Asda: Hundreds of jobs lost at supermarket offices

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Today’s edition features:

  • Armadale Capital (ACP.L)
  • Ferrum Crescent (FCR.L)
  • Tiziana Life Sciences (TILS.L)
  • Barratt Developments (BDEV.L)
  • easyJet (EZJ.L)

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The FTSE-100 finished yesterday’s session 0.26% lower at 7,354.13 whilst the FTSE AIM All-Share index was down 0.05% at 1,010.84. In continental Europe, the CAC-40 finished 0.29% higher at 5,101.41 whilst the DAX was up 0.75% at 12,214.54.

Wall Street
In New York last night, the Dow Jones closed 0.25% higher at 21,807.64, the S&P-500 added 0.31% to reach 2,465.54 and the Nasdaq gained 0.28% to end the session at 6,393.31.

In Asian markets this morning, the Nikkei 225 was up 0.22% at 19,401.14 and the Hang Seng was 0.11% higher at 27,645.26.

In early trade today, WTI crude was 0.14% lower at $49.09 per barrel and Brent was down by 0.31% at $54.03 per barrel.


Asda: Hundreds of jobs lost at supermarket offices
Asda is to axe hundreds of jobs at its West Yorkshire head office and a further site in the East Midlands as part of a major cost-cutting drive. About 300 jobs are to go at Asda House in Leeds and George House in Leicester the chain said, with job descriptions to a further 800 roles changed. The grocery giant said its home offices needed to “adapt how they operate to support our stores”. Affected staff were informed about the cuts on Wednesday afternoon.

Source: BBC News

Company news

Armadale Capital (ACP.L, 1.22p) – Speculative Buy
Armadale Capital announced testwork results from a 300kg bulk sample of graphite mineralisation from its wholly owned Mahenge Liandu graphite project in Tanzania. Conventional crushing and floatation circuit returned graphite concentrate purity of up to 99.1% TGC from individual size fractions and an overall average of 98.8% TGC. Excellent flake size distributions were maintained through the process with 75% occurring above 106µ size fraction. These results underpin Mahenge Liandu’s potential to produce high-quality graphite concentrates, which should be suitable for a number of commercial applications including the rapidly growing battery market. Assay results from the recent RC (Reverse Circulation) drill programme are expected in the coming weeks, initial results confirm wide zones of near surface mineralisation over a strike length of 1.2km. A second phase drill campaign is expected to commence in the coming months to update the current high-grade JORC-compliant resource of 40.9Mt grading 9.41% TGC.

Our View: We continued to be impressed with the results coming from the Mehange Liandu graphite project. Wide zones of coarse and high-grade mineralisation coupled with the high-purity graphite concentrate produced from relatively low-cost processing methods demonstrate the project’s potential as a commercially viable graphite source suitable for a range of commercial applications. Armadale is looking to capitalise on the expected growth in the graphite market driven by increasing applications particularly in the energy storage market. We look forward to assay results from the recent RC drill programme in the coming weeks as well as the planned resource update in the coming months. In the meantime, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as a corporate broker to Armadale Capital plc


Ferrum Crescent (FCR.L, 0.11p) – Speculative Buy
FCR, the European lead-zinc explorer, announced drill results from its Toral lead-zinc project in Spain. The Company’s recent drill programme comprising six shallow holes up to 200m in depth was designed to confirm the presence of Pb-Zn mineralisation in an area that is c300m above previously known mineralisation. Whilst all six holes were mineralised, the best intercepts returned 2m grading 5.61% Zn, including 1m grading 9.77% Zn (TOR17009), 3m grading 6.46% Zn, including 1m grading 16.1% Zn (TOR17012) and 3m grading 5.49%, including 1m grading 9.11% Zn (TOR17013). Currently, Toral has a combined (Indicated & Inferred) resource of 8.7Mt with a weighted average grade of 10.7% (Pb + Zn).

Our View: The above assay results confirm FCR’s hypothesis that known mineralisation at depth is linked to shallow mineralised features. These results could potentially add to the current resource base. We are encouraged with the relatively shallow, high-grade mineralisation of up to 16.1% Zn. We look forward to further updates as management continues to evaluate the economic potential of the Toral deposit. In the meantime, we maintain our Speculative Buy on the stock.

Beaufort Securities acts as a corporate broker to Ferrum Crescent plc


Tiziana Life Sciences (TILS.L, 154.25p) – Speculative Buy
Tiziana, the clinical stage biotechnology company developing targeted drugs for cancer and autoimmune diseases, yesterday announced the development of a novel, proprietary, oral formulation of foralumab (NI-0401), a fully human anti-CD3 monoclonal antibody (mAb), to be used in upcoming Phase IIa clinical trial in patients with non-alcoholic steatohepatitis (‘NASH’) and other inflammatory diseases. This is the first-ever development of an oral formulation suitable for therapy with foralumab. Tiziana’s Chairman, Gabriele Cerrone, commented “The development of this proprietary oral formulation is a breakthrough in novel dosing formulation and we believe that this technology may have broad additional therapeutic utility with other mAbs”. Tiziana’s CEO and CSO, Kunwar Shailubhai, commented “Oral administration with biologics such as mAbs is a potential game changer for immunotherapies, enhancing drug safety while potentiating immunomodulation to provide clinical responses”.

