Picking through the carnage

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Today’s edition features:

  • Great Western Mining Corporation (GWMO.L)
  • Mineral & Financial Investment Limited (MAFL.L)
  • Fuller, Smith & Turner (FSTA.L)

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Picking through the carnage

"After trading almost 2.5% lower at the $1.263 level early on Thursday as the election result became clear, the pound recovered to trade the rest of the day close to $1.274 for a net 1.6% fall. From the open, the FTSE 100 Index jumped by 1.3% on the back of non-Sterling earners such as the mining, oil and pharmaceutical groups before closing the day around 0.9% higher at 7515. The more domestic plays were generally negative throughout the day.

Having been delayed by what turned out to be a futile exercise, the European Union has begun to make its readiness for talks apparent. Despite the initial confusion surrounding such a close result, it is understood that the Brexit negotiations are still on course to begin on the 19th June. In the meantime, investors are likely to be cautious as they wait to see the fuller implications of what has just happened.

Next Wednesday may see the US Federal Reserve’s Open Market Committee (FOMC) reveal an interest rate increase of 25 basis points although the last non-farm payroll numbers prompted much speculation that an increase would be premature. The Bank of England is also due to ‘report’ on Thursday but any change here seems highly unlikely.

The upshot of the testimony to the Senate Intelligence Committee by former FBI chief, James Comey, seems to be that, while he has not disclosed any specific wrongdoing by President Trump concerning inquiries into links between the White House and Russia, he has set several hares running for recently-appointed special counsel Robert Mueller to follow up on over many months, if not years. While the prospect of the President being impeached seems unlikely in reality, the question is now being asked if there is a recording of the conversations between Comey and Trump.

To patch together a working majority, the Conservatives have had to turn to the Northern Irish DUP for 10 extra votes. This brings its own set of problems, particularly with regard to re-establishing the Northern Ireland power-sharing agreement to which the UK Government is supposed to be neutral. Theresa May’s future stands on a knife-edge and this will ten to make markets cautious although the prospect of a softer Brexit may encourage some investors."
– Mike Franklin, Chief Investment Strategist


The FTSE-100 finished Friday’s session 1.04% higher at 7,527.33 whilst the FTSE AIM All-Share index was down 0.08% at 978.03. In continental Europe, the CAC-40 finished up 0.67% at 5,299.71 whilst the DAX finished 0.80% higher at 12,815.72.

Wall Street
In New York on Friday, the Dow Jones rose 0.42% to 21,271.97, the S&P-500 lost 0.08% to 2,431.77 and the Nasdaq fell 1.8% to 6,207.92.

In Asian markets this morning, the Nikkei 225 had fallen 0.62% to 19,888.23, while the Hang Seng shed 1.22% to 25,712.55.

In early trade today, WTI crude was up 0.55% to $46.08/bbl and Brent was up 0.56% to $48.42/bbl.


Hung parliament sinks business confidence, IoD finds
The uncertainty caused by the general election has led business confidence to sink “through the floor”, according to a lobby group. A snap poll of 700 members of the Institute of Directors found a “dramatic drop” in confidence following the hung parliament. Members saw no clear way to resolve the political impasse quickly, the IoD said. However, it found there was “no desire” for another election this year. Going to the polls again before Christmas would have a negative impact on the UK economy, which was already facing global headwinds, the IoD said. The loss of the Conservatives’ majority in the Commons has led Theresa May to seek the support of MPs from Northern Ireland’s Democratic Unionist Party to govern.

Source: BBC News

Company news

Great Western Mining Corporation (GWMO.L, 0.39p) – Speculative Buy
Great Western Mining Corporation (GWMC), the mineral exploration company focused on copper, gold and silver deposits in south-western Nevada announced today a significant increase in the JORC-compliant resource for its M2 copper-gold project. As part of a Scoping Study, the updated resource now stands at 17Mt grading 0.525% Cu (0.2% Cu cut-off) with 23% of the resource categorised as Indicated. This is a significant increase from the 22 February 2017 Inferred resource estimate of 4Mt grading 0.542% Cu (0.2% Cu cut-off). In addition, independent consultants, WT Cohan & Associates Inc., have a provided an Exploration Target of between 18Mt to 116Mt with grades between 1% Cu and 1.75% Cu beneath the M2 Sharktooth Peak. The Sharktooth zone estimate was extrapolated from geological cross-sections, with the zone being previously identified from reconnaissance mapping, surface sampling and two discovery holes in 2014.

Our View: GWMC has significantly increased the resource estimate on its M2 project as well as providing an Exploration Target for the M2 Sharktooth zone. Exploration results from the M2 target have shown favourable geology for iron oxide copper-gold IOCG mineralisation. We are encouraged with the increase in resources and look forward to completion of the Scoping Study as well as continued testing of the Sharktooth zone. As such, we maintain a Speculative Buy on the Stock.

