Citizens Advice wants ban on unsolicited credit limit rises


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Today’s edition features:

  • Sunrise Resources (SRES.L)
  • Bunzl (BNZL.L)
  • IG Design (IGR.L)

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The FTSE-100 finished yesterday’s session 0.87% lower at 7,337.43 whilst the FTSE AIM All-Share index was down 0.24% at 1,002.81. In continental Europe, the CAC-40 finished 0.94% lower at 5,031.92 whilst the DAX was down 1.46% at 11,945.88.

Wall Street
In New York last night, the Dow Jones ended the day 0.26% higher at 21,865.37, the S&P-500 added 0.08% at 2,446.3 and the Nasdaq gained 0.3% at 6,301.89.

In Asian markets this morning, the Nikkei 225 was up 0.69% at 19,496.28 and the Hang Seng was 0.8% higher at 27,986.93.

In early trade today, WTI crude oil was 0.28% weaker at $46.31 per barrel and Brent was down by 0.4% at $51.79 per barrel.


Citizens Advice wants ban on unsolicited credit limit rises
One in five people struggling with debts has seen their credit card limit automatically increased – a higher proportion than for cardholders in general, a charity has claimed. Citizens Advice said 18% of those struggling financially had seen the limit increased without request, compared with 12% overall. It wants a ban on increases without a cardholder’s explicit consent. The regulator has estimated that 3.3 million people are in persistent debt. In a report published earlier this year, the Financial Conduct Authority (FCA) said that “customers in persistent debt are profitable for credit card firms, who do not routinely intervene to help them”.

Source: BBC News

Company news

Sunrise Resources (SRES.L, 0.17p) – Speculative Buy
Sunrise Resources announced the sale of its Junction Gold (Copper) project, located in Humboldt County northwestern Nevada, to VR Resources (VRR.V) for an initial US$10,000 payment and 50,000 shares of VRR due on completion. The binding agreement is subject to TSX approval prior to 30 September 2017. A further payment of 50,000 shares should VRR decide to drill on the property and an additional 250,000 shares should VRR file a NI 43-101 compliant report containing a resource estimate. A 3% NSR royalty payment on production is subject to VRR’s right to buy up to 1.5% for US$500,000 per half-percent. The project will be returned to Sunrise should no drilling occur within 18 months of the date of Acquisition Agreement (29 August 2017).

Our View: The above announcement is positive news as it allows the Company to focus on the development of its CS Pozzolan-Perlite project in Nevada while maintaining an option to participate in VRR’s future success. VRR also has a large-scale porphyry copper-gold project (Bonita, also in Humboldt County) which it is planning to drill this year after exploring for more than 2 years. We maintain a Speculative Buy recommendation.

Beaufort Securities acts as corporate broker to Sunrise Resources plc


Bunzl (BNZL.L, 2,283.00p) – Hold
The international distribution and outsourcing Group yesterday published its half yearly financial report for the six months ended 30 June 2017. Based on constant exchange rates, revenue increased by 7% and adjusted operating profit rose by 4%, while the Group’s operating margin declining from 6.8% to 6.6%. With its operations geographically widely spread, North America remained dominant (59% of revenue and 52% of adjusted operating profit) having seen increased activity driven by strong improvement in organic growth, including a substantial increase in business with existing customer, albeit at lower margins. Elsewhere, Continental Europe (19% of revenue and 26% of adjusted operating profit) enjoyed a strong increase in revenue and profit with stable operating margin (+10bp at constant exchange rates), while the UK & Ireland (14% of revenue and 13% of adjusted operating profit) saw trading in safety affected by subdued marketplace although activity increase in cleaning & hygiene. Its Rest of the World (8% of revenue and 9% of adjusted operating profit) saw some recovery in Brazil with a mixed performance elsewhere in Australasia. Overall, the Group delivered an increase of 3.7% in organic revenue growth, while achieving a return on average operating capital of 54.3% with return on invested capital of 16.4% (a 30bp decline on the comparable period) and continued strong cash conversion (operating cash flow to adjusted operating profit) of 96%. Adjusted earnings per share were up 7%. Bunzl also sustained its 24- year track record of dividend growth with an increase of 8% in the interim dividend to 14.0p/share. During the period, the Group also undertook eleven acquisitions, including one announced yesterday (HSESF and its associate companies in China having aggregate 2016 revenues of £24m), for a total committed spend of £546 million. These include two larger transactions being DDS in the US and a group of businesses in France consisting of Hedis, Comptoir de Bretagne and Générale Collectivités. With four months of the year remaining, 2017 already represents a record level of annual acquisition spend for Bunzl and significantly exceeds the previous high of £327 million achieved in 2015. As a result, net debt rose to £1.4bn (£1.2bn in December 2016), with additional spend taking net debt/EBITDA to 2.2x (from 2.0x in December 2016).

