghana Limited ('NGL'), a subsidiary of Norpalm AS, a Norwegian company which owns a palm oil production company in Western Ghana. NGL is a vertically integrated palm oil owner and operator with approximately 4,000 hectares of mature palm plantations under ownership and a 30 tn/hr mill which processes fresh fruit bunches from its own-operated estates as well as those produced by local smallholders. In addition to the revenues it generates from selling approximately 15,000 tonnes of CPO into the domestic Ghanaian market, NGL also operates a palm kernel oil press which produces approximately 2,000 tn of PKO. There can be no guarantee that these discussions will result in DekelOil acquiring NGL, but they nevertheless demonstrate management’s confidence in its ability to replicate the success already registered. Having proven both its business model and ability to implement it, shareholders should anticipate further progress as DekelOil seeks to transform itself into a leading west African palm oil producer. Indeed, in projecting DekelOil producing as much as £2.7m free cashflow during 2017E, followed by around £6m the year after, Beaufort also expects shareholders to be provided with dividend yields of 1.7% and 2.0% for the two periods. Beaufort considers yesterday’s statement perfectly 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 a corporate broker to DekelOil Public Limited
easyJet (LON:EZJ, 1,263.00p) – Buy
easyJet, a low-cost European short-haul airline company, this morning provided a traffic update for July 2017. During the month, passenger traffic increased by +8.9% year-on-year to 8.2 million customers, while the load factor improved by +1.1% year-on-year to 96.8%. The rolling 12 months traffic to July rose +8.9% to 78.8 million customers with load factor up +0.5% to 92.2%. Passenger traffic represents the number of earned seats flown, while load factor represents the number of passengers as a proportion of the number of seats available for passengers.
Our View: easyJet reported strong passenger traffic and load factor data for July. The result follows June’s +11.3% growth in passenger traffic and +0.8% growth in load factor. Late last month, easyJet reported a trading update for Q3 FY2017 during which its results were additionally boosted by the timing of Easter, producing a revenue per seat improvement of +2.2% on a constant currency basis against expectation of low single digit decline. The Group has removed clouds overhanging by obtaining AOC, which enables easyJet to continue operate flights both across and within European countries regardless of the outcome of Brexit negotiation. Looking ahead, subject to normal levels of disruption, the Group maintained its expectation for capacity growth of +8.5% in the H2, and cost per seat excluding fuel at constant currency of c.+1% for the full year as it is on track to deliver Lean savings of c.£80m. For the medium-term, the Group noted it remains committed to flat cost per seat excluding fuel at constant currency in FY2019 against FY2015 (FY2015: £37.44). Revenue per seat at constant currency for H2 is expected to decline by c.-2%, based on Q4 forward bookings of 67% that the Group have secured. With current exchange rates and fuel price range (US$450-US$520 metric tonne), easyJet said unit fuel cost for the FY2017 is likely to reduce by between £230m-£245m (previous guidance: £225m-£235m) against FY2016. As previously announced, despite the exchange rate movements are likely to cause a £100m adverse impact to headline pre-tax profit for the FY2017, in light of the cost savings and improving underlying revenue performances, the Group upgraded its headline pre-tax profit guidance to between £380m-£420m from £370m previously. Having outperformed very sharply since March, easyJet’s statement which warned on yield pressure into the next financial year has triggered some profit taking across the whole UK sector. However, Beaufort believes the business plan for low-cost airlines remains strongly intact and with the shares now valued at FY2017E and FY2018E P/E multiple of 15.1x and 12.6x, with dividend yields of 3.3% and 3.8%, respectively, recommends treading on recent weakness in its share price as a buying opportunity. Given positive progress, a strong balance sheet, along with an upgraded full year profit guidance, Beaufort retains its Buy rating on the Shares, while keeping one careful eye on the fuel price and movements in market capacity.