(MENAFN- ProactiveInvestors - UK) 08:12
Today's edition features:
Hummingbird Resources (LON:HUM)
Burberry Group (LON:BRBY)
Pearson (LON:PSON)
Watkin Jones (LON:WJG)
"One day ahead of Donald Trump's inauguration, today's market focus is likely to fall on the European Central Bank which is due to hold its first policy meeting of 2017, with formal release of its interest rate decision due at 12:45hrs GMT. Not that anyone is expecting the benchmark to be moved, but they do look for hints from the President, Mario Draghi, regarding a possible target date for tapering of the QE programme to start and, perhaps, his acceptance that inflationary pressures are now finally creeping back into the system. Other than reminding investors that she would 'take action' should Trump's expansionary fiscal policies threaten some form of pricing shock Fed Chair, Janet Yellen, said little new in her speech yesterday. The US accordingly ended fractionally mixed, with the Dow Jones suffering from mild profit taking on the likes of Goldman Sachs and United Health. Asia was slightly more active although it closed similarly mixed with the Nikkei, as usual, pivoting on Yen:US$ sentiment to end up almost 1%, led by financials, as the Dollar gained on belief that the first of the Fed's proposed rate hikes cannot be far away given that near full employment has been achieved and inflation is now close to target; elsewhere, Chinese equities closed down, despite the central bank having already injected a record 1.04tr RMB liquidity into the market this week, while the ASX trod water. London traders will be keen to review the latest RICs Housing Price Balance data - a key indicator of consumer confidence - that suggests slowing demand in December with quarterly expectations falling to +24% against +29% in reported November, breaking a four-month rising trend. Given the focus on tomorrow's appointment of its 45th President, macro data from the US, which includes Housing Starts, Jobless Claims and the Pliladelphia Fed Manufacturing Survey, is unlikely to capture the market's attention. This leaves just soundbites form the World Economic Forum in Davos, where Theresa may is due to speak today, to potentially steal the headlines. UK corporates due to release earnings or trading updates today include British Land (BLND.L), CyanConnode (CYAN.L), Finsbury Foods (FIF.L), Halfords (HFD.L), Pets at Home (PETS.L), Royal Mail (RMG.L) and Van Elle (VANL.L). London equities are expected to have a rather lacklustre start, with the FTSE-100 seen rising around 5 points during opening trade, although US majors like IBM and American Express that are due to report this afternoon could potentially generate a flurry of additional activity."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.38% higher at 7,247.61, whilst the FTSE AIM All-Share index closed 0.10% better-off at 873.06. In continental Europe, the CAC-40 finished 0.13% lower at 4,853.40 whilst the DAX was up 0.51% at 11,599.39.
Wall Street
In New York last night, the Dow Jones fell 0.11% to 19,804.72, while the S & P-500 gained 0.18% to 2,271.89 and the Nasdaq improved 0.31% to finish at 5,556.66.
Asia
In Asian markets this morning, the Nikkei 225 had risen 1.08% to 19,099.03, while the Hang Seng lost 0.55% to stand at 22,971.53.
Oil
In early trade today, WTI crude was down 0.8% to $51.49/bbl and Brent was down 0.85% to $54.38/bbl.
Headlines
Lagarde warns UK of pain ahead as Brexit approaches
The head of the International Monetary Fund has warned the UK there is still likely to be "pain" ahead as Theresa May prepares to trigger the UK's departure from the European Union. She said that although the UK economy had performed more strongly than the IMF had predicted, uncertainty over the terms of the deal "is always a risk". Any deal with the EU will "not be as good" as membership, she said. "When you belong to a club, whatever that is, the members of the club have a degree of affinity and particular terms under which they operate," Ms Lagarde told me at the World Economic Forum in Davos. "Someone outside the club has different access." I asked her if she agreed with the Prime Minister of Malta, Joseph Muscat, that any future UK/EU agreement "necessarily needs to be inferior to membership". Malta presently holds the rotating presidency of the EU.
Source: BBC News
Company news
Hummingbird Resources (LON:HUM, 23.50p) – Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced today an update from its 2.2Moz Yanfolila gold project in Mali where mine construction is currently underway. Following the appointment of IMAGRI-SARL as civil works contractor, IMARGI-SARL has been awarded the Structural, Mechanical, Plate work and Piping (SMPP) contract. IMARGI-SARL is a leading specialist of building, mining and industrial infrastructure in Mali. Much of the mechanical equipment has been ordered and items are now being delivered to site including a tower crane and pre-rolled CIL tanks. Drilling of bore holes has also commenced ahead of pre-mining pit dewatering, which is scheduled to start in Q2 2017. Plant construction remains on track with planned completion in Q4 2017 ahead of first gold pour by year end.
