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Today’s edition features:
- Stellar Diamonds (STEL.L)
- Westminster Group (WSG.L)
- ANGLE (AGL.L)
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48 hours and counting…
"Inevitably, Monday’s electioneering clashes between Labour and the Conservatives pivoted around national security and the terrorist threat. A call from Mr Corbyn for Mrs May to resign on her record as Home Office Secretary in reducing police numbers needed to be countered by Mr Corbyn’s own parliamentary history of voting against anti-terrorist measures. While elections tend to generate a lot of heat, rarely is enough light emitted for voters or the markets to make a seriously-informed judgement. According to the Daily Telegraph’s ‘rolling average of eight polls’, the proportion of votes for the Tory and Labour parties have been converging since the 21st April with the gap now standing at 7 points overall – Conservatives 43.4% and Labour on 36.5%. For those inclined to ignore the polls, betting odds continue to point to the Conservatives being returned with a majority but it must be remembered that the odds are a function of betting activity which may not necessarily prove to be correct. Something that is adding piquancy to this particular election, apart from the high number of marginal constituencies being contested, is the effect of the Brexit vote where voters may decide to switch from normal allegiances to whichever party they feel will best protect their interests in dealing with the European Union. It is against this background that Sterling moved marginally higher to the $1.29 level and the FTSE 100 eased.
Meanwhile, in the Middle East, things have been stirring. Saudi Arabia has broken off diplomatic ties with its much smaller neighbour Qatar allegedly due to its claimed tolerance of Iran and more extreme Islamist groups such as the Muslim Brotherhood. A policy of isolation is being imposed on Qatar with flights to Saudi Arabia being banned. The price of crude oil (Brent) has dropped by 1.4% to $49.20/bbl. All of this comes in the wake of President Trump’s visit calling for a tougher stance against extremist religious groups. A risk for markets could be any suggestion that Qatar’s normal commercial activities could be curtailed."
– Mike Franklin, Chief Investment Strategist
Markets
Europe
The FTSE-100 finished yesterday’s session 0.29% lower at 7,525.76 whilst the FTSE AIM All-Share index was down 0.40% at 987.85. In continental Europe, the CAC-40 finished down 0.66% at 5,307.89 whilst the DAX was closed for a public holiday.
Wall Street
In New York last night, the Dow Jones fell 0.1% to 21,184.04, the S&P-500 lost 0.12% to 2,436.1 and the Nasdaq eased 0.16% to 6,295.68.
Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.6% to 20,050.79, while the Hang Seng firmed 0.35% to 25,952.99.
Oil
In early trade today, WTI crude was down 0.38% to $47.22/bbl and Brent was down 0.36% to $49.29/bbl.
Headlines
British Airways says IT chaos was caused by human error
The boss of British Airways’ parent company says that human error caused an IT meltdown that led to travel chaos for 75,000 passengers. Willie Walsh, Chief Executive of International Consolidated Airlines Group (IAG.L), said an engineer disconnected a power supply, with the major damage caused by a surge when it was reconnected. He said there would now be an independent investigation “to learn from the experience”. However, some experts say that blaming a power surge is too simplistic. Mr Walsh, appearing at an annual airline industry conference in Mexico on Monday, said: “It’s very clear to me that you can make a mistake in disconnecting the power. “It’s difficult for me to understand how to make a mistake in reconnecting the power,” he said. He told reporters that the engineer was authorised to be in the data centre, but was not authorised “to do what he did”. IAG has commissioned an “independent company to conduct a full investigation” into the IT crash and is “happy to disclose details” of its findings, Mr Walsh said. The name of the company involved had not been disclosed.
Source: BBC News
Company news
Stellar Diamonds (STEL.L, 5.88p) – Speculative Buy
Stellar Diamonds announced yesterday it has sold its Guinean diamond assets to a business called BDG Capital for $2m. A non refundable deposit of$250k has already been received and the balance is due in two months. There may be some costs to Stellar in leaving Guinea but we expect Stellar to keep between $1.5m and $1.75m once small creditors have been paid.
