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Open Orphan #ORPH – Interim Results for 6 months ended 30 June, will be operationally profitable in Q4

Open Orphan Plc, a rapidly growing specialist CRO pharmaceutical services company which is the world leader in the testing of vaccines and antivirals using human challenge clinical studies is pleased to announce its interim results for the six months ended 30 June 2020. The interim results include the first six months of hVIVO group (“hVIVO”) following its acquisition by Open Orphan Plc on the 17 January 2020.

Operational Highlights:

·    Completed the acquisition of hVIVO plc for an aggregate consideration of approximately GBP£13 million in equity on 17 January 2020 

·    Implemented a major restructuring and integration of our operations to drive efficiency and competitiveness which is now substantially completed

·    Successfully secured a number of RSV human challenge studies in the period including:

–      £3.4m contract with a major European biotech company, with anticipated £7m follow-on study  

–      £3.7m contract with a US biotechnology company 

·    Driving growth of Dutch early clinical development services while refocussing French operations towards biometry services

·    Large contract signed with a global leader in vaccine development 

·    Launch of COVID-19 Antibody testing partnership with Quotient Ltd

·    Appointment of Leo Toole as Group Chief Financial Officer enhancing the executive management team

Financial Highlights:

·    Cash and cash equivalents at half year end of GBP £14.7m following two successful placings:

–      Executed a fundraise on 31 January 2020 raising GBP £5.3 million at 6.1p per share (before expenses)

–      Executed a fundraise on 22 May 2020 raising GBP £12.6 million at 11p per share (before expenses)

·    Reported Interim Results

o  Revenue of GBP £7.1 m for H1 2020 – continued focus on delivering larger contracts

o  EBITDA loss of GBP £4.1m for H1 2020

o  Operating Loss of GBP £5.0m for H1 2020

·    Pro-forma Interim Results

o  Revenue of GBP £7.4m (H1 2019 Revenue of GBP £11.6m)

o  EBITDA Loss of GBP £4.7m (H1 2019 EBITDA loss of GBP £4.7m)

o  Operating Loss of GBP £5.6m (H1 2019 Operating Loss of GBP £6.3m)

·    Post completion of Merger, reduction in overheads on target to deliver annualized cost efficiencies of GBP £10.1m by end of 2020

Post Period End:

·    Acquired the CHIMagents team in July, reinforcing hVIVO’s position as the world leading services company in the testing of vaccines and antivirals through human challenge study clinical trials.

·    Integrated hVIVO’s unparalleled database of infectious diseases progression data into the Open Orphan data platform – expecting potential commercialisation in Q4, with some of the world’s largest wearable companies for this disease progression data.

·    Progressing as planned to monetise two of our non-core assets, the 49% stake in Imutex and the 62.6% stake in PrEP.

·    The Company continues to provide testing to large commercial employers in the UK and Ireland as part of a combined COVID-19 antibody and COVID-19 PCR (swab) testing offering. 

·    Contracts signed post period end include:

–      Laboratory services contracts signed with a number of parties – a key strategic growth area for Open Orphan taking advantage of our laboratory expertise.

–      Contract signed with Codagenix Inc. for a first-in-human Phase I COVID-19 vaccine study, demonstrating that hVIVO’s quarantine facility is uniquely suited to conducting Phase I studies for infectious disease vaccines such as this.

–      Further RSV human challenge study contract for £4m signed with a Top 3 global pharma company with hVIVO acting as sponsor for this study.

–      First-in-human clinical pharmacology trial signed with Carna BioSciences.

–      Contract signed with a major European pharmaceutical company for data management, statistics and medical writing to support a 750 subject oncology study.

–      Contract signed for a further £4.3m human challenge study with a top 10 global vaccine company.

Outlook:

·    The Group has a strong pipeline of contracted  work and new projects at an advanced stage of negotiation and is targeting growth with strong operating cash flow in the second half of 2020 and is on target to be operationally profitable in Q4.

·    As of September 2020, we are close to having the hVIVO quarantine clinic block booked with conventional challenge studies until December 2021. Quarantine clinic block expected to shortly be booked out for the next 18 months to two years with conventional challenge study contracts.

·    Further to its announcements of 9 March 2020 and 22 May 2020, the Company is well progressed in developing the world’s first Coronavirus human challenge study model to test a range of COVID-19 vaccines, complementing existing human challenge study models. We are in advanced discussions and negotiations with a range of potential customers, including the UK Government to test COVID-19 vaccines. 

Cathal Friel, Executive Chairman of Open Orphan, said: 

“Since we acquired hVIVO in January 2020, we have achieved what we set out to do. We have created a leaner more efficient businesses, removed excess costs and we are now a truly unique clinical research organisation (CRO) that is the world leader in the testing of vaccines and antivirals through the use of human challenge clinical trials. We have secured larger, more profitable contracts with both large pharma and the leading vaccine developers globally. We have delivered upon our aim of improving revenue streams through the delivery of several new revenue lines including the provision of laboratory services to third parties. We have reinvigorated both the Venn Life Sciences business and the hVIVO business during the first half of 2020 and have created a strong foundation for future growth.

