• Bezant Resources (BZT.L)
• Eurasia Mining (EUA.L)
• Horizon Discovery (HZD.L)
• Katoro Gold (KAT.L)
• Ryanair Holdings (RYA.L)

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IAG Close to Stall Speed

“Overall, the market was unremarkable in terms of news with no major developments in the run-up to the General Election which is now just eight days away. If the Conservatives get their campaign broadly back on track after the Social Care wobble and the Manchester bombing, they should be returned with a majority but talk of a landslide now looks fanciful.

The weaker close in Tuesday’s FTSE-100 Index reflected the weekend’s IT problems of IAG (BA). The company claims to have returned operations to normal but, for some customers, the problems of mislaid luggage and adequate compensation remain. After dropping by around 4% initially, the shares closed just 1.4% lower. Click here to read our latest research note on IAG. Elsewhere in the sector, easyJet closed 0.8% lower while Ryanair, which reported record annual profits, dipped initially before closing 2.3% higher.

In the US, speculation remains about the next revelation to emerge from the White House concerning the nature of communications with Russia during the Presidential Election.”
– Mike Franklin, Chief Investment Strategist

Markets

Europe
The FTSE-100 finished last night’s session 0.28% lower at 7,526.51 whilst the FTSE AIM All-Share index was down 0.03% at 991.11. In continental Europe, the CAC-40 finished down 0.50% at 5,305.94 whilst the DAX was 0.24% lower at 12,598.68.

Wall Street
In New York last night, the Dow Jones fell 0.24% to 21,029.47, the S&P 500 dropped 0.12% to 2412.91 and the Nasdaq slipped 0.11% to 6203.19.

Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.89% to 16,596.37, while the Hang Seng firmed 1.59% to 23,163.06.

Oil
In early trade today, WTI crude was down 0.64% to $49.34/bbl and Brent was down 07.3% to $51.65/bbl.

Headlines

Sterling dips on new UK election poll
The value of the pound dropped after a projection suggested the Conservatives could fail to win an outright majority in the election on 8 June. Previous opinion polls suggested Prime Minister Theresa May’s party would increase its majority, which is currently 17 seats. But the projection, published in the Times and based on YouGov research, suggests a possible hung parliament. Sterling fell by more than half of one per cent, but recovered some losses. By early Wednesday morning, it was trading 0.44% lower against the dollar at $1.28020 and 0.29% lower against the euro at 1.14600 euros.

Source: BBC News

Company news

Bezant Resources (BZT.L, 1.15p) – Speculative Buy
Bezant has announced it has acquired a 150 tonne per hour alluvial processing plant which is being mobilised now and will be commissioned end 2Q/3Q. As result we expect first production from its Choco Gold-Platinum project during 3Q. As part of the acquisition Bezant is also getting “engineering blue prints and all technical plans, schematics and data acquired, to enable Bezant to replicate and manufacture similar processing plants”. In conjunction Bezant has signed a mining services agreement with Exumax which previously managed the exploration programme and will now manage the mining operation. The acquisition consideration is $200k upfront cash and 40 million shares depending on certain milestones.

Our view: This news means Bezant is going into production for $200k cash and shares with a modern (New Zealand designed), mercury free, alluvial plant, the first of its kind to be used in Choco Province. Assuming the first plant goes well, Bezant will be in a position to roll out multiple plants across its land package in the region, with Exumax as its operating partner and a major shareholder. We look forward to Bezant updating the market as it transitions into commercial production over the next couple of months and maintain our Speculative Buy recommendation.

Beaufort Securities acts as a corporate broker to Bezant Resources plc

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Eurasia Mining (EUA.L, 0.45p) – Speculative Buy
Eurasia Mining has announced that its “Reserves report and Feasibility Study” for Monchetundra has been approved by the Russian State Agency for Subsoil Use (Rosnedra). The maiden, fully compliant and approved reserves are 1.9 Moz of palladium equivalent, grading 2.0 g/t in two open pits. The next step is application for a Discovery Certificate which Eurasia will lodge shortly. The Discovery Certificate will give Eurasia exclusive rights to apply for a production licence at Mochetundra.

Our view: Although Eurasia has been working at Monchetundra for more than 10 years, the speed of its development has significantly increased in recent months. This started with the EPC agreement with Sinosteel (announced October), followed by the submission of the Feasibility Study (December), and now the maiden approved reserves of 2.0 Moz of palladium. These milestones should add to Mochetundra’s value and be reflected in Eurasia’s market value. However, with a market value of circa £7m, this is clearly not happened. Bear in mind Eurasia’s West Kytlim project is now in production (subject to weather conditions) while 2.0 Moz of open pittable palladium at Mochetundra should have considerable insitu value. We have a Speculative Buy recommendation and look forward to West Kytlim updates now operations have restarted following the cold winter months.

