Beaufort Securities Breakfast Alert: Dekeoil, Big Yellow, De La Rue, Kingfisher, Severn Trent
Date
5/26/2016 7:42:04 AM
(MENAFN- ProactiveInvestors - UK) Beaufort Securities, Wed
The markets
Europe
The FTSE-100 finished yesterday's session 1.35% higher at 6,219.26, whilst the FTSE AIM All-Share index closed 0.34% better-off at 733.27. In continental Europe, markets ended sharply higher, led by a rally in financial shares and positive GDP data from Germany. Furthermore, a fall in the euro against the dollar led to gains for European exporters. France's CAC 40 and Germany's DAX rose 2.5% and 2.2%, respectively.
Wall Street
Wall Street ended in the green as solid housing data suggested that the economy can endure higher interest rates. In addition, improvement in oil prices led to gains for energy stocks. The S & P 500 advanced 1.4%, led by the information technology sector.
Asia
Equities are trading higher, taking positive cues from gains in global markets. The Nikkei 225 advanced 1.6%, as exporters received a boost from a stronger dollar, supported by strong data on US home sales. The Hang Seng was trading 2.4% up at 7:00am.
Oil
Yesterday, WTI and Brent oil prices increased 1.1% and 0.5%, respectively. The spread between the two varieties stood at US$0.0 per barrel.
Headlines
Eurozone ministers approve bailout package for Greece
Eurozone's finance ministers have agreed to extend further bailout loans to Greece in a meeting in Brussels. The ministers agreed to release 10.3bn in bailout money for Greece to avoid bankruptcy. The move comes after the Parliament of Greece approved spending cuts and increased taxes as demanded by creditors.
Company news
DekelOil (LON:DKL, 1.35p) Speculative Buy
DekelOil yesterday announced it had reached agreement to acquire approximately 30.5% stake in CS DekelOil Siva Limited, the Company's majority owned joint venture in the producing palm oil project at Ayenouan. The proposed transaction will increase DekelOil's interest in Ayenouan to 81.5% and is said to be earnings enhancing for Shareholders. By securing a greater proportion of Ayenouan's growing revenues and cash flows, the acquisition has the potential to accelerate the roll out of the Company's strategy to build a leading West African palm oil producer. The Acquisition is to be funded via a proposed capital raise of 10.8 million by way of placing of New Ordinary Shares to institutional and other investors at a premium of 1.9% to the closing share price on 23 May 2016. Completion of the Placing and Acquisition are conditional upon, inter alia, passing of Resolution 1 by Shareholders at the General Meeting (scheduled for 16th June), with subsequent Admission of the Placing Shares is expected to occur the following day. The Placing is not underwritten. DekelOil also proposes that all of the Company's existing ordinary shares are consolidated on a 10 for 1 basis into new ordinary shares, which is expected to become effective on 21 June 2016. Tutalon Investments Limited (a related party of Youval Rasin) will subscribe for 75,471,600 Placing Shares at the Issue Price, meaning that Youval Rasin will control approximately 20.4 per cent. of the Pre-Consolidation Share Capital following the Placing. The Company's Directors have also irrevocably undertaken to vote in favour of the Resolutions in respect of their own beneficial holdings representing approximately 35.7 per cent. of DekelOil.
Our view: Adding significant value! It would have been a surprise if DekelOil's ambitious management were not taken the opportunity to add to its 51% interest in the vertically integrated palm oil project at Ayenouan assuming, of course, it could secure a deal on acceptable terms for shareholders. And it's done exactly that a premium placing (at 1.325p/share) reflects management confidence in its ability to deliver a value-added transaction which it expects to be earnings enhancing from day one. Indeed, Ayenouan has the potential to be both highly cash generative and profitable for many years to come. In its first full year of operations, the 60 tonnes per hour extraction mill produced 35,000 tonnes of CPO, which generated revenues of 23.4 million and EBITDA of 3.7 million net to DekelOil. With a capacity to produce 70,000 tonnes of palm oil per annum, there is room to double CPO production. Combined with the Company's recently commissioned kernel crushing plant, which is already producing value-added products, production is on course to significantly increase going forward. Current trading reinforces this optimism, with management announcing last month that 'crude palm oil production for the quarter ended 31 March 2016 has materially exceeded management's expectations and has increased significantly in comparison to the corresponding period in 2015'. DekelOil has positioned itself to become highly cash generative and as its ambitions are realised going forward, shareholders can expect to be rewarded by management implementing a formal dividend policy. Beaufort retains its Speculative Buy recommendation on the shares.
