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Beaufort Securities Breakfast Alert:

Published: 03:21 17 May 2016 EDT

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The markets
Europe
The FTSE-100 finished yesterday's session 0.21% higher at 6,151.40, whilst the FTSE AIM All-Share index closed 0.02% lower at 724.34. In mainland Europe, equities ended mixed, as investors digested disappointing Chinese data on investment, factory output and retail sales for April against a rally in oil prices. Germany's DAX advanced 0.9%, whereas France's CAC 40 shed 0.2%.
Wall Street
Wall Street ended in the green, as oil prices hit new highs for 2016. The technology sector rallied due to strong gains in shares of Apple (which rose 3.5%). The S&P 500 closed up 1.0%, with energy leading all 10 sectors higher.
Asia
Markets are trading higher due to positive cues from Wall Street and the rally in oil prices. The Nikkei 225 added 1.1%, as the yen weakened and the iPhone suppliers in Japan found buyers after Apple Inc.'s stock soared. Meanwhile, the Hang Seng was trading 0.7% up at 7:00 am.
Oil
Yesterday, Brent and WTI crude oil prices increased 2.4% and 3.8%, respectively. The spread between the two varieties stood at US$1.3 per barrel.

Headlines
CBI lowers growth forecast ahead of Brexit
The Confederation of British Industry (CBI) trimmed its economic growth forecasts to 2% for 2016 and 2017, from its previous estimate of 2.3% and 2.1% respectively. The slowdown is ascribed to the approaching EU referendum as it is preceded by a period of unemployment and economic uncertainty which has impacted consumer activity. The agency's projections are based on the assumption that Britain would stay in the EU.

Company news

Avanti Communications (LON:AVN, 87.25p) - Speculative Buy
Avanti Communications, a provider of satellite data communications services, yesterday provided trading update for the Q3 2016. The Group IS continuing its strong contract win momentum and reiterated its full year guidance. Revenue was US$19.5m, a +14.7% increase compared to Q2, on a constant currency basis. EBITDA turned to positive at US$0.4m due to the growth in revenue above largely fixed cash cost base. Cash balance at the period end stood at US$122.4m with additional consented credit capacity of US$71m secured. On the operational front, the Group's HYLAS 4 satellite remains on-track for launch in early 2017, and the Group reported early pre-sales already signed, with particularly strong demand from West Africa. The Group's CEO, David William's commented "HYLAS 4 will triple the satellite capacity of the company and so it should have a transformational effect on the business. We are intensely focused on increasing utilisation of our existing capacity and driving sales on HYLAS 4, such that we will see a very significant growth in revenue in the medium-term with a de minimis increase in Avanti's cash cost base."

Our view: Avanti saw a strong order wins in the Q3, with first pre-sales on HYLAS 4 achieved with existing customers. Its revenue expanded by +14.7% quarter-on-quarter to US$19.5m, and EBITDA turned to positive during the period. Recent profit warning from the satellite giants, Eutelsat, who witnessed reduced TV Broadcasting demand and high competition, and Inmarsat, who cut 2016 guidance due to lower demand from Maritime and Enterprise sector has impacted Avanti's share prices. Avanti, however, continued to see strong market demand for high throughput Ka band satellite capacity across EMEA and it continued to secure new high quality customers, such as large telco and government sectors with high contract value. The Group accelerated sales discussions for HYLAS 4 during the period with key target customers in new markets, both with existing customers expanding into new markets and new customers buying for the first time. Post the period, Avanti recently announced significant new contract win to supply EE Limited with satellite capacity for cellular backhaul. The first phase of this multiyear contract has an initial value of US$29m, plus option to double the capacity. More to the point, Avanti improved its core service sales (excluding non-recurring items) as its top-20 customer bandwidth revenue grew 59.0% on a last 12 months basis on a constant currency basis against comparative period. Avanti reiterated its guidance for c.50% growth in continuing business revenue on a constant currency basis in FY2016 and is on-track to launch HYLAS 4 satellite in early 2017 with strong balance sheet to support its growth momentum. We believe the medium-term outlook for the Group remain strong and there is considerable upside. We therefore repeat our Speculative Buy stance.

British Land (LON:BLND, 715.0p) - Hold
Yesterday, British Land announced full-year results for the year ended 31st March 2016. During the period, the company's accounting return stood at 14.2% and underlying profit jumped 16% to £363m. IFRS pre-tax profit and earnings per share stood at £1,331m and 124.1p, respectively. Also, for the year, the total portfolio valuation was up 6.7% along with improvement in standing investments (+6.4%) and developments (+9.4%), due to strong uplift in Offices & Residential +11.8% and good performance in Retail & Leisure +2.4%. The occupancy for the period was 99% with 1.3 million sq ft of lettings and renewals across the portfolio. The company invested £280m in its London campuses, including the acquisition of One Sheldon Square (in Paddington Central), a new development along the West London canal basin. Focus also remained on the multi-let Retail portfolio, with 169,000 sq ft of leisure extensions completed at Whiteley and Glasgow Fort. In addition, £420m of mature or non-core retail assets were disposed, including £122m of superstores. Meanwhile, the company has kept aside £530m for speculative development, with two million sq ft in the near-term pipeline. The most significant long-term project is at Canada Water in South East London. For the quarter, the company announced a dividend of 7.09p, taking the full-year dividend to 28.36 p.

