Today's edition features:
• Action Hotels (LON:AHCG)
• Bezant Resources (LON:BZT)
• Finsbury Food Group (LON:FIF)
• Kibo Mining (LON:KIBO)
Markets
Europe
The FTSE-100 finished yesterday's session 0.52% higher at 7,253.28 whilst the FTSE AIM All-Share index was up 0.05% at 994.29. In continental Europe, the CAC-40 finished 0.30% higher at 5,229.32 whilst the DAX was up 0.32% at 12,559.39.
Wall Street
In New York last night, the Dow Jones rose 0.28% to 22,331.35, the S&P-500 added 0.15% to stand at 2,503.87 and the Nasdaq gained 0.1% to finish the session at 6,454.64.
Asia
In Asian markets this morning, trading resumed in Japan after yesterday's holiday with the Nikkei rising 1.63% at 20,234.82, while the Hang Seng was recently 0.06% lower at 28,142.5.
Oil
In early trade today, WTI crude was 0.1% lower at $49.86 per barrel and Brent was down 0.2% at $55.37 per barrel.
Headlines
Ryanair publishes full list of cancellations
Ryanair has published full details of which of its flights are being cancelled between now and 28 October. Customers whose flights have been axed will also receive an email, chief executive Michael O'Leary has said. The budget airline is cancelling 40-50 flights every day for the next six weeks, after it admitted it had "messed up" the planning of pilot holidays. Mr O'Leary said most people would be transferred to an alternative Ryanair flight on the same day. If not, they would be moved to flights the day before or the day after, and the airline would meet its obligations over compensation. Details of all the cancelled flights are available on the Ryanair website. More than 200 of the cancelled flights are either into or out of London Stansted, with a handful in Edinburgh, Manchester and Birmingham also affected.
Source: BBC News
Company news
Action Hotels (LON:AHCG, 36.50p) – Speculative Buy
The leading owner, developer and asset manager of branded three and four-star hotels in the Middle East and Australia, this morning announced its unaudited results for the six months ended 30 June 2017. Highlights for the period included year-on-year growth in key financial performance indicators - Revenue (up 10%) and Gross profit (up 6%). Total reported revenue increased to US$28.1m (30 June 2016: US$25.6m), driven by new hotel rooms, while gross profit increased to US$19.5m (30 June 2016: US$18.4m). Adjusted EBITDA decreased by 6.3% to US$6.8m (30 June 2016: US$7.2m), mainly due to the full year effect of non-operating expenses in the newly opened hotels as they grow through the maturity stage. Action's net loss before tax of US$5.3m (30 June 2016: Net Loss of US$3.9m) was, as expected, primarily driven by the impact of increased financing costs to develop the pipeline and the impact of depreciation of newly opened hotels. The Group's LTV emerged at 55% (2016: 51%) and its property asset values have increased by US$35m to US$493m since 31 Dec 2016, resulting in a net asset value (NAV) of US$192m at 30 June 2017 (31 December 2016: US$195m). Management confirmed an interim dividend of GBP 0.77p, up 1.3%, compared with last year. Operationally, 2,181 operating rooms at the end of June, represented a 13% increase from H1 2016 (30 June 2016: 1,928) with the openings of Tulip Inn, Ras Al Khaimah (September 2016) and Mercure Sohar (December 2016). Strong occupancy levels in its mature hotels was maintained on a like-for-like basis, at 72.7% (30 June 2016: 74.7%), while average EBITDA breakeven occupancy levels across the portfolio remained low at c.37% (30 June 2016: 35%). Management also reported continued strong operational and financial performances from the two hotels in Kuwait, ibis Salmiya and ibis Sharq, with both hotels operating over 80% occupancy, while Ibis Budget Melbourne Airport also continues to perform strongly with at 90% occupancy (30 June 2016: 91%).
Our View: Further good progress! The Board confirmed that current trading remains on track with market expectations, despite markets in the Middle East facing strong headwinds impacting the performance of businesses throughout the region. This was underpinned by Action's resilient business model in the economy and midmarket hotel sector, with low break-even levels and the recently opened hotels delivering growth. After a thorough review of the pipeline, and in order to efficiently manage its cash and debt position, the Board have decided to slightly delay the openings of two of its leasehold hotels in Saudi Arabia, Tulip Inn Modon Jeddah and Mercure Riyadh Olaya. These hotels which are currently under development were due to open by the end of 2017 and will now be opened in H1 2018. This minimally impacts the 2017 numbers and will improve the net loss position from the absence of two hotel pre-opening costs in the region of US$0.5m-1.0m. Whilst debt levels remain in line with the Board's stated target levels on LTV at 55%, management are currently exploring ways to structure this more efficiently and have engaged external advisors to assist with this. Having roughly halved since peaking in May 2014, the shares now trade at an unrealistically deep discount to their assets (Adjusted NAV per share was USD 1.36/GBP 1.06 (2016: USD 1.40/GBP 1.09), which fails to recognise the strategic value held through its hotel portfolio. Offering a substantial prospective yield, the shares should be held for income while anticipating an improved financial performance in the current year and next. This should allow a recovery back to a target price of 53p/share (or to around half current net assets). Beaufort reiterate its Speculative Buy rating on Action Hotels.
