Just when you thought it was safe to go back into the water

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Today’s edition features:

  • Tiziana Life Sciences (TILS.L)
  • boohoo.com (BOO.L)

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Just when you thought it was safe to go back into the water

“After most of the polls pointed to a reasonable Conservative margin of victory, the electorate has decided otherwise. In the event, the Conservatives have paid the price for running a lacklustre, unimaginative, election campaign in the face of an optimistic message from Labour. We know that ‘all that glisters’ may not be gold but the giveaways offered by Jeremy Corbyn‘s Labour Party, however funded, were attractive enough to turn many voters heads. Consequently, the country must now soldier on with a hung parliament (no party has an overall majority over 325 seats. The lastest results (with 5 yet to be declared) show the Conservatives on 314 (down from 330 pre-election) and Labour on 261 (up from 229).

In Scotland, the SNP gave ground to both Labour and the Conservatives to be left with about 35 seats against 54. The subtext of this that the prospect of a second independence referendum (deeply unpopular) has receded which should remove one major element of uncertainty for markets.

The Conservative Party remains the largest party but will be looking for support from Northern Ireland’s Democratic Unionist Party (seat up to 10 from 8).The result means that Theresa May’s gamble has not paid off in devastating fashion and it feels, this morning, as if the Labour Party has won although this is not the case (yet). This all creates a lot of uncertainty for both equity and bond markets and , given that Mrs May is now seriously wounded, there is now much speculation about her position as party leader which will lead to yet further uncertainty for the markets.

Reflecting this, Sterling has fallen by 2% to $1.27. This should be expected to boost the FTSE 100 Index on the back of non-Sterling earnings. Companies with Sterling earnings are likely to ease initially but, inevitably, buyers with an eye on the longer term can be expected to come in, particularly as the prospect of a ‘hard’ Brexit subsides.

As flagged up yesterday, the key message from ECB President Mario Draghi today in Tallinn, Estonia, was that CPI inflation is now estimated to be lower than previously expected in each of the next three years (2017 to 2019) at between 1.3% and 1.6%. due to the fall in oil prices. The euro has softened further to around $1.1220 as the prospect of any rise in interest rates recedes. The signs of recovery in Eurozone economies without any pronounced uplift in inflation suggests that there remains quite a lot of slack in the system. Mr Draghi indicated that there were no plans to reduce stimulus and certainly none to introduce tapering. Despite the ongoing ambivalence around the prospect of a June rate rise by the Federal Reserve, the euro lost further ground to $1.120.”
– Mike Franklin, Chief Investment Strategist


The FTSE-100 finished yesterday’s session 0.38% lower at 7,449.98 whilst the FTSE AIM All-Share index was up 0.83% at 978.80. In continental Europe, the CAC-40 finished down 0.02% at 5,264.24 whilst the DAX finished 0.32% higher at 12,713.58.

Wall Street
In New York last night, the Dow Jones rose 0.04% to 21,182.53, the S&P 500 firmed 0.03% to 2,433.79 and the Nasdaq gained 0.39% to 6,,321.77.

In Asian markets this morning, the Nikkei 225 had gained 0.5% to 20,008.62, while the Hang Seng lost 0.25% to 25,999.2.

In early trade today, WTI crude was down 0.11% to $45.59/bbl and Brent was down 0.08% to $47.82/bbl.


Election 2017: Pound and shares set for volatile trading
Traders are expecting a volatile day for the pound and UK shares after the election resulted in a hung parliament. Overnight the pound fell sharply, at one stage hitting $1.27 against the dollar, before recovering slightly. Traders had been expecting a clear victory for Theresa May’s Conservatives, but are now concerned about political uncertainty. The London stock market begins trading at 08:00 GMT. A weaker pound has supported the UK stock market over the last few months, particularly shares in companies which have a lot of business overseas. But analysts are concerned about the heightened political uncertainty. “The unexpected outcome increases the threat of further volatility for sterling and UK assets,” said Mark Haefele, global chief investment officer at UBS Wealth Management. “The result is likely to call the position of the Prime Minister into question, the government is likely to be relatively weak, and the result further complicates the upcoming Brexit negotiations,” he said. The BBC is projecting that the Conservatives will be the largest party with 318 seats – eight short of a majority.