Looking ahead, I am extremely excited by the potential for this business, we have entered a decade of significant spending on vaccines and antivirals by both governments and pharma companies around the world. The Open Orphan Group including hVIVO and Venn Life Sciences is ideally positioned to capitalise on this increase in vaccine development expenditure. Earlier this year we set ourselves the target of being profitable in the second half of 2020 and I am delighted to confirm that, despite profitability taking a few months longer than expected, we are on target to be operationally profitable in Q4 2020. 

None of the above would have been possible without the exceptional effort, dedication and professionalism shown by all hVIVO, Venn and Open Orphan team members. They have worked diligently through the past 6 months, despite the added difficulty of the pandemic, to ensure that we have delivered an excellent performance. The teams are really well positioned to thrive as the world leaders in the testing of vaccines and antivirals for the decade ahead.”

Conference call for sell-side analysts and investors

The Company will hold a conference call for sell-side analysts and investors at 10:30 today. 

Details for the conference call can be found at: https://www.speakservecloud.com/register-for-call/254ba4b5-e780-48fb-9142-c5762f4ef8ef

A corporate presentation is available to shareholders on the Group’s website at: https://www.openorphan.com/investors/reports-and-presentations/year/2020

Enquiries:

Open Orphan Plc Tel: +353 (0)1 644 0007

Cathal Friel, Executive Chairman

Arden Partners (Nominated Adviser and Joint Broker) Tel: +44 (0)20 7614 5900

John Llewellyn-Lloyd / Benjamin Cryer / Dan Gee-Summons

finnCap plc (Joint Broker) +44 (0) 20 7220 500

Geoff Nash / James Thompson/ Richard Chambers

Davy (Euronext Growth Adviser and Joint Broker) Tel: +353 (0)1 679 6363

Anthony Farrell (Corporate Finance)

Camarco (Financial PR)Tel: +44 (0)20 3757 4980

Tom Huddart / Hugo Liddy

Notes to Editors ‐ Open Orphan:
Open Orphan is a rapidly growing niche CRO pharmaceutical services company which is a world leader in the testing of vaccines and antivirals through the use of human challenge clinical trials. Conducted from Europe’s only 24-bedroom quarantine clinic with onsite virology providing individually isolated rooms and connected to our specialist laboratory facility. hVIVO’s challenge studies require healthy volunteers to take part, volunteers are recruited through FluCamp, learn more at www.FluCamp.com. The hVIVO facility offers highly specialised virology and immunology laboratory services to support pre-clinical and clinical respiratory drug, antiviral, and vaccine discovery and development.  Reliable laboratory analysis underpinned by scientific expertise is essential when processing and analysing clinical samples. Robust quality processes support our team of scientists in the delivery of submission ready data.

The Company has a leading portfolio of 8 viral challenge study models which are: 2 FLU, 2 RSV, 1 HRV, 1 Asthma, 1 cough and 1 COPD viral challenge models. As announced in early March, Open Orphan is rapidly advancing a number of Coronavirus challenge study models and expects to be helping many COVID-19 vaccine development companies to test their vaccines. No other company in the world has such a portfolio, with only two competitors globally having 1 challenge study model each. hVIVO also works with companies in the UK and Ireland to provide COVID-19 testing to staff to protect staff and customers from a workplace COVID-19 outbreak through its COVID Clear offering. 

Open Orphan comprises of two commercial specialist CRO services businesses, hVIVO and Venn Life Sciences and is also building out a valuable data platform business. hVIVO has built up one of the world’s largest databases of infectious disease progression data and we are populating our Open Orphan Health Data platform with this historical hVIVO data. In our clinical trials going forward, we are also planning to collect data on volunteer’s via wearables during clinical trials. Therefore, Open Orphan’s data, which may yield valuable digital biomarkers, could be one of the more sought-after datasets by many of the large wearables /smart watch wearables providers around the world. In June 2019, Open Orphan acquired AIM-listed Venn Life Sciences Holdings plc in a reverse take-over and in January 2020 it completed the merger with hVIVO plc in January 2020. Venn is an integrated drug development consultancy firm which offers CMC (chemistry, manufacturing and controls), preclinical, Phase I & II clinical trials design and execution. The merger with hVIVO created a European full pharma services company broadening the Company’s customer base and with complementary specialist CRO services, widened the range of the Company’s service offerings.

Executive Chairman’s Statement 

Dear Shareholder, 

As Executive Chairman, I am very happy to report the first set of combined results since Open Orphan plc’s (formerly Venn Life Sciences Holdings plc) acquisition of hVIVO plc (now hVIVO Limited) in January 2020.  

Summary

The 6 months to the end June 2020 have been a period of significant change initially focussed on progressing our strategy to sign contracts for our world leading human challenge studies clinical trials which are used to test vaccines and anti-virals. We are also signing new contracts for biometry services from our Paris office and early clinical development services from our Breda, Netherlands office while at the same time developing further new revenue streams such as laboratory services to complement our existing London business. This has all been done while at the same time we implemented a major restructuring and integration of our operations to drive efficiency and competitiveness which is now substantially completed. 