Our View: The successful development of an oral formulation of foralumab is a major milestone for the Group. Despite oral immunotherapy with an anti-CD3 mAb being the preferred approach for targeted immunomodulation without eliciting immunosuppression throughout the body (as well as for its dosing convenience), such studies have not been pursued until now due to harsh conditions encountered in the gastrointestinal tract. The Group has, however, demonstrated consistent efficacy of foralumab via oral administration in humanised mouse models (pre-clinical studies) with “virtually no toxicity”. Tiziana is now preparing Phase IIa clinical trials to demonstrate the efficacy of foralumab in patients with NASH (and type 2 diabetes). Non-alcoholic fatty liver disease (‘NAFLD’) is caused by the organ’s accumulation of fat, which is said to affect as much as 30% of the western world’s population although not directly related to alcohol consumption. NASH is a severe type of NAFLD which occurs when such accumulation is accompanied by inflammation and cellular damage. This can lead to fibrosis (scarring) of the liver and eventually progress to cirrhosis, portal hypertension, liver cancer and ultimately, failure. To date, there is no approved therapy for NASH. According to market research by iHealthcareAnalyst, Inc., the global market opportunity for NASH treatment is estimated to reach US$19.5bn by 2025, assuming the condition expands at its current annual growth rate of +10.0% from 2016 to 2025, presenting huge market potential for Tiziana. Beside foralumab, in July, the Company has enrolled first patient for its Phase IIa clinical trial of milciclib, a novel inhibitor of cyclin-dependent kinases (CDKs), in patients with refractory hepatocellular carcinoma (‘HCC’). HCC is the 5th most common cancer worldwide and the 2nd most common cause of death from cancer worldwide affecting both men and women (S. Mittal & H. El-Serag, 2013). Top line data for this indication is expected to be announced during Q4 2018. Tiziana has an exciting pipeline of products and opportunities beyond just these but, for prudence, Beaufort has modelled its Group valuation based just on foralumab and milciclib, applying a relatively aggressive 15% discount to its long-run cashflow model. This creates a valuation more than twice the current level based on anticipated milestone fees & royalties. In light of continued progress, Beaufort reiterates its Speculative Buy rating on the shares together with a price target of 400p/share.

Beaufort Securities acts as a corporate broker to Tiziana Life Sciences plc


Barratt Developments (BDEV.L, 595.50p) – Buy
The UK’s largest housebuilder released its annual results to end-June 2017 yesterday. The Group recorded profits and completion volumes rose to their highest level for nine years, while the Board stressed its Group remains the industry leader in terms of quality and customer service. Total completions (incl. JVs) rose 0.4% to 17,395, leading to revenues of £4,650.2m (£4,235.2m) which enjoyed a gross margin of 20.0% (18.9%) notwithstanding only some headwinds in the high-end London market. A 1.4% improvement in the operating margin resulted in a 19.6% boost to operating profits to £799.2m (£668.4m). Profit before tax rose to £765.1m (+12.1%), taking basic eps to 61.3p (55.1p). The Group ROCE came out at 29.8% (27.1%), while Net Tangible Assets/share were 340p (311p) and period-end net cash increased to £723.7m (£592.0m). The Board also declared a 39.0% increase in final ordinary dividend per share to 17.1p (2016: 12.3p) together with 17.3p special dividend per share. Commenting on the results David Thomas, Chief Executive of Barratt Developments PLC noted: “The Group starts the new financial year in a good position with a strong balance sheet, healthy forward sales and we continue to see robust consumer demand supported by a positive mortgage environment. We are focused on driving further operational improvements through the business with a particular focus on margin improvement.”