Beaufort Securities acts as corporate broker to Action Hotels PLC
Bezant Resources (LON:BZT, 1.72p) – Speculative Buy
Bezant Resources announced today an update on its Choco gold-platinum project in Western Columbia. The Company noted that the first kilogramme of platinum and gold produced from the FKJ-083 licence area has been sold domestically. Since mid-August, Bezant has been developing an open pit and ramp structure while simultaneously extracting and processing tailings, overburden and lower grade material (currently grading 91mg/m3 Au and Pt) that sits above higher-grade material. The Company has a gravity separation plant on site that has processed 9,636m3 of material between 14 August and 14 September (total of 18 days of operations) with an average metal ratio of 73% platinum and 27% gold. Pit development and ramp construction is near completion and the processing of the higher-grade material is expected by mid-October. Production expansion is on schedule with an average of 500m3 of material expected to be processed on days when the plant is in operation. Bezant is pursuing a low-cost expansion strategy by building a series of production plants for under US$500,000 in construction costs/plant that can be rapidly deployed to new areas.
Our View: The above announcement is an important milestone for Bezant as it continues to deliver on its strategy of developing a low-capital intensive gold and platinum recovery model. We are encouraged with the first sale of platinum and gold while looking forward to completion of the open pit and processing of the higher-grade material located at deeper levels. Whilst Bezant is currently producing from the FKJ-083 licence, we note that the Company has a large footprint under licence in a region with widespread platinum and gold alluvial deposits. We look forward to further sales as well as the processing of the higher-grade material. In the meantime, we maintain a Speculative Buy recommendation on the stock.
Beaufort Securities acts as corporate broker to Bezant Resources plc
Finsbury Food Group (LON:FIF, 98.75p) – Hold
Finsbury Food Group ('Finsbury Food'), the UK speciality bakery manufacturer of cake, bread and morning goods for the retail and foodservice channels, yesterday announced its preliminary results for the year ended 1 July 2017 ('FY2017'). During the period, revenue advanced by +0.3% to £314.3m, against comparative period (52 weeks ended 2 July 2016, 'FY2016'). On an adjusted basis, operating profit rose +4.2% to £17.4m as margin improved to 5.5% (FY2016: 5.3%), pre-tax profit grew +5.6% to £16.6m and EBITDA increased by +2.7% to £24.9m, leading to earnings per share of 9.8p, up +2%. Net debt at the period-end was £17.5m (FY2016: £19.7m), implying net debt to EBITDA of 0.7x (FY2016: 0.8x). On the operational front, the Group have spent record £12.5m capital investment to generate efficiency and innovation (181% of depreciation). During the year, the Group has won 2016 "Celebration Cake Business of the year" (Bakery Industry Awards) and multiple food quality awards. Post the period, on 23 August 2017, the Group has entered into formal consultation to close Grain D'Or, its loss making business which manufactures premium baked goods in the UK pastry sector, which is expected to conclude mid-October. Finsbury Food's CEO, John Duffy, commented "Investment to date has paid off and the initiatives implemented during the year will continue to ensure that we maintain our robust position as a low cost and leading speciality baker in the UK over the next 12 months and beyond. Although the challenging market conditions seem set to continue, we are confident that our focused and forward thinking strategy will drive us through". The Group declared a final dividend of 2.0p per share, bringing total full year dividend to 3.0p, up +7.1%, to be paid on 22 December 2017.
Our View: Finsbury Food's results for the FY2017 were in line with expectation, showing continued resilience on the back of challenging environment. The Group's ongoing capital investment, along with product mix, has led to operating margin improvement (majority from its overseas division which delivered c.+150 basis points) that allowed profits to rise despite revenue being flat year-on-year, while comparative period being exceptionally strong. The UK Bakery division (90% of revenue) was impacted by the deflationary UK grocery market during the period, particularly in H1, as well as the rising cost pressure arising from weaker Sterling and national minimum and living wage. The division 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. This was mitigated by the strong growth in Overseas division (10% of revenue) which was benefitted from celebration cake and free from product ranges, further boosted by the positive exchange rate movement. Its revenue grew by +17.3% which was a mixture of +2.2% organic growth and +15.1% currency tailwinds. Whilst we do recognise that the Group's ongoing investment has been supporting modest margin improvement, UK market conditions nevertheless remain challenging with persistent cost pressure on rising commodities such as sugar and butter, worsen by the weaker Sterling. We expect the Group continue to perform steadily in FY2018, restraining the share price until investors can once again see opportunity to achieve premium growth. The Shares are presently valued on a FY2018E P/E multiple of 9.9x, EV/EBITDA of 5.6x, along with dividend yield of 3.3%. Beaufort reiterates its Hold rating on the Shares with a price target of 125p whilst waiting for signs of improved opportunity.
Kibo Mining (LON:KIBO, 5.75p) – Speculative Buy
Kibo Mining, the exploration and development company focused on energy and mineral projects in Tanzania, announced yesterday an update on the development of the Mbeya Coal to Power Project (MCPP). The Company stated that considerable progress has being made regarding project financing and the Power Purchase Agreement (PPA) with Tanzania's sole energy provider, TANESCO. The MCPP continues to receive strong support from both the government and international corporates as evident by formal letters received from multiple international EPC/power developers and financing conglomerates. Furthermore, the Memorandum of Understanding (MoU), which is the precursor to the final PPA, has passed all relevant legislative stages and is waiting for final confirmation from the Attorney General. The MoU, once confirmed, will provide a fixed framework within which the fundamental commercial and technical components of the PPA will be negotiated and agreed.
Our View: Yesterday's announcement is more positive news for Kibo given the apparent level of interest from international EPC and project funding providers. As such, it's good to see international companies continue to view Tanzania as an attractive investment destination despite the recent legislation changes regarding mining companies. The interest and commitment in the MCPP is very encouraging indeed given the continued energy deficit across Tanzania. We look forward to the final confirmation of the MoU which will be the precursor to the all-important PPA. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Kibo Mining PLC