Disney set to seal $60bn 21st Century Fox takeover

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Today’s edition features:

  • Prairie Mining (PDZ.L)
  • Savannah Resources (SAV.L)
  • ValiRx (VAL.L)
  • Ashtead Group (AHT.L)
  • Joules Group (JOUL.L)

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Markets

Europe
The FTSE-100 finished yesterday’s session 0.63% higher at 7,500.41, whilst the FTSE AIM All-Share index was up 0.27% at 1,019.91. In continental Europe, the CAC-40 finished 0.75% higher at 5,427.19 whilst the DAX was up 0.46% at 13,183.53.

Wall Street
Last night in New York, the Dow Jones closed 0.49% higher at 24,504.8, the S&P-500 added 0.15% to end the day at 2,664.11, while the Nasdaq finished 0.19% lower at 6,862.32.

Asia
In Asian markets this morning, the Nikkei 225 was down 0.44% at 22,765.2, while the Hang Seng was 1.03% higher at 29,090.6.

Oil
In early trade today, WTI crude was 0.67% higher at $57.52 per barrel and Brent was up 0.93% at $63.93 per barrel.


Headlines

Disney set to seal $60bn 21st Century Fox takeover
Walt Disney is close to confirming a deal to buy 21st Century Fox’s entertainment assets for about $60bn, reports say. The sale would include the 20th Century Fox film studio and the Sky and Star satellite broadcasters in the UK, Europe and Asia. Disney was left as the front runner after Comcast, the NBC owner, dropped out of the race on Monday. The Financial Times said talks about the price were continuing on Tuesday. CNBC reported that Fox and Disney were on a “glide path” for an announcement on Thursday, according to people familiar with the negotiations. The Murdoch family was said to favour a deal with Disney because it would rather be paid in the entertainment giant’s shares than Comcast stock. A deal with Disney could also face fewer US regulatory hurdles, although it is extremely unlikely to be waved through.

Source: BBC News


Company news

Prairie Mining (PDZ.L, 29.62p) – Speculative Buy
Prairie Mining published a news release describing the coking coal macro situation in Europe and Poland. The European Commission has kept coking coal on its 2017 critical list due to Europe’s dependence on imports. The critical list has some questionable members, but given the importance of steel and steel’s dependence on coking coal, coking coal is not one of them.

The fundamentals are clearly very positive, mainly because Europe imports 85% of its coking coal requirements (predominantly from the US and Australia). These imports come with very significant transport costs and mean that in the future European coking coal prices will stay higher than benchmark prices at US and Australian ports. In addition, the global supply of coking coal is expected to reduce YoY for the foreseeable due to underinvestment over the last 10 years. This theme is not unique to coking coal but should support prices going forward. Note that current coking coal prices remain strong e.g. Australian coking coal is currently approx. US$200/t.

With regards the Polish coking coal macro, the Polish government wants its large coal industry to be sustained and to modernise. It has significant coking (converting coking coal to coke) and steel production industries, while coal mining is also an important employer. Prairie is perfectly placed to satisfy Polish government’s coal strategy.

Our view: Prairie Mining is developing two Tier 1 coking coal mines in Poland, in the heart of the European steel industry. The macro environment is very supportive and Prairie’s current market value doesn’t yet reflect the economic and strategic value of its coking coal projects. We believe the value will realised in the coming months and recommend buying the shares.

Beaufort Securities provides corporate sponsored research to Prairie Mining Limited

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Savannah Resources (SAV.L, 5.38p) – Speculative Buy
Savannah Resources, a diversified energy and metals resource company, announced outstanding drill results from its highly prospective lithium project, Mina do Barroso, in Portugal. The aim of the current drill programme is to define a maiden JORC (2012) compliant mineral resource estimate. To date, 66 RC holes totalling 5,558m have been drilled over three deposits confirming the significant potential of Mina do Barroso for lithium mineralisation. Savannah holds a 75% interest in the Mina do Barroso lithium project which hosts numerous lithium deposits and covers an area of 1,018km2. Recent drill results from the Grandao deposit have returned some of the broadest zones to date such as: 109m grading 1.04% Li2O including 52m grading 1.32% Li2O, 71m grading 1.06% Li2O including 88m grading 1.2% Li2O, 31m grading 1.2% Li2O and 25m grading 1.15% Li2O. In addition to these significant drill results, Savannah has discovered a new high-grade zone returning 25m grading 1.49% Li2O from a sub-vertical pegmatite body. An additional 16 holes have now been added to the current drill programme. At the Reservatorio deposit, assay results confirm lithium mineralisation over a strike length of 400m and a down dip extension of 100m. A maiden resource estimate for Reservatorio is expected by end of 2017. Further drilling on the NOA deposit has confirmed mineralisation over a 200m strike length, widths up to 15m and down dip extensions of at least 50m. Metallurgical samples have been taken from all three deposits and results are expected in early 2018.

