"No surprise there then! The Fed left short-term rates unchanged and concluded that, despite the Committee remaining riven by lack of consensus, the case for a rate increase has further strengthened. Fed Funds betting is still for one single 25bp move to take place before the year end, most likely in December. As unlikely as it seems right now, some decisive spike enough to push inflation close to the 2% goal, or for the unemployment rate to test the 4% level, looks to be needed before the FOMC can again achieve clear majority. Nevertheless, the broader economic picture painted by the Fed remains reasonably upbeat, with officials continuing to project two more hikes in 2017, taking the rate to between 1% and 1.25%, followed by three in each of 2018 and 2019, whereupon the discount rate could be as high as 2.75%. Celebrating the news that there is still three or so months before the first of these is actually delivered, all principal US equities markets put in good performances on reasonable volume, with the NADAQ recording its eight record close of the year. Riding on their coattails Asian markets did likewise, with Hong Kong and South Korea's Kospi both closing up more than 1% while other regional indices followed not far behind, leaving only Japan, closed for its Autumn Equinox holiday, to miss out on the party. That said, the strengthening of the Yen that immediately followed the Fed's decision is likely to sap the Nikkei's enthusiasm when it re-opens tomorrow. Market watchers will have a lot of macro information to chew over in Europe today, with the UK Financial Policy Committee due to make a press statement and the release of the CBI's Industrial Trends Survey, while BoE Governor Mark Carney is due to make a speech in Berlin. Elsewhere, publication of the ECB's economic bulletin and Eurozone consumer confidence data is also due this morning. UK corporates due to release earnings include Armadale Capital (ACP.L), Cambridge Cognition (COG.L), Crimson Tide (TIDE.L) and Fishing Republic (FISH.L), along with an AGM statement from Micro Focus International (MCRO.L). Traders will also be keeping an eye on crude prices which made reasonable gains during Asian trading following yesterday's US inventory data release which confirmed the third consecutive week on drawdown. The FTSE-100 is seen rising over 30 points during this morning's opening trade." - Barry Gibb, Research Analyst
The FTSE-100 finished yesterday's session 0.06% higher at 6,834.77, whilst the FTSE AIM All-Share index closed 0.37% lower at 811.49. In continental Europe, markets ended in the green, driven by a rally in banking stocks after the announcement of new policy measures by the Bank of Japan. Investors awaited the monetary policy decision of the US Federal Reserve. France's CAC 40 and Germany's DAX increased 0.5% and 0.4%, respectively.
Wall Street registered sharp gains after the US Federal Reserve kept interest rates unchanged, as it sought further proof of economic strength. Moreover, a rally in oil prices lifted investor sentiment. The S&P 500 advanced 1.1%, with the energy sector ending as the top gainer.
Equities are trading higher, tracking the global equities, after the US Federal Reserve kept interest rates unchanged. Investors cheered an increase in commodities prices. The Nikkei 225 remained closed for a public holiday in Japan. The Hang Seng was trading 0.2% up at 7:00am.
Yesterday, WTI prices increased 4.4% to US$45.34 per barrel and Brent prices rose 2.1% to US$46.83 per barrel.
US Federal Reserve keeps interest rates unchanged
The Open Market Committee of the US Federal Reserve voted 7–3 to keep interest rates unchanged at 0.25–0.50%. Although the US Federal Reserve expressed confidence in economic growth, it believed that it was not enough to raise increase rates. However, it hinted at the possibility of a rate hike later this year.
Cyan Holdings (CYAN.L, 0.20p) - Speculative Buy
CyanConnode, the world leader in narrowband RF mesh networks for Omni Internet of Things communications, yesterday announced that it has signed a multi-year strategic partnership with Eppix eSolutions to enable the integration of SAP Hybris software with CyanConnode's Enterprise platform. Eppix eSolutions will integrate CyanConnode's enterprise-level, Head End Software ('HES') with a Meter Data Management System ('MDMS') to create the first SAP-based MDMS for the global utility market. This SAP-based MDMS will provide middleware between CyanConnode's HES and a utility's Enterprise Resource Planning ('ERP') software. The MDMS based on the SAP Hybris range of digital commerce solutions such as billing, eCommerce and marketing platforms, will enable utilities to deliver customised products and superior customer service. According to a recent report from Navigant Research, global revenue for MDMS and analytics is expected to total US$10.3 billion from 2015 to 2024. John Cronin, Executive Chairman of Cyan Holdings, commented: "We are delighted to be working with Eppix eSolutions to further expand our reach as well as validate our HES as Enterprise level software. This strategic partnership with Eppix eSolutions provides a clear indication of the Company's planned evolution to a managed services business model that delivers a recurring revenue stream from software licenses and support services. Furthermore, this collaboration will broaden our partner eco-system, adding a new level of decision makers and influencers within the global ERP market for utilities."
