Beaufort Securities Breakfast Alert: Cyan Holdings,Savannah Resources,Crest Nicholson, easyJet and Vodafone


• Cyan Holdings (LON:CYAN)
• Savannah Resources (LON:SAV)
Crest Nicholson (LON:CRST)
• easyJet (LON:EZJ)
Vodafone (LON:VOD)

Just one week is far too short a time to gauge the true ramifications of a Trump presidency, but nevertheless a picture is being formed of a brave new world which potentially leads to a paradigm shift for global markets. The common themes are higher inflation, higher interest rates and a potential bonanza for certain US corporate sectors. Powering this will be Fiscal Easing (given that monetary policy globally has failed to translate into meaningful growth), Repatriation (of, perhaps, US$2tr+ cash ‘trapped’ offshore in US companies’ balance sheets) and more relaxed Financial Regulation (probably initially in the form of delay or amendment of the Dept. of Labour Fiduciary rule). Although clearly not the President-elect’s intention, some of the growth inspired by such reform will undoubtedly spill over into other global economies which, in turn, will find themselves pressured to adopt a ‘if you can beat ‘em, join ‘em’ approach for fear of otherwise being left behind. Indeed, this is almost certain to deepen the rifts that are already too painfully apparent across the EU, which will likely come to a head with the forthcoming Italian Referendum, followed by Germany and France’s own elections. For now, however, markets appear willing to continue buying into this scenario, with the overnight markets pointing sharply upwards once again. All principal US indices rose again, with the Dow Jones chalking up its fourth consecutive record close led by financials, while the NADSAQ was the strongest performer as tech investors finally began to welcome the idea of one-off 10% tax on overseas cash, considering opportunity for the surplus to either power expansion or simply be given back to shareholders. Asia followed suit rising across the board, led again by the Nikkei, whose analysts are increasingly speculating that Trump policies will effectively provide Japan with a route out of its ‘lower-for-longer’ economic rut. Against this, London looks set to turn positive once again this morning, with the FTSE-100 set to open up over 10 points during early trade. The UK will release its employment data today, along with the IEA’s World Energy Outlook publication. This afternoon, traders will review speeches from both the Fed’s Neel Kashkari and Patrick Harker for more signs of Yellen’s intention at the FOMC’s December meeting. Results or trading updates are also due from a good number of UK corporates, including Aggreko (AGK.L), Avon Rubber (AVON.L), Barratt Developments (BDEV.L), British Land (BLND.L), ICAP (IAP.L), Rolls Royce (RR..L) and Speedy Hire (SDY.L), while quarterlies are also due from US majors including Cisco Systems and Lowe’s. "
- Barry Gibb, Research Analyst

The FTSE-100 finished yesterday's session 0.59% higher at 6,792.74, whilst the FTSE AIM All-Share index closed 0.44% up at 806.16. In continental Europe, the CAC-40 finished 0.62% higher at 4,536.53 whilst the DAX was 0.39% better-off at 10,735.14.
Wall Street
On Wall Street last night, the Dow Jones added 0.29% to stand at 18,923.06, the S&P-500 firmed 0.75% to 2,180.39 and the Nasdaq gained 1.1% to end at 5,275.62.
In Asian markets this morning, the Nikkei 225 had risen 1.11% to 17,863.63, while the Hang Seng firmed 0.54% to stand at 22,444.46.
In early trade today, WTI crude was up 0.44% to $46.01/bbl and Brent was up 0.55% to $47.21/bbl.

First-time buyers need more help
First-time buyers need more support to halt the decline in home ownership, a study by one of the UK's biggest housebuilders has concluded. Long-term building targets were also required to avoid "kneejerk" policy moves, the Redfern Review said. It found home ownership rates in England fell from 71% to 64% over 12 years, with the steepest drop among young people. Labour, which commissioned the report, said it showed a "lost generation". Among 25-34 year olds, the rate of home ownership fell from 59% in 2003 to 37% in 2015, according to the review led by Pete Redfern, chief executive of Taylor Wimpey. Lower incomes for younger people since the financial crisis in 2008, as well as their more limited access to mortgage finance, were major contributing factors, he said. To help them back on the housing ladder, Mr Redfern said schemes such as Help to Buy, which allows househunters to pay smaller deposits, should be targeted more exclusively at first-time buyers.
Source: BBC News

