Beaufort Securities Breakfast Alert: Jiasen International Holdings, Strat Aero, Costain Group, John Laing Group, Tullow Oil, Wood Group
(MENAFN- ProactiveInvestors - UK) Beaufort Securities, Fri
Markets
Europe
The FTSE-100 finished yesterday''s session 2.27% higher at 6,504.33, whilst the FTSE AIM All-Share index closed 1.48% up at 707.88. In continental Europe, markets ended higher, taking positive cues from Bank of England''s Governor Mark Carney''s statement that the Bank would ease its policy. In addition, positive economic data released in Europe fuelled buying. France''s CAC 40 and Germany''s DAX advanced 1.0% and 0.7%, respectively.
Wall Street
Wall Street ended in the green, erasing losses from Brexit. Speculation about accommodative policies of central banks boosted investor sentiment. The S & P 500 rose 1.4%, led by gains in the consumer staples sector.
Asia
Equities are trading higher, tracking the global markets despite poor economic data released in Japan and China. Investors cheered speculations of looser monetary policies of central banks to mitigate the impact of Brexit. The Nikkei 225 gained 0.7%, while the Hang Seng remained closed on the account of Hong Kong Special Administrative Region Establishment Day.
Oil
Yesterday, WTI prices declined 3.1% to US$48.33 per barrel, and Brent oil prices dropped 1.8% to US$49.68 per barrel.
Headlines
UK''s GDP grows at 0.4% in Q1 2016
As per data from the Office for National Statistics (ONS), the UK''s GDP grew 0.4% q-o-q in Q1 2016, in line with the earlier estimate, marking the 13th consecutive quarter of positive growth. However, growth was slower than 0.7% witnessed in Q4 2015. On y-o-y basis, GDP grew 2.0%, in line with the previous estimate. ONS announced that the current account gap narrowed to 32.6bn in Q1 2016 from 34.0bn in Q4 2015.
China manufacturing PMI drops in June
As per the National Bureau of Statistics, China''s manufacturing PMI fell to 50.0 in June from 50.1 in May, in line with the market expectations, marking the lowest reading in four months. Moreover, Caixin''s China June manufacturing PMI, tracking small private firms, fell to 48.6 in June from 49.2 in May.
Company news
Jiasen International Holdings (LON:JSI, 3.12p) - Hold
Jiasen International Holdings, a designer, manufacturer and wholesaler of wooden home furnishings, yesterday announced its final results for the year ended 31 December 2015 (''FY2015''). During the year, revenue declined by -27% to RMB 639.2m, operating profit fell by -62.7% to RMB 81.2m, while pre-tax profit (including provision against bad debts of RMB 52.3m) tumbled by -64% to RMB 77.9m. Consequently, basic and diluted earnings per share dropped -73.7% to 0.5p. The Group has concluded, as per the review of dividend policy announced in half-yearly results (25 September 2015), to suspend dividend payments while challenging trading environment persists. Cash and cash equivalent at the period end stood at RMB 299.1m (FY2014: RMB 333.9m). On the operational front, the Group added 2 outlets during the period to Total of 54 outlets across China operated by 16 distributors. Due to the difficult macroeconomic conditions and reduced demand for its product in the property segment, the Group has verbally agreed with local government (Quanzhou Economic Development District - Guangqiao Sector) to postpone the decision to purchase 47 hectares of land for its new factory until the end of 2016. The Group is entitled for a full refund of RMB 69m down payment made in February 2015, should Jiasen decided against this RMB 217m land purchase investment. Jiasen''s Chairman, Weigang Chen commented "It has been a very challenging time for the Chinese property market as the economy has slowed. The Group has seen consumer confidence impacted as a result and this is effecting our revenue. Jiasen is taking mitigating actions to ensure that we are protected both now and in the short to medium term by diversifying our revenue mix, reviewing the purchase of land for our new factory, and suspending dividend payments. The Board remains committed to the long term opportunities that the Chinese property market offers, and is confident that we have the fundamentals in place to manage the business through these challenging times".
