Euro strengthens as ‘pro-business’ Macron wins French presidency


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Today’s edition features:

  • ValiRx (VAL.L)
  • easyJet (EZJ.L)
  • InterContinental Hotels Group (IHG.L)

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"Macron wins the French Presidency! – No surprise there then. Anticipating as much, European equities were the star of last week’s show. The STOXX 600 rose 0.7% on Friday, notching up a weekly gain of 1.9%, with the CAC40 itself leading the way as French poll fears eased and Frankfurt’s Xetra Dax closed at a fresh all-time high. Confidence was underlined by strong new flows into European bond funds, which jumped to a 16-week high, as European equities extended their longest inflow streak since the fourth quarter of 2015, according to the latest weekly report from EPFR Global for the week ended May 3. Over US$9 billion come out of US equities over the same period, which perhaps highlights investor concerns regarding divergence of central bank policies either side of the pond, with the ECB apparently keeping low rates and quantitative easing unchanged, while the Federal Reserve maintains its stance of raising several times this year. These was somewhat less enthusiasm for London over the same five-day period, despite strong conviction that Theresa May will significantly enlarge her majority on 8th June. Fighting talk from the Jean-Claude Juncker, President of the European Commission, ahead of formal Brexit talks getting underway was one of the reasons for this, while the savage sell-off of heavily-weighted minerals stocks, with Brent falling below US$50/bbl on surging North American output, Copper falling to a 5-month low and Chinese Iron-ore futures slipping 14% over the past three trading days, rather took the shine off the FTSE-100. Wall Street closed its lacklustre week with fractional movements once again; investors were unimpressed by a bigger than expected 211,000 new Nonfarm payrolls recorded for April, taking unemployment down to 4.4%, its lowest since 2007’s start of the financial crisis; nor were they excited by increasing expectation that US rates will indeed be hiked again in June (now an 83% probability according to Fed Futures) and then, most probably, again in September, which was amply demonstrated through the Euro being able to hold on to its six-month high against the Greenback. Stocks in Asia rose broadly this morning as they kicked off global market trading for the week, boosted by the news from France and significantly also from Angela Merkel’s conservative party on Sunday surprisingly securing a big victory in Germany’s northernmost state, according to initial results, dashing hopes from the rival centre-left Social Democrats ahead of the national vote in September. Japan’s Nikkei Stock Average rose almost 2.4% during late trade, reaching its highest level since mid-December, although the index was playing catch-up with other regional bourses having been shut since Wednesday for public holidays. Elsewhere, Korea’s Kospi added 0.5%, hitting an all-time high, while the ASX in Australia gained 0.5%, leaving only the Shanghai Composite to remain in the doldrums. The UK today is expecting release of its Halifax House Prices followed late this evening by the BRC’s LfL Retail Sales number for April, while macro data from the EU includes May’s Sentix Investor Confidence index. The US will release its Labor Market Conditions Index for April, while also scheduling a speech by the Fed’s James Bullard. UK corporates due to release earnings or trading updates include Numis (NUM.L), Centrica (CNA.L) and Eckoh (ECK.L). With Europe now seemingly dominating the headlines, market watchers are again starting to question whether early signs of inflation picking up in Germany just might, after all, result in the ECB relaxing some of its easy-money policies earlier than current predictions suggest – a bullish development for the Euro given the apparent lowering of populist politics. London will open this morning quite content with this picture for the immediate future; the FTSE-100 is seen up 15 to 20 points in early trade."
– Barry Gibb, Research Analyst


The FTSE-100 finished Friday’s session 0.68% higher at 7,297.43 whilst the FTSE AIM All-Share index was little changed at 965.34. In continental Europe, the CAC-40 finished up 1.12% at 5,432.40 whilst the DAX was 0.55% higher at 12,716.89.

Wall Street
In New York on Friday, the Dow Jones rose 0.26% to 21,006.94, the S&P-500 firmed 0.41% to 2,399.29 and the Nasdaq gained 0.42% to finish the week at 6,100.76.

In Asian markets this morning, the Nikkei 225 had risen 2.3% to 19,893.05, while the Hang Seng gained 0.35% to 24,562.06.

In early trade today, WTI crude was up 1.3% to $46.82/bbl and Brent was up 1.41% to $49.79/bbl.