Our view: Having secured project funding, mining and construction contractors, Hummingbird can now focus on full-scale construction at Yanfolila. We are encouraged with the progress being made and look forward to further developments as the construction phase proceeds towards production by the end of 2017. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Hummingbird Resources plc
Burberry Group (LON:BRBY, 1,650.00p) – Hold
Burberry, a UK based international luxury fashion and beauty brand, yesterday provided a trading update for the 3 months ended 31 December 2016 ('Q3 FY2017'). During the period, retail revenue advanced by +4% to £735m at underlying basis (up +22% at reported currency basis), while on a like-for-like ('LFL') basis, sales increased by +3%, against the comparable period (Q3 FY2016). The Group said fashion has yet again outperformed replenishment, while outperformance in Accessories has led by strength in bags. On the operational front, its engagement with festive campaign has resulted total film views more than double to over 22 million, represented strength of its brand. The Group said it is on track to deliver its planned cost savings of c.£20m in FY2017. The Group has returned £43m during Q3, taking total of £77m completed to date of its £150m share buyback programme. Burberry's CEO (and Chief Creative Officer), Christopher Bailey, commented "With a record number of views of our festive film and strong demand for new products in our collections, this third quarter improvement reflects early progress from our plans to drive Burberry's performance for the long term. We continue to take action to position the business for growth over time and our plans to enhance efficiency are on track."
Our view: Burberry performed strongly in Q3 with LFL sales growth surpassing consensus expectations by +1.6%. In mainland China, despite the evolution of the store portfolio in Beijing, the territory's largest regional market, saw LFL sales growth accelerate to a "high single-digit percentage" in the Q3 from "mid-single-digit percentage" during Q2. Together with improvement in Hong Kong to a low single-digit percentage decline, Asia Pacific has returned overall growth to a low single-digit percentage. In EMEIA, UK continue to see exceptional demand with LFL sales growing by c.+40%, fuelled by both travelling luxury customers and domestic customers. Continental Europe, on the other hand, remained weak with France on able to report modest improvement in the final quarter. Overall, the EMEIA region recorded double-digit percentage growth. In the Americas, domestic and travelling luxury customer demand remained uneven, which resulted in a low single-digit percentage decline. Looking ahead, the Group reiterated its revenue outlook for retail (low single-digit percentage growth), wholesale (down by a mid-teens percentage in H2) and licensing (down by about £20m). Adjusted pre-tax profit for full year is expected to be in line with consensus at £440m, based on a slightly lower foreign currency translational benefit of £115m (based on 31 December rates). The share price has performed well recently, however, the macroeconomic environment remains challenging, with the luxury market expected to grow on average by just a low single-digit annual percentage at constant exchange rates over the next five years. With valuation of FY2017E and FY2018E P/E multiple of 21.5x and 20.0x along with dividend yield of 2.3% and 2.5% respectively, we continue to monitor activity for more evidence of strategic initiatives, which may become evident shortly with the anticipated CEO and CFO appointments. Beaufort reiterates its Hold rating on the shares.
Pearson (LON:PSON, 573.00p) – Hold
Pearson, the world's leading education company providing products and services to institutions, governments and direct to individual learners, yesterday provided a trading update for the full year FY2016. The Group expect revenue to drop by c.-8% in underlying basis due primarily to continued weakness in North American higher education courseware business, which saw net revenue fell by -30% in Q4, taking full year decline to -18%. The challenging environment was driven by inventory correction in the channel, accelerated impact from rental in the secondary market and lower enrolment. Beside this, the Group said its other businesses in aggregate have performed in line with expectations. Adjusted operating profit for the full year is expected at c.£630m, in line with guidance, resulting adjusted earnings per share to be around 57p. The Group's tight management of discretionary cost resulted to accrue c.£55m less than originally planned for its 2016 staff incentive programme. On the operational front, the Group has fully delivered its 2016 restructuring program and said the financial benefits are slightly above the expectation. The Board proposed a final dividend of 34p per share, bringing full year dividend to 52p per share, in line with its guidance. Looking ahead into FY2017, the Group has revised down its expectation for North American higher education courseware market and said downward pressures will continue. Within the announcement, Pearson has outlined some actions to accelerate its digital transition in higher education, to manage the decline in print, and to reshape its portfolio. For the digital transition, the Group will increase its investment by £50m to enable faster product innovation, accelerate product roadmap by 2 years and drive faster adoption of institution-wide Digital Direct Access for Pearson courseware. The Group will also increase its presence in the courseware rental market. For the portfolio reshaping, the Group intend to sell its 47% stake in Penguin Random House or recapitalising the business and extract a dividend. The proceeds will be used to maintain its strong balance sheet, investment and return excess capital to shareholders whilst retaining an investment grade credit rating. The Group will continue to reduce its exposure to large scale direct delivery services and focus more on scalable online, virtual, and blended services, across its portfolio. Pearson will announce its preliminary results on 24 February 2017.