Also, in this period, the Company addressed the rapidly evolving COVID-19 pandemic event by enabling a safe and efficient working environment for our staff at home and in our clinic and laboratory facilities. We have worked proactively with our clients to manage project timetables to minimize the impact of Covid-19 on our revenues streams while continuing to build new relationships to expand our confirmed project pipeline well into 2021 and beyond. 

Other highlights include the completion of a placing of £12.6m (before expenses) at 11p per share in May 2020 allowing us to invest to accelerate the development of a world-first coronavirus challenge study model to test COVID-19 vaccines and antivirals. This was all done while also expanding our laboratory service offerings to offer enhanced external laboratory services and to develop testing services to support the nascent testing environment for Covid-19.  

Interim Results

Reported results for Open Orphan plc are summarized below and are covered by the schedules and notes from pages 6  to 14 of these Interim Financial Statements (and in particular reflect reverse merger accounting treatment under IFRS 3 and IFRS 10 of the combination of Venn Life Sciences Holdings plc and Open Orphan DAC as of 28 June 2019). We also share for reference the results for hVIVO plc (now hVIVO Limited), Open Orphan plc (formerly Venn Life Sciences Holdings plc) and Open Orphan DAC on a stand-alone basis.                                                                                                                                                                                                                                                                

 Open Orphan plc(As reported)hVIVO plc(Proforma results on standalone basis)Open Orphan plc(formerly Venn Life Sciences Holdings plc -proforma resultson a stand-alone basis) Open Orphan DAC (proforma resultson a stand-alone basis)Open Orphan plc(proforma results on a combined basis and including the impact of the 28 June 2019 and 17 January 2020 combinations)
 Unaudited6 months ended30 June2020£’000Unaudited6 months ended30 June2019£’000Unaudited6 months ended30 June2020£’000Unaudited6 months ended30 June2019£’000Unaudited6 months ended30 June2020£’000Unaudited6 months ended30 June2019£’000Unaudited6 months ended30 June2020£’000Unaudited6 months ended30 June2019£’000Unaudited6 months ended30 June2020£’000Unaudited6 months ended30 June2019£’000
Revenue (incl. Other income)7,0783,3796,4094,0625,1797,44111,588
Operating (Loss) (5,005)(156)(3,067)(4,224)(2,128)(1,965)(447)(159)(5,642)(6,348)
EBITDA before exceptional items(4,145)(156)(2,478)(3,192)(1,811)(1,340)(445)(159)(4,734)(4,691)
Loss for the period (6,490)(1,070)(2,934)(3,833)(2,408)(1,809)(458)(1,091)(7,136)(6,733)
           
 As at 30 June 2020€’000As at 30 June 2019€’000        
Non-current assets17,7215,250        
Current assets (excl. cash)3,6025,714        
Cash14,6514,540        
Total Assets35,97415,504        
Equity attributable to owners26,9947,576        
Non-current liabilities2,2713,304        
Current liabilities6,7094,624        
Total equity and liabilities35,97415,504        

Governance

The Board continues to recognise the importance of the high standards of corporate governance and considers that the Group’s success is enhanced by the imposition of a strong corporate governance framework. I am grateful for the contributions of the new Board formed after the acquisition in January 2020 and want to acknowledge the important service of Trevor Philips during his tenure on the Boards of hVIVO plc (now hVIVO Limited) and Open Orphan plc until he stepped down in May 2020. 

Outlook

Our business outlook has never been stronger. Demand and interest to complete Challenge studies in our 24-bed quarantine facilities in the UK is translating into a steady flow of signed new contracts and new customer engagement. As a result of the  fundraise at the end of May, Open Orphan now has a large, healthy cash balance and, as such, is very well capitalised and we are ideally placed to be providing such services to governments and pharma companies around the world who seek to address the current pandemic and mitigate the risk of future such events. We are progressing a number of encouraging avenues to rapidly develop a human challenge model specific to SARS CoV-2 to fast track the identification of efficacious vaccines and treatments for Covid-19.

Our early clinical development business based out of Breda in the Netherlands is showing strong year on year growth while our biometry services based out of our Paris office, now focussing on data management, biostatistics, medical writing and randomisation, are contributing strongly to generate synergies for our viral challenge studies and expand their pipelines.

Across the second half of 2020, we will see the impact of the major efforts undertaken across the Group to divest from underperforming businesses, reduce overheads, deliver merger integration savings and right-size the management team including combining senior roles in both Venn and hVIVO leading to operational profitability in Q4. Our renewed focus on reducing hierarchy has increased the speed of decision making while empowering our teams to deliver our ambitious goals.

In addition, data is an important upstream area of development for the Group where we believe there will be an important convergence of  hVIVO’s global infectious disease progression data with the digitization of other vital signs and biomarkers available through our challenge studies, all with the goal of creating a ground-breaking Open Orphan Health Data platform that can be monetized with major pharma players. 

I am very encouraged for the remainder of 2020 and our prospects in 2021. We have a world leading team, focused on ground-breaking work which will create sustainable value for all our stakeholders.