Our view: An ideal strategic partnership for Cyan! Eppix is the latest major player that has recognised Cyan is onto something big and wants to be part of smart metering's prospective global penetration. Eppix eSolutions is the technical services brand of Usha Martin Technologies, part of the Usha Martin Group, a US$1 billion business conglomerate. As a Strategic Industry Solution Partner of SAP Hybris, Eppix is one of a few select partners with significant experience in the development and implementation of SAP-based digital commerce solutions. SAP Hybris, ranked as a vendor in the 'Leader' Quadrant for the 2016 Gartner Magic Quadrant report for Digital Commerce, provides enterprise multichannel e-commerce and product content management software. The opportunity it foresees was been detailed in a major report released by Beaufort yesterday, which provided a comprehensive review of the Cyan Holdings and its sector. It points out the World Bank's extraordinary demonstration that it is three-times cheaper for utilities to save 1kWh of electrical energy by improving network efficiencies than investing in new generating capacity. Such losses in developing regions, along with the need for much better demand response in developed territories, are now the single most pressing issue for utility groups worldwide. The note goes on to show that a comprehensive and cost effective solution can be found through the implementation of sophisticated smart metering programmes. As such, the report concludes this now represents a giant, unfulfilled, scalable and truly global growth opportunity with the potential to attract large, long-term and exceptionally sticky customers. Beaufort's assessment of the enlarged, post-raise, post-acquisition Group suggests a valuation of some £123.9m. Accordingly, it awards the shares a Speculative Buy recommendation with a price target of 0.6p/share.
Beaufort Securities acts as corporate broker to Cyan Holdings plc
DekelOil Public Limited (DKL.L, 11.12p) - Buy
DekelOil Public Limited, operator and 85.75% owner of the profitable Ayenouan palm oil project in Côte d'Ivoire (the 'Project'), yesterday announced its interim results for the six months ended 30 June 2016. Record half yearly production of 28,550 tonnes (2015: 21,836 tonnes) of crude palm oil ('CPO'), with its first full half year production from kernel crushing plant in line with strategy to increase sales and profitability at Ayenouan, delivering 1,998 tonnes of palm kernel oil and 2,360 tonnes of palm kernel cake. It reported a 23.6% increase in revenues to €16.0 million and a 34.8% increase in EBITDA to €3.1 million, which was derived through Group sales of 25,225 tonnes of CPO (2015: 19,184 tonnes), leaving 3,498 tonnes in stock at 30 June 2016, although this has reduced post period end to normal levels on improved pricing. As a result, DekelOil was able to deliver a marked improvement in net profit to €1.8million (2015: €0.1m net loss). Executive Director Lincoln Moore noted in the statement "…it is clear to see why we made the decision to increase our stake in Ayenouan by 34.75% to 85.75%. We expect the impact of this transformational transaction on our financials will become more apparent in our full year results. I am incredibly proud of our operations and team, which has achieved so much in the short time since our listing and which has already delivered significant profit growth and debt refinancing on more attractive terms since operations commenced at the Mill. Optimising these areas will be a firm focus for DekelOil in the coming months and years ahead."
Our view: Very much delivering on best expectations, with the commodity pricing the only real blot on DekelOil's landscape. And even this has faded somewhat given the improvement in pricing post-period end, as its international markets regained their composure following Nigeria's niara collapse that resulted in the ending of its US$ fix back in June. This meant that DekelOil missed our first half expectations and, as a result, we now have to trim our full year 2016E revenue and EPS forecasts back from €29m to €27.5m and 1.75p to 1.42p respectively. We have, however, left our 2017E and 2018E estimates unchanged in anticipation of activity and returns continuing to build significantly during these years. With capacity to produce 70,000 tonnes of palm oil per annum, there remains room to more than double CPO production. Combined with the Group's recently commissioned kernel crushing plant, which is already producing value-added products, output is on course to expand substantially going forward. Significant growth in profitability also means the Group will be able to comfortably fund its scheduled debt repayments from operational cashflow, while we expect management to continue to improved debt terms going forward. Importantly, and as previously noted, DekelOil was a Brexit winner with the appreciation of the Euro against the Pound of over 10% post Brexit translating into higher Sterling earnings. Having positioned itself so, Beaufort believes the Group will be able to support its long-term operational ambitions while also producing a sustainable surplus. As these are realised, shareholders can expect to be rewarded by management implementing a formal dividend policy. Beaufort retains its Buy recommendation on the shares and places a price target of 21p on the shares.