Our view: Pearson's full year trading update was rather shocking. In its Q3 trading update (announced on 17 October 2016), the Group said inventory correction in North American Higher Education courseware business had improved in September and was continuing into October. Despite indicating these "improving trends", the Group reported Q4 FY2016 net revenue from this business fallen by -30%, opening a wide gap with the full year consensus expectation. Moreover, the announcement confirmed that the North American higher education courseware market is set for further decline in FY2017 against the "stable" expectation that was previously guided, with the remaining of business areas expected only to perform broadly in line with the trends seen in FY2016. Given that the challenging environment persists, despite meeting its guidance for the FY2016 at around the middle of the range boosted by favourable exchange rates (2015: just c.5% of revenue generated from the Eurozone), the Group issued a stark profit warning for the FY2017. Underlying profitability will now be c.-£180m lower than previously guided, with operating profits now expected to be in the rage of £570m-£630m, quite significantly lower than the consensus analyst's expectation of £682m and resulting in adjusted earnings per share of in a lower 48.5p-55.5p range. The Group also detailed its intension to rebase its dividend for FY2017, while scrapping its 2018 goal to deliver adjusted operating profit at or above £800m, given portfolio changes together with challenging and uncertain markets. The shares fell by -29% yesterday (at London close), an enormous hit for one of the main index's constituents, a status that could potentially now be threatened. While it would be realistic to anticipate some rebound today, as oversold positions are closed, confidence in the management's steering of the operation has been severely knocked. Beaufort accordingly takes Pearson off its Buy list, moving down to Hold, until confidence is reasserted.
Watkin Jones (LON:WJG, 129.50p) – Speculative Buy
The leading UK developer and constructor of multi occupancy property assets, with a focus on the student accommodation sector, yesterday announced its maiden annual results for the year ended 30 September 2016. The Board reported a successful trading in line with its expectations. Strong revenue growth and record operating profit, before exceptional IPO costs, were driven by student accommodation developments. Robust cash performance, with a net inflow (from operating activities but before exceptional IPO costs) of £41.7 million (2015: £28.4 million). Year-end net cash of £32.2 million (2015: £39.1 million) came after exceptional IPO cash costs of £26.6 million, £14.5 million cash cost of acquiring Fresh Student Living ('Fresh') and £10.0 million dividend to existing shareholders prior to IPO. Watkin Jones development pipeline remains strong, with 9,469 student beds across 27 sites, with 15 forward sold and seven more forward sales in legal negotiation. Of these, 2017 deliveries alone already include nine student developments (2,860 beds) sold and one operational asset (590 beds) with the remaining 454 beds in legal negotiations. Having paid an interim dividend of 1.33 pence per share in June, the Board has recommended a final dividend of 2.67 pence per share, giving a total dividend of 4.0 pence per share. With Admission having taken place towards the end of the first half of the financial year, this total dividend represents two thirds of the full year equivalent, giving an initial yield of 6% based on the placing price of £1 per ordinary share. This is in line with management's stated intention at the time of the IPO. The dividend will be paid on 28 February 2017 to shareholders on the register at close of business on 27 January 2017. The shares will go ex-dividend on 26 January 2017.
Our view: An excellent business model delivering strong maiden results. Confidence is underscored by an exceptional pipeline while delivering gross margins for the year on student accommodation developments of 20.5%, compared to 18.2% for FY 2015. This improvement reflects both the move to sole development of own projects and away from lower margin contracting work for other developers. The Group's 'forward sale' model means that FY 2017 will also benefit from progress on schemes delivering in later years, including the eleven that look to complete in FY 2018, of which ten have planning consents while planning has been submitted on the remaining one. Some of its larger 2019 schemes will also contribute to FY 2017 performance, in particular the 511-bed scheme in Stratford for the University of London, which in terms of its development value is Watkin Jones' largest ever project. Investment interest in this asset class remains strong while offering good medium-term visibility. Growth in the student accommodation management business 'Fresh' also continues, with 44 schemes under management and 61 already contracted for 2020. While there appears no need for Beaufort to adjust its current forecasts for either 2017E or 2018E, the shares still appear to be undervalued on the basis of earnings multiples of 9.3x and 8.6x for the two years, a dividend yield of 5% along with exceptional FCF yield of 13.3%. At this time, Beaufort does not take some media suggestions that the decision to leave the EU could result in international students deserting the UK in coming years, but recognises this concern will need to be dispelled before its price target of 190p/share for Watkin Jones can be achieved.