logo-loader

Beaufort Securities Breakfast Alert: Advanced Oncotherapy, Easyjet, Horizon Discovery Group PLC

Published: 19:14 25 Jan 2017 AEDT

no_picture_pai

Today's edition features:

Thor Mining (LON:THR)

Advanced Oncotherapy (LON:AVO)

easyJet (LON:EZJ)

Horizon Discovery (LON:HZD)

"It was always highly unlikely that the Supreme Court would reverse the judgement made by the High Court. Theresa May will nevertheless be pretty happy with yesterday’s final ruling that sets a far-reaching constitutional precedent and upholds parliamentary sovereignty. The justices held back from insisting that the devolved administrations would have a vote or a say on the process - which otherwise would have created a potential nightmare scenario for her government. Given also that the Supreme Court held back from explicit instruction, in particular a provision for potentially endless calls for documentation, possibly as early as tomorrow ministers will put forward what is expected to be an extremely short piece of legislation in the hope of getting MPs to approve it, possibly within a fortnight. So, although certain members from Labour or the Liberal Democrats may seek their pound of flesh, the expectation that the Prime Minister will be triggering Article 50 by the end of March remains. Given that the vote is reserved for Westminster, however, there is still a price to pay; while the Scottish Parliament cannot block London’s decision, the leader of the Scottish National Party, Nicola Sturgeon, has already stated that she will ask her ministers to take a separate vote. As this looks almost certain to be for Remain, the case will clearly be built for another Referendum and, as Theresa May knows only too well, the legacy of being the Prime Minister that ‘broke up the Union’ is not one to savour. Meanwhile, ‘man of action’ Donald Trump regained market’s confidence once again, with the US$ moving higher as traders shunning the Euro on revived talk of a prospective Eurozone implosion during 2017. All three principal US indices ended positive, led by the NASDAQ, but with the Dow Jones also back once again within 100 points of the psychologically important 20,000 level. Asia followed suit across the board, with the Nikkei leading regional gains as the Yen pivoted back against a stronger Dollar, while China move modestly higher having confirmed its central bank pumped a record weekly RMB1.13tr into the domestic money markets, as the bank tightened bias by hiking rates on its medium-term lending facility by 10bp ahead of the week-long holiday period that begins on Saturday. A comment from the ECB’s top official, Lautenschlaeger, regarding his expectation the €2.3tr bond-purchase programme can soon be expected to wind down will likely create some volatility amongst Continental bourses during this morning’s opening, although London itself is seen higher with the FTSE-100 expected to rise some 25 points during early trade. The UK is expected to release its CBI Industrial Trends Survey at 11:00hrs this morning, which will be followed this afternoon by the US House Price Index for November and MBS Mortgage Applications. UK corporates expected to provide earnings or trading updates include McCarthy & Stone (MCS.L), Restaurant Group (RTN.L), Santander (BNC.L), Time Out (TMO.L) and WH Smith (SMWH.L). Investors will also be listening keenly for any further fall out regarding BT Group’s (BT.A.L) disclosure from yesterday regarding fraud in Italian operations, while anticipating this afternoon’s ABC broadcast of Donald Trump’s first televised interview since taking office. "

- Barry Gibb, Research Analyst

 

Markets

Europe

The FTSE-100 finished yesterday's session 0.01% lower at 7,150.34, whilst the FTSE AIM All-Share index closed 0.16% higher at 875.01. In continental Europe, the CAC-40 finished 0.18% up at 4,830.03 whilst the DAX was 0.43% higher at 11,594.94.

Wall Street

In New York last night, the Dow Jones closed 0.57% higher at 19,912.71, the S&P-500 firmed 0.66% to stand at 2,280.07 and the Nasdaq gained 0.86% to finish at 5,600.96.

Asia

In Asian markets this morning, the Nikkei 225 had shed 1.27% to 19,026.84, while the Hang Seng firmed 0.16% at 22,987.70.

Oil

In early trade today, WTI crude was down 0.32% to $53.01/bbl and Brent was down 0.25% to $55.30/bbl.

 

Headlines

UK car industry investment 'slowing down'

Investment in the UK's automotive industry fell in 2016 after several years of strong growth, according to the head of the industry's trade body. Some investment decisions are also on hold until there is clarity about the UK's post-Brexit trading arrangements. Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, was giving evidence to the Treasury Committee on Tuesday. He told MPs that investment appears to be falling back. "We are putting together the data as best we can," he said. "But I sense certainly that the amount invested over the last 12 months will not be as high as the preceding one, two, three years." He said that despite the decision taken by Nissan in the autumn to build two new models at its Sunderland plant, other companies appeared to be holding off key decisions. "Certainly, I believe that companies are at least sitting on their hands... until there is a bit more clarity," he said. UK car production has grown sharply in recent years on the back of record investment.

