|Today’s edition features:
- Ariana Resources (AAU.L)
- Premier African Minerals (PREM.L)
- Action Hotels (AHCG.L)
- BP (BP..L)
- Motif Bio (MTFB.L)
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“International equities progressed in a confident manner yesterday. Primarily this was reflecting strong US corporate earnings which, according to Factset, are set to see S&P500 constituents report the best Q1 growth since 2011, although similarly impressive results are also being delivered from Europe, with profits from the Stoxx 600 apparently on track for a 20% hike on the comparable period. The news that Greece has apparently reached a bail-out deal with its international creditors, confidence that Macron will be safely installed as France’s new president this Sunday, together with the wide expectation that Theresa May will secure the Tories a much larger majority in just over a month from now, while things have gone surprisingly quiet on the North Korea front, all contributed to positive investor sentiment. All three principal US indices closed marginally firmer, with gains in techs and industrials being offset by weakness amongst auto and energy stocks, which fell 0.5% as a result of the continuing sell-down of crude futures during the session. Asian equities, however, were a little upset by Q2 results from Apple that were released after the US close, showing that iPhone sales had surprisingly contracted during the period, apparently due to buyers deferring purchase decisions following media reports of future products, meaning revenues missed analysts’ best expectations. Markets in Japan, Hong Kong and South Korea were closed for a holiday today, leaving Chinese equities to start regional trading slightly lower Wednesday morning, where its remained to the close, dragging Taiwan’s tech-sensitive Tiaex index down with it, although the ASX was hardest hit of the local bourses as weak minerals prices knocked miners in this commodity-heavy index while its financials also became subject to profit-taking. In Europe, assuming the Greek government commits the terms of its ‘Preliminary Technical Agreement’ to legislation by its target date of 16th May, Euro-area Finance Ministers should meet on 22nd May to approve disbursement measures, thereby providing additional short-term relief for Continental traders. The only UK macro release scheduled for today is April’s Construction PMI figures, while the EU is due to provide its Q1’2017 GDP and March Producer Prices. The US will deliver weekly MBA Mortgage Applications, Its ADP Employment Change, Markit Services PMI and ISM non-manufacturing PMI for April. Most importantly, this afternoon the Fed is due to release a Monetary Policy Statement, which could provide greater insight into the health of the economy and momentum going forward, although the next hike in the Discount rate is broadly expected by investors to instead be delivered following June’s meeting . There are a good number of UK corporates due to release earnings or trading updates this morning including Sainsbury (SBRY.L), Imperial Brands (IMB.L), Sage group (SGE.L), Paddy Power Betfair (PPB.L), Direct Line Insurance (DLG.L), JD Weatherspoon (JDW.L), OneSavings Bank (OSB.L), Quantum Pharma (QP..L) and Centamin (CEY.L). London, however, is expected to pick up on the mood during Far Eastern trading, to open slightly weaker as investors reflect on the disappointment conveyed by the world’s biggest company by market capitalisation and its dependence on the continuing success of its lead product. The FTSE-100 is seen opening around 10 points weaker in early trade. ”
– Barry Gibb, Research Analyst
The FTSE-100 finished yesterday’s session 0.64% higher at 7,250.05 whilst the FTSE AIM All-Share index was 0.38% up at 967.38. In continental Europe, the CAC-40 finished up 0.70% at 5,304.15 whilst the DAX was 0.56% higher at 12,507.90.
In New York last night, the Dow Jones rose 0.17% to 20,949.89, the S&P 500 firmed 0.12% to 2391.17 and the Nasdaq gained 0.06% to 6095.37.
In Asian markets this morning, the Nikkei 225 had risen 0.7% to 19,445.7, and the Hang Seng had added 0.33% to 24,696.13.
In early trade today, WTI crude was up 0.59% to $47.94/bbl and Brent was up 0.77% to $50.85/bbl.
Apple sees surprise fall in iPhone sales
Apple sold fewer iPhones than a year ago in the first three months of 2017, the company said in its latest results. The California firm, which is due to release a new phone later this year, said it sold 50.8 million iPhones in the period, down 1% year-on-year. Apple boss Tim Cook blamed a “pause” as customers wait for the next iPhone. Shares in the firm fell nearly 2% in after-hours trading after earlier hitting a record high on expectations of better results. Apple reported a 4.6% rise in revenue across the whole company to $52.9bn (£41bn), slightly below analysts’ forecasts. The dip in iPhone sales was offset by services, including Apple Pay, iCloud and the App store, which recorded an 18% increase in sales to $7bn. Mr Cook also pointed to growth in sales of Apple Watch, as well as its AirPods and Beats earphones. Despite falling unit sales, revenue from iPhones still climbed 1% to $33.2bn due to “robust” sales of its bigger, more expensive iPhone 7 Plus.