Beaufort Securities acts as corporate broker to DekelOil Public Limited
Savannah Resources (SAV.L, 4.00p) – Speculative Buy
Savannah Resources, the diversified exploration and development company, announced today that is has submitted two mining applications to the Public Authority of Mining (PAM) in the Sultanate of Oman as part of the licencing requirements for new mine developments in Oman. The licences relate to the Mahab 4 and Maqail South deposits in Block 5. Savannah owns a 65% shareholding in Al Fairuz Mining, the holder of the Block 5. Maqail South and Mahab 4 have a combined current resource of 1.7Mt grading 2.2% Copper. A revised mineral resource estimate for Maqail 4 and Maqail South and is expected in Q4 2016 on the back of a recently completed drill programme. Savannah is targeting commencement of copper mining in late 2017 with the application of open-pit development at the Maqail South deposit and underground development proposed for the Mahab 4 deposit.
Our view: This is an important milestone for the company as it continues to target mining in late 2017. Mahab 4 has an Indicated and Inferred resource of 1.5Mt grading 2.1% Cu and Maqail South has a current inferred resource of 0.16Mt grading 3.8% Cu, a revised mineral resource estimate for Mahab 4 and Maqail South is expected in Q4 2016. Whilst the current resource footprint is relatively small we note that both deposits are high-grade and we are encouraged with the potential to increase the overall resource. We look forward to the revised mineral resource estimate in Q4 2016, in the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Savannah Resources plc
Concepta (CPT.L, 17.75p) - Speculative Buy
Concepta, the UK healthcare company targeting the personalised mobile health market with a primary focus on women's fertility, yesterday announced it has moved its UK laboratory operations to a new site, at Colworth Park in Bedfordshire, doubling the size of its operational headquarters. This new laboratory opening is in line with the Group's strategy of increasing its operational capacity and economies of scale as it moves towards launching its MyLotus product for unexplained infertility into China in H2 2016 and, following CE marking, into the UK and Europe in 2017. The state of the art laboratory will house four employees in R&D and another two employees in Quality Assurance. In addition, a separate area for assembly can accommodate a further ten people producing testing strips for Concepta's MyLotus meter. Aside from manufacture, assembly and testing, the lab will primarily be used as a research and development hub for MyLotus product enhancements and new product development. Commenting on the opening of the new facility, Erik Henau, Concepta CEO said: "Following our highly successful AIM listing in July 2016, this new laboratory is a key part of the Company's growth strategy and extends both its capacity and capabilities as we begin the process of launching our proprietary product into China prior to a European launch in 2017. Concepta's research team will be working in the new lab effective immediately to accelerate new product development, both within our core business area of fertility as well as other areas in the wider mobile health space. We look forward to updating the market on these exciting developments in due course."
Our view: Human infertility is a critical but much neglected aspect of reproductive health. The World Health Organisation estimated in 2010 that 48.5 million couples worldwide were unable to conceive after five years of trying which, in turn, identifies a highly motivated target consumer group for Concepta. It's MyLotus technology differentiates itself by quite uniquely collecting both quantitative and qualitative measurement of a woman's personal hCG and LH hormone levels in urine, with a view to improving the probability of conception. Its global opportunity is estimated to be worth as much as US$2bn, beyond which its technology platform opens a much wider opportunity for personalised monitoring and self-diagnosis. Beaufort rates Concepta plc shares as a Speculative Buy and expects to be releasing initiation research on the Company shortly.
Diageo (DGE.L, 2,183.50p) - Buy
The Company has issued a robust trading statement. The 2017 fiscal year has started well. The momentum Diageo created last year - strengthening its business through improved marketing, innovation, and commercial execution - has set the Company up to deliver a stronger performance. Key drivers of improved top line growth are the Company's fiscal 2017 priorities: scotch, US spirits and India. Diageo has made a strong start to its productivity work and are moving at pace. But as the Company no longer take productivity related costs as an exceptional item, in the first half these costs will impact the organic operating profit margin. In the second half productivity related costs will decline and be offset by higher savings as well as the benefits from the targeted reinvestment of those gains. This will contribute to organic margin expansion for the full year.
