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Beaufort Securities Breakfast Alert: URU Metals, Morrison Supermarkets, Ryanair Holdings

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Markets
Europe
The FTSE-100 finished yesterday's session 0.90% higher at 7,555.32, whilst the FTSE AIM All-Share index was down 0.01% at 1,039.09. In continental Europe, the CAC-40 finished 0.07% lower at 5,510.50 whilst the DAX was down 0.18% at 13,440.93.
Wall Street
In New York last night, the Dow Jones closed 0.35% higher at 23,516.26, the S&P 500 added 0.02% to end the session at 2,579.85, while the Nasdaq finished 0.02% weaker at 6,714.94.
Asia
In Asian markets this morning, the Nikkei 225 was up 0.53% at 22,539.12 and the Hang Seng was 0.29% higher at 28,601.83.
Oil
In early trade today, WTI was 0.42% higher at $54.77 per barrel and Brent was up 0.26% at $60.78 per barrel.

Headlines
Alibaba revenues surge 61% on online shopping
Chinese e-commerce giant Alibaba has beaten market expectations with a huge jump in quarterly revenues fuelled by online shopping. Revenues for the three months to September rose 61% on the same period a year earlier, to 55.1bn yuan ($8.3bn; £6.4bn). It also raised its revenue predictions for the full-year forecast. Alibaba is expanding from its core online businesses to investments in supermarkets and stores. "We had an outstanding quarter," Alibaba chief executive Daniel Zhang said in a statement. "We are seeing the early results from our efforts to integrate online and offline with our new retail strategy". For the July to September quarter, income from operations surged 83% from a year earlier, to 16.58bn yuan. Alibaba, started by billionaire Jack Ma, is the dominant online retailer in China through its Tmall and Taobao shopping platforms. The company said mobile monthly active users of its Chinese retail marketplaces grew to 549m in September, up 20m from three months ago. The US-listed firm has been on a strong run, regularly beating revenue estimates, and its shares have more than doubled in value this year. It expects more good news for shareholders ahead: Alibaba raised its revenue guidance for the 2018 fiscal year to growth of between 49% and 53%. That's up from 45% to 49% previously forecast. The Chinese firm is also gearing up for the annual blockbuster Singles' Day event on November 11, a sales bonanza that moves more goods than the Black Friday and Cyber Monday sales days in the United States combined.

Company news
URU Metals (LON:URU, 1.30p) – Speculative Buy
URU Metals announced results from an initial metallurgical test work on its Zebediela nickel project located in the Limpopo, South Africa. Approximately 100kg of fresh material from drill hole ZO17 was crushed to 75 microns. Acidic leach test work resulted in dissolution of 80% nickel after 26 days and acid consumption reached 447kg/t. A secondary process is required to cover the nickel from the acid leach.

Our view: The above results are encouraging given the dissolution of 80% nickel and highlights the potential for acid leaching. Further test work is required to reduce the acid consumption and demonstrate the feasibility of leaching and recovery rates on ore from Zebediela. We look forward further test work and the potential economic benefits given the low capital and operating costs associated with acid leaching. In the meantime, we maintain a Speculative Buy recommendation on the stock.

Beaufort Securities acts as a corporate broker to URU Metals Limited

Morrison (WM) Supermarkets (LON:MRW, 222.90p) – Buy
WM Morrison Supermarkets ('Morrison'), one of the UK's largest Supermarket operator, yesterday provided its trading statement for the 13 weeks ended 29 October 2017 ('Q3 FY2018'). During the period, total sales advanced by +2.3% (+3.2% including fuel), while like-for-like ('LFL') sales grew by +2.5% (+3.4% including fuel), comprised of +2.1% growth in Retail and +0.4% rise in Wholesale, against the comparative period (Q3 FY2017). On the operational front, the Group said it made "good progress" on becoming more competitive on price. The new automated ordering system is now fully operational in all stores across all food categories to improve availability and time efficiencies. The Group introduced several new and improved ranges including an almost entirely new Home & Leisure range, while continue to expand its Best premium own label range to almost a thousand items. Morrison also expanded its store pick home delivery catchment area in North East England during the period. Morrison's CEO, David Potts, commented "We are pleased with a further step up in our competitiveness and another period of positive like for like sales growth. I am confident our plans to keep serving customers better will enable us to continue the strong momentum of the year so far, into the important fourth quarter". The Group is scheduled to provide trading for the first 10 weeks of Q4 on 9 January 2018.

