Morrisons sees best Christmas performance for seven years

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Today’s edition features:

  • Concepta (CPT.L)
  • DekelOil Public Limited (DKL.L)
  • Solo Oil (SOLO.L)
  • boohoo.com (BOO.L)
  • Ilika (IKA.L)

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"The time for talking is almost over. In just ten days, having been handed the keys to the White House, Donald Trump instead has to start delivering. Reality will strike when he faces the fact that economic and political cycles always move at remarkably different speeds. Should he recognise this fact by toning down his more extreme remarks and adopting a more realistic stance regarding what and when he can deliver, many world leaders will heave a sigh of relief although it will also cool expectations of some presently over-excited markets, particularly in US equities and the Dollar. Such cautionary thoughts appeared to pervade the overnight markets, most of which ended mixed to modestly down, with the Nikkei being the principal casualty as the US$ slide from Monday’s highs against the Yen gathered pace and local commentators speculated over the chances of the coming administration voicing concerns regarding the problem of supporting exceptional Dollar strength. Weakness in energy shares following the slump in oil prices also pressured the principal US equity indices, with only the tech-heavy NASDAQ remaining in positive territory. In Asia, the ASX follow suit while Chinese shares closed mixed with the more international Hang Seng finishing in the positive as the Shanghai Composite ended modestly down having received mixed inflationary signals of marginally slowing consumer prices for December while the Producer Price Index spiked sharply up to 5.5% from an annualised 3.3% in November. Having raised expectations of the UK heading to a ‘Hard Brexit’, Theresa May’s weekend comments saw Sterling dive to below US$1.22 yesterday, which boosted the FTSE100 with its quoted Dollar earners the principal beneficiary. Some of this looks to be given back this morning, however, following a letter from John Vickers, a former Bank of England Chief Economist who was responsible for steering the 2011 Independent Commission on Banking. His note pointed out the fact that low market-to-book values might well be highlighting a problem with underlying asset quality, something that cannot be ignored when trying to stress test the system. These background noises will likely contrive a marginally weaker opening for London equities this morning, with the FTSE-100 seen down around 5 points in early trading. Little else of significance is due from the UK on the macro front today, having already seen release of the BRC Shop Price Index first thing, although later this afternoon the US publishes its Redbook Index and releases Wholesale Inventories for November. UK corporates scheduled to provide earnings or trading updates include Big Yellow (BYG.L), boohoo.com (BOO.L), Gocompare (GOCO.L), Just Eat (JE..L), Majestic Wine (WINE.L), Morrison Supermarkets (MRW.L), Nichols (NICL.L), Robert Walters (RWA.L) and Topps Tiles (TPT.L)."
– Barry Gibb, Research Analyst



Markets

Europe
The FTSE-100 finished yesterday’s session 0.38% higher at 7,237.77, whilst the FTSE AIM All-Share index closed 0.48% better-off at 867.18. In continental Europe, the CAC-40 finished 0.45% lower at 4,887.57 whilst the DAX was down 0.30% at 11,563.99.

Wall Street
In New York last night, the Dow Jones shed 0.38% to 19,887.38, the S&P-500 fell 0.35% to 2,268.90 and the Nasdaq Composite rose 0.19% to finish at 5,531.82.

Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.79% to 19,301.44, while the Hang Seng added 0.56% to stand at 22,685.80.

Oil
In early trade today, WTI crude was down 0.04% to $51.94/bbl and Brent was down 0.02% to $54.93/bbl.


Headlines

Morrisons sees best Christmas performance for seven years
Supermarket chain Morrisons (MRW.L) has reported a 2.9% rise in like-for-like sales in the nine weeks to 1 January – its best performance for seven years. The retailer said this was achieved by improving the products on offer and by becoming more competitive. Morrisons also said it expected its annual profits to beat analysts’ expectations, with underlying profits predicted to be £330m-£340m. The consensus among market analysts was for £326m.

Source: BBC News


Company news

Concepta (CPT.L, 18.50p) – Speculative Buy
Concepta, the UK healthcare company targeting the personalised mobile health market with a primary focus on women’s fertility, yesterday announced that it has achieved ISO13485 accreditation, a key step in attaining CE marking for its ‘myLotus’ product for unexplained infertility, ahead of a commercial launch in the UK and Europe in H2’2017. The certification is an endorsement of the Quality Management System that underpins the Group’s position as a manufacturer of medical devices. The accreditation is recognised on an international scale and is a critical part of gaining regulatory approval for Concepta’s myLotus to be sold in the European Union.

