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Beaufort Securities Breakfast Alert: Action Hotels PLC, Ryanair, Sunrise Resources Plc, BAE Systems

Published: 17:15 03 Aug 2017 AEST

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Today's edition features:

• Sunrise Resources (LON:SRES)

• Action Hotels (LON:AHCG)

BAE Systems (LON:BA)

Ryanair Holdings (LON:RYA)

 

Markets

Europe

The FTSE-100 finished yesterday's session 0.16% lower at 7,411.43 whilst the FTSE AIM All-Share index was down 0.02% at 985.42. In continental Europe, the CAC-40 finished 0.39% lower at 5,107.25 whilst the DAX finished down 0.57% at 12,181.48.

Wall Street

In New York overnight, the Dow Jones closed 0.24% higher at 22,016.24, the first time the index has closed above the psychological 22,000 mark. The S&P 500 was broadly flat at 2,477.57, as was the Nasdaq at 6,362.65.

Asia

In Asian markets this morning, the Nikkei 225 was 0.25% lower at 20,030.41 and the Hang Seng was down 0.15% at 27,566.8.

Oil

In early trade today, WTI crude was down 0.36% to $49.41 per barrel and Brent was 0.38% lower at $52.16 per barrel.

 

Headlines

Bosses' fall in pay 'limited and late'

Top chief executives' pay has fallen in the past year, but there is still "a huge gap" between them and the rest of their staff, a report has said. The bosses of FTSE 100 companies now make on average £4.5m a year, down 17% from £5.4m in 2015, according to the High Pay Centre's research. The think tank said the fall was welcome but "limited and very late". It would take the average UK full-time worker on a salary of £28,000 160 years to earn the same amount, it added. Stefan Stern, director of the High Pay Centre, said: "We have finally seen a fall in executive pay this year, in the context of political pressure and in the spotlight of hostile public opinion." However, he added it was "so far, a one-off". "We need to see continued efforts to restrain and reverse excess at the top." The report said the pay ratio between FTSE 100 bosses and the average pay package of their employees had also fallen to 129:1 - meaning that for every £1 the average employee is paid, their chief executive gets £129. In 2015 the ratio was 148:1.

Source: BBC News

 

Company news

Sunrise Resources (LON:SRES, 0.12p) – Speculative Buy

Sunrise Resources today published an update following completion of its drill programme at its flagship CS Pozzolan-Perlite Project in Nevada. The drill programme (announced 13 July 2017) was completed on schedule and was expanded from the planned five drill holes in the Main Zone to nine drill holes, including two holes in the Tuff Zone. Thick intervals of visibly identified perlite-pozzolan up to 27m from surface were intersected in the Main Zone. Whereas 61m of visibly identified pozzolan was intersected in one of the drill holes in the Tuff Zone. A comprehensive testing programme is now underway to confirm quality of the intersections. The Company also tested two hand samples from the Northeast Zone that returned exceptional initial results in strength testing. Further samples have been taken for confirmation testing.

Our View: Whilst comprehensive test work is still required to confirm intersections the visual appearance is supported by continuity with adjacent surface exposures which have already tested positive as perlite-pozzolan. This is a positive news for Sunrise as the above thicknesses are comparable with those documented from other deposits that are in production elsewhere in the USA. We are encouraged with the drill testing from the Tuff zone as well as the initial test results from the Northeast Zone and look forward to results from the comprehensive test work as Sunrise looks to build an industrial minerals business. In the meantime, we maintain a Speculative Buy recommendation.

Beaufort Securities acts as a corporate broker to Sunrise Resources Plc

 

Action Hotels (LON:AHCG, 39.00p) – Speculative Buy

Middle East and Australia hotel operator Action Hotels PLC yesterday informed the market it had opened its second hotel in Bahrain, under the ibis brand. Located in the Bahraini capital of Manama's Diplomatic Area, the hotel comprises 95 rooms including 24 family suites, a restaurant, a meeting room and a gym, while offering easy access to Bahrain's international airport and world trade centre. This represents Action Hotel's tenth collaboration with AccorHotels and the second ibis branded property in its portfolio. Early business enquiries have been encouraging, the company noted.

Our View: This is Action Hotel’s thirteenth hotel opening. Hotel ibis Styles is located in the Manama Diplomatic Area in the Kingdom of Bahrain. It is also a new milestone as this property opening marks Action’s tenth partnership with AccorHotels, being strategically complementary to the existing ibis Seef in the Kingdom. Both hotels are operated under long-term management agreements with AccorHotels and will benefit from commercial synergies and economies of scale. As was noted in the Group’s full year results statement released in early May and also subsequently in the AR&A, there remains some pressures on Middle Eastern travel and tourism due to pressure on the region’s traditional oil & gas industries. Demand, however, for lower-priced and business rooms, as opposed to super-premium accommodation, is still expected to continue to expand quite strongly in coming years, with the emergence of regional travel and the diversification of local economies away from the energy sector. Having roughly halved since peaking in May 2014, the shares now trade at an unrealistically deep discount to their NAV, which fails to recognise the strategic value held through its hotel portfolio. Offering a substantial yield, the shares should be held for income (estimated 6% yield in FY2017) while anticipating an improved financial performance in the current year and next. This should allow a recovery back to a target price of 53p/share (or to around half current net assets). Beaufort reiterate its Speculative Buy rating on Action Hotels.

