OPEC and Non-OPEC nations agree extension but not deeper cuts


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Today’s edition features:

  • Amryt Pharma (AMYT.L)
  • United Utilities (UU..L)
  • Young & Co.’s Brewery (YNGA.L)

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OPEC and Non-OPEC nations agree extension but not deeper cuts

An extension for a further nine months of the 1.8 million barrels per day reduction in output agreed last year is the result of the latest meeting. Global oil stock levels have remained high despite these efforts and on the back of sustained growth in US shale production. After a day of swings, the price of Brent crude has slipped to the $51 pb. Level. As usual, part of the challenge for the success of these arrangements is a genuine attempt by nations to exercise self-discipline. Apart from President’s pledge to reduce US inventories, OPEC is expected to reduce the total volume of oil it ships to the US.

On the Brexit negotiation front, signs of slowing in the UK economy are not helpful but to be expected after the sharp drop in Sterling last year. Revised year-on-year GDP growth for the first quarter 2017 came in at 2.0% against 2.1% reported previously. However, an element of support to Theresa May’s campaign has come in the drop of net immigration to a three-year low at 248,000 in 2016 against 323,000 in 2015. Of course, what is critical in these numbers is what they represent in terms of the talents the UK needs to attract and retain.

The FTSE-100 Index was barely changed on the day but remains close to the 7,533 all-time high achieved on the 16th May. Two stocks, Acacia Mining (ACA.L) and Petrofac (PFC.L), continued to record sharp falls after allegations emerged about possible bribery and corruption in their operations. Though the recent price declines have left them technically oversold, it may take a matter of weeks or even months for the results of investigations to emerge.
As election campaigning resumes after the Manchester bomb attack, Sterling has come under pressure following the latest YouGov poll as the Conservatives’ lead over the Labour Party has slipped to 5%. After holding at $1.30 for several days, it is now at $1.288."
– Mike Franklin, Chief Investment Strategist


The FTSE-100 finished yesterday’s session 0.04% higher at 7,517.71 whilst the FTSE AIM All-Share index was up 0.17% at 989.10. In continental Europe, the CAC-40 finished down 0.08% at 5,337.16 whilst the DAX was 0.17% lower at 12,621.72.

Wall Street
In New York last night, the Dow Jones rose 0.34% to 21,082.95, the S&P-500 firmed 0.44% to 2,415.07 and the Nasdaq gained 0.69% to 6,205.26.

In Asian markets this morning, the Nikkei 225 had fallen 0.38% to 19,738.01, while the Hang Seng firmed 0.03% to 25,637.28.

In early trade today, WTI crude was down 0.57% to $48.62/bbl and Brent was down 0.37% to $51.27/bbl.


New payday loan regulations come into force
New payday loan regulations come into force on Friday, requiring all online lenders to advertise on at least one price comparison website. The new rules are the result of an investigation by the Competition and Markets Authority (CMA), published in February 2015. Lenders are also required to display “prominently” a link on their own websites to a price comparison site. The industry has already complained about the increasing regulations. Following a separate investigation, the Financial Conduct Authority (FCA) imposed a cap on payday loan costs from the start of January 2015.

Source: BBC News

Company news

Amryt Pharma (AMYT.L, 27.00p) – Speculative Buy
Amryt, the pharmaceutical company focused on best-in-class treatments for rare and orphan diseases, yesterday provided its AGM statement. Within this, the Group confirmed that its licensed product, Lojuxta, for the treatment of Homozygous Familial Hypercholesterolemia (‘HoFH’), is expected to deliver annualised sales of €10.5m. The management said it was “encouraged” by the study results of ‘Real-World’ experience of Lojuxta, announced recently, which showed maximal mean reduction of LDL-C (‘bad cholesterol’) of 76.5%, with 30% of the patients achieving a greater than 90% reduction. Moreover, the Group also confirmed that Phase III ‘EASE’ trial of AP101 for the potential treatment for Epidermolysis Bullosa (‘EB’) is on track. Amryt’s Chairman, Harry Stratford, commented “The Board continues to view prospects very positively”.