Our view: This represents a crucial development towards the launch of Concepta’s flagship myLotus fertility product into the UK and European markets, where the potential market opportunity is circa £350 million. Further to this the CEO has confirmed that with regulatory approvals and manufacturing agreements already in place in China, the Group remains on track to roll out its myLotus product into the Chinese market in H1’2017 where, separately it has additional market potential put at around £250 million. Indeed, the total global opportunity addressed by Concepta’s current product offering is estimated to be worth as much as US$2 billion. Further out, its technology platform is expected to be developed into a much wider opportunity for personalised monitoring and self-diagnosis. Beaufort reiterates its Speculative Buy rating on the shares, with a price target of 26p.

Beaufort Securities acts as corporate broker to Concepta plc

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DekelOil Public Limited (DKL.L, 11.38p) – Buy
DekelOil yesterday announced that it now holds a 100% interest in the profitable and vertically integrated Ayenouan palm oil project in Côte d’Ivoire, which includes one of West Africa’s largest crude palm oil mills. This follows the acquisition, by way of a share conversion, of the remaining 14.25% interest in CS DekelOil Siva Limited (‘CSDS’), the Group’s joint venture which owns the Project, from DekelOil’s partner, Biopalm Energy Limited. The acquisition completes the process initiated in May 2016 when a circular was sent to DekelOil’s Shareholders regarding the exercise of the First Option by the Group to acquire 30.5% of the shares in CSDS which Biopalm then held and the subsequent acquisition in July 2016 of a further 4.25% of Biopalm’s shares in CSDS. Consideration for the acquisition is being satisfied via the issue of 35,455,111 ordinary shares of €0.0003367 (the ‘New Ordinary Shares’) in the Group to Biopalm at 13.25p per share, a premium of 19.2% to the closing share price on 6 January 2017. This equates to a purchase price of the remaining 285 shares in CSDS of €21,428.57 per share at a fixed £/€ exchange rate of 1.3, an 11.5% premium to the prevailing £/€ exchange rate of c.1.17. The premium achieved on both the conversion price and the prevailing exchange rate results in shareholders of DekelOil obtaining an additional 14.25% in the Project via the issue of only 12.52% in new shares in DekelOil. The Directors therefore believe that the acquisition is value accretive for existing shareholders. Following the issue of the New Ordinary Shares, Biopalm will hold approximately 12.51% of the issued share capital in DekelOil and has agreed to certain orderly market restrictions in respect of its shareholding in DekelOil.

Our view: This acquisition has been secured on terms that are value accretive for its existing shareholders. Equally as important, it gives DekelOil 100% ownership of its producing and profitable palm oil project at Ayenouan, while shareholders will also enjoy all the benefits of new management initiatives going forward. Back in November, the Board also detailed a series of investments to facilitate its move to high volume production, all of which will be funded internally from excess funds following the recent debt refinance and internal cash resources. These are expected to improve operating margins, de-risk operations and provide more flexibility with sales pricing going forward. The ability to make these investments, without impacting the prospect of returning capital to shareholders in the form of dividends, is reflective of DekelOil’s strong balance sheet and the Board’s commitment to proactively manage performance and risks on behalf of shareholders. Importantly, and also as previously noted, DekelOil is a Brexit winner with the appreciation of the Euro against the Pound of well over 10% post Brexit, which 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 which, in itself, remains key to investor confidence in what is otherwise an obviously undervalued investment. Beaufort retains its Buy recommendation on the shares and repeats its price target of 23p for the shares.

Beaufort Securities acts as corporate broker to DekelOil Public Limited

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Solo Oil (SOLO.L, 0.32p) – Speculative Buy
Solo has published a positive update for the Ntorya-2 well, describing smooth progress thus far and some detail of the well plan. The wide diameter well bore reached 1326m and has been successfully cased and cemented. A 12 inch hole is now being drilled to 2095m, following which the 8.5 inch hole will go to at least 2,860m where the Cretaceous sands encountered in NT-1 will be tested.

Our view: It is good to see that NT-2 is progressing to plan with no technical problems. We might see the first news of hydrocarbons in 2 weeks or so time from mud logging data when the bore hits the target zone. However the key event will be flow test in February.

Beaufort Securities acts as corporate broker to Solo Oil plc

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boohoo.com (BOO.L, 143.50p) – Buy
boohoo.com (‘boohoo’), one of the UK’s largest online own-brand fashion retailers, on 28 December 2016 announced that it has entered into an asset purchase agreement to acquire certain intellectual property assets (Nasty Gal brand and its customer databases) from US fashion retailer Nasty Gal Inc. for US$20m. Yesterday’s announcement confirmed that the US Bankruptcy Court has approved the process for the sale of the Nasty Gal Inc. assets. As detailed before, the proposed transaction will be governed by a court approved bidding process. The closing date for bids will be 2 February 2017. The Group’s bid may not result in a transaction if higher or more favourable offers are obtained by Nasty Gal during the auction process. If the Group is successful in acquiring Nasty Gal, the proposed transaction will be subject to final approval by the US courts expected on or around 8 February 2017.