Beaufort Securities acts as corporate broker to DekelOil plc
Big Yellow (LON:BYG, 886.50p) Hold
Yesterday, Big Yellow declared its results for the year ended 31st March 2016. During the period, revenue advanced 20% to 101.4m, with like-for-like (LFL) revenue growth of 10%. Adjusted pre-tax profit surged 24% to 49.0m, resulting in EPS of 31.1p, 15% higher than the previous year. Net debt at the end of the period stood at 295.0m (2015: 277.1m). Cash flow from operating activities increased 31% to 55.5m. Average net achieved rent per sq ft increased 3% to 25.73. Occupancy (LFL stores) rose by 3.5 percentage points to 76.7%. On the operational front, Big Yellow opened two new freehold stores at Enfield and Cambridge. The company acquired four store Lock and Leave portfolio in April 2016 for 21m. Additionally, Big Yellow acquired prime London development sites in King's Cross and Camberwell. The company has declared a final dividend of 12.8p, taking full-year dividend to 24.9p, which is 15% higher than the previous year.
Our view: Big Yellow delivered strong performance in FY 2016 despite a slowdown in economic activity. The company recorded solid growth in revenue, healthy occupancy rates and better margins than the previous year. Big Yellow continued its investments to increase capacity, acquiring new sites and opening new stores. The company has the largest market share in visits to self-storage company websites in the UK, ranging from 34% to 40%. Big Yellow maintained its dividend policy and increased dividends payable to shareholders. The company remains focused on driving earnings through occupancy growth and targets an occupancy rate of 85% across the portfolio in the coming years. Nonetheless, Big Yellow remains in the growth stage and we would wait and watch its performance in the near future. In view of the company's strong progress in FY 2016, we upgrade the stock to Hold from Sell.
De La Rue (LON:DLAR, 534.0p) Hold
Yesterday, De La Rue declared its results for the full year ended 26th March 2016 (FY 2016). During the period, revenue from continuing operations increased 7% y-o-y to 454.5m. Underlying pre-tax profit surged 2% to 58.5m, leading to an EPS of 48.1p, up from 46.1p in the previous year. Underlying operating cash flow, comprising underlying operating profit adjusted for depreciation and the movement in working capital, stood at 100.2m (2015: 85.6m). Net debt decreased by 4.9m to 106.1m. On the operational front, the volume of banknotes increased 9% to 7.1bn and banknote paper rose 6% to 10,000 tonnes. Net average headcount reduced 10% to 3,566. The company completed its reorganisation from a divisional to a functional structure. De La Rue sold its cash processing solutions business to Privet Capital LLP. De La Rue proposed a final dividend of 16.7p, taking full-year dividend to 25.0p, in line with last year.
Our view: De La Rue's performance in FY 2016 was broadly in line with expectations. The rise in the company's profit was led by a strong performance from the currency business. De La Rue's other parts of the business that are identity solutions, which produces passports, and product authentication and traceability services, performed as per expectations. De La Rue has been attempting to reaffirm its market position since 2010 after the Indian government cancelled its then largest contract on quality grounds. In December 2015, the company halved the number of production lines and cut 300 employees as it consolidated operations to stir up the business. De La Rue also faces fierce competition in the market, fuelled by a global banknote surplus. We appreciate De La Rue's progress in FY 2016. However, the company is still in the rebuilding phase amid challenging market conditions. Therefore, we maintain a Hold rating on the stock.