Cathal Friel

Executive Chairman

30 September 2020

Full results announcement with financial statements here

Atlantic View – Keep Buying Kingfisher #KGF, DIY Retailer Flying High Thanks To COVID Lockdown Sales Boom

by John Woolfitt, Atlantic Capital Markets

Fundamentals & Statement Summary

Kingfisher (KGF), the owner of B&Q in the UK and Castorama and Brico-Depot in France, today announced a resilient first-half sales performance after the impact of the COVID lockdown during Q1 was offset by strong sales recovery in Q2. The group said that the crisis had ‘reinforced’ its approach, ‘pushing’ the retailer to be ‘bolder.’ Sales fell 1.3% to £5.9bn, while adjusted pre-tax profit grew by 23.1% to £415m as a huge 164% increase in online sales and a strong recovery in reopened stores offset the temporary closure of all outlets in the UK and France early in the Covid-19 pandemic.

The results comfortably exceeded adjusted profit forecasts of £361m, and as a result Kingfisher said it would repay the £23m it received in furlough payments from the UK government. Free cash flow of £1.04bn, up £838m, reflected higher operating profit, working capital inflow of £656m and lower capex.

Kingfisher said it had benefited from a surge in spending on homes and gardens as people adapted their houses for working from home, using money they would have spent on holidays or entertainment. 

Kingfisher CEO Thierry Garnier said the crisis “has prompted more people to rediscover their homes and find pleasure in making them better. It is creating new home improvement needs, as people seek new ways to use space or adjust to working from home. It’s also clear that customers are becoming more comfortable with ordering online. And delivering value to consumers is imperative against a challenging economic backdrop.”

Looking forward, Kingfisher said the momentum had continued into Q3, with UK sales up 18.9%. since the end of July and those in France climbing 16.7%. The group also intends to experiment with new store formats including a pilot with Asda to introduce B&Q mini-stores in supermarkets.

Garnier added that while the near term outlook was uncertain, “the longer term opportunity for Kingfisher is significant. There is a lot more to do, but the new team and new plan is now established in the business and we are committed to returning Kingfisher to growth.”

Chart and Technicals

Source: FactSet and Hargreaves Lansdown

In the run up to the March COVID fall, Kingfisher shares traded steadily, before plunging to  a 10 year low of 124p on March 18th. By the end of April however, the shares had not only recovered the 50-day MA, they blew through it, and recovered the benchmark 200-day moving average at 190p less than 1 month later. Since that time KGF has traded above both averages, leading to a bullish golden cross formation on July 10th as the 50-day MA passed through the 200-day MA. The stock drifted back to the 50-day MA in the run up to the results, and having successfully tested that level, opened higher on September 22nd. While above this level, our expectations are that the stock will retest July 2018 highs of 317p by early November 2020.

Summary and Atlantic View

Although the strong trading performance had by and large been flagged up by Kingfisher to the markets, the pace of online growth and resulting profit number caught out even the most bullish pundits. As CEO Thierry Garnier says, people have used the cash they would have spent on holidays and entertainment on home improvements. This factor, also evident in Travis Perkins results earlier this month, led to strong free cashflow and the return of furlough payments to HM Govt. Now, with lockdown and movement restrictions set to return at home and in France, Atlantic Capital Markets believes Kingfisher websites and outlets will be faced with a huge opportunity to cash in on another surge in home improvement spending during the latter part of the year. Backed by this sort of momentum, we expect the shares to push higher and retest the technical target of 317p in the next 4-6 weeks. Keep Buying.

To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here

ECR Minerals #ECR – Business Operations Update

ECR Minerals plc (LON: ECR), the gold exploration and development company focussed on Australia, is pleased to provide the following update on its activities, which are centred on the Bailieston and Creswick gold projects in Victoria, Australia. Both projects are 100% owned by ECR’s wholly owned Australian subsidiary Mercator Gold Australia Pty Ltd (“MGA”).

HIGHLIGHTS

  • Field mapping and geochemistry currently underway across numerous gold prospects in the Bailieston project area;
  • ECR has acquired a diamond drilling rig capable of drilling as deep as 1,300 metres, due for delivery next month and which will be deployed immediately on an ECR managed drill programme;
  • High priority gold prospects within the Bailieston and Creswick project areas with potential for immediate drilling have been identified.

Craig Brown, Chief Executive Officer of ECR, commented:

“There is continuing interest in ECR’s Bailieston and Creswick projects with regards to potential joint venture or earn in opportunities. However, there can be no guarantee that any transaction will occur. The Company will provide further updates as appropriate.

The engagement we are experiencing is not surprising given the interest in Victoria gold opportunities, as evidenced by the many corporate transactions that we have seen in the area.

ECR is also gearing up to launch next stage exploration campaigns across our properties and we look forward to providing updates as the work progresses

The Directors are very optimistic for the future, and the Company has a robust underlying cash position of £1.65m with which we can confidently push ahead with operational programmes.”

CURRENT EXPLORATION ACTIVITIES

With the approaching end of the Victorian winter, MGA has begun to ramp-up exploration at the Bailieston and Creswick projects. A programme of follow-up field mapping and geochemistry across numerous prospects in the Bailieston project area is currently underway. MGA has recently purchased its own portable Olympus XRF analyser in order to enhance and expedite its geochemical sampling capabilities.