Source: BBC News
Ariana Resources (AAU.L, 1.70p) – Speculative Buy
Ariana Resources, the gold-silver exploration and production company operating in Turkey, today announced an increase and update of its JORC-compliant mineral resource estimate for the Kiziltepe project. The Kiziltepe mine is in production and one month into the ramp-up stage of development through a JV agreement with Proccea Construction. Ariana owns 50% of the JV and 51% of the profit share. Based on drill programmes completed in late 2016, Ariana has increased the total mineral resource estimate to 257,463oz Au and 4.87Moz Ag representing an 32% and 54% increase in contained ounces, respectively. The updated resource supports an extended mine life at Kiziltepe based on current throughput rates. Ariana also stated its JORC Exploration Target of up to a further 1.25Mt grading 1.8g/t Au and 31g/t Ag.
Our view: Ariana’s most recent drill programmes had confirmed the continuity of mineralisation between Arzu South and Arzu North pits. The above updated resource combined with the exploration target of some 72,000oz of Au and 1.25Moz of Ag could provide up to 12 years mine life at Kiziltepe at current throughout rates. This is a significant extension to the initial the life of mine of eight years. We look forward to further targeted drill programmes focused on identifying high-grade mineralisation that could potentially support underground mining within the Arzu central area. We also look forward to updates at Kiziltepe as the mine continues with its ramp-up stage. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Ariana Resources plc
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Premier African Minerals (PREM.L, 0.63p) – Speculative Buy
Premier African Minerals, the South and Western Africa focused mineral explorer and developer, announced today an update on its RHA tungsten mine in Zimbabwe. The Company reports that the commissioning of RHA is progressing well and the first shipment of tungsten concentrate is expected shortly. Shaft upgrades have now been completed and the XRT ore sorter is exceeding the Company’s expectations. General refinement of the sorter operation, optimisation of the gravity recovery circuit and other elements of the crushing circuit continue with steady improvements. Ongoing optimisation, refinement and mining development are expected to result in continuous sustained operation at profitable levels in the near future.
Our view: With shaft upgrades and implementation of the XRT ore sorter now complete, we expect sustained production at RHA to begin imminently. We look forward to continued results from the Zulu lithium and tantalum project as the Company begins an MMI (mobile metal ion) survey to detect potentially mineralised areas that are hidden below cover. We are encouraged with the imminent shipment of tungsten concentrate from RHA. As such, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Premier African Minerals plc
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Action Hotels (AHCG.L, 37.50p) – Speculative Buy
The leading owner, developer and asset manager of three and four-star hotels in the Middle East and Australia, yesterday announced its final results for the year ended 31 December 2016. Key highlights for the period included the opening and operation of three new hotels in three countries, taking total operational room count at year end to 2,181, a 40% increase from last year (2015: 1,561 operational rooms) and an increase of 117% since IPO. Year-on-year growth in key financial performance indicators, included revenue (up 22% to US$53.1m) and adjusted EBITDA (up 16% of US$18.5m), while Net Asset Value (NAV) remained stable at US$195m (2015: US$196m), giving Net Asset Value per share of USD 1.40/GBP 1.09 (2015: USD 1.40/GBP 0.95). Net loss before tax was US$6.3m (2015: PBT of US$2.9m), which was primarily hit by the impact of pre-opening, financing costs and depreciation of new hotels, while the Group Loan-to-Value (‘LTV’) was 51% (2015: 49%). The Board recommended a final dividend increase of 2.0% to 1.50 pence Sterling per share, bringing the total dividend for the year to 2.26 pence per share (2015: 2.21 pence per share), a yield (as at 2 May 2017) of 6.1%.