Source: BBC News

Company news

Tiziana Life Sciences (TILS.L, 178.50p) – Speculative Buy
Tiziana Life Sciences (‘Tiziana’), the clinical stage biotechnology company developing targeted drugs for cancer and autoimmune diseases, yesterday announced that it will discontinue funding of its pre-clinical programme focused on the development of B-cell Lymphoma 3 (‘Bcl-3’) inhibitors as potential drugs to treat cancer, which includes the potential candidate CB1 (‘TZLS-101’). This follows the Board’s portfolio review where it decided to prioritise its effort and focus on other more promising candidates in the Group’s pipeline, which it believes have greater near-term potential to deliver value for shareholders. Although the Group will no longer commit further funding into Bcl-3, it will retain all of the intellectual property and will work with its researcher, Dr. Richard Clarkson (European Cancer Stem Cell Institute) and Dr. Andrea Brancale & Professor Andrew Westwell (the University School of Pharmacy and Pharmaceutical Sciences) in examining the potential to develop the programme further with grant funding. Tiziana said it remains committed to developing new treatment options and improving the lives of patients with cancer and autoimmune diseases. As a result of this decision, Planwise Group Limited (the Group’s majority shareholder and in which Gabriele Cerrone is beneficially interested) has exercised its rights under the subscription agreement dated 20 March 2014 to exercise an option to acquire a total of 7,475,082 ordinary shares from Dr. Andrea Brancale, Dr. Richard Clarkson and Professor Andrew Westwell for an aggregate consideration of £30,000. This increased Planwise’s total shareholding from 59.54% to 66.20% (63,680,404 shares) of the issued share capital. In addition, Dr. Andrea Brancale, Dr. Richard Clarkson and Professor Andrew Westwell have waived their entitlements to a total of 2,250,000 options with an exercise price of 15p per share.

Revised Capital Structure:

  • Tiziana’s issued share capital comprises 96,182,925 ordinary shares of 3p each.
  • Convertible Loan Notes: The Group has outstanding convertible loan notes in the principal amount of £13,119,219 convertible into new ordinary shares at conversion prices ranging from 24p to 150p.
  • Options: As a result of the surrender of options, the Group has outstanding granted options over a total of 10,229,403 ordinary shares, of which, 2,367,500 are vested at exercise prices between 15p and 200p per share and 7,861,903 remain subject to vesting conditions (at potential exercise prices ranging from 15p to 192.5p per share).
  • Warrants: The Group has outstanding warrants to subscribe for a total of 4,239,403 ordinary shares at exercise prices between 50p and 250p.
  • Therefore, the fully diluted share capital of the Group is 132,765,522 ordinary shares (assuming all convertible loan notes, options and warrants, vested and unvested, exercised and exercisable, were converted).

Our View: Tiziana has decided to prioritise the development of its major development programmes, which the Group confirmed last month that it is well positioned to progress to their next respective value inflection points. Its lead compound, foralumab (TZLS-401), is the only fully human engineered anti-human CD3 antibody for potential treatment of wide range of autoimmune and inflammatory diseases. It is currently in pre-clinical/Phase I for nonalcoholic steatohepatitis (‘NASH’) and primary biliary cholangitis (‘PBC’). Liver diseases today list amongst the therapeutic industry’s fastest growth areas, with NASH and PBC seen expanding at double-digits for the next decade, potentially creating a market opportunity in excess of US$25bn by 2026. Oral bioavailability of foralumab is key to addressing this, significantly broadening use and dosing options which, when combined with best-in-class effectivity, suggests potential to become one of the world’s largest selling antibodies. The molecule has demonstrated that oral CD3 was safe, well tolerated and produced positive clinical benefits in its two single blind randomised placebo controlled Phase IIa studies in patients with treatment resistant chronic hepatitis C virus (‘HCV’) infection or NASH. The Group’s other clinical-stage asset, milciclib (TZLS-201), is a small molecule pan-inhibitor of cyclin-dependent kinases (‘CDK’) as well as Src family kinases, which targeting to be used as potential combination therapy with existing marketed agents for treatment of Hepatic Cellular Carcinoma (‘HCC’). A valuation based on risk-based DCF methodology suggests that Net Present Value (NPV), after applying relatively aggressive 18% discount, indicates the Group’s valuation more than twice the current level based on anticipated milestone fees & royalties just for foralumab and milciclib (ignoring the Group’s remaining pipeline of products and opportunities (including Bcl-3)). Beaufort reiterates its Speculative Buy rating on the shares together with a price target of 400p/share.