A map of the eastern Bailieston project area showing some of the prospects and features referred to in this announcement can be viewed at:

https://www.ecrminerals.com/images/2020/09/09/prospectsreefs-eastern-bailieston-tenement-area.jpg

Detailed mapping and geochemistry at the Cherry Tree, Cherry Tree South and Black Cat prospects is aimed at locating the surface position of shoots and identifying mineralisation along strike of trends established by historical and recent exploration. This will assist with the consideration of these prospects for drilling.

Cherry Tree (Historic Reserve #4) and Cherry Tree South are along the Bailieston trend and south of the Fosterville-style mineralisation mined in a small open cut in the 1990s at Historic Reserve #1 (HR1).

Rock chip samples were taken by MGA from Cherry Tree and Cherry Tree South as part of a 2018 sampling programme along the Bailieston trend. A total of 58 rock chip samples were taken at Cherry Tree and Cherry Tree South, with 17 samples returning grades of >1 g/t gold and the highest assay result being 8.8 g/t gold.

Field mapping and geochemical sampling at the Kings Cross and Pontings prospects in the Bailieston project area will follow-up earlier results including soil samples of up to 1.79 g/t gold at Kings Cross and rock chip samples of up to 8.31 g/t gold at Pontings.

PURCHASE OF DIAMOND DRILLING RIG AND POTENTIAL FUTURE DRILLING

MGA has recently signed a contract for the purchase of a new Cortech CSD1300G diamond drilling rig complete with spares and all downhole equipment, which is capable of drilling as deep as 1,300 metres. The rig is expected to be delivered in October 2020 and will give MGA an in-house drilling capability, which will be preferable to relying on contractors.

MGA has access to experienced drilling personnel to operate the rig, and it is expected that future drilling can be completed at lower cost and with greater flexibility using MGA’s own rig.

High priority gold prospects within the Bailieston and Creswick project areas which have the potential for immediate further drilling are detailed below. Once the drill rig has been received in Australia, a decision will be taken as to where it should first be put to work.

Bailieston Project – Blue Moon 

Blue Moon is an exciting new gold discovery made by MGA, with intercepts from 2019 reverse circulation (RC) drilling including 15 metres at 3.81 g/t gold from 51 metres downhole (with 2 metres at 17.87 g/t gold) (see announcement dated 14 March 2019 for full details of the drill programme). The best 2019 drilling results came from the western fence line. The host sandstone thins towards the east, where the drill results diminished accordingly.

ECR plans to test whether the mineralisation continues to improve towards the west, subject to gaining surface access. There is also potential to carry out further drilling within the zones already tested, with the objective of establishing an initial JORC Mineral Resource.

Bailieston Project – HR3

Three dimensional (3D) modelling of historical data for the Bailieston Historic Reserve #3 (HR3) and the results of drilling in the area by MGA in 2017 was completed in late 2019 and has assisted in the identification of the architecture of the major folds, structures and cross structures at the prospect. HR3 comprises at least four closely-spaced lines of reef, including the Byron, Dan Genders, Scoulars and Maori Reefs, plus numerous cross-structures. This provides a number of drill-ready targets.

Creswick Project 

Drilling conducted by MGA in 2019 at the Slades Reef prospect covered 300 metres of the 12.5 kilometre strike length of the Dimocks Main Shale (DMS) within ECR’s granted exploration licence (EL) and EL application areas at Creswick. This drilling encountered complex structures at Slades Reef; the cross section shown in ECR’s announcement dated 21 June 2019 showed drilling into interpreted faulted and parasitic folded DMS on an overall west-dipping limb.

Diamond drilling can be utilised to test this structural hypothesis and test the gold-bearing structures identified at Slades Reef where key faults intersect the anticline. Elsewhere at Creswick, field mapping and geochemical sampling could be used to attempt to delineate the surface expression of shoots to the south including Jackass Reef and Mills Reef ahead of potential drilling of these targets.

Review of Announcement by Qualified Person

This announcement has been reviewed by Dr Rodney Boucher of Linex Pty Ltd. Linex Pty Ltd provides geological services to Mercator Gold Australia Pty Ltd, including the services of Dr Boucher, who has a PhD in geology, is a Member and RPGeo of the Australian Institute of Geoscientists and is a Member of the Australasian Institute of Mining and Metallurgy. Dr Boucher is a Qualified Person as that term is defined by the AIM Note for Mining, Oil and Gas Companies.

MARKET ABUSE REGULATIONS (EU) No. 596/2014 

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulations (EU) No. 596/2014 (MAR). Upon the publication of this announcement via Regulatory Information Service (RIS), this inside information is now considered to be in the public domain.