Our view: Reporting a net loss is to be expected during the Group’s development years, as it completes the building out of its pipeline. Until that time, focus remains on ensuring the continued performance of existing operating hotels and the more relevant measures of delivering growth in revenue and EBITDA. Total assets increased by 14% to US$480m from the delivery of new hotels during the period, the associated development uplift and revaluations of existing units. Despite challenging market conditions across the Middle East, resulting from global macro-economic and political uncertainty, Action Hotels delivered solid performances, underpinned by focusing on the economy and mid-market hotel sectors, where the demand still significantly exceeds supply. The reported decreased in RevPAR (Revenue per available room) to US$61.5 (2015: US$71.1), was a result of the introduction of the new hotels into the portfolio and pricing strategy to maintain high occupancy which, in turn, provides foundation for strong growth during the current year and next. Although there remain some pressures on travel and tourism, particularly in the Middle East, demand is still expected to continue to expand quite strongly in coming years, with the emergence of regional travel and the diversification of local economies away from oil and gas. Having roughly halved since peaking in May 2014, the shares now trade at an unrealistically deep discount to their NAV, which fails to recognise the strategic value held through its hotel portfolio. Offering a substantial yield, the shares should be held for income while anticipating an improved financial performance this year and next. This should allow a recovery back to a target price of 53p/share (or to around half current net assets). Beaufort initiates its coverage of Action Hotels with a Speculative Buy recommendation.
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BP (BP..L, 450.83p) – Buy
BP, a world’s leading integrated oil and gas companies, yesterday provided its results for the 3 months ended 31 March 2017 (‘Q1 FY2017’). During the period, BP returned to a profit of US$1.45bn from a loss of US$583m in the same period last year. This resulted replacement cost profit of US$1.41bn (Q1 FY2016: loss US$485m). Underlying replacement cost profit jumped by +183.8% to US$1.51bn and operating cash flow increased by +46.7% to US$4.4bn (excluding US$2.3bn payments for Gulf of Mexico oil spill), against the comparative period (Q1 FY2016). During the period, non-operating items amounted to a charge of US$553m before tax and US$305m after tax due to an impairment charge from expected divestment of certain Upstream assets. The aforementioned Gulf of Mexico oil spill pre-tax charge was US$161m in the Q1. Organic capital expenditure was US$3.5bn (Q1 FY2016: US$4.5bn), while inorganic capital expenditure stood at US$0.5bn (Q1 FY2016: nil). Net debt at period end increased by US$8.6bn to US$38.6bn, representing net debt ratio of 28.0% (Q1 FY2016: 23.6%), in line with its target of 20%-30%. On the operational front, the Group said reported oil and gas production increased by +5% to 3.5mmboe/d. BP remain on track with its New Upstream major projects: Trinidad onshore compression project started up, another in ramp-up, and two more in commissioning. Downstream recorded strong operational performance and marketing growth during the period. BP’s CEO, Bob Dudley commented “…it was another strong quarter for the Downstream and the first of our seven new Upstream major projects has started up, with a further three near completion. We expect these to drive a material improvement in operating cash flow from the second half”. The Group declared a quarterly dividend of 10 US cents per ordinary share (US$0.600 per ADS), in line with last year, which is expected to be paid on 23 June 2017.
Our view: BP released strong results for the first three months of the year. The Group recovered to profit during Q1, compared with a loss in the same period last year, and the performance has accelerated from the pace set during Q4 FY2016. Underlying replacement cost profit came ahead of the consensus Analysts’ estimate of US$1.26bn, supported by recovery in oil and gas prices against last year. Looking ahead, the Group maintained its expectation for organic capital expenditure to be in the range of US$15bn-US$17bn for FY2017, while divestments are seen in the region of US$4.5bn-US$5.5bn, weighted towards H2. For Upstream, the Group expect Q2 FY2017 reported production to be in line with that of Q1, as the continued ramp-up of major projects will be offset by seasonal turnaround and maintenance activities. It expects, however, rising production to drive a “material improvement” from the H2. BP also confirmed that its Upstream major project programme is on track to provide 800,000boe/d of new production by 2020, with projects now under construction on average being ahead schedule and some 15% below budget. For the Downstream, BP’s marketing businesses continue to grow with retail volumes increasing year-on-year. In the Q2 FY2017, the Group expect refining margins to improve, while it will be offset by both narrower North American heavy crude oil differentials and a higher level of turnaround activity compared with the Q1. The shares are valued at FY2017E P/E multiple of 17.1x, EV/EBITDA of 5.6x, while coming with a dividend yield of 6.8%. Investors will be keeping an eye on the Group’s debt gearing during 2017, however, given that it is now close to the top of management’s 20% to 30% target range. In light of this pleasing progress, Beaufort maintains its Buy rating on the shares, although it retains a slight preference for Royal Dutch Shell, which is considered to have a more balanced business along with higher yield (FY2017E P/E 15.5x, EV/EBITDA 6.2x and yield of 7.1%).