Beaufort Securities acts as corporate broker to Tiziana Life Sciences plc


boohoo.com (BOO.L, 260.00p) – Buy
boohoo.com (‘boohoo’), one of the UK’s largest online own-brand fashion retailers, has provided its trading update for the 3 month ended 31 may 2017 (‘Q1 FY2018’). During the period, revenue advanced by +106% to £120.1m, or +98% on a constant currency basis (‘CC’), while on a like-for-like (‘LFL’) basis, it grew by +78%, against the comparative period (Q1 FY2017). The revenue was comprised of three brands; boohoo £86.4m, up +48% (CC: +44%), PrettyLittleThing (‘PLT’) £30.7m (LFL: +305%) and Nasty Gal £2.9m. Within boohoo, revenue for UK, rest of Europe (‘ROE’), USA and rest of world (‘ROW’) increased by +41%, +44%, +97% and +50%, respectively. Group gross margin fell by -1.8% to 54.2% due to -2.3% fall in boohoo gross margin to 53.9% and -3.5% drop in PLT to 53.8%. Nasty Gal’s gross margin was 69.9% during the period. Net cash as at 31 May 2017 improved to £74m (Q1 FY2016: £61m). On the operational front, the Group said its boohoo brand has successfully migrated most of its English language markets on to a new website platform which providing improved speed and functionality. Additional office space adjacent to its Manchester head office (accommodating both Nasty Gal and boohoo functions) is on track for occupation next month, while construction of the second warehouse extension at Burnley is under way with expected completion in early 2018. On a separate announcement released yesterday, the Group announced that it has successfully raised £50m gross by way of an issue of 22,727,273 new ordinary shares at the placing price of 220p. The placing price represents a discount of 0.3% to the closing middle market price on 7 June 2017. The proceeds will be used to construct a new automated “super-site” of over 600,000 square feet warehouse. boohoo’s joint CEOs, Mahmud Kamani and Carol Kane commented “Across the Group, the combination of broadening product ranges, strong brand image, competitive prices and good customer service continues to drive sales momentum, whilst the inclusion of our new brands is proving the potential of our multi-brand strategy in delivering strong Group revenue growth”.

Our view: boohoo continue its robust trading performance into FY2018 with strong growth across all brands and geographic regions in the Q1, driven by the recent acquisition, as well as strong organic growth (LFL: +78%). It was encouraging to see the boohoo brand’s UK sale growth of +41% which was accelerated from +33% seen for the FY2017. During the Analysts’ conference call, the management said its customers are buying more frequently, more items per basket and spending more per transaction. Number of active customers for boohoo increased by +24% to 5.2m, while PLT rose by +146% to 1.6 million. Although gross margin declined as a result of continued planned investments in the customer proposition (price & promotion), and lower margin 3rd party sales, a significant outperformance in revenue growth means that the Group now expect better results for the FY2018. Operationally, as previously announced, construction of the second warehouse extension at Burnley site is on track to complete in Q1 2018, which will provide sufficient capacity for a £1bn net sales. On top of this, due to the Group’s strong momentum, the Group decided to build a new automated “super-site” warehouse to support its medium-term growth plan, which will further increase the its net sales capacity by over £2bn. The land acquisition and construction of “super-site” will cost around £150m over three years and is expected to complete by the end of 2020 with operation expected in early 2021. Looking ahead, the Group has upgraded its FY2018 revenue guidance to +60% from +50% previously, while adjusted EBITDA margin maintained at c.10%. As a result of the “super-site”, the Group now expects FY2018 capital expenditure to be £63m (previously guided: £34m). Capital expenditure directly linked to the “super-site” is estimated at c.£75m and c.£49m in FY2019 and FY2020, respectively. This takes current FY2018E forecast to revenue £471.4m, EBITDA £47.1m, Pre-tax profit £38.4m and EPS of 2.7p, with further upgrades remain likely based on Group’s tradition of conservative initial guidance which is, as visibility improves, followed by upgrades. We believe the Group will continue to offset a reduced margin incurred through increased revenue, supported by the recently acquired PLT and Nasty Gal, which are expected to make an important additional contribution to the Group’s growth momentum while maintaining its ability to meet rapidly changing customer demand patterns. Beaufort believes that the worldwide market for internet fashion sales will continue to expand as shopping preferences shift towards convenience fashion and highly competitive pricing afforded by online retailers, such as boohoo. 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.


To read Beaufort’s full research archive click here

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

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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.

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