Our view: Jiasen''s full year result came disappointing. China''s economic slowdown produced an adverse effect on consumer confidence and therefore, hit the property sector hard. Demand for rural housing development has reduced and property developers delayed projects or decreased their investment in residential development as a result. The Group expect this to remain challenged for the short to medium term and noted in its statement that the first five month of FY''2016 had been difficult. Furthermore, although an agreement has been reached with the customers stipulating that the balance be repaid as the properties in which the Group''s products have been installed are sold, although the current status of China''s property market has resulted in management choosing to provide against a significant portion of this outstanding balance, impairing RMB 52.3m against an outstanding debt of RMB 84.6m. Going forward, the Group will scale back and limit its reliance on property segment and seek to appoint new distributors and increase its marketing and promotional activities. Jiasen remain focused to diversify its product mix away from the door products in order to mitigate the margin impact. This has been successfully where furniture and fitting segment now account for 67.7% (FY2014: 60.2%) against doors 20.4% (FY2014: 28.2%) of the Group''s revenue. While the long term fundamental of Chinese property market remain strong, well supported by a changes to the one child policy, continued urbanisation and the cultural importance of home ownership in China, given the expectation of challenging condition for the remainder of FY2016, we are downgrading Jiasen from Speculative Buy to Hold until the Group rebalance itself and becomes able to provide clearer visibility and a prospective return to dividend payment.
Beaufort Securities acts as corporate broker to Jiasen International Holdings plc
Strat Aero (LON:AERO, 0.72p) - Hold
Strat Aero plc, the international aerospace company focused on the rapidly emerging Unmanned Aerial Vehicle sector, released its AGM statement yesterday. In a lengthy review Executive Chairman, Graham Peck, reflected on his Group''s changing strategy noting "It is clear we need to have a robust strategy which translates into an executable business plan with identifiable targets, measures, planning, financial processes and clear lines of accountability. This is precisely what our new CEO, Iain McLure, who has a strong operational and management back-ground, is looking to deliver." He went on to state that he saw no shortage of sub-sectors within the UAS space where he believes Strat Aero can become a leading UAV services and solutions provider. These sectors include: Commercial UAS Training & Education; Survey & Inspection Services; Security; Data Analytics; and Consultancy. He also pointed out that the Strat Aero team has extensive experience and contacts in all these fields. The Chairman considers therefore it has an excellent platform in place upon which the Group can build profitable businesses without having to invest significant amounts of capital. Regarding the ongoing legal action between Strat Aero and the vendor of acquisition Aero Kinetics, the court has set a date of October 2016 for the case to be heard. Final results, which were also released yesterday, confirmed revenues collected from inspection, survey and consultancy services during the period to end-December 2015 were below expectations due to slower conversion of Military Training and Wind service opportunities. Losses for the year before and after taxation were US$5,931,933 (2014: US$1,200,844); the 2015 figure including a US$2,028,235 impairment of goodwill. Cash balances at the year-end amounted to US$1,485,257 (2014: US$106,817).
Our view: The UAV industry is undeniably a dynamic and rapidly growing space in which to operate. But, as with all new technologies, translating this opportunity into a profitable, long-term business is a lengthy and complex process with many false avenues. Before government departments and large companies adopt UAV technologies, they typically require proof of concept trials to demonstrate the benefits and robustness of UAS, before the signing of contracts might be considered. In this respect, management now needs to focus on areas where real value can be added on a profitable basis within relatively short time periods. With these challenges in mind, the Board is working to establish a new corporate structure, integrating the whole business to exploit assets sharing resources, skills and experience. While building a solid foundation based on revenue growth it is, of course, critical that management closely manage and control costs as well as developing cross selling opportunities. Strat Aero clearly faces significant challenges at this crucial time, although activity so far during 2016 has produced some promising results. This includes the securing of the Group''s first UAV Wind Turbine Inspection Contract, a US$375,000 Proprietary Software Contract with Readyjet, a leading service provider to the aviation sector plus a Master Franchise Agreement signed with I-Coach in Hong Kong. The appointment of new CEO, Mr Iain McLure, who comes with strong operational experience to develop and execute a business plan, should boost shareholder confidence that a viable solution for the future can be found. Beaufort continues to rate the shares a ''Hold'' in anticipation of further positive updates.
Beaufort Securities acts as corporate broker to Strat Aero plc
Costain Group (LON:COST, 315.75p) - Buy
Yesterday, Costain Group issued a trading update for the half year ended 30th June 2016, ahead of its results to be announced on 24th August 2016. Costain''s order book increased to 3.9bn compared with 3.7bn as on 30th June 2015. The group has a preferred bidder position of more than 400m and tendering levels remain high.