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Motif Bio (MTFB.L, 35.75p) – Speculative Buy
The AIM and NASDAQ-quoted clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday announced financial results for the year ended 31 December 2016. It made key and significant progress in 2016 towards its goal of bringing a novel antibiotic candidate, iclaprim, to patients with serious and life-threatening infections. The announcement of positive Phase 3 topline results for iclaprim in REVIVE-1 was a major achievement and the Board to announce the topline data from REVIVE-2, the second Phase 3 trial, in the second half of 2017. Data from this second clinical trial, which uses an identical protocol to REVIVE-1 but has different trial centres, has more than 80% of the total patients enrolled. During the period, it also completed additional research with clinicians and payers to understand how iclaprim may be able to address the unmet need in hospitalised ABSSSI patients with renal impairment with/without diabetes. Preparations are now underway for INSPIRE, the Phase 3 trial designed to study the safety and efficacy of iclaprim in patients with HABP, including ventilator associated bacterial pneumonia (VABP). For the full year, Motif Bio reported a net loss of US$40.3 million, or US$(0.35) per share (basic and diluted) compared to a net loss of US$8.5 million, or US$(0.14) per share (basic and diluted) during the same period in 2015. Research and development (R&D) costs for 2016 were US$34.8 million compared to US$4.7 million during 2015. Higher R&D costs in 2016 were primarily attributable to the commencement of iclaprim clinical development. Clinical development expenses are a significant component of Motif’s research and development expenses and product candidates in later stage development generally have higher costs. Cash and cash equivalents were US$21.8 million as of December 31, 2016.
Our view: In just a few short months, iclaprim’s remaining clinical trials (REVIVE-2) for ABSSSI will be finished. Together with REVIVE-1, this will comprise sufficient regulatory data to complete NDA submissions to both the FDA and EMA early in H1’2018. Unlike current standard of care antibiotics, in clinical trials to date, nephrotoxicity has not been observed with iclaprim and dosage adjustment has not been required in renally impaired patients. This is important, given that it is estimated that up to 26% of the 3.6 million ABSSSI patients hospitalised annually in the U.S. have kidney disease. This, of course, suggests very significant prospective demand for this novel antibiotic for this particular indication, although investors should recognise much greater potential prospectively still comes from the opportunity for iclaprim to found a platform of drugs across several other key hospital conditions (beyond the skin and pulmonary that have already been cited). So the question must be why has Motif’s share price been drifting downwards these past few days, taking its market capitalisation to around just £70m right now, while its most obvious comparative, Paratek Pharmaceuticals’ [NASDAQ:PRTK] own stands at some US$577m? Most certainly it is not a lack of confidence that REVIVE-2 will repeat and reinforce the data collected during REVIVE-1, while emphasising the molecule’s exceptional safety and efficacy. So, it is clearly something else. Anyone who had the patience to struggle through the 245 pages of the Group’s 20-F yesterday, will likely have picked up a sensitive comment on page 12: “Our present capital resources are not sufficient to fund our planned operations for the next twelve months from the date of this Annual Report, and therefore, there exists substantial doubt about our ability to continue as a going concern.” This, of course, reflects that fact patient recruitment for REVIVE-2 is well advanced and that the balance sheet is only likely to have sufficient resources to take it through to, say, August. As such, some shareholders may have decided it is better to run away from an anticipated discounted equity placing necessary to plug the funding gap. True enough, this could be the outcome or, perhaps, the Board could beg patience from its CRO, Covance, to allow trials to be finished and published before payment is demanded, or even temporarily gear itself up. Any of these could be possible given the significant value that has undoubtedly been created over the past couple of months. Indeed, one would believe that many investors might in fact be clamouring to get their hands on sizeable blocks of equity right now, even at a market premium. Believing this is the most likely eventuality, and that the funding problem will likely be resolved to everybody’s satisfaction quite shortly, whereupon the giant valuation gap with its peer could the rapidly close, Beaufort recommends using the current weakness to build upon existing positions. Beaufort retains its Speculative buy recommendation on Motif Bio with a price target of 110p/share. Motif Bio is one of Beaufort’s Tips for 2017.
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Barry Gibb, Kazunaga Senga, Sheldon Modeland, Charles Long & Ben Maitland
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During the three months to end-April 2017, the number of stocks on which Beaufort Securities published recommendations was 216, and the recommendations were as follows: Buy – 73; Speculative Buy – 118; Hold – 22; Sell – 3.
Full definitions of the recommendations used by Beaufort Securities in its publications and their respective meanings can be found on our website here.
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