Today’s edition features:
- Concepta (CPT.L)
- Costain Group (COST.L)
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The FTSE-100 finished yesterday’s session 0.01% higher at 7,382.65 whilst the FTSE AIM All-Share index was down 0.26% at 1,003.20. In continental Europe, the CAC-40 finished 0.32% lower at 5,115.39 whilst the DAX was down 0.45% at 12,174.30.
In New York last night, the Dow Jones ended the day 0.40% lower at 21,812.09, the S&P-500 shed 0.35% to stand at 2,444.04 and the Nasdaq lost 0.30% to finish the session at 6,278.41.
In Asian markets this morning, the Nikkei 225 was recently down 0.42% at 19,353.77 and the Hang Seng was 0.46% higher at 27,528.24.
In early trade today, WTI crude was down 0.12% at $48.35 per barrel and Brent Crude was little changed at $52.57 per barrel.
Food industry warns of Brexit workforce shortage
The UK food industry has warned that a Brexit workforce shortage could leave a third of its businesses unviable. The Food and Drink Federation said: “Our sector faces a rapidly approaching workforce shortage and skills gap.” In its survey of the “farm-to-fork” supply chain, almost half of all businesses surveyed said EU nationals working in the UK were considering leaving. It said that 31% of them have already seen EU workers leave the country. The federation is calling on the UK government to guarantee the rights of nationals from across the European Economic Area. Ian Wright, its director-general, said: “It is only a matter of time before the uncertainty reported by businesses results in an irreversible exit of EU workers from these shores. “Without our dedicated and valued workforce we would be unable to feed the nation.” In April a report by the Commons Environment Food and Rural Affairs Committee said: “Evidence… suggests the current problem is in danger of becoming a crisis if urgent measures are not taken to fill the gaps in labour supply.”
Source: BBC News
Concepta (CPT.L, 11.62p) – Speculative Buy
The pioneering UK healthcare company and developer of a proprietary platform and suite of products targeted at the personalised mobile health market with a primary focus on women’s fertility and specifically unexplained infertility, yesterday provided a positive update regarding its marketing and sales drive into China of its myLotus fertility product. Following the receipt of Concepta’s first sales order, totalling £225,000 for its myLotus fertility product from a partner in China, HuanZhong Biotech Co.Ltd (see announcement 13 June 2017), the Company has made its first shipment of products to China. As part of this first shipment, the Company scaled up production of its test strips at its UK manufacturing site in Sharnbrook, Bedfordshire, allowing it to shorten its lead-time for shipment by two weeks. Concepta expects to make further regular shipments to fulfil this order in the coming weeks. The Company also announced that it has appointed Zhang Zhi Gang, as Head of China Operations. Zhang was one of the founders of Concepta Diagnostics Limited and led the way in developing key contacts in China for manufacturing and distribution. Zhang has extensive knowledge of the Chinese healthcare market. Her previous position was as General Manager at Alere China Co. Ltd. During her time at Alere, Zhang helped launch 8 new products and managed 5 product lines, having previously been at Unipath UK where she helped develop the patented algorithms currently used by Clearblue’s range of fertility and pregnancy test products.
Our View: Having seen Concepta’s Board reset its 2017 sales expectations back in June, receipt of this first sales order for myLotus Fertility Products is now the good news we have been waiting for. It builds confidence in Beaufort’s revised P&L projection for this year and next, which result from significant investment in regulatory processes and physical assets enabling its modular systems to expand capacity in line with demand. Concepta now expects to activate its production line and leverage core UK elements that are configured to provide a scalable international supply chain. With ISO13485 accreditation in place, management also continues to prepare for commercial launch in the UK and Europe towards the end of this 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’s revised 2017E and 2018E revenue estimates of £1.3m and £6.0m, indicate earnings (losses) per share of (1.98p) and 0.71p respectively. Recognising the value already created and the scale of the opportunity, Beaufort retains its Speculative Buy rating on the shares and confirms its price target of 22p/share.