FOR FURTHER INFORMATION, PLEASE CONTACT: 

ECR Minerals plc Tel: +44 (0)20 7929 1010 
David Tang, Non-Executive Chairman   
Craig Brown, Director & CEO   
Email:info@ecrminerals.com   
Website: www.ecrminerals.com   
    
WH Ireland Ltd Tel: +44 (0)161 832 2174 
Nominated Adviser   
Katy Mitchell/James Sinclair-Ford   
    
SI Capital Ltd Tel: +44 (0)1483 413500 
Broker   
Nick Emerson   

ABOUT ECR MINERALS PLC

ECR is a mineral exploration and development company. ECR’s wholly owned Australian subsidiary Mercator Gold Australia Pty Ltd has 100% ownership of the Bailieston and Creswick gold projects in central Victoria, Australia.

Following the sale of the Avoca, Moormbool and Timor gold projects in Victoria, Australia to Fosterville South Exploration Ltd (TSX-V: FSX), ECR has the right to receive up to A$2 million in payments subject to future resource estimation or production at those projects.

ECR has earned a 25% interest in the Danglay gold project, an advanced exploration project located in a prolific gold and copper mining district in the north of the Philippines, and holds a royalty on the SLM gold project in La Rioja Province, Argentina.

Atlantic View – Sell Tullow Oil #TLW, group still facing an existential crisis

by John Woolfitt, Atlantic Capital Markets

Fundamentals & Statement Summary

Oil and gas exploration and production company Tullow Oil (TLW.L) has interests in over 70 exploration and production licences across 14 countries. The group today announced half year results for the six months ended 30 June 2020, and reported a working interest production average of 77,700 bopd, in line with expectations, generating revenues of $731m ($872m); gross profit of $164m and a loss after tax of $1.3bn (profit of $103m). A $418m impairment charge on property, plant and equipment and recorded exploration write-off costs of $941m were mainly driven by a write-down of the value of its Ugandan assets.

As of June 30, Tullow reported net debt of $3.0bn; gearing of 3.0x net debt / EBITDAX and liquidity headroom and free cash of $0.5bn.

Production guidance improved to between 73,000 and 77,000 barrels of oil equivalent per day from between 71,000 and 78,000 to reflect recent strong performance in Ghana, although offset to some extent by production curtailments in Gabon.

Group organisational restructuring is well advanced and forecast to deliver cash savings of over $350m over three years, significantly in excess of the previous target of $200m. This will deliver annual sustainable cash savings of over $125m from 2021. Evaluation of various refinancing alternatives with respect to the Group’s capital structure is also ongoing.

Alongside a newly restructured board, including non-Executive Chair Dorothy Thompson and senior oil and gas executive Mitchell Ingram in as a non-executive director, newly appointed CEO Rahul Dhir commented:

“Despite the very tough conditions in the first half of this year, we have successfully delivered reliable production and major, sustainable reductions to our cost base. We are also close to completing the important sale of our interests in Uganda. The quality of Tullow’s assets remains robust.

Since my arrival as CEO, we have been developing new plans for our business, with the support of our Joint Venture Partners and expert advisors. These plans will deliver enhanced value from our assets to benefit all our stakeholders including our host countries and investors. We will host a Capital Markets Day towards the end of 2020 at which we will update the market on these plans to deliver on Tullow’s true potential.”

Chart and Technicals

Source: FactSet and Hargreaves Lansdown

Tullow’s well documented problems are clearly reflected in the charting price action, and while a precipitous pre-COVID fall in Q4 2019 occurred well before the crisis kicked in, an all time low just over 7p serves as a reminder that the oil industry can turn industry bellwethers into penny stocks at the drop of a hat. Since that time, Tullow shares have recovered and from mid April onwards have held or deviated either side of the 50-day MA line, dropping below the MA envelope in late July. If shares can recover the 50-day MA at 24p by mid October, then the falling 200-day MA currently at 39p is a distant prospect, however current divergence indicates a retest of 7p all time lows.

Summary and Atlantic View

The former oil industry bellwether has today put a brave face on what is otherwise an existential crisis. Earlier this year Tullow had highlighted the risk to its own survival, citing a material uncertainty that it would be able to operate as a going concern. The solid production and forward guidance from Ghana are a standout amidst horrendous debt levels, ($3bn) and write-downs from the sale of Ugandan assets. Despite forward guidance on cost savings, there is little sign at present that Tullow can realistically get on top of the debt pile – something the newly appointed management team will need to get to grips with as an absolute priority. Until / when the board can demonstrate clear progress in this regard, Atlantic rates Tullow shares as a sell into any strength, down to the all time lows of 7p. Sell.

To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here

Atlantic View – Robust housing and maintenance market to support Travis Perkins shares

by John Woolfitt, Atlantic Capital Markets

Travis Perkins.

Fundamentals & Statement Summary

UK based building, construction & home improvement supply giant Travis Perkins (TPK.L) today announced half year results for the 6 months to June 30th, stating it had ‘successfully adapted to unprecedented markets.” Revenues for the period fell 19.3% to £2.78bn, leading to a loss per share of (45.7)p (4.2p HY19). Adjusted operating profit of £42m reflected the shortfall from lower volumes, partially offset by actions taken by the group to reduce and control operating costs. 

