Today's edition features:
• InterContinental Hotels Group (LON:IHG)
• Pets at Home Group (LON:PETS)
Markets
Europe
The FTSE-100 finished yesterday's session 0.14% higher at 7,542.73 whilst the FTSE AIM All-Share index was up 0.66% at 1,008.38. In continental Europe, the CAC-40 finished 0.21% higher at 5,218.89 whilst the DAX finished up 0.28% at 12,292.05.
Wall Street
In New York last night, the Dow Jones ended 0.04% higher at 22,026.1, while the S&P-500 closed 0.22% lower at 2,472.16 and the Nasdaq was down by 0.35% at 6,340.34.
Asia
In Asian markets this morning, the Nikkei 225 was 1.31% lower at 19,734.07 and the Hang Seng was down 0.81% at 27,629.68.
Oil
In early trade today, WTI crude was down 0.31% at $49.02 per barrel and Brent crude was 0.4% lower at $51.93 per barrel.
Headlines
North Korea says considering missile strike on Guam
North Korea has said it is considering carrying out missile strikes on the US Pacific territory of Guam. The report in state media, quoting an earlier military statement, came hours after President Donald Trump threatened North Korea with "fire and fury". The North's official news agency said it was considering a plan to fire medium-to-long-range rockets at Guam, where US strategic bombers are based. The exchanges mark a sharp rise in rhetoric between the two countries. The UN recently approved further economic sanctions on North Korea, which Pyongyang said were a "violent violation of our sovereignty", warning the US would "pay a price".
Source: BBC News
Company news
Prairie Mining (ASX:PDZ, 26.75p) – Buy
Prairie Mining announced yesterday that the Bankable Feasibility Study (BFS) being prepared by China Coal for the development of Jan Karski mine will be completed in September 2017. Under terms of the Strategic Co-operation Agreement (signed November 2016) between China Coal and Prairie, the BFS will support China Coal's EPC contract to construct the mine and underpin a Chinese bank financing package. In addition, Prairie stated that it remains on track for submission of its Mining Concession application for Jan Karski with progress being made on the spatial development plan (rezoning of land for mining) as well as the Environmental Social Impact Assessment (ESIA). The Deposit Development Plan (DDP), also a requirement for a Mining Concession application, was approved in May 2017. Prairie expects updates regarding the spatial planning submissions in the coming weeks.
Our View: We are encouraged with the progress being made regarding the development of Jan Karski. The completion of the BFS will be an important milestone as it will support the EPC contract and form the basis of Chinese bank credit approval for construction funding of the mine. We also note that despite recent inaccurate comments made by Poland's Chief National Geologist, Prairie has met all the minimum working commitments on the license has the exclusive right to apply for the Mining Concession. We look forward to further updates on the Mining Concession application as well as completion of the BFS in September. In the meantime, we maintain a Buy recommendation on the stock.
Beaufort Securities provides corporate sponsored research to Prairie Mining plc
InterContinental Hotels Group (LON:IHG, 4,235.00p) – Buy
InterContinental Hotels Group (IHG), a global organisation with a broad portfolio of hotel brands, yesterday announced its interim results for the 6 months ended 30 June 2017 ('H1 FY2017′). During the period, on a reported basis, revenue advanced by +2% to US$857, operating profit grew +8% to US$370m and adjusted earnings per share rose +27% to 113.3 US cents, against the comparative period (H1 FY2016). Fee revenue (revenues excluding owned & leased hotels, managed leases and significant liquidated damages), which accounts for 89% of the Group's underlying take, also increased by +2% (constant exchange rate basis 'CER': +4%) with a margin improvement of +2.4% (CER: +1.5%) to 51% through efficiency improvements and favourable cost phasing. On an underlying basis, revenue advanced by +4% to US$788m, operating profit grew +7% to US$365m and adjusted earnings per share increased by +27% to 111.7 US cents. Net debt at the period-end stood at US$2,056m (end-FY2016: US$1,506m). On the operational front, the Group opened 22,857 rooms and closed 12,317 rooms, bringing total number of rooms to 777,675 rooms, up +3.7%. The Group also signed 31,773 rooms into the pipeline during the period, bringing total pipeline rooms to 229,526, where c.45% is currently under construction. InterContinental Hotels' new CEO, Keith Barr, commented "We continue to make good progress in executing our well-established strategy to deliver high quality sustainable growth, and during the half we passed the landmark of over 1 million open or pipeline rooms. While we will always face macro-economic and geopolitical uncertainties, we remain confident in the outlook for 2017". The Group declared an interim dividend of 33 US cents, up +10%, to be paid on 6 October 2017 (ex-Dividend: 30 August 2017).