Our view: This is a very good development for Stellar which is now completely focused on Sierra Leone and the Tongo-Tonguma project. $1.5m to $1.75m is a significant sum which will go towards G&A and project development. Tongo-Tonguma is a narrow vein, high grade, high stone value project which has a Stellar attributable NPV of $104m versus a modest upfront capex of circa $35m. It is a globally significant project due to the very high quality of the diamonds (clean white and octahedral shape) and the long life of the mine. Diamonds from this part of east Sierra Leone are in strong demand from diamond cutters and should receive a good price through the cycle. We have a Speculative Buy recommendation.
Beaufort Securities acts as corporate broker to Stellar Diamonds plc
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Westminster Group (WSG.L, 14.25p) – Speculative Buy
Westminster Group, a supplier of managed services and technology-based security solutions to governments and government agencies, non-governmental organisations (NGO’s) and blue-chip commercial organisations worldwide, yesterday announced its results for the 12 months ended 31 December 2016 (‘FY2016). During the period, revenue advanced by +31% to £4.4m; comprised of -5.9% fall in Technology Division to £1.6m, offset by +64.7% jump in Managed Services Division to £2.8m, against the comparative period (FY2015). Due to increased revenue contribution from its higher margin Managed Services division, gross margin has improved by +13% to 71%, leading to a gross profit rose +59% to £3.1m and adjusted EBITDA profit of £25k compared to a loss of £360k a year ago. Loss before tax, however, remained flat as £2m as total financing charges doubled to £0.6m due to an increased average debt. As period saw tax credit against a charge last year, loss per share was 2.5p (FY2015: loss 3.5p). During the year the Group raised £2.7m net by the issue of equity (£1.3m) and Convertible Unsecured Loan Notes (£1.4m), while converted £1.2m of debt into equity. Total outstanding Convertible Loan Notes and Convertible Unsecured Loan Notes at 5 June 2017 amounted to £2.2m. Cash and cash equivalents at 31 December 2016 stood at £152k (end-FY2015: £150k). On the operational front, the Group’s Managed Services Division signed 7 MoU (FY2015: 4), while Technology Division recorded a healthy increase in average enquiries per month of 117 (FY2015: 99) and number of return customers of 150 (FY2015: 142). Westminster Group’s CEO, Peter Fowler, commented “Our business is now in a better position than it has been for some time as the challenges and trials of the last few years are now largely behind us. Our market proposition, particularly our managed services business, has never been more relevant against a backdrop of increasing threats to air travel and a more unstable world and we are well positioned though our extensive network and governmental relationships to transform our business. Over the next few months and years we have an opportunity to achieve unprecedented growth from the prospects we are pursuing such as the Middle East airport opportunity. The Board and I remain committed to delivering on this potential”.
Our view: Westminster Group delivered a much improved financial performance for the FY2016 with +31% revenue growth and +13% margin improvement, resulted in positive adjusted EBITDA. Operationally, the Group has expanded its operations, opportunities and presence around the world. Notably, in the Managed Services business (c.64% of revenue – comprised of Airport Security operations and Ferry Project), the Group received Letter of Intent for a potential major 15-year term Middle Eastern airport contract opportunity with annual revenues in excess of £35m. The Group has been actively preparing the required support structures and infrastructure necessary to deliver the projects, including organising a complex supply chain and other required resources. The Group noted that “whilst there is never certainty in relation to either the outcome or timing of such negotiations”, it has made a “substantial progress achieved towards finalising contract negotiations” post the period. Elsewhere, in West Africa, its airport security operations see ongoing recovery in passenger numbers, which was long impacted by the Ebola crisis since 2015. Its Ferry services, under the brand of Sovereign Ferries, also commenced initial operations in mid-December 2016 with formal services started in January 2017. Having already secured 3% of the £4m per annum estimated current addressable ferry market, the Group expect volumes continue to grow to “well beyond” a 14% share (the level Board anticipate the operation will be providing a positive contribution) by the end of 2017. In the Technology Division (c.36% of revenue), it also secured contracts for a wide range of products and services from around the world. While lower oil price continues to impact the sector’s current and pipeline projects, other areas such as nuclear facility, advanced screening solutions and security solutions were ongoing with recurring revenue base of maintenance and service contracts both in the UK and overseas continues to build with contracts with governmental and corporate clients now valued at over £180,000 per annum. The division also signed border security project MoU in Middle East during the period. Post the period, the Group raised total of £1.6m gross through new equity issuance in February 2017 and April 2017. We believe the Group’s long-term cash flow profile of its businesses, which require only limited additional capital support (particularly the Ferry Project) to fully secure their opportunity, make for a strong operational and financial business model, albeit with the risks incumbent with the geographical locations from which it operates. Given the Group continue to make encouraging progress in its pipeline contracts that has the potential of long-term recurring revenue, Beaufort reiterate its Speculative Buy rating on Westminster Group.
