Today’s edition features:
- Patisserie Holdings (CAKE.L)
- UBM (UBM.L)
Visit Company News »
"What a difference a day makes! Turmoil in Washington finally sparks a sharp reaction. Gold jumped while stocks and the US$ tumbled during yesterday’s US session as the storm developing around Donald Trump gathered pace. The VIX ‘fear gauge’ spiked upward as investors rushed to defensives and haven investments, leading the S&P-500 and Dow Jones to register their biggest declines since September while the hit on the NASDAQ was the largest since June’s Brexit vote. Impeachment talk amplified as the Senate Intelligence Panel requested former FBI-director Comey to appear in both open and closed sessions with a view to establishing whether there is any truth in the accusation of the President attempting to hide his connections with Russia. It was perhaps a little overdramatic of Trump to state that “No politician ever treated worse than me” even if his approval rating has now slumped to an all-time low. But while his authority is unlikely to be genuinely undermined by such preceding, particularly given that it would require a two-third majority Joint Congressional vote to achieve this, the pain for investors is that this background noise is taking focus away from the policies of reflation and deregulation Donald was actually elected for; it also could undermine confidence in the Fed sticking with its anticipated rate hike next month. US government bonds accordingly posted their biggest one-day rally in nearly a year, which puts focus on the Reserve Bank of New York’s disclosure that total debt held by American households reached a record high during Q1’2017; exceeding its 2008 peak after years of retrenchment in the face of the financial crisis, recession and modest economic growth, this highlights Janet Yellen’s ongoing problem of balancing consumer confidence, repayment rates and inflation. Asian equity markets were also broadly lower, with Japan’s Nikkei and the ASX most damaged, while the Chinese markets recovered partially from steep early declines to end more modestly off as traders instead focussed on Beijing’s giant Silk Road infrastructural investment plan and the benefits it might bring to quoted construction, materials and property groups. The Dollar steadied somewhat during today’s early morning trading, but only after having seen it give back nearly all of its post-election rally by Wednesday’s US close, during which it slid some 1.5% against the Yen. The UK’s FTSE continued to outperform global indexes yesterday, as the rally in mineral and domestic plays continued, although a sell-off of US$ earners still ensured the index ended lower. Yesterday’s macro releases confirmed Q1’2017 UK unemployment had declined to a four-decade low, despite slowing economic growth as earnings growth remained weak amid rising inflation. Traders will be sensitive to shares going ex-dividends today that are due to take 20.23 points off the FTSE100 index. The pan-European STOXX Europe 600, however, did not fare as well weakening by 1.34%, being pressured by the Xetra DAX dropping 1.35% and the CAC 40 by 1.63%. UK macro data due for release today includes Retail Sales for April, while the EU offers its ECB Monetary Policy Meeting Accounts and a speech from President, Mario Draghi. The US is due to detail Initial Jobless Claims and its Philadelphia Fed Manufacturing Survey; FOMC Member Loretta Mester is also due to make a speech. There are a good number of UK Corporates due publish earnings or trading updates, including Burberry Group (BRBY.L), Experian (EXPN.L), 3i Group (III.L), Royal Mail (RMG.L), Land Securities (LAND.L), National Grid (NG..L), Rank Group (RNK.L) and Greggs (GRG.L). London equities can be expected to extend yesterday’s losses, with traders listening acutely for further revelations from Capitol Hill and the media; the FTSE-100 is seen opening down around 25 points."
– Barry Gibb, Research Analyst
The FTSE-100 finished yesterday’s session 0.25% lower at 7,503.47 whilst the FTSE AIM All-Share index was down 0.10% at 976.89. In continental Europe, the CAC-40 finished down 1.63% at 5,317.89 whilst the DAX was 1.35% lower at 12,631.61.
In New York last night, the Dow Jones fell 1.78% to 20,606.93, the S&P-500 lost 1.82% to 2,357.03 and the Nasdaq shed 2.57% to stand at 6,011.23.
In Asian markets this morning, the Nikkei 225 had fallen 1.59% to 19,499.37, while the Hang Seng lost 0.23% to 25,234.34.
In early trade today, WTI crude was down 0.33% to $48.91/bbl and Brent was down 0.4% to $52.00/bbl.
Greeks walk out in general strike over cuts
Hospitals, transport services and government offices across Greece have been severely affected by a general strike over new austerity measures. Industrial action began on Tuesday but was ramped up nationally by members of the big trade unions. Thousands of people stopped work on Wednesday and marched through Athens to demonstrate over the measures being demanded by international lenders. There were isolated clashes, but the most of the protest were peaceful. Elsewhere in the country ferry services stopped and buses and trains were limited. Flights were also hit for several hours by the strike.
