|Today’s edition features:
“US tech stocks rebounded overnight as bargain hunters searched for oversold situations in what was otherwise a rather subdued trading environment. The trend was initially set through early morning business in Asian and then picked up across Europe, which the Nasdaq duly followed sufficient to see it lead gains amongst the major averages. All closed in the positive following weakness of the previous sessions, with some treating the valuation-based sell-off as a buying opportunity given the continuing flow of strong earnings reports. The wider market registered some gains amongst the energy and housing sectors, but elsewhere shares drifted on low volumes. Flat Producer Price data provided little in the way of new clues ahead of today’s policy statement from the Fed which is scheduled for 18:00hrs GMT, although futures continue to suggest a greater than 90% expectation for a 25bp hike. This means focus is more likely to centre on any hints coming from the accompanying statement, as to whether the recent lack of inflationary pressures or risk of tempering growth might push the Central Bank’s next move out to the year-end or, perhaps that a push for monetary ‘normalisation’ might end reinvestment of maturing securities in an effort to reduce the balance sheet. Unconvinced either way, Treasuries displayed a continuing lack of direction, with the benchmark ten-year yield again wavering by less than a basis point at 2.206%. Asian equities ended more mixed this morning, although the Nikkei pushed into the positive as some computer and hardware plays spiked as much as 5%, while its more traditional sectors mostly trod water; the ASX was firm as oversold banks again found buyers, while the two principal Chinese indices remained in the red as the Country’s Industrial Output data for May slightly disappointed with growth of just 6.5% for the year. The cloud overhanging the UK market darkened somewhat further yesterday on data from the ONS confirming UK inflation had risen to 2.9% in May, its highest since 2013, up from 2.7% in April, with economists having expected the figure to remain flat. For investors, this has the makings of a perfect conundrum, with approaching political deadlock, rising inflation and slowing growth. Although few expect the Bank of England to respond with higher rates at tomorrow’s policy meeting, the situation was uncomfortable enough for Sterling to rally modestly as gossips suggested a 2017 rate hike might be on the cards after all. The STOXX Europe 600 by comparison rose convincingly as tech shares rallied and fresh demand was found for consumer services plays. Oil prices on Tuesday built on the previous day’s modest gains, supported by reports that Saudi Arabia will cut its supplies to Asia and the U.S., even if most remain sceptical that production cuts led by Middle Eastern and Russian producers can alleviate obvious market oversupply emanating from US shale producers. A large stream of macro releases is due today, including UK Average Earnings for May, the ILO Unemployment rate and Claimant Count. The EU provides Industrial Production and Employment Change numbers, while the US offers its weekly MBA Mortgage Applications, May Retail Sales and the FOMC’s Economic Projections. Scheduled UK earnings and trading statements are due from WH Smith (SMWH.L), Bellway (BWY.L), Biffa (BIFF.L), Norcros (NXR.L), Gym Group (GYM.L), Mulberry Group (MUL.L) and Charles Stanley (CAY.L). President Macron’s was at pains to emphasise during his meeting with Theresa May yesterday that the EU’s door ‘remains open’ for the UK to reconsider Brexit; the gesture was enough for some to speculate whether indeed it might be time for the Government, given the continuing and damaging political and public disarray on the subject, to be brave enough to consider proposing another Referendum in order to secure a firmer mandate. Meanwhile, the EU’s first warning shot across the UK’s bows, with its declaration that it wants to take back financial clearing from London was heard loud and clear in the City, as it also pondered reports that the number of citizens applying for citizenship in the Eurozone had risen sharply. Whatever, London is set to remain in the doldrums today, with pressure remaining on Sterling as traders await news from the Fed. The FTSE-100 is set to open just 5 to 10 points down. ”
Uber chief to take leave from company
Source: BBC News
Concepta (CPT.L, 11.88p) – Speculative Buy