Beaufort Securities acts as corporate broker to Westminster Group plc
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ANGLE (AGL.L, 56.00p) – Speculative Buy
ANGLE, the specialist medtech company focused on cell separation technology, Parsortix system, for detection and harvesting of cancer cells, yesterday announced that positive results of its Parsortix system in colorectal cancer were presented at the American Society of Clinical Oncology (‘ASCO’) Annual Meeting 2017. The study, undertaken by The University of Texas MD Anderson Cancer Center, show that in a prospective study of 47 metastatic colorectal cancer patients, Parsortix system were able to harvest circulating tumour cells (‘CTCs’) to analyse these cells for the presence or absence of meEGFR (arginine methylation of the epidermal growth factor receptor). meEGFR is associated with a patient’s likely response to EGFR inhibitors, a key drug class in the treatment of colorectal cancer. The study found that patients whose CTCs harvested by Parsortix had a higher proportion of meEGFR positive CTCs. This means the presence of higher proportion of meEGFR in CTCs led to a significantly shorter progression-free survival (‘PFS’) compared to those patients whose CTCs had lower levels. This led to a future opportunity for anti-EGFR treatments. ANGLE’s Founder and CEO, Andrew Newland, commented “This colorectal cancer study adds to the body of evidence driving adoption of Parsortix in the fast growing liquid biopsy market. The ability to assess the patient’s likely response to a particular drug as a companion diagnostic is a key element in the drive to provide precision medicine for patients saving money and improving treatment.”
Our view: This is a positive result for ANGLE, further demonstrating the effectiveness of Parsortix System in analysis of cancer through a simple blood test. Parsortix is a non-invasive liquid biopsy which not only enables cancer detection but also harvests the CTCs for personalised cancer care. Yesterday’s positive results gives the potential to provide clinically relevant information to advise treatment decisions. ANGLE’s goal is to seek sector approval and endorsement of its unique solution to be a key participant in the rapidly growing multi-billion dollar liquid biopsy market. Even ahead of this, in FY2016, adoption of Parsortix into its customers’ routine laboratory practice is growing, evident from a substantial increase in revenues from cassette sales, which rose more than 500% from last year. The Group also noted that there are further 20 prospective customers evaluating the systems with a view to purchase. Having announced the completion of patient enrolment for its first clinical application for Parsortix in two clinical studies in ovarian cancer: ANG-001 in Europe (200 patients) and ANG-003 in the United States (200 patients), the major event that investors are now waiting for is its headline data which is on track to report during Q2 2017. Beaufort’s financial model sees ANGLE achieving only relatively limited revenues and remaining in quite deep losses in FY2017, before ramping sharply upward toward the end of 2018 to become cash flow positive for the first time during H1 2019. Based on a cash position of around £5.5m by the end of the April 2017 and assuming the R&D tax credit is received, Beaufort considers the Group will be in the position to demonstrate a strong sales growth trajectory and modest positive earnings before tapping shareholders once again for additional funding. In light of its ongoing positive progress, Beaufort reiterate its Speculative Buy rating on the Share.
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Compiled by:
Barry Gibb, Kazunaga Senga, Sheldon Modeland, Charles Long & Ben Maitland
(t) +44 (0) 207 382 8384
(e) [email protected]
Weekly diary
Click here to see all this week’s planned corporate and economic announcements.
Recommendations
During the three months to end-May 2017, the number of stocks on which Beaufort Securities published recommendations was 196, and the recommendations were as follows: Buy – 77; Speculative Buy – 100; Hold – 17; Sell – 2.
Full definitions of the recommendations used by Beaufort Securities in its publications and their respective meanings can be found on our website here.
Important Risk Warnings and Disclaimers
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