Travis stated that a restructuring programme was underway to reduce overheads in line with the anticipated volume outlook, which will deliver cost savings of £120m on an annualised basis. In line with this, a strong focus on cash and working capital management resulted in a reduction of covenant net debt of £322m from 31 December 2019 to £22m.

The group said that significant improvements in digital platforms across all segments drove customer fulfilment, process simplification and improvements in branch network, underpinning market outperformance and supporting future growth. The demerger of Wickes is now paused until markets become more stable and predictable.

Travis said the long term fundamentals of the Group’s end markets remain robust, with ongoing demand for new housing and underinvestment in the repair, maintenance and improvement of the existing UK housing stock, although significant uncertainty remains in the UK economy in the near term. Technical guidance provided for 2020 included an effective tax rate of 22%, finance charges similar to 2019, capital expenditure in 2020 of around £70m to £80m and property profits of around £10m.

CEO Nick Roberts said Travis had made..“significant strategic and operational progress against the four strategic priorities we outlined at our full year results in March 2020. 

“Although considerable uncertainty around the impact of the COVID-19 pandemic remains, the actions we have taken to adapt and innovate in our businesses mean that the Group is well placed to continue to service our customers, support our colleagues, outperform our markets and generate value for our shareholders.”

Chart and Technicals

Source: FactSet and Hargreaves Lansdown

Travis shares have delivered a strong recovery since falling off the ‘COVID cliff’ in early March, dipping briefly to 573p on March 18th before recovering the 50-day MA envelope at the start of May. The stock performed well, trading above the MA envelope through to the end of July, when it briefly dipped below the level. Since that time support has come from the 50-day line, and with the gradual convergence of the 50 day average with the benchmark 200-day average, there is the prospect that the stock could develop a bullish golden cross configuration (the golden cross appears on a chart when a stock’s short-term moving average crosses above its long-term moving average) in the coming weeks. Provided this signal is confirmed, in line with the rising MA envelope and clear forward fundamental guidance provided by the company, our initial target is 1400p, followed by a return to the late February 50-day MA high at 1600p.

Summary and Atlantic View

Travis shares have delivered an impressive and solid recovery since March 18th. Despite the inevitable fall in revenues, delivering an adjusted operating profit during one of the most challenging trading periods faced by any company in history…ever, is a major achievement, and a solid endorsement of management strategy and the prompt response by the board to restructure and cut costs. As the UK starts to return to work, despite the attendant COVID uncertainties, Travis is selling into a robust market, supported by an ever-increasing demand for new homes and burgeoning maintenance market. Supported by a reasonably bullish charting configuration, and clear forward guidance from the company, Atlantic are confident that Travis shares will continue the current recovery and push on to an initial target of 1400p by mid November. Buy.

To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here

Insatiable Gold Demand Set To Continue – ECR On The Cusp Of ‘Great’ Ness.

Insatiable Gold Demand Set To Continue – ECR On The Cusp Of ‘Great’ Ness. 

With the US Fed signalling a more relaxed approach to inflation in its end of month policy meeting, gold rebounded sharply after falling from August highs of  $2,075oz as markets interpreted Fed Chairman Jerome Powell’s comments to mean that low interest rates are here for years to come.

Ole Hansen, head of commodity strategy at Saxo Bank believes that the Fed’s shift to let inflation and employment run higher will keep interest rates low for years to come, thereby lifting the appeal of non-interest-bearing gold.“There’s still room for bullion to set new all-time highs, although that may take time,” Hansen commented. “Powell’s speech did not threaten the bullish narrative for gold and silver.”

“Low interest rates for longer, a weaker dollar, massive amounts of stimulus and the increased demand for inflation hedges are likely to continue to drive demand for both metals,” he added.

Peter Hug, division head for precious metals at Kitco News is of the view that conditions have not changed for gold and silver.

Speaking to Kitco News on following the Fed meeting, Hug said conditions are positive for gold due to the amount of fiscal support provided by banks.

“The macro picture has not changed. Every central bank in the world has got their foot on the pedal, and I don’t think they’re going to take their foot off the pedal probably until the end of 2021.”

Old Gold projects resurfacing

The ever present strength in gold is sustaining huge levels of investor interest in junior gold explorers. As mining geologists take fees for their work in shares as well as cash, droves of canny investors are now following geologists on social media to try to get the early inside line to any upcoming projects, even to the point of investing into the company owning /operating the project as soon as a new appointment is announced. A successful drilling campaign can of course have a transformational effect the valuations of small cap explorers with quality projects, meaning that professional fees can potentially multiply in value. 

The outlook for gold being what it is, many dormant mining projects are being re-examined and feasibility studies revisited. The latest tools, survey techniques and digital / desktop assets available to mining engineers have proved transformative in the search for precious metals within existing dormant assets and mines around the world.  And as many projects have some infrastruture already in place, opportunities to ‘fast track’ such developments are ever present.

Mining Giants Lined Up for Fast Tracking 

The major mining companies around the world today all started somewhere. Many will have started life as microcap exporation companies, developing assets into production, and using the proceeds to fund other projects. In some cases, the fuding will have come from existing shareholders. With others a farm-in agreement will be reached with another mining company to share or bear the developments costs, which sees the partner ‘earn-in’, usually at an increasing level of project ownership as the money is spent.

