Beaufort Securities Breakfast Alert: Ortac Resources, Salt Lake Potash and Unilever


Today's edition features:
• Ortac Resources (LON:OTC)
Salt Lake Potash (LON:SO4)
• Unilever (LON:ULVR)

"Trumponomics went centre stage again yesterday evening as US Treasury Secretary, Steven Mnuchin, picked up Donald Trump's campaign baton. During a speech at the Institute of International Finance Washington Policy Summit, he declared his confidence that the country's citizens will soon be enjoying the most significant tax code changes since Ronald Reagan. Promising much fewer tax brackets for individuals, he confirmed the sweeping proposals are now a top priority for the President. Mnuchin also expects to release a 'Regulatory Relief' report in early June and hopes the debt ceiling will be raised 'before the summer'. Telling his audience that whether or not the Healthcare Bill become law, "we're going to get tax reform done". Markets, of course, love such reflationary talk, even if many consider such plans are already jeopardised by failure to date to get any significant part of the President's revolutionary agenda through Congress. US stock indices nevertheless were climbing way before he spoke on Thursday, on the back of gains in financials and industrials. All three principal US indices rose broadly and convincingly, led by the NASDAQ on its way to achieving a new all-time high, as American Express added 5.4% having posted a smaller decline in profits than expected, while Industrials were also buoyant helped by CSX Corp spiking 6.8% as it exceeded Wall Street forecasts. Stabilising oil prices also helped sentiment, with US crude pushing 0.2% higher to $50.94 a barrel during the US session, after Saudi Arabia's energy minister said the Organization of the Petroleum Exporting Countries is likely to reach an agreement to extend existing production cuts into the second half of the year. Asian equities picked up this improving confidence, with the Nikkei opening at its highest of the week and going on to gain more than 1% while the US$:Yen pared losses. The ASX followed behind and Hang Seng remained in positive territory, leaving just the Shanghai Composite once again nursing minor losses in continuing response to the Chinese government's efforts to curb speculative trading in the highly volatile index. Whether last night's presumed terrorist shooting on the Champs-Élysées might knock today's European opening, or change voting intentions ahead of Sunday's Presidential poll, remains to be seen. The STOXX Europe 600 had ended higher Thursday afternoon, led by the CAC-40, as investors become increasingly convinced independent centrist Emmanuel Macron will succeed in becoming the country's new leader, while Eurozone consumer confidence improved for a second straight month in April, as the flash index rose to -3.6 from -5. UK macro releases today include March Retail Sales figures, while the EU provides its February Current Account and Markit Manufacturing and Composite PMI for April. The US also releases its own April Markit data, Existing Homes Sales and the Baker Hughes US Oil Rig Count. FOMC Member Neel Karkashi is also due to make a speech. UK corporates due to release earnings or trading updates today include Close Brothers (LON:CBG), Record (LON:REC) and Bonmarche Holdings (LON:BON). An unsettled background will leave London investors somewhat perplexed this morning, as they try to weight ramifications both of latest news and anticipations ahead of Sunday's important vote. The FTSE-100 is seen simply hitching a ride on the overnight markets, with an opening gain of 5 to 10 points."
- Barry Gibb, Research Analyst


The FTSE-100 finished yesterday's session 0.06% higher at 7,118.54 whilst the FTSE AIM All-Share index was 0.50% better off at 944.95. In continental Europe, the CAC-40 finished up 1.48% at 5,077.91 whilst the DAX was 0.09% higher at 12,027.32.
Wall Street
In New York last night, the Dow Jones rose 0.85% to 20,578.71, the S&P-500 added 0.76% to 2,355.84 and the Nasdaq improved 0.92% to stand at 5,916.78.
In Asian markets this morning, the Nikkei 225 had added 0.79% to 18,576.64, while the Hang Seng rose 0.08% to 24,075.16.
In early trade today, WTI crude was down 0.34% to $50.27/bbl and Brent was up 0.13% to $53.06/bbl.

Company news

Ortac Resources (LON:OTC, 3.75p) - Speculative Buy
Ortac Resources has announced it has entered into a joint venture with a Slovakian company to jointly develop the Sturec gold project (900koz of reserves). The JV needs to be formalised in a legally binding contract, but presumably this is either close or highly likely to complete.

Our view: Ortac has been trying to develop Sturec for too long and most observers have probably written it off. But if this JV can unlock the local political support Sturec requires to achieve mine construction, it will be great news for Ortac shareholders. In fact Sturec's value is hardly, if at all, reflected in Ortac's share price. Assuming reasonable JV terms this development could lead to a re-rating for Ortac and a jump in the share price.