Our view: The above results are very encouraging given the continued thick intercepts and decent Li grades occurring near surface. The latest round of drilling highlights the potential for an extensive lithium mineralised system within the Mina do Barroso project. Savannah continues to focus on defining a JORC (2012) compliant resource and metallurgical testwork to support a scoping study around potential mine development plan at Mina do Barroso. Given that the global lithium demand is expected to double by 2025 on the back of the burgeoning battery market, Savannah is looking to capitalise on the lithium market with a strategic European lithium source. We look forward to further updates as the Company works towards a maiden resource estimate for the Reservatorio deposit by the end of 2017 and metallurgical test results in early 2018. In the meantime, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as a corporate broker to Savannah Resources plc

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ValiRx (VAL.L, 6.88p) – Speculative Buy
ValiRx yesterday announced positive results from its Phase II clinical trial of VAL401 demonstrating a statistically significant improvement in Overall Survival for patients with non-small cell lung cancer (‘NSCLC’) compared to those receiving no treatment. Further analysis of the other endpoints, including Quality of Life, is underway at Ariana Pharma (the company appointed to undertake clinical data analysis of the data gathered during the trial) along with systematic scrutiny of underlying factors. Ariana Pharma is also characterising the best responders to VAL401 using their proprietary KEM® (Knowledge Extraction and Management) advanced artificial intelligence technology to increase the chances of success in subsequent trials. The company also confirmed that the method-of-treatment patent for the use of VAL401 in the treatment of prostate adenocarcinoma has now been fully granted. VAL401 is an anti-cancer compound developed by ValiSeek, the 60:40 joint venture between ValiRx and Tangent Reprofiling Limited.

Our view: Positive results! Further to the release of pharmacokinetic data (absorption, metabolism and preferred dosage) for the same Phase II clinical trial announced on 28 September 2017, yesterday’s formal data showed the efficacy of the VAL401 on NSCLC patients. The lung cancer market is huge, valued at US$7.9bn in 2020 growing at CAGR +6.6% per annum, with significant unmet need. Given the company already in discussion with a number of large pharmaceutical companies, we anticipate development collaboration for VAL401 would likely be concluded at a multiple of the Group’s current valuation. Beyond VAL401, ValiRx also advancing portfolio of other assets including VAL201 (Phase I/II for advanced prostate cancer), VAL101 (pre-clinical) and VAL301 (pre-clinical). Financially, on 30 November 2017 ValiRx has conditionally raised £1.0m through issue of new ordinary shares and prior to that, on 15 November 2017, confirmed that it will not make any further drawdown from Yorkville CLN debt facility. Given positive results, Beaufort reiterates its Speculative Buy rating on the shares.

Beaufort Securities acts as corporate broker to ValiRx plc

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Ashtead Group (AHT.L, 2,060.00p) – Buy
Ashtead Group, yesterday announced its interim results for the 6 months ended 31 October 2017 (‘H1 FY18’). During the period, on a constant currency and underlying basis, rental revenue advanced by +20% to £1,774.0m, EBITDA rose +20% to £933.7m, operating profit grew +21% to £591.3m and PBT increased +23% to £536.9m, leading to EPS growth of +22% to 70.2p, against comparative period (H1 FY17). Net debt at the period end increased to £2,851m (FY17: £2,694m) due to acquisitions and investment, while net debt to EBITDA was flat at 1.8x reflecting earning growth. Return on investment was also unchanged at 18%. On the operational front, the group invested £708m of capital in the business (FY17: £683m) and in addition, invested £298m (FY16: £142m) on 9 bolt-on acquisitions. The group declared an interim dividend of 5.5p, up +16%, to be paid on 7 February 2018.

Our view: Ashtead delivered a strong result for the H1, as hurricanes Harvey, Irma and Maria boosted the activity level for equipment rental. Both Sunbelt (US and Canada – c.87% of revenue) and A-Plant (UK – c.13% of revenue) divisions performed well with organic and acquisition driving further growth, with overall margins improved by 40bps. Looking ahead, guidance on capex revised up to £1.2bn to £1.3bn (from £1bn to £1.2bn), while net debt to EBITDA target was maintained in a range of 1.5x to 2x. Whist it is anticipated that the level of activity to normalise in H2, the group said its end market remain “good” and expect full year results to be ahead of prior expectations with confidence in medium-term (targeting double-digit growth in the US through to 2021). The Shares are valued at FY18E and FY19E P/E multiple of 16.9x and 15.1x along with dividend yield of 1.5% and 1.7%, respectively. The share price has increased by +25% year-to-date and the current valuation appear demanding, nevertheless, given confident outlook, Beaufort reiterates its Buy rating on the shares.

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Joules Group (JOUL.L, 262.00p) – Buy
Joules Group yesterday provided its pre-close trading update for the 26 weeks to 26 November 2017 (‘H1 FY18’). During the period, revenue advanced by +18.2% to £96.2m (+17.5% in constant currency), comprised of; +16.2% increase in Retail revenue to £65.9m and +23.0% (+20.6% in constant currency) rise in Wholesale revenue to £30.1m, against the comparative period (H1 FY17). Gross margin is anticipated to be flat at c.55.5%. Joules is scheduled to release Christmas trading update on 9 January 2018 and Interim Results on 31 January 2018.

Our view: Strong momentum continued into FY18. Growth in H1 was supported by both Retail (69% of revenue) and Wholesale (31% of revenue). For Retail division, the group now surpassed 1 million active customers mark and added net 10 new stores to its portfolio during the period. For Wholesale division, the accelerated growth was driven by strong Autumn/Winter 2017 wholesale order book. Looking ahead, despite high inflation and consumer credit may further impact the UK consumer confidence, the CEO said he “look forward with confidence to the second half”, well positioned for the Christmas trading period and good growth seen in its Spring/Summer 18 wholesale order book. We believe Joules’ strong brand footprint and expanding loyal and highly engaged active customer base will continue to drive its momentum forward. The Shares are currently valued at FY18E and FY19E P/E multiple of 23.6x and 19.4x, along with dividend yield of 0.9% and 1.2%, respectively. In view of positive trading along with a confident outlook, Beaufort reiterates its Buy rating on the shares.

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To read Beaufort’s full research archive click here

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


Weekly diary


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Recommendations
During the three months to end-November 2017, the number of stocks on which Beaufort Securities published recommendations was 237, and the recommendations were as follows: Buy – 37; Speculative Buy – 187; Hold – 11; Sell – 2.

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