Beaufort Securities acts as a corporate broker to Great Western Mining Corporation plc


Mineral & Financial Investment Limited (MAFL.L, 18.62p) – Speculative Buy
Mineral & Financial Investment (MAFL), the metals and mining focused investment company, announced today that TH Crestgate, a private investment company in which MAFL holds a 49% interest, has initiated a new drill programme to expand resources at the Lagoa Salgada project in Portugal. The 13,400ha Lagoa Salgada project is a polymetallic deposit with a preliminary resource of 4.5Mt grading 2.79% Pb, 2.85% Zn, 0.34% Cu, 53.43g/t Ag and 0.81g/t Au for the LS-1 Zone. TH Crestgate is planning a six-drill hole programme on the LS-1 resource with a target of between 8.0Mt and 10.0Mt. The deposit will remain open to the N-NE and to the S-SE following the drill campaign. The LS-1 Zone is just one of 17 gravimetric anomalies on the Lagoa Salgada property which have yet to be fully tested.

Our View: TH Crestgate recently increased its ownership to 100% ownership of the Lagoa Salgada. This allows for much greater flexibility in management of the project. We continue to be encouraged by the drill results being delivered by TH Crestgate which suggests that Lagoa Salgada is a large mineralised system with potentially numerous ore zones. We look forward to results from the proposed drill campaign and the subsequent resource update for the LS-1 Zone. In the meantime, we maintain a Speculative Buy on the Stock.

Beaufort Securities acts as a corporate broker to Mineral & Financial Investment Limited


Fuller, Smith & Turner (FSTA.L, 1,074.00p) – Buy
Fuller, Smith & Turner (‘Fuller’), an independent family brewer and operator of pubs & hotels, on Friday announced its results for the 53 weeks ended 1 April 2017 (‘FY2017’). During the period, revenue advanced by +12% to £392.0m, EBITDA rose +8% to £70.5m and pre-tax profit increased by +1.8% to £39.9m, against the comparative period (FY2016 – 52 weeks). On an adjusted basis (excluding exceptional items), pre-tax profit rose +5% to £42.9m, leading to earnings per share of 61.30p, up +5%. Net debt at the period-end increased to £206.1m (FY2016: £198.5m), implying net debt to EBITDA of 2.9x (FY2016: 3.0x). Cash and cash equivalents at the period-end increased to £15.3m from £6.2m a year ago. On the operational front, like-for-like (‘LFL’) sales for Managed Pubs and Hotels advanced by +3.7%, supported by further growth in food (LFL +4.5%) and accommodation (LFL occupancy +6.4%), while LFL profit for Tenanted Inns declined by -1%. The Fuller’s Beer Company saw its operating profit grew by +5%, although total beer and cider volumes fell by -2%. The Group acquired 5 new Managed Pubs and added 71 new bedrooms during the period, and opened 4 new restaurants for The Stable Pizza & Cider Limited and acquired a further 25% share, taking ownership to 76%. The Group has invested £22m in its existing Inns estate and completed 25 major refurbishments to improve the appeal. Fuller’s CEO, Simon Emeny commented “There are a number of headwinds that will have a significant financial impact on both Fuller’s and the industry as a whole, but we face the future in a strong position. Our Managed Pubs and Hotels are in good shape and although there is a lot of work and a long way to go, we have a clear vision and solid strategy for both our Tenanted Inns and The Fuller’s Beer Company.” The Group declared a final dividend of 11.55p per share, bringing total full year dividend to 18.80p, up +5%, to be paid on 27 July 2017.

Our View: Fuller delivered FY2017 performance in line with consensus Analyst’s estimates. The results were supported by accelerated LFL sales growth in Managed Pubs and Hotels division in the second half of the year (H1: +3.4%, H2: +4%), outperforming the market (Peach Tracker Index Industry Average: +2.1%), along with benefit from acquisitions and 53rd week in FY2017 which contributed £8.0m of revenue and £0.8m of operating profit. Post the period, for the first 9 weeks, Managed Pubs and Hotels LFL sales increased by +6.6%, Tenanted Inns LFL profit rose +5% and total beer and cider volumes grew by +7%. Although the comparative period was soft, and current trading includes Easter which likely to have boosted the performance, the organic growth at this level is still encouraging. Looking ahead, the industry remains to face various additional cost impacts such as energy inflation, National Minimum and Living Wage, Business Rates and Apprenticeship Levy. While input cost inflation is relatively limited for the Group as its sources predominantly the British ingredients, the Group said it started to see the price increase. Altogether, the Group will need to deliver LFL growth of +4% in order to offset its cost pressures in FY2018, and therefore we expect margin to slightly decline this year. We believe Fuller has a balanced business model and has undrawn committed facilities of £35.5m and a further £15.3m of cash as at 1 April 2017 to continue support its investment and acquisitions for long-term growth. The Shares are valued at FY2018E and FY2019E P/E multiple of 16.6x and 15.7x along with dividend yield of 1.9% and 2.0%, respectively. Beaufort reiterate its Buy rating on the Shares, although its peers such as Marston’s (FY2017E P/E 9.1x, yield 5.9%) and Greene King (FY2017E P/E 10.0x, yield 4.7%) currently offers more attractive valuation and dividends.


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

Weekly diary

Click here to see all this week’s planned corporate and economic announcements.

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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