Our View: Expectations had already been set very high. Barratt nevertheless delivered on all counts, confirming that the new year continues to fire on all cylinders; forward sales (including JV’s), for example, are up 13.8% as of 3 September 2017 at £2,749.9m (4 September 2016: £2,416.5m) while net private reservations per active outlet per average week from 1 July remained in line with last year’s exceptional figure at 0.74 (FY17: 0.75). A core part of Barratt’s strategy is to drive ROCE performance further, in line with its fast build and sell model. This has been helped by maintenance of a relatively short (around 3.5 years) land bank and successful conversion of lower-cost strategic land. Contributing also to the Group’s increased profitability, has been a larger proportion of higher-margin land completions (to 92% from 86% last year) of the total while managing to trade through legacy assets, the use of land creditors as well as disposal of legacy shared equity interests. Operating efficiencies were also boosted by a reduction in the range of unit designs in order to increase standardisation, simplify construction and reduce build costs whilst maintaining standards of design and build quality; there are currently 132 sites with c.19,000 plots where will be using the new ranges, of which 51 sites are already under construction. Total average selling price on completions in the year increased by 6.0% to £275.2k (2016: £259.7k), with private ASP increasing by 8.0% to £313.1k (2016: £289.8k) benefiting from mix changes and underlying house price inflation. Completions by the London business were in line with expectations, weighted to the second half in accordance with planned site build programmes. Management continues to guide shareholder to anticipate overall build cost inflation for FY18 in the range of c.3-4% and to control its administrative expenses to around £150m for FY18 (2017: £132.8m). In February, the Board also announced that, given the significant operational and financial improvements made over the last few years, it would improve and extend the existing dividend plan announced in September 2014. As a result, the level of ordinary dividend cover shifted from three times to two and a half times, thereby increasing the payout ratio. With such an impressive picture being painted by management, the only question that shareholders were left asking was, how much of this has already been priced in? Given a 36% 2017 gain as of Tuesday’s close, quite a lot is the answer. Which is why the shares ran into profit taking yesterday. Investors should, however, look beyond such near-term profit taking, to concentrate instead on the obviously improved quality of Barratt’s operations. The fact is that its shares continue to trade at an unwarranted discount to the sector on just about all standard measures – including a calendar year 2017 P/NAV of 1.86x (compared with 1.99x for the quoted sector) and a 7.1% yield (compared with 5.5%). Beaufort sees this gap closing in coming months and accordingly repeats its buy rating on Barratt Developments while re-setting a price target of 675p/share (from 650p previously).


easyJet (EZJ.L, 1,151.00p) – Buy
easyJet, a low-cost European short-haul airline company, yesterday provided a traffic update for August 2017. During the month, passenger traffic increased by +9.4% year-on-year to 8.2 million customers, while the load factor improved by +1.4% year-on-year to 96.3%. The rolling 12 months traffic to August rose +9.2% to 79.5 million customers with load factor up +0.6% to 92.3%. Passenger traffic represents the number of earned seats flown, while load factor represents the number of passengers as a proportion of the number of seats available for passengers.

Our View: easyJet reported strong passenger traffic and load factor data for August. The result follow July’s +8.9% growth in passenger traffic and +1.1% growth in load factor. Within its trading update for Q3 FY2017 released late July, the Group announced a revenue per seat improvement of +2.2% on a constant currency basis against expectations of low single digit decline, although this was flattered by the timing of Easter. Operationally, the Group has managed to eliminate concerns overhanging its operations by obtaining its own Air Operator’s Certificate (‘AOC’), which enables it to continue to operate flights both across and within European countries regardless of the outcome of Brexit negotiation. Looking ahead, subject to normal levels of disruption, the Group maintained its expectation for capacity growth of +8.5% in H2, and cost per seat excluding fuel at constant currency of c.+1% for the full year, while remaining on track to deliver cost savings from its ‘Lean’ efficiency drive of some £80m. For the medium-term, the Group noted it is still committed to flat cost per seat (excluding fuel) based on constant currency in FY2019 against FY2015 (when the figure stood at £37.44). Revenue per seat at constant currency for H2 is expected to decline by c.-2%, based on Q4 forward bookings of 67% that the Group had secured by the time of its Q3 announcement. With current exchange rates and fuel price range (US$450-US$520 metric tonne), easyJet noted unit fuel cost for FY2017 is likely to reduce by between £230m-£245m against last year. As previously announced, despite exchange rate movements being expected to deliver a £100m negative impact, the Board is still guiding FY2017 pre-tax expectations to between £380m and £420m in anticipation of operational cost savings and improving underlying revenue performance. Having seen the shares strongly outperform since March, easyJet’s warning that yield pressures may continue into the next financial period has resulted in a phase of profit taking. Beaufort considers, however, that the business model for low-cost airlines remains intact and the shares, presently valued at FY2017E and FY2018E P/E multiple of 13.6x and 11.6x, with dividend yields of 3.6% and 4.2%, respectively, still represent good value. As such the present weakness should be treated as a buying opportunity. Given positive progress, a strong balance sheet, along with upgraded full year profit guidance, Beaufort retains its Buy rating on the easyJet, while keeping one careful eye on fuel prices and movements in market capacity.


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

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During the three months to end-August 2017, the number of stocks on which Beaufort Securities published recommendations was 203, and the recommendations were as follows: Buy – 65; Speculative Buy – 117; Hold – 20; Sell – 1.

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