 

BAE Systems (LON:BA, 590.50p) – Buy

BAE Systems, the world’s 3rd largest defence company by revenue, providing some of the world’s most advanced technology, aerospace and security solutions, up to a military capability, yesterday announced its interim results for the 6 months ended 30 June 2017 (‘H1 FY2017’). During the period, sales advanced by +10% to £9,565m (+4% on a constant currency basis ‘CC’), underlying EBITA rose by +11% to £945m (CC: +5%), and underlying earnings per share grew by +14% to 19.8p, against the comparative period (H1 FY2016). Operating business cash flow returned to positive at £277m (H1 FY2016: negative £20m) and net debt reduced by -14% to £1,741m (or widened by +13% against 31 December 2016). Order intake during the period amounted to £10,650m against £7,053m a year ago, while order backlog rose by +1% to £42.3bn compared to end-FY2016. The Group’s net pension deficit reduced by £0.2bn since end-FY2015 to £5.9bn. On the operational front, the Group secured number of contracts including the full £3.7bn production contract for the initial batch of three Type 26 frigates in June, with order intake of £2.8bn in the period, and the full £1.4bn contract for the sixth Astute Class submarine from the Royal Navy in March. The Group completed the acquired IAP Research, Inc. in February. BAE’s new CEO, Charles Woodburn, commented “With the expected improvement in the defence budget outlook in a number of our markets, the Group is well placed to continue to generate good returns for shareholders”. The Group declared an interim dividend of 8.8p, up +2%, to be paid on 30 November 2017 (ex-Dividend: 19 October 2017).

Our View: BAE Systems delivered strong results for the first-half of FY2017. The results were in line with management’s expectation with positive constant currency performance boosted by the weaker Sterling sending underlying EBITDA and EPS up by +11% and +14%, respectively. The Group has reiterated its full year guidance, supported by the number of new contract wins against a background of improving defence budgets in a number of its markets, which add longer-term visibility to Group operations. Looking ahead, in FY2017, BAE Systems expects underlying earnings per share to increase by 5%-10%, despite amending the US$ planning rate for the year from US$1.25 to US$1.28, and on track to deliver small reduction in net debt. The Electronic Systems division (16.7% of sales) is expected to grow at c.5% with margins at the upper end of a 13%-15% range, while the Cyber & Intelligence division (9.0% of sales) now anticipates “some softening” in the top line and an anticipated second-half restructuring charge. Applied Intelligence (business within the Cyber & Intelligence division) is expected to deliver close to an underlying break-even position by the year end excluding the anticipated restructuring charge. Sales for the Platforms & Services (US) division (14.6% of sales) are expected to be stable with margin in a range of 8%-9%, while Platforms & Services (UK) division (39.7% of sales) is set to record a sales decline of c.-5% with margins at the lower end of its target 10%-12% range. For the Platforms & Services (International) division (20.0% of sales), revenue growth of c.5% is expected with margins in line with FY2016 (10%-12%). The shares are valued at FY2017E and FY2018E P/E multiples of 13.7x and 13.2x along with a dividend yield of 3.6% and 3.7%, respectively. With a solid order backlog amid more favourable market conditions, together with the positive benefits of currency translation following Sterling’s Brexit-related devaluation, we believe BAE Systems remains well placed to maintain good momentum. Beaufort reiterates its Buy rating on the shares. BAE Systems is one of the Beaufort’s ‘Tips for 2017’ recommendations.

 

Ryanair Holdings (LON:RYA, EUR18.01) – Buy

Ryanair, a low-cost European short-haul airline company, yesterday provided its traffic update for July 2017. During the month, passenger traffic increased by +11% y-o-y to 12.6 million customers, while the load factor grew +1% y-o-y to 97%. The rolling annual traffic to July rose +13% to 125.1 million customers. Passenger traffic represents the number of earned seats flown, while load factor represents the number of passengers as a proportion of the number of seats available for passengers.

Our View: Ryanair reported strong passenger traffic and load factor data for July. These strong statistics follow last month’s +12% increase in passenger traffic and +2% growth in load factor. Ryanair said the good result was driven by lower fares and the continuing success of its ‘Always Getting Better’ (‘AGB’) customer experience programme. Q1 result announced last month was broadly in line with management guidance with profit after tax topped expectations, soaring by +55% helped by the timing of Easter. Looking ahead, subject to normal level of disruptions, Ryanair is targeting passenger traffic of 131 million for the full year (H1: c.+11%, H2: c.+7%), while Load Factor expected to remain flat at 94% in FY2018. For the H1, the Group continue to guide passenger traffic growth of c.+11% and average fare decline of -5%. For the H2, the Board maintained its expectation of passenger traffic growth of c.+7% and average fare decline of -8%. Average fares are expected to decline by -5% to -7% for the full year (H1: c.-5%, H2: c.-8%), amid a persistently competitive pricing environment. Outlook for the FY2018 fuel savings is at €70m, with unit costs excluding fuel decline of -1%. Altogether, this guidance translates into profit after tax in the range of €1.40bn to €1.45bn for the full year, subject to close-in summer bookings, H2 average fares, and the absence of any further security events, ATC strikes or negative Brexit developments. Beaufort remains encouraged by the Group’s ability continuing to offer lower fares while improving its profit, backed by its capability to reduce ex-fuel unit costs and thereby achieve “lowest passenger costs” amongst its EU competitors. This gap between Ryanair and its rivals should enable Group to maintain its current momentum and continue winning market share. In light of its ongoing expansion, Beaufort retains its Buy rating on Ryanair shares.

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