Our view: Costain delivered strong performance in H1 2016 with a solid order book and strong bidder position. The group recorded repeat orders of more than 90%, clearly showcasing the strength of its relationship with customers. Costain''s strategy of Engineering Tomorrow has positioned the business to offer a range of services based on consumer demand. Trading in H1 2016 has been in line with expectations and the group remains on track to meet the board''s expectations. In light of the above argument, we maintain a Buy rating on the stock.
CityFibre Infrastructure Holdings (CITY.L, 63.0p) - Speculative Buy
CityFibre a leading designer, builder, owner, and operator of fibre optic infrastructure in UK towns and cities, yesterday announced the first call-off of dark fibre connections under its existing framework agreement with Capita IT Services Limited, previously announced in March 2016. This initial call-off will see CityFibre connect 109 schools and public sector sites served by Capita on the existing CityFibre footprint, in line with the standard financial metrics laid out in the framework.
Our view: This first order from Capita, which again underlines the value of the trading relationships CityFibre has established via its various national framework agreements in driving higher utilization rates across their footprint. The Company continue to demonstrate that there is huge pent-up demand within the public sector for gigabit speed connectivity to future-proof the infrastructure of public service delivery and education. It is our view that CityFibre has plenty of scope to grow from a low base and 2015/16 contract wins demonstrate to us that estimates for the next 2 years are achievable. We retain a Speculative Buy stance and believe the shares are undervalued.
John Laing Group (LON:JLG, 226.0p) - Buy
Yesterday, John Laing Group released a pre-close trading update for the half year ended 30th June 2016. Total investment commitments till date amount to 76m, while investment realizations total 57.7m. The group maintained full year guidance for investment commitments and investment realizations at 180.5m and 100m, respectively. Some key investment commitments during the period include A6 PPP Road Project (Netherlands), Hornsdale Wind Farm Phase 2 (Australia) and Llynfi Wind Farm and Intercity Express Programme Phase 1 (UK). On 21st June 2016, John Laing announced it would sell off the UK activities of project management services. The group sold two investments in H1 2016 to JLF for combined proceeds of 19.5m. In addition, the group confirmed disposing of investment in Dungavel Wind Farm (100% holding) to JLEN for gross proceeds of 38.2m. During the period, John Laing''s two investments, namely, Rammeldalsberget Wind Farm (Sweden) and New Albion Wind Farm (UK), moved from primary to secondary investment portfolio. John Laing made a 18m cash contribution for pension funds in H1 2016. IAS 19 discount rate fell to 3.25% as on 31st May 2016 compared with 3.75% on 31st December 2015. The group increased its corporate banking facility from 350m to 400m in June 2016. John Laing would declare the results for H1 2016 on 25th August 2016.
Our view: John Laing, the international originator, active investor and manager of infrastructure projects, performed strongly in H1 2016 with good progress across all the geographies it operates in. The group has a diversified investment portfolio with attractive opportunities across all regions, which minimizes the impact of Brexit. John Laing has around 80m of new opportunities to be committed in H2 2016 for PPP projects. In addition, the group has shortlisted positions totalling about 130m in renewable energy. John Laing remains sufficiently funded for the development of projects. The group plans to increase the value of its existing portfolio and implement measures to develop greenfield infrastructure assets. We are buoyed by John Laing''s progress in H1 2016 and expect it to deliver long-term growth aided by its strong pipeline of opportunities. Therefore, we maintain a Buy rating on the stock.
Tullow Oil (LON:TLW, 262.20p) - Speculative Buy
Tullow Oil issued a trading and operational update yesterday with TEN project remains on schedule with first oil expected within the next three to six weeks; also, Jubilee production c.90,000 bopd in June and announced a preferred long-term Jubilee FPSO solution established; and finally the Kenya exploration and appraisal programme to recommence in fourth quarter 2016. On financials the Group''s 2016 capital expenditure guidance remains at $1.0 billion with further savings being offset by additional capex associated with the Jubilee turret issue ahead of potential insurance payments and the start of a new drilling campaign in Kenya. At the end of June 2016, net debt is estimated at $4.7 billion and unutilised debt capacity and free cash at approximately $1.0 billion.