Euro strengthens as ‘pro-business’ Macron wins French presidency
The euro has risen after pro-EU Emmanuel Macron won France’s presidential vote by a large margin. The single currency strengthened 0.2% against the dollar as investors were reassured over the future stability of the European project. The reaction was muted, however, as investors were expecting Mr Macron, a former investment banker and an economic liberal, to prevail. He has proposed cutting corporation tax and changes to the labour market. “Voters elected for Emmanuel Macron’s pro-business policy proposals, which have the potential to unlock long-held-back investment and stimulate French markets,” said Stephen Mitchell at London-based fund manager, Jupiter Asset Management. His opponent in the race for the presidency, Marine Le Pen, is a critic of globalisation and had proposed withdrawing France from the single currency.

Source: BBC News

Company news

ValiRx (VAL.L, 2.15p) – Speculative Buy
The life science company with a focus on cancer therapeutics and diagnostics for personalised medicine, on Friday announced its final results for the year ended 31 December 2016. A loss on ordinary activities before taxation of £5.75m (2015: £2.24m), equating to a loss per share of 8.54p (2015: loss 5.63p) was much as expected from this cash-consuming business. This rise reflects the substantial increase in clinical activity undertaken during the period and the corresponding 54% increase in Research and Development costs to £2.38m in comparison to the prior period (2015: £1.54m). The rise in R&D costs relates to an escalation in patient recruitment; the ratcheting increase in cost of dosage increments over the period for the Phase l/ll clinical trial of VAL201 and the costs incurred surrounding the launch of VAL401 into its Phase llb clinical trial in Georgia. Administration costs were impacted to a lesser extent, rising 32% to £1.79m (2015: £1.38m). At the beginning of March 2017, the Group raised £1.16m through a placement of shares to fund the further development of its drugs towards key clinical milestones, which the Directors believe will provide significant value inflection points for ValiRx and its shareholders. Operationally, VAL201 has the last phase of its Phase l/ll study to complete in which patients will receive the highest dose level prescribed in the trial protocol. The Phase ll Clinical Trial of VAL401 is expected to complete dosing by the end of 2017 and subsequent analysis of the data will define the clinical activity of VAL401 and its effect on patient quality of life. Expansion of VAL201 & 401 trials into multi-centre studies will accelerate the accumulation of data and potential trial endpoints while positive enhancements of ValiRx IP portfolio with multiple new worldwide patents being secured during the period for both. New pre-clinical indication for Endometriosis, VAL301, currently in development through the reformulation of VAL201, with necessary regulatory approvals now being sought to enter VAL301 into a clinical trial in 2018.

Our view: Momentum continues to build. The Group’s clinical trials have performed well and in line with expectations. These will now continue to build out value by generating further safety and efficacy data to reinforce the therapeutic value of the molecules along with further development of the next generation from its pre-clinical pipeline. Based on the positive results of the VAL201 and VAL401 compounds, the ValiRx management continue their discussions, regarding late stage clinical studies with a view to securing potential partnerships and collaborations with pharmaceutical partners. This positive news once again underlines the fact that ValiRx investors are getting an awful lot for their money! The Group operates a low-risk, high return model that is shareholder friendly in the respect that it seeks to crystallising value, before reaching the costlier phases of the development. It routinely provides shareholders with tangible progress between modest funding rounds, the latest fundraising now financing its two lead candidates with respect to additional patient/centre recruitment, trial dosing and product manufacturing out to September. Comparisons with peer groups with similar clinical portfolios, or early stage partnership deals with big pharma seeking entrance into such therapeutic areas, suggests a significant valuation gap has opened. ValiRx shares presently recognise none of the value created over the past 18 months, nor the depth of its therapeutic pipeline. While it is understandable that the market remains concerned regarding the Group’s prospective funding needs, it should also recognise that a potentially near-term Big Pharma development collaboration for either VAL201 or VAL401 would likely be at a multiple of the Group’s current capitalisation. Beaufort reiterates its Speculative Buy rating on the Shares with a price target of 6.5p.