Company news
Cyan Holdings (LON:CYAN, 0.20p) – Speculative Buy
CyanConnode, the world leader in narrowband RF networks for Omni Internet of Things (IoT) communications, yesterday announced the winning of two Frost & Sullivan best practices titles in the 2016 awards. The Group was awarded the Global Smart Meter Growth Excellence Leadership Award and the Award for Best Practices in Enabling Technology Leadership in Smart Lighting Control for the Public Lighting Industry. These awards recognise CyanConnode's consistency in delivering innovative technology and customer value across the global smart metering and smart lighting industries. Previous recipients of Frost & Sullivan best practice awards include Huawei Technologies Co Ltd, Intel Corporation, Tata Communications Ltd, Vodafone Group, and Cisco.

Our view: With more than 500% growth in revenues for the first half of 2016 alone, CyanConnode recorded a quite exceptional growth rate in the global smart meter market. And this heralds just the beginning of a long-term, global sector expansion. Through the effective leverage of the Company's technical competence, along with its ability to forge strategic partnerships with leading industry participants and a customer-centric approach, CyanConnode is successfully deploying smart metering solutions in highly competitive business environments. It has built strong partner ecosystems within its target markets, which has helped maintain their position at the top of the industry as well as attract new customers. In addition to its organic growth strategy in rapidly developing economies, Cyan acquired Connode in July 2016 to build its brand and presence within developed markets as well, adding a fully compliant standards-based smart metering technology platform to the Company's pre-existing well established mesh based flexible wireless solutions. These opportunities have been detailed in a major report from Beaufort, which provided a comprehensive review of the role that Cyan Holdings has carved out for itself in this booming sector. The note points out the World Bank’s extraordinary demonstration that it is three-times cheaper for utilities to save 1kWh of electrical energy by improving network efficiencies than investing in new generating capacity. Such losses in developing regions, along with the need for much better demand response in developed territories, are now the single most pressing issue for utility groups worldwide. The note goes on to show that a comprehensive and cost effective solution can be found through the implementation of sophisticated smart metering programmes, such as that offered by CyanConnode. As such, the report concludes this now represents a giant, unfulfilled, scalable and truly global growth opportunity with the potential to attract large, long-term and exceptionally sticky customers. Recent equity issuance ensures the Group is equipped for the build-up in working capital that will be required by the Group in the coming months as it captures and facilitates much larger contracts, such as the £10m initial order from Iran, with much of the new capital taken up by into firm, long-term related and supportive partners. Beaufort’s assessment of the enlarged, post-raise, post-acquisition Group now suggests a valuation of some £125.3m. Accordingly, it keeps the shares on a Speculative Buy recommendation with a price target of 0.6p/share.

Beaufort Securities acts as corporate broker to Cyan Holdings PLC

Savannah Resources (LON:SAV, 4.91p) – Speculative Buy
Savannah Resources announced today final results for its resource drill programme over its Mahab 4 deposit (Block 5 licence) located in the Sultanate of Oman. Savannah owns a 65% shareholding in Al Fairuz Mining, the owner of the Block 5 licence and is earning a 65% shareholding in Al Thuraya LLC, the owner of Block 4 licence, both are highly prospective for copper and gold. The final drill hole (16B5DD018) from Mahab 2016 resource drill programme returned 14.25m grading 3.56% Cu, 0.62% Zn and 0.22g/t Au from 109.1m. Savannah is targeting an increase and upgrade in the overall resource potential at Maqail South and Mahab 4, which has a current combined resource of 1.7Mt grading 2.2% Cu. With resource drilling now completed on Block 5, a revised mineral resource estimate for both Maqail South and Maqail 4 is expected in Q4 2016. A new 600m drill programme has commenced on Block 4, targeting further resource definition at the Dog’s Bone lens, which is part of the Aarja deposit.

