Beaufort Securities Breakfast Alert: Halfords Group plc, Jubilee Platinum PLC, Redrow plc, Ryanair, DS Smith, Solo Oil PLC


Today's edition features:

Jubilee Platinum (LON:JLP)

Solo Oil (LON:SOLO)

Halfords Group (LON:HFD)

Redrow (LON:RDW)

Ryanair Holdings (LON:RYA)

Smith (DS) (LON:SMDS)




The FTSE-100 finished yesterday's session 0.52% lower at 7,372.92 whilst the FTSE AIM All-Share index was up 0.09% at 1,011.31. In continental Europe, the CAC-40 finished 0.34% lower at 5,086.56 whilst the DAX was up 0.18% at 12,123.71.

Wall Street

In New York last night, the Dow Jones ended the day 1.07% lower at 21,753.31, the S&P-500 fell 0.76% at 2,457.85 and the Nasdaq dropped 0.93% at 6,375.57.


In Asian markets this morning, the Nikkei 225 was down 0.24% at 19,339.66, as the rising Yen puts further pressure on exports, while the Hang Seng was 1.03% lower at 27,457.


In early trade today, WTI crude was 0.21% lower at $48.56 per barrel and Brent was down by 0.39% at $53.17 per barrel.

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Archbishop of Canterbury calls for radical economic reform

The Archbishop of Canterbury, Justin Welby, says Britain's economic model is broken, as the gap between the richest and poorest parts of the UK widens. Britain stands at a watershed and must make "fundamental choices" about the direction of the economy, he said. The remarks come in a report by a commission set up by the centre-left Institute for Public Policy Research. The UK Treasury said: "Employment is at a record high, the deficit is down and inequality is at a 30-year low." The IPPR's interim Commission on Economic Justice report says the UK economy is the most unbalanced in Europe, and contains more workers overqualified for their jobs than the rest of the European Union. Britain's economic model is simply unfit for the 2020s, the IPPR argues. The organisation proposes a "fundamental reform" of the economy, on a scale comparable with the Atlee reforms of the 1940s and the Thatcher revolution of the 1980s. Committee members include the Archbishop, along with leading figures from business and civil society. The archbishop said: "Our economic model is broken. Britain stands at a watershed moment where we need to make fundamental choices about the sort of economy we need. "We are failing those who will grow up into a world where the gap between the richest and poorest parts of the country is significant and destabilising." The report sets out new analysis which suggests that, although GDP per head has risen by 12% since 2010, average earnings per employee have fallen by 6%.

Source: BBC News

Company news

Jubilee Platinum (JLP.L, 4.12p) – Speculative Buy

Jubilee announced it has signed two new commercial agreements at the Dilokong operation. The first gives Jubilee a 50% share in all chrome related income from the Dilokong plant and reaffirms Jubilee's rights to the PGMs (both existing in surface dumps and newly produced). The second is a toll treatment contract for chrome ore with a third party of up to 40kt per month over 3 years. As such, in future the plant will process both fine chrome from the surface dumps and run of mine chrome from the third party. PGMs will continue to build up until Jubilee decides how to extract (e.g. roll treatment or build its own plant) them.

Our View: These two new agreements solidifies Jubilee's position at Dilokong and will provide additional earnings to Jubilee shareholders. The toll treatment contract from the 3rd party provides income (although the toll treatment terms are not disclosed), while the new partnership agreement ensures Jubilee gets 50% of all chrome earnings - both existing processing of Dilokong chrome tailings and the new toll treatment contract. Good news and we reiterate our Speculative Buy recommendation.

Beaufort Securities acts as corporate broker to Jubilee Platinum PLC


Solo Oil (LON:SOLO, 5.50p) – Speculative Buy

Solo has announced the Development Plan for the Ntorya gas project has been submitted to the Tanzania Petroleum Development Corporation (TPDC). The Development Plan includes information from the ongoing Gas Commercialisation Study which has looked at three potential early production scenarios 1. Compressed natural gas 2. Gas to power 3. Direct gas supply to Madimba Plant via a 35km pipeline. The RNS also refers to the Ntorya 3 well, stating that "Aminex and Solo will review the timing for spudding the Ntorya-3 well and will update the market during Q4 2017". This is a little hard to decipher but we expect positive news on this front with hopefully a spudding date in early 1Q18.

Our View: The Ntorya gas project is gaining momentum. We didn't expect the Development Plan to be submitted so soon, neither did we anticipate the large resource upgrade (to 1.3 TCF gas initially in place) published on Monday. Both reflect a gas project of growing importance to Tanzania. Ntorya is also approaching a size which gives it global strategic interest. Bearing in mind Ntorya is a large onshore discovery and part of the much larger onshore Ruvuma PSA. We have a Speculative Buy on the stock and reiterate our 18p price target.