Source: BBC News

 

Company news

Thor Mining (LON:THR, 0.61p) - Update

Thor Mining yesterday morning announced a small placing supported by existing and new shareholders. The funding will allow Thor to progress its planned February drilling campaign at its Pilot Mountain tungsten project in Nevada. Thor is also expecting to receive A$1.5m at the end of February from the sale of its 40% share in the Spring Hill gold project in Australia. Together these funds should be sufficient for a eight hole programme focused principally on the Desert Scheelite and Garnet areas, with funds remaining for some follow on work.

Our view: The Pilot Mountain tungsten project consists of four known deposits and multiple additional targets. Current resources are 6.79 million tonnes at 0.31% Wo3, so a decent grade. There is also copper, zinc and silver in the system, and in some areas these grades are high enough to consider recovering (although we don't yet no the scale or metallurgy of these base metals zones). Upcoming drilling will focus on extending high grade areas (e.g. 13.5m at 0.89% tungsten trioxide) at Desert Scheelite but mainly look to twin six historical holes at Garnet which could deliver an additional 1.5Mt resource. We expect Thor to start mobilising for drilling in February and anticipate associated news flow as the drill programme gets underway. Given that the Garnet deposit at Pilot Mountain was successfully drilled by Union Carbide, and Thor's holes are twinning holes, we anticipate positive results.

Beaufort Securities acts as a corporate broker to Thor Mining plc

 

Advanced Oncotherapy (LON:AVO, 59.01p) – Speculative Buy

The developer of next-generation proton therapy systems for cancer treatment yesterday informed shareholders that on 23rd January, Sinophi Healthcare Limited had told the Group that it wished to terminate the purchase orders announced on 25 March 2015 and 21 October 2015. Advanced Oncotherapy noted its firm position that Sinophi has no legal basis on which to make such a termination and that it will take appropriate action to protect its position.

Our view: It always comes as a surprise when the market reacts violently to some news item whose impact was considered already to be priced-in. Yesterday’s announcement told shareholders nothing new. Back in November, AVO detailed the fact that Sinophi was no longer to proceed with the installation of LIGHT technology in the China-Japan Union Hospital of Jilin University in Changchun and First People's Hospital of Huai'An. Back then, AVO also confirmed that the orders for the two machines remained in place as per its agreement with Sinophi and that they were assessing other sites in the same cities as well as pursuing other framework agreements in China. Realistically, however, given the bespoke nature of the two original contracts, it was clear that no ‘replacement buyers’ would be found and formal termination was only ever going to be a matter of time. AVO’s management always insisted, however, that the contractual details simply do not permit the originator to ‘walk away’ and that there never was any binding legal agreement with respect to delivery schedules. More to the point, the contracts were composed under English law and both companies have registered offices in the UK. Nevertheless, it would never be in either of the company’s interests to see their argument fought out in the courts, particularly for Sinophi which undertakes very large operations in China where partners would be highly sensitive to any suggestion that it had not looked after its client interests correctly. As such, assuming AVO’s legal counsel has correctly advised it, the dispute will more likely be argued behind closed doors and result in reparations being made to partially compensate AVO for its loss of profit opportunity amounting to, perhaps, a few million US$. Given the pressures on AVO’s balance sheet, any such payment would be welcome although, of course, it would still represent an unfortunate outcome from what initially had appeared to be a quite remarkable business opportunity. In this same respect, Monday’s announcement regarding the possibility of the Group securing non-dilutive financing from a ‘strategic partner’ (which Beaufort believes to be the French giant, Thales Group), also provides some hope for those fearful that AVO will otherwise be forced to undertake further discounted equity placements. Investment in AVO carries risk, but Beaufort retains its Speculative Buy recommendation in the belief that its technology has the potential to revolutionise the world of proton bean therapy.