Source: BBC News
Patisserie Holdings (CAKE.L, 344.00p) – Buy
Patisserie Holdings (‘Patisserie’), a leading UK branded café and casual dining group, yesterday announced its interim results for the 6 months ended 31 March 2017 (‘H1 FY2017’). During the period, revenue advanced +11.0% to £55.5m and with EBITDA margin of 22% (H1 FY2016: 21.1%), EBITDA rose +15.6% to £12.2m against comparable period (H1 FY2016). Pre-tax profit jumped by +15.7% to £9.7m, resulting basic earnings per share expanded to 7.95p, up +19.0%. Net cash at period-end strengthened to £16.2m (H1 FY2016: £8.9m), while operating cashflows stood at £9.3m (H1 FY2016: £8.9m) with EBITDA cash conversion of 96%. On the operational front, the Group has entered into a 12 week supply only agreement with Sainsbury’s in April to supply 12 Sainsbury’s stores across the UK with Patisserie Valerie product at its designated counters. During the period, the Group opened 10 new stores during the period, including its first international store in the Republic of Ireland, bringing total number of stores to 192 (end-FY2016:184 stores). Patisserie’s Executive Chairman, Luke Johnson commented “We have delivered another strong set of results with growth in both revenues and profit and excellent cash conversion despite the challenging market conditions and the current inflationary environment. …I am confident of delivering a successful second half of the year and beyond”. The Group declared an interim dividend of 1.2p per share, up +20.0%, to be paid on 7 July 2017.
Our view: Patisserie continue to deliver strong results. Although the gross margin has dipped slightly from 78.3% a year ago to 78.0% due to high inflationary pressures on food costs, EBITDA margin has improved from 21.1% to 22.0%. This resulted pre-tax profit and EBITDA grew faster than the revenue growth, therefore led to earnings per share enhancement and ability for +20% hike in interim dividend, in line with its progressive dividend policy. The Group opened second store in Northern Ireland and first international store in the Republic of Ireland, which is highly encouraging as the success of these can lead towards accelerated store expansion plan internationally. The Group has noted that its Republic of Ireland store is performing well. Looking ahead, the Group said post period trading has been good and is remain on track to open 10 additional new stores this year, while retaining rich pipeline of further new sites. In terms of costs, the management noted that prices of majority of core ingredients post the period has now stabilised at normalised levels. Other costs such as rent and the Business Rates have relatively benign effect, while National Minimum and National Living Wage increases implemented in April 2017 and the next stage of the National Living Wage increase will add c.£0.5m on cost. The Group is continuing to mitigate these impact through more effective labour rostering method and other areas of scale benefits. Together with further supply chain improvements and operational gearing from the growing group, the management expect broadly flat gross margin in FY2017. Although concerns over wage pressure and ingredient price inflation persists, given its track-record of growth, management confidence as well as strong balance sheet, growth momentum is ongoing. The shares are valued at FY2017E and FY2018E P/E multiples of 21.5x and 18.6x, along with dividend yields of 1.0% and 1.2%. Beaufort reiterates its Buy rating on the Shares.
REQUEST A CALL FROM A BROKER REGARDING THIS RECOMMENDATION
UBM (UBM.L, 699.00p) – Buy
UBM, a leading global organiser of B2B events, yesterday provided its year-to-date trading update. The management confirmed that it is trading in line with management’s expectation and on course to meet its full year outlook. It noted that the performance at the spring fashion events was mixed. Good growth was seen in Sourcing and a successful launch of IFF Magic in Japan, while other US fashion segments was challenging. Beside this, MD&M West, Enterprise Connect, Seatrade Cruise, the Game Developers Conference, Hotelex and FineFood all grew strongly. Integration of Allworld acquired in December is also “progressing well”.
Our view: Reassuring trading update from UBM that its first 5 months performed in line with management’s expectation and unchanged full year outlook. Integration of Allworld is progressing well, whose revenue is expected to accelerate into “double digits” revenue growth during both FY2017 and FY2018, before reverting to the historic level of 7-8% thereafter. EBITDA margins of Allworld is expected at c.35% this year which the Group anticipates “significant” margin expansion thereafter, driven by revenue growth. UBM remain focused on accelerating organic growth and driving further margin improvement in line with its “Events First strategy”, while continue to maintain good pipeline of bolt-on acquisition opportunities. Given performance in line with unchanged outlook, Beaufort reiterate its Buy rating on the Shares.