Our view: Amryt continue to perform well. Having passed an important milestone, the first patient first visit, for its lead drug candidate, AP101, at the end of last month, the Phase III trial continue to progress on track. EB is a rare and distressing genetic skin disorder which has achieved Orphan Drug Designation in both the US and EU. There is currently no treatment available for EB, which affects approximately 500,000 people worldwide, with global market for a treatment estimated to be in excess of US$1.35bn. Having secured €20m facility with European Investment Bank, the Group is fully funded to take AP101 to the ‘Topline Data’ in Q3’2018, while also supporting more modest on-going spend for AP102 (pre-clinical stage for Acromegaly and Cushing’s Disease). Amryt is significantly de-risked by securing a licensing deal for Lojuxta, which is generating revenue, transformed the Group into a diversified pipeline of therapies ranging from earlier to later stage development along with a commercial offering which together target multiple Rare (or Orphan) Diseases. Beaufort’s discounted-NPV for Lojuxta has on its own, significantly exceeds the Group’s current market capitalisation, suggesting nothing is apportioned to AP101 development. Such anomalies, of course, can and do correct and this cannot be long away for Amryt. We continue to believe there is significant upside potential. Beaufort reiterates its Speculative Buy rating on Amryt Pharma with a price target of 62.0p. Beaufort has published initiation research on Amryt ‘It’s good to be an Orphan’ on 23 May 2017.

Beaufort Securities acts as Retail Investment Advisor to Amryt Pharma plc


United Utilities (UU..L, 1,054.00p) – Buy
United Utilities, the UK’s largest listed water company, holding a licence to provide water and sewage services to around 7 million people and 200,000 businesses in North West of England, yesterday announced its results for the 12 months ended 31 March 2017 (‘FY2017′). During the period, revenue fell by -1.5% to £1,704m due to accounting impact of its Water Plus Business Retail JV (between United Utilities and Severn Trent), partly offset by tariff (price) increase, against the comparative period (FY2016). On an underlying basis, operating profit, advanced by +3.1% to £622.9m as a result of reduction in infrastructure renewals expenditure and lower total costs, while pre-tax profit fell by -4.6% to £389.4m reflecting £36m increase in underlying net finance expense, leading to underlying earnings per share declined to 46p (FY2016: 47.7p). On a reported basis, operating profit, advanced by +6.6% to £605.5m helped by reduced restructuring costs and pre-tax profit jumped +25.1% to £442.4m primarily due to fair value movements as well as a £22m profit on disposal of the non-household retail business. Earnings per share consequently improved by +9.1% to 63.6p. Net cash generated from continuing operating activities increased to £821m (FY2016: £686m), while net debt at the period-end widened to £6,578.7m (FY2016: £6,260.5m). On the operational front, the Group invested £804m during the period, taking total investment during AMP6 (Asset Management Plan regulatory period 2015 to 2020) to £1.6bn. Water Plus JV, its non-household retail market was fully opened on 1 April 2017. United Utilities’ CEO, Steve Mogford, commented “Our performance in the early part of this regulatory period puts us in an industry leading position and demonstrates that we are well placed to deliver further value for customers, shareholders and the environment. This is supported by a robust capital structure and good credit ratings”. The Group declared a final dividend of 25.92p per share, bringing full year dividend to 38.87p, up +1.1%, to be paid on 4 August 2017.

Our view: United Utilities performed in line with expectation during FY2017. Underlying operating profit increased amid increase in tariffs (price), a reduction in infrastructure renewals expenditure and lower total costs offset by the accounting impact of Water Plus JV. Underlying pre-tax profit, on the other hand, fell by £19m (or -4.6%) as £19m increase in underlying operating profit was more than offset by the £36m rise in underlying net finance expense, primarily due to impact of higher RPI inflation on the Group’s index-linked debt. Looking down the Key Performance Indicators (KPIs), the Group achieved customer Outcome Delivery Incentives (‘ODI’) reward of £6.7m (FY2016: £2.5m), taking total net ODI reward earned during AMP6 to date of £9.2m, ahead of management’s initial expectations. The strong performance in ODI this year was led by net £9.5m reward in Wastewater business as private sewers service and pollution performed well. Although improved, the total ODI was partially offset by £2.8m net penalty in Water business, mainly due to issues around reliable water service and water quality service. Looking ahead, the Group announced additional £100m of new investment over the AMP6 to improve “resilience for customers”, taking total regulatory capex programme to c.£3.6bn. Its Systems Thinking approach (for operational performance enhancement) is on track to deliver £100m of efficiency savings across 2015-2020. The Group has set new target for ODIs which reduced its downside risk of net penalty from -£70m to -£50m, while potential upside remained at the same level (+£30m net reward). The Shares are valued at FY2018E and FY2019E P/E multiple of 23.1x and 20.9x, along with dividend yield of 3.8% and 3.9%, respectively. Given gearing is comfortably within its target range of 55% to 65% net debt to regulatory capital value, along with strong balance sheet, it continues to support solid A3 credit rating for United Utilities. The Group is operating in defensive sector, has strong track record with sustainable dividend growth. Beaufort reiterate its Buy rating on the Shares, although our top pick in the sector remains Pennon Group (FY2018E P/E 20.2x, yield 4.3%).