Beaufort Securities acts as corporate broker to Solo Oil PLC


Halfords Group (LON:HFD, 323.30p) - Hold

Halfords Group (‘Halfords’), the UK’s leading retailer of motoring and cycling products and an operator of autocentres, yesterday provided its trading update for the 20 weeks ended 18 August 2017. During the period, total Group revenue increased by +4.8%, comprised of; Retail +6.2% and Autocentres -1.4%. Like-for-like (‘LFL’) revenue growth for the Group was +2.7%, comprised of; +3.5% increase in Retail division (Motoring +2.3% and Cycling +5.2%) and -2.0% decline in Autocentres division. On the operational front, the Group refurbished 11 Halford stores, while 17 Cycle Republic stores are now operational. Halfords introduces new motoring services and increased range of own-brand electric bikes during the period. Halford’s CEO, Jill McDonald, commented “I am pleased with the trading performance over the first 20 weeks of the year in both Motoring and Cycling. A combination of good planning and execution meant that we optimised sales from the staycation summer, with strong growth in camping, roof boxes and cycle carriers. This complemented our service-related Retail sales, which grew significantly faster than our total sales, as we continue to demonstrate our relevance to the growing 'do-it-for-me' customer. Our foreign exchange mitigation plans are working in line with expectations and we are well prepared for the peak trading period through winter”. The Group is scheduled to release its interim results on 9 November 2017.

Our View: Halfords’ performance for the first 5 months of FY2018 was resilient. The Group registered positive LFL sales growth despite changes in its operational model that continue to disrupt its Autocentres division. Sales were boosted by the Retail division, however, where its service-related retail offer continues to find strong demand (+18.3%). Online sales also expanded by +11.2% with customers choosing to ‘shop online, collect in store’ as over 85% of customers that selected items through Halfords.com opted to pick up from the stores across the UK and Republic of Ireland (460 Halfords stores and 17 Cycle Republic shops). Looking ahead, the Group said it anticipates its full year FY2018 pre-tax profit to be in line with consensus forecasts, which is c.£73.8m, with all other financial guidance remaining unchanged despite the adverse effect of weaker Sterling against the US Dollar, which is set to cost c.£25m gross. Meanwhile, Halfords has implemented its FX mitigation plans, which are expected to offset the currency impact “over time”. Having seen its share price declined sharply since May, Halfords Group is presently valued on FY2017/18E and FY2018/19E P/E multiples of 10.8x and 10.6x, along with dividend yields of 5.7% and 5.8%, respectively. This level reflects the Group’s limited opportunity to positively surprise during the second half and suggests prospective income is now providing significant support for the equity. Beaufort accordingly reiterates its Hold rating on the shares and expects the share trade to remain in a 300p and 330p range.


Redrow (LON:RDW, 647.00p) - Buy

The UK housebuilder yesterday released its final results for year-ended June 2017. Management confirmed the Group continues to deliver on its growth strategy, with legal completions up 15% to 5,416 (2016: 4,716), outlets increased 3% to 132 (2016: 128) and number of employees up 12% to 2,200. Group revenue rose 20% to a record £1.66bn, driven also by a 7% increase in Average Selling Price to £309,800. Gross margin improved by 20bp to 24.4%, having returned close to normal levels as construction has completed on almost all the sites that were purchased before the sector downturn. Its operating margin rose to 19.4% (2016: 18.9%), leading to a record pre-tax profit of £315m, up 26% (2016: £250m) and earnings per share up 27% to 70.2p. The Group Return on Capital Employed increased by 10% to 26.0% (2015/16: 23.7%) for the period, while net debt reduced from £139m in June 2016 to £73m in June 2017. Having ended 2016/17 with a record order book, up 14% to £1.1bn, the Board also took this opportunity to update investors on its medium-term guidance; it confirmed that subject to market conditions remaining unchanged, it expects Redrow turnover in 2020 to be c.£2.2bn and pre-tax profits to be c.£430m giving fully diluted earnings per share of 95p. With a projected 33% dividend payout, the dividend in 2020 will rise to 32p per share. For the period to June 2017, it proposed a final dividend of 11p per share, making 17p for the full year, up 70% on 2015/16.

Our View: Good, confident with improved visibility! Sales for the first 9 weeks of the current period are also very encouraging, up 8% despite a strong comparator last year. Despite only reversing its cautious approach to new land purchase during the second half of last year, the Group nevertheless increased its forward bank to 26,400 plots by adding 4,000 new units. The Board has been at pains to note, however, that evidence of stalling by local authorities has resulted failure to get Adopted Local Plans in place; for Redrow, this adds to the delays that continue to frustrate the detailed planning and technical approval process along with extended timescales for appeals. Much as already advised to the market, the net result will be to impact the timing on which new outlets come on-stream and, as a consequence, outlets are only expected to marginally increase over the course of the current year. More positively, however, further out its strong land bank and improving output per outlet keeps management’s medium-term planning very much on track, particularly with its Collindale site coming on stream. Most certainly, its guidance out to 2020 requires consensus forecasts for both 2017/18E and 2018/19E to be lifted; Beaufort, for example, takes its own pre-tax forecasts for the two years to £358m and £390m respectively, implying earning of 80.1p and 88.6p, accompanied by dividends of 23p and 25.8p/share. Trading on a 2017/18E P/NTAV of 1.39x and a P/E of 8.0x and yield of 3.6% the shares remain too cheap even after accepting that the current year is likely to suffer some development delays. While recognising that the UK housebuilding sector has been viciously cyclical in past years and remains particularly sensitive to prospective change in lending rates, Government buying incentives and/or political change, Beaufort nevertheless retains its overweight stance on the UK housebuilding sector, recommending it for both capital and income investors. Based on the confidence Redrow management expresses in yesterday’s statement , Beaufort repeats its Buy recommendation on the shares, while lifting its price target to 720p/share.