Beaufort Securities acts as corporate broker to ValiRx plc


easyJet (EZJ.L, 1,260.00p) – Buy
easyJet, a low-cost European short-haul airline company, on Friday provided a traffic update for April 2017. During the month, passenger traffic increased by +11.7% year-on-year to 7.1 million customers, while the load factor improved +2.5% year-on-year to 92.4%. The rolling 12 months traffic to February rose +7.8% to 76.7 million customers. 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 April, boosted further by the timing of Easter this year. The result follows March’s strong +10.6% growth in passenger traffic and +1.4% improvement in load factor. Looking ahead, subject to normal levels of disruption, the Group confirmed at the time of its Q1 results, that it planned to grow seat capacity by up to +9% in FY2017, while continuing to target a -3% decline in total cost per seat at constant currency including fuel for the full year, and a +1% increase in cost per seat excluding fuel at constant foreign exchange rate. The Group said it remains committed to flat cost per seat excluding fuel at constant currency in the FY2019 against FY2015 (FY2015: £37.44). Revenue per seat for H1 is expected to decline by “high single digits” due to the timing of Easter and the Berlin terrorist attack. Adjusting for this, underlying revenue per seat decline is expected to improve in the Q2 compared to the Q1, supported by strong demand across all European markets. The recent tumbling in oil prices amid concerns of global oversupply as the US oil production speeding up, as well as uncertainty over degree of OPEC’s further supply cut extension. We shall wait for release of its H1 FY2017 results on 16 May 2017 for its progress and further outlook. The Shares are valued at FY2017E P/E multiple of 16.3x together with a dividend yield of 3.0%. Beaufort reiterate its Buy rating on the Shares.


InterContinental Hotels Group (IHG.L, 4,120.00p) – Buy
InterContinental Hotels Group (‘IHG’), a global organisation with a broad portfolio of hotel brands, on Friday provided its first quarter trading update (‘Q1 FY2017′). During the period, RevPAR (revenue per available room) advanced by +2.7%, supported by positive growth in all regions, including; +2.2% in Americas, +6.9% in Europe, +0.1% in Asia, Middle East & Africa and +3.8% in Greater China. The rate (price) increased by +0.8%, while occupancy also improved by 1.2%. The Group confirmed that its financial position remains strong, with an on-going commitment to an efficient balance sheet and an investment grade credit rating. On the operational front, the Group opened 49 hotels (total: 5,175 hotels) during the period, increased its system (rooms) by +3.4% to 766,837 rooms, while expanded its pipeline of room by signed further 14,424 rooms to totalling 232,215 rooms. On a separate announcement, IHG’ CEO, Richard Solomons announced that he will be retiring from THE Group on 30 August 2017 (step down from CEO on 30 June), which will be succeeded by its Chief Commercial Officer, Keith Barr. Richard Solomons commented “Despite the uncertain economic and political environment in some markets, we remain confident in the outlook for 2017 and our ability to deliver sustainable growth into the future”. As announced previously, the Group will return US$400m to shareholders through a special dividend with share consolidation on 22 May 2017.

Our view: IHG has started a year on a positive note. It increased its RevPAR by +2.7%, supported by both higher rates and occupancy. Geographically, all region reported positive RevPAR, particularly strong in the Americas and Europe, both boosted by the timing of Easter. For the former, stabilisation in oil producing markets, where the it grew for the first time since Q4 2014 generated positive performances. Mexico was particularly strong with RevPAR rising +10%. In the latter, UK, Germany, Russia and France produced strong growth, particularly in London which saw strong RevPAR of +12%, due to increased tourism, possibly helped by weaker Sterling. In Asia, Middle East & Africa, the Middle East continued to drag regional performance with -7% decline in RevPAR resulting from lower oil prices, high supply growth and government austerity measures. India on the other hand saw strong RevPAR growth of +13% driven by increased tourism. In Greater China, the performance was led by strong corporate and meetings demand on the mainland. Looking ahead, the Group has signed further 14,424 rooms in Q1, a highest rate since 2008, to 232,215 pipeline rooms, which is up +5% year-on-year, with c.45% is under construction and c.90% located in IHG’s 10 priority market. After opening its first hotel in Taiwan and 300th hotel in China during the period, the Group expects to open additional units in key cities including Los Angeles and Singapore during 2017. Friday’s negative reaction on its share price was possibly due to the Board’s comment regarding a weaker Q2 performance (due to Easter falling into April this year), as well as ongoing higher levels of forecast supply growth in oil producing markets. Having said this, on the other hand, the Group has confirmed its “robust” financial position and confidence in its FY2017 outlook. The special dividend of US$400m was also a reflection of its confidence over long-term growth, enabled by the Group’s strong generation of free cashflow. The shares are valued at a FY2017E P/E multiple of 22.7x with dividend yield of 2.0% before specials. In light of the positive progress, Beaufort retains its Buy rating on the Shares.


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
(e) [email protected]

Weekly diary

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During the three months to end-April 2017, the number of stocks on which Beaufort Securities published recommendations was 216, and the recommendations were as follows: Buy – 73; Speculative Buy – 118; Hold – 22; Sell – 3.

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