Our View: Of course any slippage in the commencement of projected sales is a disappointment. But the delays experienced in its scheduled hospital trials have largely been beyond Concepta’s control, while both the viability and need for its innovative product offering remains wholly intact. Of course, the exact pace at which traction might be gained in such a highly sensitive area of personal health will always be uncertain. Personal recommendation based on familiarity, from both medics and individual patients, is what drives buying confidence when dealing with new innovative concepts in wholly unpenetrated markets. Indeed, it can be expected to power significant interest from the large population of women suffering unexplained infertility in the country once the trials have satisfactorily completed. As such, yesterday’s announcement marks an important milestone resulting from close co-operation with Concepta’s Chinese partners, who have assisted in refining its market entry strategies into China. Through its Shanghai offices, the Company continues to actively manage the profile and development of its myLotus brand; this first order allows it to test its three identified routes to market (IVF clinics, direct to consumer and hospitals) and the Board expects to make further announcements as it looks to expand its distribution network. It is now also in a position to activate its supply chain and leveraging core UK elements configured to provide a scalability. This is the result of a significant investment in regulatory processes and physical assets enabling its modular systems to expand capacity in line with demand. With ISO13485 accreditation in place, management also continues to prepare for commercial launch in the UK and Europe towards the end of the year. To put the scale of these opportunities into perspective, the Chinese market potential has been estimates to be worth around £250m, while the larger European opportunity is around £350m. 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 has reset its projections as a result of the Trading Update, moving its 2017E and 2018E Revenue estimates to £1.3m (from £2.7m previously) and £6.0m (from £8.25m) respectively, with revised earning of 0.71p and 2.10p. Recognising the value already created and the scale of the opportunity, however, Beaufort retains its Speculative Buy rating on the shares, while trimming its price target from 26p to 22p/share.
Concepta plc – Revised Summary Forecasts
1 GBP = US$1.27
*Based on share price of 12.25p
**Period of II months
Ashtead Group (AHT.L, 1,600.00p) – Buy
Our View: Ashtead delivered a good result for the FY2017, in line with consensus Analysts’ estimates. The financial performance was helped by strong constant currency growth, with its underlying rental revenue increasing by +13%, which was then boosted by the weaker Sterling on a reported basis. Both the Group’s Sunbelt (US and Canada – c.87% of revenue) and A-Plant (UK – c.13% of revenue) divisions performed well with EBITDA up +29.6% and +11.5%, respectively, coming with satisfactory margin improvement in Sunbelt (+1.1%), albeit offset by a -1.0% decline in A-Plant, resulting +0.9% growth overall to 47.2%. Post the period, the Group said its market remain “good” with its customers increasingly relying on the flexibility of rental. Spring season has seen a “good seasonal uplift” in fleet on rent, as well as “record levels” of physical utilisation for this time of year. In FY2018, Ashtead expects similar level of capital expenditure (£1bn to £1.2bn), while maintained its target for net debt to EBITDA in a range of 1.5x to 2x. The Board remain confident over its medium-term outlook and reiterated its guidance of “double-digit growth” in the US through to 2021, while comfortably increasing the dividend by +22%. The Shares are valued at FY2018E and FY2019E P/E multiple of 14.0x and 12.8x along with dividend yield of 1.7% and 2.0%, respectively. Given confident outlook, strong balance sheet and an encouraging market environment, Beaufort reiterates its Buy rating on the Shares.
Merlin Entertainments (MERL.L, 489.50p) – Buy
Our View: Merlin’s year-to-date performance has been broadly in line, while the Group remain on track to achieve its 2020 milestones, which was reassuring. The shares, however, fell by some -2.7% yesterday as investors became more nervous about the impacts of the recent terror attack in the UK, which the Group said it resulted in a further weakening in domestic demand, while also remain cautious on trends in foreign visitation over the coming months as there is typically a lag between holiday bookings and visitation. Although these external factors can create short-term impacts on performance and sentiment, Merlin’s well-diversified global portfolio enabling it to mitigate such effects, having generated more than 66% of revenue (or over 70% of profits) in FY20016 from outside the UK. As the terror threat level turn milder, weakness in Sterling will continue to attract foreign visitors to the UK, while expected to encourage more domestics towards ‘staycation’. Beaufort believes Merlin remain well-position to leverage its strong brand recognition, portfolio diversity and on-going global expansion strategy. The shares are valued at FY2017E and FY2018E P/E multiple of 22.1x and 19.1x along with dividend yield of 1.5% and 1.8%, respectively. Beaufort retains its Buy rating on the shares. Merlin Entertainment is one of our Tips for 2017 recommendations.
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