Kingfisher (LON:KGF, 373.0p) Hold
Kingfisher, the European home improvement outlet operator, yesterday provided its Q1 trading update to 30 April 2016 (Q1 FY2016). During the period, sales advanced +5.1% to 2.7bn in reported basis, or +2.3% at constant currency basis, while like-for-like ('LFL') sales expanded by +3.6% at constant currency basis, against comparable period (Q1 FY2015). Group LFL sales growth of +3.6% was encouraging, driven by the UK & Ireland and Other International (including: Poland, Russia, Spain and New Country Development) division where it saw a growth of +6.2% and +4.7%, respectively, at a constant currency basis. In the UK & Ireland, Screwfix was particularly strong with LFL sales rose +16.2% driven by new and extended ranges, omnichannel capability and 10 new outlets. LFL for B & Q was +3.6% as planned store closure added +1.9%, with strong non-seasonal items improved +7.3%. LFL sales in Poland was +10.8% due to favourable market condition and new ranges, while French market remain weak (LFL +0.2%). On the operational front, as part of the ONE Kingfisher plan, the Group closed 10 B & Q stores and unified all its IT platform. The Group is on track for its FY2016 operational milestones to 1) close c.15% surplus space at B & Q; 2) further closure of 25 B & Q stores; 3) unify IT platform for back office and supply chain; and 4) set up new Offer and Supply Chain Organisation with new unified global functions and roles starting from early June. Kingfisher's CEO, Veronique Laury commented 'We continue to feel confident in our ability to deliver our plan, based on putting customer needs first, supported by the expertise and enthusiasm of our colleagues'.
Our view: No surprises! Kingfisher's Q1 performance was in line with expectations (consensus analysts' estimated sales of 2.7bn). The Group's ONE Kingfisher plan announced in March 2015 to create a unified, unique and leading home improvement offer, while driving digital capability and optimising operational efficiency, is making a good progress and remains ahead of schedule. In January 2016, the Group set a 5 year transformation plan to deliver 500m sustainable annual profit uplift by the period end over and above 'business as usual'. Considering excellent growth in the Group's Screwfix business, good progress on ONE Kingfisher plan and management's confidence displayed through it returning 78m in the Q1 of a c.600m share buyback programme, we are encouraged by the Group's progress. Meanwhile, we would like to see further progress in containing costs at B & Q, while adequately responding the changing customer trends. B & Q has performed strongly so far this year, reversed the period of underperformance that began in May 2014. On this basis, while awaiting further positive management initiatives, Beaufort retains its Hold recommendation.
Severn Trent (LON:SVT, 2,265.06p) Buy
Yesterday, Severn Trent declared its preliminary results for the year ended 31st March 2016 (FY 2016). During the period, revenues decreased 0.8% y-o-y to 1.8bn due to a fall in regulated prices. The company's underlying profit before interest and tax (PBIT) stood at 522.8m, 3.2% lower than the previous year. While, pre-tax profit surged 4.4% to 313.6m, leading to an EPS of 108.7p compared with 107.2p in the previous year. Return on Regulated Equity (RoRE) stood at 8.4%. Net debt at the end of period stood at 4.8bn. The combined average bills remained flat at 329 per annum. The number of customer complaints has reduced 28% y-o-y. Severn declared a final dividend of 48.40p, bringing the full-year dividend to 80.66p, 5% lower than the previous year.
Our view: Severn Trent performed well in FY 2016 on both financial and operational fronts. The company remained focussed on improving customer satisfaction as it saw a sharp fall in customer complaints and had the lowest combined average bills. Severn Trent remains a market leader in waste water efficiency and delivered good performance on key metrics, such as internal sewer flooding (down 31%). The company has achieved operational excellence and maintained high environmental standards, receiving Environment Agency (EA) 4* rating for the second time in three years. Severn Trent increased its workforce and key contractors through its ODI-linked employee bonus scheme and performance-based incentive contracts. Recently, Severn Trent entered into a joint venture (JV) with United Utilities to form Water Plus. The JV would combine the complementary skills of both companies, across sales, customer service, business strategy and credit management, to deliver an attractive proposition for large and small business customers across England and Scotland. The company plans to make investments to enhance customer experience. We are buoyed by Severn Trent's progress in FY 2016 and expect it to continue its growth momentum in the current year. Therefore, we maintain a Buy rating on the stock.
Economic news
Germany GDP
German GDP growth expanded 0.7% q-o-q in Q1 2016, following a 0.3% growth in Q4 2015, as per the data published by the Federal Statistics Office. On y-o-y basis, GDP grew 1.6%, from previous quarter's growth of 1.3%.
Germany ZEW survey
The Centre for European Economic Research/ZEW reported that the German economic sentiment slipped to 6.4 in May from 11.2 in April, as against the market expectation of an increase to 12.0. Meanwhile, the gauge of current situation increased to 53.1 in May from 47.7 in April.
US new home sales
New home sales in the US surged 16.6% m-o-m to a seasonally adjusted annual rate of 619,000 units in April 2016, the Commerce Department said yesterday. The annualised sales figure for March was revised to 531,000 from the previously reported 511,000
Beaufort Securities