Our view: British Land's performance for the year was promising, with a significant rise in underlying profit and sharp rise in the value of the company's assets. The company managed to deliver in line with its strategic objectives with strong rental growth and a high occupancy rate of 99% across its £9.6bn portfolio of offices, shops and homes. However, the prime market was impacted by both increased supply and recent tax changes, leading to a slowdown in transaction volumes. The company's business is resilient as it owns a modern portfolio that is nearly fully let to quality occupiers on long leases, yet it faces great uncertainty ahead of the EU referendum. A vote in favour of leaving the EU is likely to have an adverse effect on the property sector in general and in turn impact the company's prospects as well. Thus, in view of the uncertain environment, we would like to wait and watch before making an investment decision and, therefore, maintain a Hold rating on the stock.

Crest Nicholson (LON:CRST, 549.0p) - Hold
Yesterday, Crest Nicholson Holdings issued a trading update for the six months ended 30th April 2016. During the period, the company traded in line with expectations and is likely to meet its revenue target of £1bn for the full year to 31st October 2016. The company's unit completion for the year was 7% up y-o-y to 1,206 and the sales rate per outlet week, including private rented sector (PRS), stood at 1.06, 4% ahead of the rate for the first six months of last year. Forward sales for the period stood at £409m and 1,965 units, up by 22% and 10%, respectively. Excluding PRS, the company's average selling price (ASP) was up 24% to £387,000, in line with its strategy to increase ASPs by investing in good quality locations. Forward sales (excluding PRS) were 8% higher at £324m, with unit numbers broadly comparable. The business maintained its outlet breadth and operated from 44 sales outlets year-to-date; the company expects the number to grow throughout the second half of the year. For the six months to 30th April 2016, Crest Nicholson acquired 1,016 plots across nine sites with a gross development value of £416m. Moreover, the first residential phase at Longcross will shortly be underway, delivering product 2017 onwards. The company plans to announce its half-yearly results on 14th June 2016.

Our view: Crest Nicholson remains well-positioned to continue delivering strong operational and financial performance. Also, the company remains on track to reach its stated target of £1bn in revenues in 2016. Meanwhile, the land market continues to offer good opportunities as the business has maintained a disciplined approach to land acquisitions. Overall, the housing sector continues to witness strong demand for new homes due to robust employment conditions and good mortgage access. However, uncertainty surrounding the Brexit referendum may affect the company due to nationwide presence. Beaufort downgraded its overweight stance on the entire sector some weeks back, during which time the rating on Crest Nicholson was also revised downwards formally from 'Buy' to 'Hold'. Following yesterday's trading statement, Beaufort has not yet revised its recommendation but recognises that the sharp correction recently experienced across the sector now prices in much of these concerns. Anticipating a 'remain vote' on 23rd June, confidence will likely return to the sector quite sharply.

San Leon (LON:SLE, 29.12p) - Speculative Buy
Yesterday, San Leon Energy provided the following update on its strategy. The company plans to raise a minimum of US$200m through an equity placement at the targeted price of 105p. The placement price is approximately at 261% premium to the price at suspension of 29.125p (the company's shares were suspended from trading in early 2016). San Leon currently has 61.8 million shares in issue, implying those new shares would represent around 75.5% of the company's enlarged issued share capital. The proceeds are likely to be used for the acquisition of 9.72% indirect interest in OML 18, an onshore, producing oilfield in the Southern Nigerian Delta, covering 1,035 sq km and formerly operated by Royal Dutch Shell. As previously announced, the acquisition constitutes a reverse takeover under the AIM rules and will be subject to shareholder approval. Currently, the field is producing 50,000 barrels of oil per day (bopd) compared to 10,000 bopd in March 2015. Gas production from the field is at 50 million standard cubic feet per day.

Our view: The OML 18 Production arrangement is an important opportunity as it represents an entry point for San Leon in the Nigerian onshore oil and gas production market, one of the largest in the world. Additionally, the asset benefits from having a significant portion of its oil production hedged at US$95 per barrel until December 2017. We expect the company to not only augment its cash flows from OML 18 but also strengthen its board through the addition of new directors with experience in the Nigerian oil and gas industry. Meanwhile, the company also continues to optimise its broader portfolio by selected asset disposals. We are encouraged by the company's progress in the recent past and look forward to further developments. We maintain a Speculative Buy rating on the stock.

Economic news
US Empire manufacturing
The US Empire State manufacturing index for general business conditions slumped to -9.02 in May from a reading of 9.56 in April, the manufacturing survey by the Federal Reserve Bank of New York revealed yesterday. The economists had expected a reading to improve to 6.5

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