Beaufort Securities acts as a corporate broker to Eurasia Mining plc

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Horizon Discovery (HZD.L, 209.00p) – Speculative Buy
Horizon Discovery (‘Horizon’), the world leader in the application of gene editing technologies, yesterday announced its preliminary results for the 12 months ended 31 December 2016 (‘FY2016’). During the period, revenue advanced by +19% to £24.1m, comprised of; Product revenues +45% to £11.3m and Services revenues +5% to £12.7m, against the comparative period (FY2015). Gross margin improved by +5% to 54% as Product margin rose significantly to 70% (FY2015: 57%), combined with increased Product sales volumes and reduced cost of goods sold. This resulted EBITDA loss before exceptional items of £3.8m compared to a loss of £4.6m last year. Amid increased R&D costs, corporate and administrative costs and exceptional items, loss after tax has widened to £11.4m (FY2015: loss £10.5m). Cash and cash equivalents at the period-end stood at £6.1m (FY2015: £25.1m) with £8m undrawn debt facility. The Group also noted that progress in the Research Biotech division continues where the Group remains eligible to receive future R&D milestones of approximately £208m (FY2015: £208m) plus future product royalties, and equity upside through its Avvinity Therapeutics joint venture. On the operational front, the Group entered into multiple long-term partnerships across the business and formed a joint venture with Avvinity Therapeutics, with Centauri Therapeutics Ltd. The Group also launched eCommerce, Enterprise Resource Planning system and laboratory automation systems during the period to improve business infrastructure. Its Boston (USA) operations were consolidated into Cambridge (UK) headquarters for operational efficiencies purpose. Horizon’s CEO, Dr. Darrin M. Disley, commented “With our gene editing expertise and scientific leadership, and global commercial resources, sales channels and business systems now all in place, we are extremely well positioned to take advantage of the international opportunities before us and the Board is confident and excited about Horizon’s future.”

Our view: Horizon delivered a full year result broadly in line with expectations. Revenue was at the bottom-end of its guidance of £24m-£26m, as consolidation of Boston molecular screening operations (a part of Services business) into the new Cambridge headquarters has resulted in revenue capacity reduction with just +5% overall Service revenue growth during the period. Beside this, in vitro and in vivo gene editing and assay services performed strongly with +30% growth in revenue. Improvement in gross margin to 54% was driven by strong growth in Product margin to 70% (up +13%) as share of revenues derived from Products grew to 47% (FY2015: 39%), which was partially offset by lower Service margin of 40% (down -6%). Post the period, the Ground confirmed the “strong” start of FY2017 with Q1 revenue growth +25% ahead of last year. The Group said Immuno-oncology has generating £1.5m in current and ongoing Products and Services year-to-date, which is c.+40% growth year-on-year. Operationally, the Group signed a Master Services Agreement with a top 3 global pharmaceutical company, and expanded license for the use of CRISPR with ERS Genomics. Looking ahead, now that the Group completed the measures necessary to reduce its FY2017 cost base by over £5m (including £3m from expanded headquarters), along with “strong order book” and “forward visibility” confirmed at the time of trading update (announced 24 January 2017), the Group reiterated its full year revenue guidance of between £30m to £35m, and said it remains confident to deliver its IPO goal of positive EBITDA in FY2017. Given results in line with guidance with reassured FY2017 outlook, Beaufort retains it Speculative Buy recommendation on Horizon Discovery with a target price of 200p.

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Katoro Gold (KAT.L, 5.00p) – Speculative Buy
Katoro Gold, the Tanzania focused gold exploration and development company, announced today that development work on the Imweru gold project has commenced. The Company stated that operational teams were deployed to the site over the past week and the first drill rig is expected to arrive on 1 June. With the site and drill pad already prepped, drilling will begin once the rig arrives on site. The Imweru gold deposit has a JORC-compliant mineral resource estimate of 515,110oz of gold comprising 82% in the Inferred and 18% in the Indicated categories.

Our view: Katoro has recently raised gross proceeds of £1.5m and will use most of the funds to further develop the Imweru gold project through additional drilling, completion of a pre-feasibility study and application of a mining licence before the end of 2017. We look forward to further announcements regarding the development of the Imweru gold project. In the meantime, we maintain a Speculative Buy recommendation on the stock.

