Sainsbury’s reports record Christmas sales of more than £1bn

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Today’s edition features:

  • Ariana Resources (AAU.L)
  • Hummingbird Resources (HUM.L)
  • Prospex Oil & Gas (PXOG.L)
  • boohoo.com (BOO.L)
  • Everyman Media Group (EMAN.L)
  • Morrison (Wm) Supermarkets (MRW.L)

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Markets

Europe
The FTSE-100 finished yesterday’s session 0.52% higher at 7,275.47, whilst the FTSE AIM All-Share index closed 0.29% better-off at 869.699. In continental Europe, the CAC-40 finished 0.01% higher at 4,888.23 whilst the DAX was up 0.17% at 11,583.30.

Wall Street
In New York last night, the Dow Jones fell 0.16% to 19,855.53, the S&P-500 was unchanged at 2,268.90 and the Nasdaq Composite rose 0.36% to finish at 5,551.82.

Asia
In Asian markets this morning, the Nikkei 225 had risen 0.32% to 19,362.9, while the Hang Seng firmed 0.7% to stand at 22,903.13.

Oil
In early trade today, WTI crude was up 0.24% to $50.94/bbl and Brent was up 0.13% to $53.71/bbl.


Headlines

Sainsbury’s reports record Christmas sales of more than £1bn
Sainsbury’s has reported record Christmas sales of more than £1bn across the group. But the supermarket giant said like-for-like sales sales only rose 0.1% in the 15 weeks to 7 January. Argos, which Sainsbury’s bought last year, had strong sales over Christmas and Black Friday. But chief executive Mike Coupe said the “market remains very competitive and the impact of the devaluation of sterling remains uncertain”. The pound has been falling against the dollar and the euro since the EU referendum and there have been warnings that this will lead to higher prices this year as import costs rise. Sainsbury’s Christmas quarter sales beat expectations. Analysts had predicted a fall in like-for-like sales of 0.8%. Food sales have been buoyant for retailers over Christmas period, according to a report by the British Retail Consortium on Tuesday. And Morrisons reported its strongest Christmas sales for seven years on Tuesday.

Source: BBC News


Company news

Ariana Resources (AAU.L, 1.85p) – Speculative Buy
Ariana Resources, the gold-silver exploration and development company, announced today its first operational update on Kiziltepe gold mine in Western Turkey. Kiziltepe is being advanced towards production through a JV agreement (50:50) with Proccea Construction, mine construction is largely complete however, inclement weather has delayed completion of the tailings storage facility. Approximately 7,000t of ore, ranging in grade form 2.7g/t to 0.5g/t, has been stockpiled and will be used for full-scale tests and production. Gold production is expected to commence once the Tailings Storage Facility (TSF) installation has been completed. In the meantime, Ariana is advancing work programmes on its other projects to enhance future production at Kiziltepe.

Our view: Unseasonable weather has unfortunately delayed initial start-up at Kiziltepe. However, we note that the TSF is largely complete with roughly two weeks of work remaining under normal climatic conditions. While waiting for a break in the weather management can focus on other operational aspects to ensure a smooth transition in to production. Ariana can also focus on further enhancements to the project through resource extension and upgrades to reach its production target of 50,000oz of gold per annum. We look forward to formal start-up at Kiziltepe once the TSF is completed. 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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Hummingbird Resources (HUM.L, 22.13p) – Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced today a review of activities during Q4 2016 highlighted by commencement of construction at its Yanfolila gold project in Mali. During the period, Hummingbird also secured a US$55m debt facility with Taurus Funds. The facility comprises a US$45m Senior Secured Term facility (with and a US$10m Cost Overrun facility). With the project funding risk now removed management can focus on full-scale construction of Yanfolila. Africa Mining Services, a subsidiary of Ausdrill Limited, has been appointed mining contractor and the first production is slated for the end of 2017.

Our view: 2016 has been a transformational year for Hummingbird. Yanfolila has been significantly de-risked by securing 100% funding through last year’s US$71m equity raise and the combined US$55m debt facility from Taurus. Management can now focus on mine construction aiming for production by end of 2017. First full year production is estimated at 132,000oz of gold and a life of mine average of 107,000oz. We look forward to further developments as the construction phase proceeds. In the meantime, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Hummingbird Resources plc

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Prospex Oil & Gas (PXOG.L, 0.85p) – Under Review
Prospex announced that its Boleslaw 1 well was unsuccessful. The hole intersected the expected Santonian sandstone target, but mud logging demonstrated no hydrocarbons are present. Hutton Poland the operator has made the decision to abandon and plug the well.

Our view: Obviously this news is very disappointing. The well was a significant investment for Prospex both of capital and time. In terms of what happens next, the Kolo block is a large land package which has “additional prospectivity independent of Boleslaw”. Perhaps the most exciting is a deeper oil target in a turbidite system. Whether or not Hutton and Prospex decide to test the turbidite or another Kolo target remains to be seen. The technical teams will need time to interpret this result. Prospex is an oil & gas investment vehicle so we expect it to make further investments in the sector. In the mean time we put our target price and recommendation under review.