Our View: While marginally beating consensus revenue expectations due to stronger forex tailwinds, perhaps most pleasing was yesterday’s reported organic growth figure, which picked up to 3.7% and compared well to the 1% figure achieved in H2’2016. Countering this, however, was the 20bp fall in operating margins to 6.6%, which was principally due to a squeeze from new business won in North America, although the figure from both UK & Ireland and RoW also declined marginally, leaving only Continental Europe managing to hold the level it achieved in H1’2016. Despite continuing macro uncertainties across the various regions Bunzl serves, the Board appears confident that its operations will build further on their strong market position in order to deliver organic growth combined with ongoing benefits from acquisitions. It also highlights the fact that it sees significant opportunities to continue its divisional expansion in countries where it is already active – suggesting the record level of acquisition spend is unlikely to slow in the near term. A highly consistent track record over the past 12 years, whereupon it has delivered shareholders 10% – 11% CAGR revenue, adjusted earnings and dividends, suggests investors owe Bunzl the benefit of any doubt when it comes to delivering on its promises. The shares do, however, continue to trade on a fairly rich forward price/earnings multiple of 19.7x, with a EV/EBITDA of 14.2x and a dividend yield of just 2.1%. Despite underperforming the FTSE100 by more than 10% over the past year, its current valuation already appears to price in an improved second-half performance. But the Group will need to demonstrate its ability to reverse the margin decline seen so far this year combined with gathering momentum from recent acquisitions before Beaufort will be brave enough to move the shares back up to its Buy list once again. Beaufort retains its Hold recommendation on Bunzl with a price target of 2,350p/share.


IG Design (IGR.L, 386.00p) – Speculative Buy
IG Design Group, a leading designers, manufacturers and distributors of gift packaging, greetings, stationary and play products, yesterday provided its trading update for the 3 months ended 30 June 2017 (‘Q1 FY2018’). The Group has confirmed that trading for the first quarter is in line with management expectations, and the Directors are confident in the outcome for the full financial year. Operational highlights included; 1) unification of the Group’s 3 UK businesses under a single leadership team; 2) the synergies resulting from the acquisition of Lang in the USA; and 3) National all store ‘roll out’ of its single greeting card range with Australia’s largest discounter. IG Design’s CEO, Paul Fineman commented “We are pleased with the progress made in the first quarter… Organic growth opportunities exist in all regions, and our strong balance sheet is also providing the flexibility to continue to evaluate M&A opportunities”.

Our View: IG Design continues to perform well, delivering trading in line with its management’s optimistic expectation. In the Americas, the Group saw operating margins continuing to improve across its broadening customer base, supported by sales volume growth and product mix (including increased in own products sale). The region is also seeing “further significant synergies” from the acquisition of Lang, bringing with it improved purchasing power. In the UK, following the reorganisation of its domestic businesses under one leadership team, regional trading has met with management’s best expectations. Management also noted Continental Europe remains on course to achieve record sales and production levels across its core gift packaging product categories. In Australia, the higher margin independent store sector enjoyed particularly strong growth during the period. Operationally, IG Design is already enjoying payback from past investment across its manufacturing facilities while also bringing enhanced capabilities to drive further growth. Management confirmed that its further investment initiatives across the regions are on schedule and on budget. Back in June 2017, it announced strong financial and operational results for the full year FY2017. The performance was supported organically (revenue +11%), by acquisition of Lang (revenue +8%) and translational benefit from weaker Sterling (revenue +12%), resulting in total revenue growth of +31%. Having raised dividend by +80% in FY2017, Beaufort is confident that the Group has a scope to increase the payout still further, considering its strong cash generation while having also achieved its average debt to EBITDA target of 2.5x. The Board noted at the time of the FY2017 results that such future dividend growth will be delivered at the same time as continuing its investment, while managing average leverage within target (long-term target: 2.0x-2.75x average net debt to EBITDA). The shares are valued at FY2017/18E and FY2018/19E P/E multiples of 19.0x and 17.2x with dividend yields of 1.4% and 1.7%, respectively. Considering Q1 has traded in line, while supporting a record order book and Directors’ confidence in the current year outcome, Beaufort reiterates its Speculative Buy rating on the Shares.


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

Weekly diary

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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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