Our view: Morrison's reported good performance for Q3 FY2018. Although Q3 LFL sales of +2.5% excluding fuel was the weakest growth this year (Q1 FY2018: +3.4%, Q2 FY2018: +2.6%), this still marks 8 consecutive quarters of positive LFL sales growth, implying positive outcomes from restructuring. According to Kantar Worldpanel report published on 8 October 2017, Morrison was the "fastest growing of the large supermarkets" in the 12 weeks period to the publication date. Looking at the KPIs, LFL number of transactions increased by +2.1% (Q2 FY2018: +3.2%), while LFL items per basket fell by -3.6% (Q2 FY2018: -5.5%) during Q3, implying continuing customer trend of 'top-up' rather than 'main weekly' shopping. Post the period, the management said during the conference call that it has achieved encouraging Halloween sales (particularly the pumpkins) and are "confident" and "well placed" for the Q4. Looking ahead, the Group reiterated in its September interim results the full year net debt guidance of less than £1bn. Following the recently announced supply agreement with McColl's starting in January 2018, the Group said it expect total annualised wholesale sales to exceed £700m (inc. tobacco) by the end of 2018, with wholesale supply sales to exceed £1bn "in due course". With respect to medium-term targets, the Group 1) increased incremental underlying pre-tax profit (from wholesale, services, interest and online) guidance to £75m-£125m (previously: £50m-£100m), while said it has made "further good progress" with 2) £1bn improvement in working capital and 3) a minimum of £1.1bn disposal proceeds. Morrison is presently valued at FY2018E and FY2019E P/E multiple of 18.2x and 16.8x along with dividend yield of 2.7% and 3.0%. Given the Group working to double its popular 'Best' premium range in time for Christmas, plus already live 'Food to Order' pre-ordering capability in-store and online, we expect continued progress in upcoming key Christmas and New Year period. In light of slightly weaker than expected Q3 LFL and contribution from online ('Morrisons at Amazon' and Morrison.com in partnership with Ocado), However, Beaufort maintains its Buy rating on the shares while reduced target price to 250p (from 260p).

Ryanair Holdings (LON:RYA, EUR17.05) – Buy
Ryanair, a low-cost European short-haul airline company, yesterday provided its traffic update for October 2017. During the month, passenger traffic increased by +8% y-o-y to 11.8 million customers, while the load factor grew +1% y-o-y to 96%. The rolling annual traffic to October rose +12% to 128.2 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 good passenger traffic and load factor data for October, despite the flights cancellations announced previously. For the 6 months period to 30 September 2017, passenger traffic advanced by +11% to 72.1 million customers, while the load factor improved +2% to 97%, against the comparative period (H1 FY2017). Within its interim results announced on 31 October 2017, Ryanair reported Group revenues of €4,425m and profit after tax of €1,293m, up +7% and +11%, respectively. Looking ahead, despite taking into account the flights cancellations and compensations associated to it plus potential increase in pilot's pay, Ryanair reiterated its full year profit after tax guidance in the range of €1.40bn to €1.45bn, subject to close-in H2 bookings, the absence of any further security events, ATC strikes or negative Brexit developments. The Group now targets 129 million (previously: 131 million) passenger traffic, average fare decline of -4% to -6% (previously: -5% to -7%) and increase in unit costs excluding fuel of +3% (previously: -1%) as a result of €25m flights cancellation provision and a further €45m for increased pilot pay (if accepted), for the full year. With respect to the pilot pay rise, the Group said this will cause up to €100m additional cost for the full year but "will not significantly alter the substantial unit cost advantage we have over all other EU airline competitors". Beaufort remains encouraged by the Group's ability continuing to offer lower fares while improving its profit, backed by its "lowest passenger costs" capability. Now that the issue regarding pilot rostering has been addressed, the Group can carefully take advantage from collapsed competitor airlines (e.g. Monarch, Air Berlin, and Alitalia) to expand its market share. Beaufort maintains its Buy rating on the Shares with a target price of €19.00.

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