Today’s edition features:

• Patisserie Holdings (CAKE.L)
• UBM (UBM.L)

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"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

Markets

Europe
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.

Wall Street
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.

Asia
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.

Oil
In early trade today, WTI crude was down 0.33% to $48.91/bbl and Brent was down 0.4% to $52.00/bbl.

Headlines

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

Company 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.

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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.

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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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Recommendations
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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