Beaufort Securities acts as corporate broker to Ortac Resources plc

Salt Lake Potash (LON:SO4, 29.50p) - Speculative Buy
Salt Lake Potash visited our London office yesterday. Management discussed its plan to build a small-scale process plant in 4Q17 which should mean production in 2H18. It's being called a pilot plant but it could produce up to 40ktpa of high quality Sulphate of Potash (SOP) and be profitable. Based on a capex estimate of $35m and an our estimate production cost of US$300/t, a 40kt operation could produce US$10m of operating cashflow. Management also described the bigger picture and touched on the interest in SO4's projects being shown by global SOP players. This was also mentioned in yesterday's RNS.

Our view: This pilot plant development should provide catalysts for the stock over the next 12 - 18 months. However the investment case is overwhelmingly dominated by the potential for a large scale and very long life SOP operation. SO4 has a very large footprint in Western Australia with 9 potash containing salt lakes and 4750km2 of licences. It has the potential to be a major low cost SOP producer in an excellent jurisdiction with rail and power infrastructure. Also, unlike standard potash commodities, SOP's price has been strong with a very positive outlook due to its low salt content (SOP is 2.5x the price of benchmark KCL potash products such as Muriate of Potash, MOP). With a market cap of less than £40m we regard SO4 as the next Sirius, certainly in terms of upside potential. In fact unlike Sirius, SO4 has a far lower capex requirement, an established high value end product, and none of Sirius' massive underground engineering challenges. Maybe the trade should be buy SO4 and sell Sirius? We will update you in due course.

Unilever (ULON:LVR, 3,950.00p) – Buy
Unilever plc, a consumer goods company manufacturing, distributing and marketing branded and packaged goods, yesterday provided a trading statement for the 3 months ended 31 March 2017 ('Q1 FY2017'). During the period, revenue advanced by +6.1% to €13.3bn at a reported basis (including a favourable currency impact of +2.4% and +0.7% from acquisitions net of disposals), against the comparable period (Q1 FY2016). Underlying sales growth was +2.9%, supported by +3.0% increase in price, but -0.1% fall in volume. Divisionally, Refreshment (+5.4% underlying sales growth), Home Care (+4.1% underlying sales growth) and Personal Care (+3.1% underlying sales growth) performed ahead of its markets, while sales in Foods division saw flat underlying sales year-on-year due to timing of Easter this year. Geographically, emerging markets continue to show strong growth with +6.1% growth in underlying sales, supported by +0.8% increase in volume and +5.3% rise in price. The increase in price was due to rising commodity costs, particularly in Asia. Developed market, on the other hand, saw decline in underlying sales by -1.5%, fuelled by -1.3% fall in volume and -0.3% drop in price. Europe continue to see weak consumer demand and price deflation in many countries, apart from the UK. On the operational front, the Group said its 'Connected for Growth' programme is starting to "bear fruit", making it more agile and closer to the local markets, unlocking both further growth and margin. Unilever's CEO, Paul Polman commented "The first quarter shows growth once more ahead of our markets. This reflects our continued investment in both innovations and brand support, and reconfirms the strength of our long term sustainable compounding growth model". The Board declared Q1 dividend of 30.21p per Unilever Plc ordinary share, up +18.2% (+12% in Euro term), to be paid on 7 June 2017.

Our view: Unilever delivered strong performance during the Q1 FY2017, continuing to outperform its market. The underlying sales growth of +2.9% came ahead of the consensus Analysts' estimate of +2.0%, despite the effect of stronger comparative period (Q1 FY2016: +4.7% underlying sales growth with +2.6% volume and +2.0% price), one less days in the quarter as well as later timing of Easter. All of the growth came from +3.0% increase in price, which more than offset the tiny volume decline of -0.1%. The increase in price was seen in all division and geographical region other than the Europe which suffers from weak consumer demand and price deflation. Asia has led the price growth due to rising commodity costs. Contrary to Q4 FY2016, Refreshments, Personal Care and Home Care was strong, while Food was at below expectation dragged down by the -5.1% decline in its Spreads business. Excluding the Spread business, which Unilever already confirmed its intension to exit (sell or demerge), Food saw underlying sales growth of +1.7%, leading to Group underlying sales growth to +3.4%. Looking ahead, we continue to sense the Board's confidence in its outlook by confirming its underlying sales growth guidance in the range of 3%-5% (FY2016: +3.7%), and its expectation to improve underlying operating margin by at least 0.8%. A +12% hike in dividend (in Euro term) as promised in its business review announced earlier this month too is a great reflection of its long-term confidence. Furthermore, the Group is also scheduled to commence €5 billion share buy-back programme in FY2017. Given the Group's much higher share price since the offer from Kraft Heinz (which has been rejected by the Unilever and subsequently withdrawn), we see yesterday's Q1 performance as positive step towards delivering upper-end of its FY2017 guidance. The shares are valued at FY2017E P/E of 22.3x, along with dividend yield of 3.0%. Beaufort reiterates its Buy rating on the shares with a target price of 4330p. Unilever is one of Beaufort's 'Tips for 2017' recommendations.

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