Our view: The top line momentum and progress in implementing productivity changes, gives continued confidence in achieving the Company's objective of mid-single digit top line growth, and over three years ending fiscal 2019 delivering 100bps of organic operating margin improvement. This is one of Beaufort shares of the year for 2016, and the shares have gained strongly since the Referendum vote to leave the EU. We still believe that Diageo is a core holding and we retain our Buy recommendation. Short-term investors may consider it prudent to 'top-slice' their holdings following the recent out performance.
Imperial Innovations (IVO.L, 444.50p) - Hold
Imperial Innovations (Imperial) committed £5.1m to Artios Pharma Ltd's £25.0m Series A funding round. After providing the funding, Imperial will have a 14.9% stake in the Cambridge-based biotechnology firm, which was formed with assets spun out from Cancer Research Technology, the technology transfer arm of UK charity Cancer Research UK.
Our view: Imperial's decision to invest in Artios Pharma Ltd is interesting, given it is a newly launched biotechnology firm with a focus on developing DNA damage-response (DDR) cancer therapies. DDR drugs have the potential to act as single agents to selectively kill tumour cells through synthetic lethality, adjunctive therapy to overcome resistance to current cytotoxics, and potentiating agents to radiotherapy and novel therapies, including immune oncology treatments. In June 2016, Imperial informed shareholders with a disappointing outcome, following clinical trials undertaken by Circassia Pharmaceuticals in which it has significant investments. The study failed to achieve the desired result, given that both the active treatment and placebo groups were not significantly different. Circassia would now review its full dataset to understand the detailed results and assess whether or not any other confounding factor affected the outcome, as well as the more general impact on its allergy portfolio. Imperial invested £25.5m in Circassia (9.3% stake), the group's largest asset with a net fair value of £77.5m (based on market capitalisation of £833.6m), standing at c.22% of Imperial's net portfolio value of £355.1m as of 31st January 2016. The market reacted negatively to the news, with Circassia's share price falling 67% that day. In light of the growing uncertainty in Imperial's portfolio company, we maintain a Hold rating on the stock.
Pennon Group (PNN.L, 886.0p) - Buy
The Group has released a robust trading statement, and it indicates they are on track to meet Group expectations for 2016/2017. The Group is on track to the targeted c.£100m of EBITDA from the Energy Recovery Facilities (ERFs), with three more in the pipeline. The Group anticipates achieving a sector-leading Return on Regulated Equity again this year. The Shared Services Review, which will result in cost savings, supports Pennon's strategy of working more closely as a Group.
Our view: Group EBITDA expectations for 2016/17 are driven by additional ERF earnings as Peterborough ramps-up and as availability increases at Trident Park in Cardiff and Runcorn II in Greater Manchester. The Group therefore expects to see an H2 weighting in the ERF results. South West Water (SWW) has continued to experience higher customer demand in H1 and is focused on delivering further Total Expenditure savings from efficiency initiatives outlined at the 2015/16 full year results. SWW continues to deliver a strong performance. RoRE for the combined water business is on track for continued outperformance in 2016/17 (11.7% reported for 2015/16), supported by Total Expenditure outperformance, cost savings and synergies. At Viridor, the portfolio of eight operational ERFs continues to perform well. There are three further ERFs under construction. Pennon continues to deliver a good underlying financial performance and is on track to meet management expectations for 2016/17 and, despite reasonable recent outperformance, we maintain our Buy recommendation.
Saga (SAGA.L, 223.10p) - Buy
Saga, the UK's leading provider of products and services primarily tailored for the over 50s, yesterday announced its interim results for the 6 months ended 31 July 2016 ('H1 FY2016'). During the period, revenues fell by -8.6% to £437.2m against the comparable period (H1 FY2015) owing to the accounting impact from the introduction of the funds-withheld quota share arrangement in motor insurance. Trading Profit remain flat at £117.6m while pre-tax profit advanced by +8.5% to £109.9m due to derivative fair value gains from favourable foreign exchange and oil price movements as well as reduction in finance costs from lower interest costs on debt. This resulted basic earnings per share to expand by +8.2% to 7.9p. Net debt to EBITDA reduced to 2.2x from 2.4x, available operating cash flow decreased by £41.8m to £97.3m and cash and cash equivalents at the end of the period stood at £229m (31 January 2016: £ 164.4m). On the operational front, core insurance policies increased by +11.7% to 3,051k, tour operating passengers remain flat, while contactable people on Saga database rose +2.7% to 11.3m (active customers up +3.8% to 2.7m). Solvency II position now enhanced to 196% (31 January 2016: 170%). Saga's CEO, Lance Batchelor commented "We have seen no discernible impact to date from Britain's decision to leave the European Union; this has been especially notable in our Travel business, where we polled customers recently and 99% said that Brexit would not make them reconsider their future holiday plans. The robust operational performance in the first half means that we are on track to meet our targets for the full year." The Group declared an interim dividend of 2.7p per share, a jump of +22.7%, to be paid on 18 November 2016.