Young & Co.’s Brewery (YNGA.L, 1,329.50p) – Buy
Young & Co.’s Brewery (‘Young’), a London and South East focused operator of British pubs and hotels, yesterday announced its preliminary results for the 12 months ended 3 April 2017 (‘FY2017’). FY2017 is comprised of 53 weeks whereas its comparative period is 52 weeks (FY2016), unless stated otherwise. During the period, revenue advanced by +9.4% to £268.9m, operating profit increased by +11.9% to £46.1m, and pre-tax profit jumped by +12.8% to £37.0m which led to basic earnings per share of 61.51p, up +12.4%. On an adjusted basis, in absence of, for example, properties revaluation, tenant compensation and goodwill impairment, pre-tax profit advanced by +13.5% to £40.4m and basic earnings per share increased +13.7% to 66.43p. Operating cash generation improved to £63.5m (FY2016: £60.4m), while cash at the period-end stood at £6.6m (FY2016: £13.2m). Net debt at the period-end was reduced by -£3.6m to £126.6m, representing net debt to EBITDA of 1.9x (FY2016: 2.2x). On a 52 weeks basis, revenue in Managed Houses (pubs and hotels under Young’s and Geronimo brand) increased by +7.0% with Like-for-like (‘LFL’) growth of +4.7%, while Ram Pub Company (tenanted pubs) revenue rose +7.1%, with LFL growth of +3.2%. On the operational front, the Group has invested £38.2m in acquisitions, transformational developments and estate upgrades. The Group acquired 4 pubs, sold 1 and 2 leases expired during the period, taking total estate to 252 pubs (Young’s 135 (include 23 hotels), Geronimo 38, Ram Pub Company 79). The Group added one hotel during the period with total room stock increased to 486 (FY2016: 475). Young’s CEO, Patrick Dardis commented “I am delighted with these results. We will continue to surprise and delight our customers, and to grow our estate through carefully selected acquisitions and developments, all in pursuit of delivering superior returns for our shareholders.” The Group declared a final dividend of 9.62p per share, bringing full year dividend to 18.50p, up +6.0%, to be paid on 13 July 2017.

Our view: Young delivered strong performance for the FY2017, recording positive LFL growth in all its divisions, with recording 20th consecutive year of dividend growth. Managed House’s total LFL was up +4.7%, comprised of Young’s +5.0% and Geronimo +3.8%, supported by strong growth in both drink (particularly Wine and Spirits) and food (successful Ultimate Sunday Lunch). Hotel recorded +2% increase in occupancy rate to 74.9% with flat revenue per available rooms of £60.86 (FY2016: £60.01). Rum Pub Company’s LFL was up +3.2% as its estates were benefitted from the previous year’s capital investments, along with improved wine range. Post the period, for the first 7 weeks of FY2018, the Group confirmed its trading is “positive” with Managed Houses revenue increased by +6.1% or up +4.7% on a LFL basis, helped by mild and dry weather in April and increase in “staycations” over the Easter holidays, somewhat offset by wet May. Looking ahead, the sector continues to face various cost pressures such as energy inflation, increase alcohol excise duty, National Minimum and Living Wage and Business Rates, particularly in London. The new business rate alone is estimated to cause c.£1.8m impact to the Group during FY2018. The Shares are valued at FY2018E and FY2019E P/E multiple of 20.1x and 18.3x, along with dividend yield of 1.5% and 1.6%, respectively. Despite number of cost headwinds and political/economic uncertainties, considering the Group’s ability to continuously outperform the sector, management’s future confidence and strong track record of growth, Beaufort reiterate a Buy rating on the Shares, although for an income investors, its peer such as Marston’s (FY2017E P/E 9.6x, yield 5.6%) and Greene King (FY2017E P/E 10.4x, yield 4.5%) offers more attractive dividends.


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]

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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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