Our view: Results from the 2016 resource drill program are very encouraging particularly at Mahab 4 and Maqail South where broad, high-grade copper zones have been intersected. These results have the potential to expand the current resource estimate with Mahab 4 remaining open down dip to the north and the Maqail South deposit open to the west. We look forward to additional drill results from the Aarja deposit, in particular the Bog’s Bone lens (Block 4), as well as the revised mineral resource estimate for Mahab 4 and Maqail South in Q4 2016. In the meantime, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Savannah Resources Plc

Crest Nicholson (LON:CRST, 457.08p) – Buy
Crest Nicholson yesterday issued a trading update in respect of the financial year ended 31st October 2016, ahead of release of its preliminary results on 24th January 2017. The Group confirmed that it continued to grow housing volumes in 2016, with open-market unit completions at 2,292 up 7% and overall housing delivery up by 5%. Open-market average selling prices increased by 20% to £371k, in line with its well-established strategy to re-position the business by 2016 at broadly this level. As a consequence, the Board stated its anticipated reported revenues for the year should be approximately £1billion, in line with its stated target and a landmark achievement for the business. For the first time since flotation in 2013, the business had net cash balances of £77.0m at 31st October 2016 (2015: net debt of £30.3m), reflecting the Board’s ongoing focus on cash generation and maintaining prudent levels of borrowing. The Company confidently re-iterated its commitment to reduce dividend cover to 2.0x in respect of 2017 earnings.

Our view: Attractive housing market conditions continue to underpin Crest’s sales rates and revenue growth. In spite of initial uncertainty arising from the Referendum in June, purchasers have largely returned to the market, as high employment, good mortgage availability, easy access to Government funding incentives and low interest rates continue to make house-purchase attractive for buyers amid a clearly unsupplied UK market. While no comment was provided for investors regarding margin progression, the managements note that ‘sales prices and build cost inflation have both moderated in the latter part of the year’, suggests no significant impact has been felt which is reinforced by the fact that forward sales are currently up some 5% in value terms on the comparative period. Given that net cash could surpass £90m by year end, the Group finds itself well positioned to achieve its target of 4,000 homes and £1.4bn of revenues by 2019. A 2x covered 2017E dividend suggests the shares, which are down 15% year-to-date in absolute terms, presently offer a yield of 8.6% while trading of a Price/NAV marginally under 1.3x. That’s cheap in anybody’s book, meaning Beaufort retains its Buy recommendation on the shares for both income and value investors, although Taylor Wimpey remains our top pick amongst the UK housebuilding sector.

easyJet (LON:EZJ, 1,044.62p) – Buy
easyJet, a low-cost European short-haul airline company, yesterday announced final results for the year ended 30 September 2016 (‘FY2016’). During the period, total revenue declined slightly by -0.4% to £4,669m as revenue per seat fell -6.4% to £58.46 (-6.9% at constant currency basis), against the comparative period (FY2015). Due to the £150m impact of external events during the period, as well as costs of disruption and airport and ground handling cost inflation, pre-tax profit fell by -27.9% to £495m at a pre-tax margin of 10.6% (FY2015: 14.6%). Consequently, basic earnings per share dropped by -21.9% to 108.7p per share. Return on capital employed declined by -7.7% to 14.6% and net cash at the period end stood at £213m (FY2015: £434m). The Group carried 73.1m passengers, up +6.6% at load factor of 91.6%, up +0.1% year-on-year, during the period. Capacity grew by +6.5% in the period to 80 million seats. easyJet’s CEO, Carolyn McCall commented “Looking ahead, the easyJet model remains strong as does the demand environment and we continue to see opportunities in the medium term to grow revenue, profit and shareholder returns. In a tougher operating environment strong airlines like easyJet will get stronger and we will build on our already well-established network. Almost half of our growth next year will be in the UK, with significant growth also in Switzerland, France and Italy. Our strategy of strengthening our positions at our key airports will see double digit growth in key bases in London, Manchester, Venice, Berlin and Amsterdam.” The Group declared full year dividend of 53.8p per share (FY2015: 55.2p) to be paid on 17 March 2017.