REQUEST A CALL FROM A BROKER REGARDING THIS RECOMMENDATION
To read Beaufort’s full research archive click here
Barry Gibb, Kazunaga Senga, Sheldon Modeland, Charles Long & Ben Maitland
(t) +44 (0) 207 382 8384
(e) [email protected]
Click here to see all this week’s planned corporate and economic announcements.
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.
Full definitions of the recommendations used by Beaufort Securities in its publications and their respective meanings can be found on our website here.
Important Risk Warnings and Disclaimers
This report is published by Beaufort Securities Ltd (“Beaufort Securities”). Beaufort Securities Ltd is Authorised and Regulated by the Financial Conduct Authority and is a Member of the London Stock Exchange.
RELIANCE ON THIS NOTE FOR THE PURPOSE OF ENGAGING IN ANY INVESTMENT ACTIVITY MAY EXPOSE YOU TO A SIGNIFICANT RISK OF LOSING ALL OF THE FUNDS, PROPERTY OR OTHER ASSETS INVESTED OR OF INCURRING ADDITIONAL LIABILITY.
This document is not an offer to buy or sell any security or currency. This document does not provide you with individually tailored investment advice. It has been prepared without regard to the your financial circumstances and objectives The appropriateness of a particular investment or currency will depend on your individual circumstances and objectives. The investments and shares referred to in this document may not be suitable for you.
This research is non-independent and is classified as a Marketing Communication under FCA rules. As such it has not been prepared in accordance with legal requirements designed to promote independence of investment research and it is not subject to the prohibition on dealing ahead of the dissemination of investment research in COBS 12.2.5. However Beaufort Securities has adopted internal procedures which prohibit analysts from dealing ahead of non-independent research, except for legitimate market making and fulfilling clients’ unsolicited orders.
By receiving this document, you will not be deemed a client or provided with the protections afforded to clients of Beaufort Securities. When distributing this document, Beaufort Securities is not acting for you and will not be responsible for providing advice to you in relation to this document. Accordingly, Beaufort Securities will not be responsible to you for providing the protections afforded to its clients.
Beaufort Securities may effect transactions in shares mentioned herein and may take proprietary trading positions in those shares, and may receive remuneration for the publication of its research and for other services. Beaufort Securities may be a shareholder in any of the companies mentioned in this report. Accordingly, this document may not be considered as objective or impartial. Additionally, information may be available to Beaufort Securities or the Group, which is not reflected in this material. The remuneration of the author of this report is not tied to the recommendations on any shares mentioned nor to the any transactions undertaken by Beaufort Securities or any affiliate company. Further information on Beaufort Securities’ policy regarding potential conflicts of interest in the context of investment research and Beaufort Securities’ policy on disclosure and conflicts in general are available on request. Please refer to http://www.beaufortsecurities.com/important-info.
Past performance is not a guarantee of future performance. Investments may go down in value as well as up and you may not get back the full amount invested. The listing requirements for securities listed on AIM or NEX are less demanding and trading in them may be less liquid than main markets. This may make it more difficult to buy and sell these securities.
This document includes certain statements, estimates, and projections with respect to the anticipated future performance of securities listed on stock exchanges and as to the market for these shares. Such statements, estimates, and projections are based on information that we consider reliable and may reflect various assumptions made concerning anticipated economic developments, which have not been independently verified and may or may not prove correct. No representation or warranty is made as to the accuracy of such statements, estimates, and projections or as to its fitness for the purpose intended and it should not be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only and may change without notice. Other third parties may have issued other reports that are inconsistent with, and reach different conclusions from, the information presented in this report. Those reports reflect the different assumptions, views, and analytical methods of the analysts who prepared them. This report has not been disclosed to any of the companies mentioned herein prior to its publication.
This document is based on information Beaufort Securities has received from publicly available reports and industry sources. Beaufort Securities may not have verified all of this information with third parties. Neither Beaufort Securities nor its advisors, directors or employees can guarantee the accuracy, reasonableness or completeness of the information received from any sources consulted for this publication, and neither Beaufort Securities nor its advisors, directors or employees accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection with this document (except in respect of wilful default and to the extent that any such liability cannot be excluded by the applicable law). You should not rely on this document and should not use it substitution for the exercise of the independent judgment of yourself or your adviser.
The information contained in this document is confidential and is solely for use of those persons to whom it is addressed and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purpose. Other persons who receive this document should not rely on it. Beaufort Securities, its directors, officers and employees may have positions in the securities mentioned herein.