Beaufort Securities acts as corporate broker to Concepta plc
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Costain Group (COST.L, 438.75p) – Buy
Costain, an engineering group deploying technology-based solutions for energy, water and transportation infrastructures across the UK, yesterday announced its interim results for the 6 months ended 30 June 2017 (‘H1 FY2017’). During the period, revenue advanced by +12% to £847.8m (or +11% to £874.5m including JVs and associates), against the comparative period (H1 FY2016). On a reported basis, operating profit rose +43% to £18.7m, pre-tax profit grew +39% to £15.7m, leading to basic earnings per share of 12.2p, up +28%. On an underlying basis, operating profit rose +34% to £21.2m, pre-tax profit grew +30% to £18.3m, leading to basic earnings per share of 14.4p, up +21%. Net cash balance at the period-end was £87.5m (H1 FY2016: £69.2m). On the operational front, the Group said previously acquired Rhead Group and Simulation Systems Limited are realising the benefit from enhanced programme management and technology capability. In line with the Group’s strategy to reflect the change in nature of its service offering, total headcount is now stood at 4,000, of which, 1,300 (representing over 30%) are now in consultancy and technology roles. Costain’s CEO, Andrew Wyllie, commented “We are transforming rapidly to differentiate Costain as the UK’s leading smart infrastructure solutions company. We are delivering technology-based solutions demanded by our clients who are spending billions of pounds, underpinned by legislation and regulation, to meet ever more complex challenges to enhance the nation’s infrastructure”. The Group declared an interim dividend of 4.75p per share, up +10%, to be paid on 20 October 2017 (ex-Dividend: 16 September 2017).
Our View: Costain provided a strong and confident results statement for the H1 FY2017, as demonstrated by a +0.5% improvement in the gross margin, +34% increase in underlying operating profit and a +10% increase in the interim dividend. Growth was led by a continued good performance from the Infrastructure division (highways, rail and nuclear markets amounts to 79% of revenue), although the timing of returns and high level of bid costs resulted in the operating margin declining by -0.9% to 3.6%. The Natural Resources division (water, power and oil & gas markets accounting to 20% of revenue) also saw a significant improvement as it returned to an operating profit of £0.2m against a loss of £8.4m last year. This was helped by an absence of additional impact from the legacy waste PFI contract compared to last year, offset by lower contributions from the Oil & Gas operations. Post the period, Costain withdrawal its involvement on the marine works contract at Hinkley Point C, worth £350m in the order book on 30 June 2017. More than filling this gap, however, the Group announced on 1 August 2017 that it has been appointed by High Speed Two (HS2) Limited on two further contracts, S1 and S2, with a total value of £1.8bn to its joint venture, worth £600m to Costain. Looking ahead, the Board said it is on track to meet its full year expectations. The average month-end net cash balance for the FY2017 is expected to be similar to the £69.1m achieved in FY2016, while the Group reiterated its medium-term blended underlying target margin of 4%-5% for the both divisions. Although the most recent Markit/CIPS UK construction PMI data saw the Index drop from 54.8 in June to 51.9 in July, its lowest for 11 months, Costain’s large £3.7bn order book as at 30 June 2017 (H1 FY2016: £3.9bn) provides good long-term visibility; of this £1.5bn is in place for this year and over £0.9bn for next, while, in addition, the Group is also named as preferred bidder position for more than £400m of other work. Costain’s focus on strategic long-term relationships with blue chip clients continues to result in repeat business, which now comprises over 90% of the order book. The Shares are valued at FY2017E and FY2018E P/E multiple of 12.9x and 12.1x, along with dividend yield of 3.2% and 3.6%, respectively. Given the Group’s quality operations, excellent forward visibility and strong cash position (further backed by banking facilities of £155m and £400m of bonding facilities), Beaufort reiterates its Buy rating on the Shares, recommending investors take advantage of recent weakness to build positions.
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During the three months to end-July 2017, the number of stocks on which Beaufort Securities published recommendations was 205, and the recommendations were as follows: Buy – 75; Speculative Buy – 107; Hold – 19; Sell – 1.
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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