Our view: Founded in 2006, Nasty Gal is based in Los Angeles sells women’s clothing, shoes, and accessories in 180 countries targeting fashion for ‘young women’. Nasty Gal has generated net revenue of US$77.1m and a net loss after tax of US$21m (includes operating costs) in the year ended 1 February 2016. The acquisition will further broaden the Group’s product range and accelerate its international presence, particularly in the US, adding Nasty Gal’s databases and expanding customer reach. Nasty Gal has over 3.5 million social media followers which are an attractive resource for fast fashion online retailers like boohoo. In a trading update for the period between 27 September 2016 to 14 December 2016, boohoo revised its full year revenue growth guidance to 38%-42% from 30%-35%, having already revised upward three previous times during the year. The EBITDA margin was also slightly upgraded from 11% to 11-12% having been lifted from 9.6% at the interim. The Group also noted that it continues to see strong trading and expect this to remain during the key Christmas and New Year trading period. The recent dash for acquisitions demonstrates the Group’s confidence in its ability to further bolster its strong growth and can also be seen to demonstrate management’s determination to continue building its overseas presence. Beaufort believes that the worldwide market for internet fashion sales will continue to expand as shopping preferences shift towards the convenience and competitive pricing affordable by online retailers, such as boohoo. We view proposed acquisition as an excellent strategic fit and expect it to accelerate the enlarged Group’s growth momentum while maintaining ability to meet rapidly changing customer demand patterns. The shares have performed extraordinarily well over the past year, yet we believe there remains further upside for the share price. Beaufort reiterates its Buy rating on the shares.

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Ilika (IKA.L, 43.50p) – Speculative Buy
Ilika, a pioneer in materials innovation and solid-state battery technology, yesterday announced its results for the 6 months ended 31 October 2016 (‘H1 FY2017’). During the period, the Group revenue advanced by +29.5% to £329k, while due to higher administrative expenses and share-based payment charge, loss before tax widened by -17.0% to £2.19m, against the comparable period (H1 FY2016). Loss per share remained flat at 3p. As a result of the £5.8m (net of expenses) placing in October, cash at the period end stood at £7.1m (H1 FY2016: £4.5m). On the operation front, the Group has been granted patents in China for process to produce solid-state batteries and in Europe for High-Throughput Vapour Deposition synthesis platform. The Group refined solid-state battery development roadmap with improved definition of temperature, capacity and miniaturisation requirements, while shipped evaluation volumes of StereaxTM M250 batteries to potential OEM (original equipment manufacturer) partners. Ilika has also awarded a £365k grant to develop protected anodes for lithium sulphur batteries. Ilika’s CEO, Graeme Purdy, commented “In the first half of the year we have intensified commercial discussions with potential solid-state battery licensees, further strengthened our IP portfolio and augmented our materials discovery programmes.”

Our view: Ilika has made a good progress during the period, increasing its commercialisation activities while also successfully secured further financing through an equity placing. This demonstrates continued supportive shareholder base confident for the Group’s capabilities to deploy its high throughput materials development amongst the energy, electronics and aerospace sectors. Ilika’s principal focus remains on the development of solid-state batteries, which have number of advantages compared to standard lithium-ion batteries, including non-flammable features, 6x faster charging, 4x longer charge retention and 2x increased energy density, making them half the volume for a given charge. Post the period, the Group continue to make positive steps, reinforced its order book and sales pipeline through notifications of intent to award 3 new grants, two of which involve solid state battery integration programmes, amounting to an aggregate revenue value to the Group of £1.4m over 2 years, along with an expected commercially-funded materials development programme from an existing customer to the value of around US$1m over 12 months. Management noted that these programmes are expected to start during this financial year, with a globally-recognised OEMs partnership. Ilika also noted that it has received Notices of Allowance in the US for its 2 patent applications covering vapour deposition process for solid state battery materials and metal oxide supports for fuel cell catalysts. With around 24 months of cash based on current burn rate, we believe Ilika’s £35m market capitalisation factors in very little of its potential upside. Given that the Group confirmed progressive discussions with potential solid-state battery licencees (particularly for medical and industrial sectors applications), we are looking forward to Ilika delivering significant commercial progress in the coming year. Beaufort retains its Speculative Buy rating on the shares.

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To read Beaufort’s full research archive click here

Compiled by:
Barry Gibb, Kazunaga Senga, Sheldon Modeland & Charles Long
(t) +44 (0) 207 382 8384
(e) info@beaufortsecurities.com


Weekly diary


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Recommendations
During the three months to end-December 2016, the number of stocks on which Beaufort Securities published recommendations was 228, and the recommendations were as follows: Buy – 83; Speculative Buy – 116; Hold – 27; 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.

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