 

easyJet (LON:EZJ, 981.00p) – Buy

easyJet, a low-cost European short-haul airline company, yesterday announced a trading update for the 3 months ended 31 December 2016 (‘Q1 FY2017’). During the period, revenue advanced by +7.2% to £997m, comprised of +7% increase in seat revenue and +19.3% growth in non-seat revenue, against the comparable period (Q1 FY2016). Strong growth in non-seat revenue was a result of improvements in inflight product ranges and attractive partner agreements. Seat revenue growth was driven by +8.2% passenger growth to 17.4 million customers led by a +8.6% capacity growth to 19.3 million seats. Load factor fell -0.3% to 90%. Revenue per seat decreased by -8.2% at constant currency basis to £48.01 (or by -1.2% on a reported basis to £51.64). Headline cost per seat, including fuel, improved by -2.1% at constant currency, while it increased by +1.1% when excluding fuel. On the operational front, the Group have saved £14m of cost during the Q1 as a result of lean programme, through engineering and maintenance, volume-related airport savings and the benefits of ongoing fleet up-gauging. easyJet has generated US$144m in cash (before one-off non-cash charge of £16m) through entering sale and leaseback arrangement for 10 A319 aircraft (first tranche), while also increased its fleet flexibility secured with Airbus giving it a reduced 18-month notice period on aircraft deferrals. The Group has also strengthened its financial position through €500m new bond issue and extending its US$500m revolving credit facility by one year to 2022. Cash and money market deposits were £1,337m (31 December 2015: £743m) and net cash was £217m (31 December 2015: £266m) as at 31 December 2016.

Our view: easyJet delivered a Q1 performance in line with guidance. Strong revenue growth boosted by currency movements, while passenger numbers expanded despite the negative impact from the Berlin Christmas market attack in December. Looking ahead, the Group warned that the weakness of Sterling is expected to impact easyJet's full year pre-tax profit by around £105m. Combined with fuel, this is £35m worse than previously expected, which resulted shares falling sharply yesterday. Subject to normal levels of disruption, the Group reiterated that it planned to grow seat capacity by up to +9% in the FY2017, while it remains targeting 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 remain committed to flat cost per seat excluding fuel at constant currency in the FY2019 against FY2015. Revenue per seat for the H1 is expected to decline by “high single digits”, within the range of previous guidance, due to the timing of Easter and the Berlin attack. Adjusting for this, underlying revenue per seat decline is expected to improve in the Q2 compared to the Q1, supported by a strong demand across all European markets. Considering the successful lean cost programme, strong forward booking (c.56% of expected bookings in Q2 has now been secured), and strong balance sheet, Beaufort retains its Buy rating on the shares based on a FY2017E earnings multiple of 11.4x and 4.4% yield, while keeping one careful eye on the oil price and economic/political uncertainties.

 

Horizon Discovery (LON:HZD, 165.50p) – Speculative Buy

Horizon Discovery (‘Horizon’), the world leader in the application of gene editing technologies, yesterday provided a trading update for the 12 months ended 31 December 2016 (‘FY2016’). The Group said it expect revenue to advance by at least +19% to over £24m; comprised of at least +44% growth in Products business revenue and no less than +4% growth in Services revenue, against the comparable period (FY2015). Gross margin has increased to the mid-50% range from 49% year-on-year, driven by significantly increased gross margin for Products business at approximately 70% (FY2015: 57%), combined with product sales volumes ahead of expectations and at reduced cost of goods sold. The Group expects to report a full year loss after taxation in line with expectations (FY2015: loss £10.5m). The Group ended the FY2016 with cash headroom of £11m; comprised of £6m cash and £5m 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 up to £208m plus future product royalties, and equity upside through its Avvinity Therapeutics joint venture. Horizon’s CEO, Dr. Darrin M. Disley, commented “Early revenue indicators for 2017 already look encouraging thanks to a very robust sales order book. This, combined with having the products and services, global commercial resources and sales channels, and business systems needed to drive long term success all in place, reinforces our confidence in becoming a sustainably profitable company as we continue to deliver strong revenue growth.” The Group is planning to release its preliminary results in May 2017.

Our view: Horizon delivered strong result for the FY2016. Revenue has increased by at least +19% to over £24m (guidance £24m-£26m), despite being impacted by its molecular screening (part of Services business) due to relocation of its operations. Encouragingly, gross margin also improved to the mid-50% range. Moreover, the Group has completed the measures necessary to reduce its FY2017 cost base by over £5m (including £3m from expanded headquarters). With a strong order book offering forward visibility of over 50% of expected FY2017 consensus revenues, the Group reiterated its revenues guidance of £30-£35m, and said it remains confident to deliver its IPO goal of positive EBITDA in FY2017. Given results in line with guidance and a confident FY2017 outlook, Beaufort retains it Speculative Buy recommendation on Horizon Discovery with a 200p/share price target.

Australian Strategic Materials signs US$600 million LoI

Rowena Smith, CEO and managing director of Australian Strategic Materials Ltd (ASX:ASM, OTC:ASMMF), joins Jonathan Jackson in the Proactive studio to discuss the company’ s Dubbo Project, in Central West New South Wales. This project aims to extract and process critical minerals and rare earth...

8 hours, 24 minutes ago