Ryanair Holdings (LON:RYA, EUR18.18) - Buy

Ryanair, a low-cost European short-haul airline company, this morning announced that it will changes its policy for checked and cabin baggage from 1 November 2017. The change will cost Ryanair over €50m per annum in reduced bag fees, but the management said they believe such changes will encourage more customers to consider checking-in a bag, minimises the flight delays. Ryanair’s Chief Marketing Officer, Kenny Jacobs, commented “These lower bag fees and increased bag size allowances will come into play for all bookings for travel after 1st November, and we hope our customers will enjoy the savings of our new simplified bag policy”. Separately, the Group yesterday provided its traffic update for August 2017. During the month, passenger traffic increased by +10% y-o-y to 12.7 million customers, while the load factor grew +1% y-o-y to 97%. The rolling annual traffic to August rose +13% to 126.2 million customers. 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: Ryanair reported strong passenger traffic and load factor data for August. These strong statistics follow last month’s +11% increase in passenger traffic and +1% growth in load factor. Ryanair said the good result was driven by lower fares and the continuing success of its ‘Always Getting Better’ (‘AGB’) customer experience programme. Q1 result announced in end-July was broadly in line with management guidance with profit after tax topped expectations, soaring by +55% helped by the timing of Easter. Looking ahead, subject to normal level of disruptions, Ryanair provided at its Q1 result that it is targeting passenger traffic of 131 million for the full year (H1: c.+11%, H2: c.+7%), while Load Factor expected to remain flat at 94% in FY2018. For the H1, the Group guide passenger traffic growth of c.+11% and average fare decline of -5%. For the H2, the Board expects passenger traffic growth of c.+7% and average fare decline of -8%. Average fares are expected to decline by -5% to -7% for the full year (H1: c.-5%, H2: c.-8%), amid a persistently competitive pricing environment. Outlook for the FY2018 fuel savings is at €70m, with unit costs excluding fuel decline of -1%. Altogether, this guidance translates into profit after tax in the range of €1.40bn to €1.45bn for the full year, subject to close-in summer bookings, H2 average fares, and the absence of any further security events, ATC strikes or negative Brexit developments. Beaufort remains encouraged by the Group’s ability continuing to offer lower fares while improving its profit, backed by its capability to reduce ex-fuel unit costs and thereby achieve “lowest passenger costs” amongst its EU competitors. This gap between Ryanair and its rivals should enable Group to maintain its current momentum and continue winning market share. In light of its ongoing expansion, Beaufort retains its Buy rating on Ryanair shares.


Smith (DS) (LON:SMDS, 491.60) - Buy

DS Smith Plc, the leading supplier of recycled packaging for consumer goods, yesterday provided its trading update for the period since 1 May 2017. The management confirmed that the trading has been “encouraging” and in line with its expectations. The rate of like-for-like (‘LFL’) volume growth for its enhanced packaging solutions were “well ahead” of last year, demonstrating strong demand. The Group completed the acquisition of Interstate on 25 August 2017, and integration is “well underway”. Interstate’s current trading is “fully in line” with management expectations. DS Smith’s CEO, Miles Roberts, commented “We are very pleased with the reception by our customers to our continuing development of market leading packaging solutions. These solutions are increasingly valued as they help our customers to improve their own sales, reduce total costs and mitigate risk. This has resulted in the strong volume momentum seen last year accelerating into the current year to date. The response from the employees and customers to our acquisition in the US has also been very pleasing. Our outlook therefore is positive and we have confidence in the future”. The Group is scheduling to announce interim results for the 6 months ended 31 October 2017 on 7 December 2017.

Our View: DS Smith confirmed that it’s year-to-date trading has been in line with management expectations, with its Board also noting confidence in its future outlook. The ongoing integration of Interstate, which operates facilities in the US include 12 corrugated manufacturing plants, 7 warehouses, 2 paper mills, a timber plant, a lumber plant and a biomass power plant, is continuing as planned. The Board believes the Interstate acquisition presents significant opportunity for recurring synergies of US£25m per annum (£20m) pre-tax by 30 April 2021, while potential one-off working capital benefits of approximately US$95m (£75m) are also foreseen. The Group’s ongoing investments continue to expand its geographical reach into fast-growing markets and strengthens its product offering. Looking ahead, it is encouraging that the recovery of the paper price appears to be continuing. Given the Group’s excellent track record of organic growth and successful M&A, together with favourable currency translation effect it is presently experiencing, we continue to expect strong top-line growth for the full year. Having increased by +17% year-to-date, the shares are now valued at FY2018E and FY2019E P/E multiples of 15.0x and 13.9x along with dividend yields of 3.2% and 3.4%, respectively. Considering DS Smith’s positive and confident outlook, Beaufort reiterates its Buy rating on the shares.

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