Beaufort Securities acts as a corporate broker to Katoro Gold plc

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Ryanair Holdings (RYA.L, EUR18.44) – Buy
Ryanair, a low-cost European short-haul airline company, yesterday announced its results for the 12 months ended 31 March 2017 (‘FY2017’). During the period, passenger traffic advanced by +13% to 120.0 million customers, while the load factor improved +1% to 94%, against the comparative period (FY2016). As average fares dropped by -13% to €41, this has resulted revenue only improved by +2% to €6,648m. On the other hand, the Group reduced unit costs by -11% (-5% excluding fuel) and improved net margin by +1%, resulting profit after tax to increase by +6% to €1,316m. Together with this, as a result of €1.02bn returned to shareholders through share buyback completed in February, basic earnings per shares jumped by +14% to €1.05. Due to the net capital expenditure, shareholder returns and debt repayments, period-end net debt was €244.2m against net cash of €311.5m a year ago. Cash and cash equivalents at the period-end stood at €1,224m (FY2016: €1,259.2m). On the operational front, Ryanair delivered Year 3 of its ‘Always Getting Better’ (‘AGB’) customer experience programme by enhancing its website, mobile app, and digital platforms. The Group said its website, Ryanair.com has become the most visited airline website in the world with ‘MyRyanair’ membership rose to 20 members, while its mobile app reached 20.5 million downloads. Ryanair opened 10 new bases, launched 206 new routes and delivered 52 new Boeing aircrafts during the period. Ryanair’s CEO, Michael O’Leary commented “We are pleased to report a 6% increase in PAT to €1.316bn, despite difficult trading conditions in FY17 caused by a series of security events at European cities, a switch of charter capacity from North Africa, Turkey and Egypt to mainland Europe, and a sharp decline in Sterling following the June 2016 Brexit vote. We reacted to these challenges by improving our customer experience, and stimulating growth with lower fares.”

Our view: Ryanair delivered full year results in line with its guidance. The Group achieved +6% increase in profit after tax to €1.32bn (guidance: €1.30bn-€1.35bn) through reduced cost, improved margin and increased number of customers travelling along with better load factor. This was despite the Group having lowered average fares by -13%, as it delivered unit costs reduction of -11%, of which, -5% was excluding fuel (ahead of -4% guided previously). Both passenger traffic and load factor has met its target of 120 million customers and 94%, respectively. On the operational front, Ryanair continues to improve customer experience through AGB programme. Launched in May 2017, Year 4 of AGB will work on ‘connecting flights’ which initially on Ryanair flights, followed by 3rd party connections in late 2017. The Group has also started this month selling of long-haul flights from Madrid to North and South America partnering with Air Europa. The Group’s ‘My Ryanair’ membership continue to expand with 22 million members expected by the end of this month, with a target of 30 million in FY2018. Looking ahead, subject to normal level of disruptions, Ryanair is targeting passenger traffic of 130 million with flat load factor (94%) in FY2018. Average fares are expected to decline by -5% to -7% for the full year (H1: c.-5%, H2: c.-8%). Outlook for the FY2018 fuel savings has slightly improved at €70m (previously guided: c.€65m), while unit costs excluding fuel is expected to decline by -1% despite the strong comparatives. Altogether, these results in profit after tax guidance in the range of €1.40bn to €1.45bn and the Board also approved a further share buyback of €600m to be completed by October 2017. Although the Group has repeated its cautionary stance over external factors such as Hard Brexit (possibility of no Open Skies agreement for UK which means no UK-EU flights after March 2019), security events (terrorist attack etc.) and depreciation of Sterling, the Group has reiterated its long-term passenger traffic forecast of 200 million customers per year by March 2024 to be delivered by additional 230 aircrafts in order. Moreover, the Group’s CEO has said yesterday “we have more growth opportunities than our fleet deliveries and planned fleet deliveries over the next couple of years than we can cope with” which is signalling its long-term confidence. Beaufort is encouraged by the Group’s ability offering lowest fares in the Europe while still retaining its net profit position. The key differences for Ryanair is its ability to continue reducing its ex-fuel unit costs, achieving “lowest passenger costs” amongst its EU competitors, at the time of traffic growth and when competitors are “forecasting flat or rising” costs. This gap between Ryanair and its rivals should enable Group to maintain its current momentum and continue winning market share. Considering the Group’s ongoing expansion, long-term confidence, strong balance sheet and forward bookings (H1: +1% ahead of prior year), Beaufort retains its Buy rating on Ryanair.

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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

Click here to see all next week’s planned corporate and economic announcements.

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.

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
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