Our View: The Group's performance for the H1 FY2017 was broadly in line with expectations, supported by +0.8% rise in rate (price) and +0.9% growth in occupancy levels, leading to +2.1% improvement in revenue per available room ('RevPAR'). The performance in the Q1 was flattered by the timing of Easter, with +0.8% rise in rate and +1.2% growth in occupancy, leading to RevPAR of +2.7%, with Q2 suffering accordingly with +0.9% growth in rate while occupancy slowed to +0.4% growth, leading to RevPAR of just +1.5%. Guidance for Group fee margin of some 1.35% remains in line with the historic long-run average. Regionally, RevPAR for the H1 in the Americas rose by +1.1%, which includes weaker Q2 performance led by -0.6% drop in occupancy rate. Weaker performance in the US was offset by stronger Canada and Mexico. By comparison RevPAR in Europe was quite excellent, growing by +6.2%, as strong trading in London (RevPAR: +9%) and recovery in Paris (RevPAR: +11.6%) continued. AMEA recorded RevPAR growth of +1.4% as rate returned to positive in the Q2, helped by favourable timing of Ramadan which eased ongoing weakness in Middle East steered by lower oil prices. Performance excluding Middle East continued to be strong (RevPAR: +4.2%). In Greater China, RevPAR rose by +4.1% as it saw decline in rate eased in Q2. The region was driven by strong meeting and corporate demand in mainland. Although Group's net debt has grown to US$2,056m, due to US$0.2bn finance lease on InterContinental Boston and special dividend payments of US$0.4bn in May 2016, net debt to EBITDA of 2.5x remained within the Group's target range of 2.0x to 2.5x. A +10% hike in interim dividend, together with maintained positive outlook for the full year reflects Board's confidence in its ability to sustain long-term growth, backed by free cashflow of US$204m (H1 FY2016: US$241m). The Shares are valued at a FY2017E and 2018E P/E multiples of 23.2x and 21.2x, with dividend yield of 2.0% and 2.2% before specials. Given that this valuation is toward the top end of its international sector peers, and up to Monday's close the shares had risen 26% year-to-date, there was some inevitable willingness amongst traders yesterday to lock in profits. That said, however, Beaufort considers current weakness presents a buying opportunity given the underlying quality of IHG's operations and management. Beaufort retains its Buy rating on the shares with a price target of 4,700p.
Pets at Home Group (LON:PETS, 182.10p) – Buy
The UK's leading pet business, yesterday released a scheduled trading update for the 16 week period from 31st March to 20th July 2017, compared with the 16 week period from 1st April to 21st July 2016. Group revenue growth was 5.0% to £256.5m, with Merchandise revenue growth of 2.8% to £216.4m and Services revenue up 18.8% to £40.1m, including Joint Venture vet practice income up 19.7% to £16.2m. Importantly, Group like-for-like revenue growth of 2.7% reflected strong growth in first opinion and specialist referral vet services, and a continuation of positive momentum in Merchandise trading, which saw like-for-like revenue growth of 1.5%, while Services like-for-like revenue growth was 10.5%. The Board went on to confirm that Merchandise price investment and operational cost savings were tracking in line with plan. During the period it also continued its lower price repositioning initiative with the addition of another major Advanced Nutrition dog food brand, James Wellbeloved. This follows the positive customer response to price changes earlier in the year across veterinary diets, private label dog Advanced Nutrition, pet essentials and Hills Science Plan. Omnichannel revenue growth of 80, reflected around 60% of revenues now involving colleague assistance or the use of a Pets at Home store, through Click & Collect, Order-In-Store and subscription services. Vet Group continues to demonstrate good momentum, supported by a strong performance from specialist referral centres, while a successful TV campaigns and promotion of 'Best Start in Life' care plan drove high new client registrations for first opinion practices. Having opened 5 Pets at Home superstores, 2 Vets4Pets practices and 6 Groom Room salons, the Group is on track to deliver full year opening targets of around 10 superstores, 40-50 vet practices and 40-50 grooming salons. Ian Kellett, Group Chief Executive Officer, commented: "Whilst it is still early in the year, the financial outlook is in line with our expectations. We are confident the investments we are making to grow our veterinary business and to reposition our pricing and deliver everyday value for our customers are creating a strong platform for sustainable future growth."
Our View: That's a relief! The market had braced itself for more bad news from the Group's Merchandise division. Back in January, release of Pets' third quarter results left shareholders shocked when they were told that activity at its dominant Merchandise business had become "subdued" and that it had actually experienced a decline in like-for-like sales. The shares subsequently dived 23% amid a host of broker downgrades. So yesterday's news that Q1'17/18 had in fact delivered consensus-beating revenue growth from its principal division, with like-for-like sales accelerating sufficiently to keep it on track to meet expectations for the full year, was met by delighted investors pushing the shares up sharply. The trading update also provided a timely reminder that the Group's expansion is focussed on value-added, long-term high growth areas such as vets practices and grooming salons within a very capital-light structure. The customer's appreciation of such services is clearly being demonstrated by divisional like-for-like revenue growth up from 7.5% in Q1'16/17 to 10.5% this year. Such operations rapidly turn to meaningful contribution and following a seasonally slow start, new openings in these areas are now set to accelerate sharply; meanwhile, repositioning Merchandise with a range of own-label products should help ensure satisfactory footfall. The shares nevertheless appear to have priced in expectation of a continuing slide in Merchandise while not being prepared to recognise the growth potential of the Group's increasingly significant Services division. Prudently assuming full year total group revenue growth at just the 5% level recorded in Q1, while accepting a decline in its EBITDA margin to around 14.5% (from 15.6% last time), still suggests Pets can deliver earnings of 13.8p/share rising to, perhaps, 14.7p the year after. Trading on forward P/E multiples of 13.2x and 12.4x the shares now do not look expensive, particularly given that this highly cash generative business also brings shareholders annualised dividend yields of 4.1% and 4.4% respectively. Beaufort retains its buy recommendation on Pets at home, setting a new price target of 205p/share.