Beaufort Securities acts as corporate broker to Prospex Oil & Gas plc

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boohoo.com (BOO.L, 144.17p) – Buy
boohoo.com (‘boohoo’), one of the UK’s largest online own-brand fashion retailers, yesterday provided a trading update for the 4 months to 31 December 2016. During the period, revenue advanced +55% to £114.3m (+52% for the constant exchange rate basis), where revenue for the UK, rest of Europe (‘ROE’), USA and rest of world (‘ROW’) increased by +31%, +63%, +230% and +66%, respectively, against the comparable period (4 months to 31 December 2015). Gross margin declined by -2.6% to 53.1%, due to planned investments in price and customer proposition (promotions). For the 10 months to 31 December 2016, revenue increased by +47% to £241.6m (+46% for the constant exchange rate basis). Cash balance at the period end stood at £69m (H1 FY2017: £67m). On the operational front, number of active customers (who shopped during the last year) has grown to 5.1 million, up +31% year-on-year (+13% since interim) with international sales now stands at 39.3% of total revenue. The Group said it continue to make a progress towards warehouse extension at Burnley to support growth in the longer term and investment in its IT infrastructure. It also expanded its product range and added kids wear to its offerings during the period. boohoo’s joint CEOs, Mahmud Kamani and Carol Kane commented “Our strategy offering great pricing, enticing promotions and an ever-broader range of the latest fashion continues to drive growth and enhance customer lifetime value. In particular, sales momentum in the USA has continued robustly, helped by our strong customer proposition across the Black Friday weekend.”

Our view: boohoo performed well during its key buying season seasons, including Black Friday and Christmas. The revenue growth was strong across all regions, with momentum in the USA and ROW accelerating rapidly, compensating for tiny percentages slowdown in UK growth. International sales now stand at 39.3% (H1 FY2017: 36%) of total. Operationally, a highly engaging marketing strategy has also improved efficiency of customer acquisition. The Group moved its USA website to a new platform during the period and said it continued to see growing customer activity via its mobile Apps. Post period, the Group completed the acquisition of a 66% stake in 21 Three Clothing Company Ltd (‘PrettyLittleThing’) for £3.3m cash on 3 January 2017. Given its strong performance during the key trading periods, the Board confirmed a further upgrade to its full year revenue growth guidance (excluding PrettyLittleThing) to 43%-45% from previous 38%-42%, having already revised this figure upward four times during the year. As noted in its previous trading update on 14 December 2016, PrettyLittleThing is expected to deliver revenue growth of over +150% in the financial year ending 28 February 2017 (FY2016: revenue £17m), while it anticipates being broadly breakeven at EBITDA level. The Group revenue growth including PrettyLittleThing, therefore, is expected to be between 46%-48%, while its EBITDA margin remains in line with previous guidance of between 11%-12%, having been lifted from 9.6% at the interim. 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 the recent acquisition of PrettyLittleThing and proposed acquisition of Nasty Gal Inc. both as excellent strategic fits, which can be expected 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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Everyman Media Group (EMAN.L, 106.50p) – Speculative Buy
Everyman Media, the operator of Everyman cinemas across the UK, yesterday provided a trading update for the 52 weeks ended 29 December 2016 (‘FY2016’). The Board of Everyman said full year performance will be ahead of the market expectations, supported by combination of factors including the better than expected performance from some of its new venues and continued improvements in existing locations. It opened 4 new venues during the period and saw 6 new venues and 2 refurbishment projects from 2015 start to mature. The Group continued to find attractive new venue opportunities for future investment and the Board said they are “increasingly confident” of further growing its pipeline. The Board said it “expect this momentum to continue into 2017 as more and more people enjoy watching films in an Everyman environment”.

Our view: Since its interim report in September 2016, the Group has delivered strong performance. The most recent opening in Chelmsford last month marked Group’s 20th location, and represented a remarkable +100% increase in estate size over the past 2 years. Looking ahead, the Group will open its new venues in Kings Cross and Stratford-upon-Avon this year, while the contracts for one in Edinburgh (a 5 screen location as part of the new St James Development) has already been exchanged. This will bring total committed pipeline back to 6. Everyman shares have, of course, significantly re-rated following September’s positive trading update and subsequently corrected as forward ratings began to look rather heady. Revenue forecasts of close to £30m for the year just ended (from £20.3m in 2015) along with pre-tax profits of about £1.4m (£0.36m), however demonstrates the progress being made, even if net debt will have ramped up to around £3m by the period end. 2017E should be another year of quite exceptional growth which, based on anticipated openings and momentum being built at existing outlets suggests revenues moving beyond £36m with further scale benefits taking the pre-tax number to as much as £2.5m. On a forward earnings multiple of 31x, there is little room for slippage, but based on past record, management appears unlikely to let shareholders down. Beaufort is confident in the managements’ ability to deliver on a ‘new’ cinema experience and reiterates its Speculative Buy rating on the shares, although it is clear that the balance sheet could have become a little strained by this time next year.

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Morrison (Wm) Supermarkets (MRW.L, 245.98p) – Hold
Wm Morrison Supermarkets reported an unexpectedly strong trading result during the nine weeks to 1 January 2017. Like-for-like (LFL) sales growth, ex-fuel and VAT, increased by +2.9% ( expected 0.5%) driven predominantly by volume growth, which augurs well for future growth. Morrisons is now trading on around 20x prospective earnings however, so near term, we think the share price is up with events. Hold.

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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


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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.

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