Our view: easyJet performed resiliently during what was a significantly disrupted period for a whole industry, registering record passenger numbers and load factor. The customers were attracted by a 3rd consecutive year of falling fares although this, along with various negative external events such as Air Traffic Controller Strikes and terrorist attacks, along with adverse foreign exchange movements conspired to reduce the Group’s profitability. Despite this, it achieved a pre-tax profit of £495m, right at the upper end of its £490m-£495m guidance and in-line with the consensus analyst estimates. Revenue per seat decreased by 6.4% in order to attract customers in a competitive market who may have been discouraged by the external events mentioned above. The Group reduced its total cost per seat by 2% to £52.26 or by 4.6% on a constant currency basis, due to the cheaper fuel price. Excluding fuel, total cost per seat increased by 2.6% due to adverse foreign exchange rate, although it actually reduced by 1.1% on a constant currency basis. easyJet delivered savings of £95m (or +106% year-on-year) through improvements in airports, maintenance and ground handling costs. Looking ahead, the Group expect to increase capacity by 9% during FY2017 (previously guided +8%). If the current fuel price remains, the Group expect the unit fuel bill to decrease by £245m-£275m during FY2017. The Group will pass some of these benefits to customers and therefore expect a mid-to-high single digit decline in revenue per seat at constant currency during H1 FY2017. easyJet expect adverse exchange rate movements of c.£70m in the H1 and c.£90m for the full year. The Group targeting a 3% decline in total cost per seat at constant currency including fuel for the full year and a 1% increase in cost per seat excluding fuel at constant foreign exchange rate. The Group said it remain committed to flat cost per seat excluding fuel at constant currency in the FY2019 against FY2015, given normal levels of disruption. easyJet has hedging in place and remain focused on lean initiatives. Considering Group’s ability to maintaining strong balance sheet at the same time increased dividend payout ratio to 50%, we concur with the Board’s long-term confidence. Given easyJet’s plans to establish an Air Operator Certificate in another EU member state to secure the flying rights wholly within and between EU states (which accounts for 30% of total Group traffic), it is clearly working hard to mitigate prospective Brexit risks. In view of these developments, while keeping one careful eye on the oil price and economic/political uncertainties, Beaufort retains its Buy rating on the shares based on a FY2017E earnings multiple of 12.2x and 4.1% yield.

Vodafone (LON:VOD, 202.40p) – Buy
Vodafone, a leading global telecommunications company, yesterday announced its half year results for the 6 months ended 30 September 2016 (‘H1 FY2017’). During the period, Group revenue fell by -3.9% to €27.1bn, primarily due to foreign exchange movements against the comparable period (H1 FY2016). Operating loss stood at €4.7bn (H1 FY2016: profit €1.1bn), and consequently, basic loss per share widened to 18.38 from 9.43 Euro cents. Group organic service revenue, on the other hand, advanced by +2.3% to €24.8bn, organic EBITDA increased by +4.3% to €7.9bn and adjusted organic operating profit jumped by +11.4% to €2.3bn. On the operational front, data traffic grow +61% across the Group and it added 675,000 broadband during the period to now 82.1 million homes. The Group said it achieved 100% of targeted cost and capex synergy run rate at Kabel Deutschland, 6 months ahead of schedule. Vodafone is on track to complete the JV with Ziggo in the Netherlands around the end-2016. The Group declared an interim dividend of 4.74 Euro cents per share, up +1.9%, to be paid on 3 February 2017.

Our view: Vodafone delivered satisfactory organic growth during the H1, which saw +2.3% revenue increased boosted by strong growth in the AMAP region (+7.4%) and EBITDA grew by +4.3%, faster than the revenue growth helped by margin improvement in both Europe and AMAP as well as strong cost control. On a reported basis, revenue declined due to adverse foreign exchange movement, while profits were also impacted by a non-cash impairment of €5bn (net of tax) for the Indian business, having experienced increasingly competitive dynamics, reduced revenue growth and profitability. The Group responded to this by strengthening its commercial data and voice offers and by focusing on acquiring frequencies in the more profitable areas across India. The H1 performance overall was modestly ahead of the management’s expectations. Looking forward, the Group narrowed its full year EBITDA guidance marginally to €15.7bn-€16.1bn (representing 3 to 6% organic growth) from €15.7bn-€16.2bn, while reiterating free cash flow of “at least” €4bn. Given the Group’s willingness to reaffirm its full-year objectives despite underlying macroeconomic uncertainties while increasing its interim dividend, it suggests the shares, which are valued on FY2017E and FY2018E P/E multiples of 33.4x and 26.3x along with dividend yield of 6.3% and 6% respectively, still represent good value for investors. Beaufort reiterates its Buy rating on the Shares.

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