Our view: After three years the TEN Project is expected to deliver first oil within the next three to six weeks. This transformational project has remained on schedule and on budget since it began in 2013. Production at Jubilee has stabilised with a gross rate in June of around 90,000 bopd. Tullow has also made excellent progress on the long term solution to the turret issue, with the Jubilee Partners deciding that the optimum way forward is to spread moor the FPSO. In the first half of 2016, Tullow''s West Africa working interest oil production averaged 51,900 bopd. This is below previous guidance due to lower production from the Jubilee field in Ghana, following issues with the FPSO turret identified in February. This resulted in an extended shut down period in April while new offtake procedures were implemented to enable the Jubilee field to restart in early May. Production has gradually been ramped up since then, with gross production in June averaging around 90,000 bopd. The Group expects to continue producing from Jubilee at similar levels through the remainder of 2016 with the exception of short periods of reduced production to commence work on the long-term turret solution. As a result, Jubilee gross average production in the second half of 2016 is expected to be around 85,000 bopd (net: 30,200 bopd). Tullow therefore expects average gross production for the Jubilee field in 2016 to be around 74,000 bopd (net: 26,300 bopd). As a consequence, Tullow''s West Africa oil production guidance range is revised to 62-68,000 bopd net. Tullow however has a comprehensive package of insurances in place which includes Business Interruption insurance which covers consequent loss of production and revenue from Jubilee. We regard the solution and the manageable schedule of production down time as good news for Tullow. In Kenya, a new programme of exploration wells focusing on growing resources is due to start in the fourth quarter. The New Ventures team remains focused on high grading and replenishing the exploration portfolio with a new licence signed in Zambia and ongoing portfolio management and seismic survey activity in South America. We believe the news will be well received and we maintain our Speculative Buy stance.
Wood Group (LON:WG., 687.50p) - Buy
Yesterday, Wood Group released a pre-close trading update for the half year ended 30th June 2016. The company has not changed the outlook for the full year and expects EBITDA to be 20% lower in FY 2016 compared with that last year. In Upstream business, Wood Group made good progress in Det Norske Ivar Aasen and Hess Stampede. Furthermore, the company commenced the design of Peregrino II, which would continue in 2017. In June 2016, Wood Group was elected by Noble Energy to execute FEED and carry the design work for the Leviathan fixed platform. In Subsea, Wood Group has seen activity on smaller conceptual FEED and consultancy workscopes. Meanwhile, the company continued to progress well in BP Shah Deniz and GWF Phase 2 for Woodside. In the downstream business, the Flint Hills Resources refinery project has begun to slow down as it faces competition in the process plant business. In the North Sea, the operating environment remained challenging for both volume and pricing, but the company maintained its position in brownfield operations, maintenance and modifications. Wood Group renewed contracts with Chevron, Enquest, Nexen, Shell, Talisman, Taqa and Total. Recently, the company commenced work on contracts in Iraq and Baku. Wood Group would declare the results for H1 2016 on 16th August 2016.
Our view: Wood Group performed strongly in H1 2016, riding on its asset light, mostly reimbursable business model. The company expects to attain substantial cost savings led by steps taken for reorganization, delayering and back office rationalisation. Wood Group made good progress across working divisions. The company''s healthy balance sheet and long-term financing allowed it to reinvest in the business through acquisition and organic investment. Wood Group continued to strengthen its position internationally as it recently won two contracts in the Middle East. The expansion of the company''s operations in Iraq is likely to present new growth opportunities that would utilise Wood Group''s broad service capabilities, international knowledge and strong expertise. Aiming to build lasting customer relationships, the company has established offices in Dubai and Iraq and plans to develop the workforce and supply chain partnerships in this area. Additionally, the company acquired Ingenious Inc, a supplier of proprietary software and consulting services to the global chemical, oil and gas, and energy industries. Through this acquisition, the company would gain strong manufacturing operations management (MOM) capabilities and build on and diversify its automation and control business. Moreover, the acquisition of SVT led to improvements in Wood Group''s vibration, dynamics and noise engineering services. We believe the recent acquisitions and contracts would contribute to Wood Group''s growth prospects. Therefore, we maintain a Buy rating on the stock.
Beaufort Securities