Our view: Saga delivered good results for the H1 FY2016, with management demonstrating confidence by hiking the dividend by +22.7% and stated that it is on track to deliver pre-tax profit growth of +5% to +7% for the full year. The Group also calmed investor fears, by noting the impact of Brexit on its travel business is not been noticeable and that they have not sensed change in customer behaviour, anywhere across its businesses. The Group's travel business model, which avoids volume commitments with hotels and suppliers, while also hedging and other costs up to 2 years in advance, has helped it to avoid price fluctuations for its customers. Saga already strengthened its balance sheet, leaving it positioned for its Solvency II ratio compliance. We believe Saga's industry position will keep its cost of customer acquisition low and position it well to sustain its growth momentum and maximise shareholder returns. Beaufort reiterates its Buy rating on the stock.
Venture Life Group (VLG.L, 54.50p) - Speculative Buy
Venture Life Group (Venture Life) declared unaudited interim results for the six months ended 30th June 2016 (H1 2016). Revenue increased 40% y-o-y to £6.1m, and gross profit rose 47% y-o-y to £2.3m. Adjusted EBITDA profit stood at £0.1m (H1 2015: loss of £0.4m). Loss before tax, amortisation and exceptional items of £0.3m (H1 2015: loss of £0.4m). Pre-tax loss stood at £854,000 as compared to pre-tax loss of £755,000 in H1 2015. Loss per share stood at 2.81p in H1 2016 vis-à-vis 2.69p in H1 2015. Cash at the end of period totalled £1.6m (31st December 2015: £2.9m). On the operational front, Venture Life completed the acquisition of the UltraDEX brand of oral care products with Periproducts Limited for £5.7m in March 2016. In H1 2016, Venture Life signed nine long-term exclusive distribution agreements. Post the first half; the group signed three exclusive distribution agreements for Procto-eze (Greece and Taiwan) and Vonalei (Greece). The complete range of Lubatti skincare products is now stocked and sold through the group's partner in China, Gialen Group Co. Ltd. Moreover, a number of major retailers in the UK would expand store distribution and product listing activities for UltraDEX in Q4 2016.
Our view: Venture Life delivered an excellent performance in H1 2016. The group registered a sharp rise in revenue and positive EBITDA for the first time. Venture Life made good progress towards the achievement of its strategic objectives. The group added UltraDEX to its brand portfolio through the acquisition of Periproducts Limited. Significant organic growth and the acquisition of Periproducts led to solid revenue growth in H1 2016. Venture Life completed its first international partnering deals on the Benecol once-a-day liquid sachet and the UltraDEX brand. The group's complete range of 14 Lubatti skincare products has been stocked in nearly all 1,300 stores of Gialen Group since the end of July 2016. Venture Life is likely to accelerate brand development in China. Meanwhile, Venture Life's revenue from the manufacturing business continued to steadily grow on account of organic growth and new product manufacturing for existing and new customers. Venture Life has signed an agreement to develop and manufacture a number of products for Italian pharmaceutical firm Menarini Farmaceutica Internazionale Srl. Moreover, the group plans to look for M&A opportunities to drive sustainable profitability. Considering the factors mentioned above, we maintain a Speculative Buy rating on the stock.
To read Beaufort's full research archive click here
Barry Gibb, Harry Stevenson, Sheldon Modeland & Charles Long
(t) +44 (0) 207 382 8384
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, declined 7.3% in the week ended 16th September, after a 4.2% rise in the preceding week, the Mortgage Bankers Association said yesterday.
During the three months to end-August 2016, the number of stocks on which Beaufort Securities has published recommendations was 297, and the recommendations were as follows: Buy - 112; Speculative Buy - 118; Hold - 63; Sell - 4.
Full definitions of the recommendations used by Beaufort Securities in its publications and their respective meanings can be found on our website here.