The current ‘pedal to the metal’ approach to monetary easing is providing a perfect backdrop for project developments of this nature, and has created fertile hunting ground for the world’s leading mining companies seeking lucrative farm-in opportunities.  Equally, the project potential may see active investors support the board and go it alone.

AIM listed ECR Minerals (AIM: ECR) is a company on the cusp of a series of game changing deals. The company 100% owns Bailieston and Creswick projects in Central Victoria, Australia, and also has financial interests in the Avoca, Moormbool and Timor projects following the sale of those licenses to TSX-V listed Fosterville South Exploration Ltd. In addition ECR owns a 25% interest in the Danglay epithermal gold project in the north of the Philippines and a net smelter royalty agreement from the sale of the SLM gold project in Argentina.

Creswick

Creswick is situated within the Dimocks Main Shale, a geological feature considered to be highly prospective for gold, and which extends some 15km from the mining centre of Ballarat. ECR’s exploration licenses cover approximately 7km of this region. Following drilling results in 2019,  a highest grade duplicate result of 80.97 g/t gold came from a 1 metre interval that originally assayed 44.63 g/t, confirming the original findings. A study by pre-eminent consulting geochemist Dr Dennis Arne, whose experience includes extensive consultancy at the highly successful Fosterville gold mine in Central Victoria, underlined the significant gold exploration potential at Creswick, and ‘nuggety gold mineralisation’.

Bailieston

Bailieston is also at the centre of the current gold exploration boom in Victoria, close to the world-class Fosterville mine owned by Kirkland Lake Gold. Mining giant Newmont has a license application in for ground immediately to the north of ECR’s Black Cat prospect, plus an open cut gold mine was operated at Bailieston by Perseverance Corporation in the 1990’s. Quality samples have been logged from drilling by ECR at the Blue Moon prospect in 2019, including a 17.8g/t sample from a 2 metre interval, confirming Blue Moon as a new gold discovery. The Bailieston license areas also include a raft of other prospects, namely HR3, Cherry Tree, Red Moon and Yellow Moon.

Mining Major Joint Ventures and Drilling

Having previously sold three Victoria licences (Avoca, Moormbool and Timor gold exploration projects) for upfront cash and royalties to TSX-V listed Fosterville South Exploration Ltd, along with a raft of warrant exercises, ECR is now fully funded to continue drilling at its 100% owned Creswick and Bailieston projects through to the end of 2021.

In a recent ShareTalk podcast here, ECR CEO Craig Brown provided some background on the most recent developments. He confirmed that several earlier offers to partner in the projects had been rejected, and that mining majors were interested in Creswick and the highly prospective Dimocks Main Shale gold trend that runs through Creswick from the Ballarat gold mine.  Citing some of the most recent gold asset sales in the region, Brown stated that both Creswick and Bailieston projects were superior in quality to many in the region, and that value could be realised in a Greatland Gold type asset sale and free carry deal structure. 

Progress and site visits are being hampered somewhat by the COVID lockdown – any teams flying in from other states are subject to a 14 day quarantine. But as regards the immediate future of both Creswick and Baileston, one thing is abundantly clear. ECR will commence drilling at one or both projects in the coming weeks, and given the ultra-bullish long term outlook for gold, mining majors seeking a JV will be keen to strike a deal sooner rather than later.

Currently valued at just GB£12m, many investors believe ECR is on the cusp of ‘Great’ Ness – a transformational Greatland Gold esque deal. Despite the lockdown restrictions, the insatiable demand for gold looks set to continue for the next 18 months – near perfect conditions for junior gold miners with superior quality assets. 

References:

Kitco: https://www.kitco.com/news/video/show/Kitco-NEWS/2957/2020-08-28/Every-central-bank-in-the-world-has-got-their-foot-on-the-pedal–Peter-Hug#_48_INSTANCE_puYLh9Vd66QY_=https%3A%2F%2Fwww.kitco.com%2Fnews%2Fvideo%2Flatest%3Fshow%3DKitco-NEWS

Share Talk: https://www.pscp.tv/w/choS9jF4blFyWHlrQW5rall8MWt2SnBla0xBbWt4RVXUWZxBJJOsdYs2rhJuzDRWVD0-zN2rj-l_AWcuc8bF

Atlantic View – Rolls Royce has the tools to engineer a recovery

by John Woolfitt, Atlantic Capital Markets

Rolls Royce has the tools to engineer a recovery.

Fundamentals & Statement Summary

Aero engineering giant Rolls-Royce (RR.) this morning unveiled interim results for H1 2020, and reported a significant H1 impact from COVID-19, adding that the timing and shape of industry recovery remains uncertain. The group reported a 24% fall in underlying revenues of £5.6bn, down 24%, and an operating loss of £1.7bn including one-off charges of £1.2bn in Civil Aerospace, largely related to COVID-19. The reported loss before tax of £5.4bn included a £2.6bn non-cash loss from the revaluation of the FX hedge book, reflecting lower forecast US$ receipts.

Rolls also reported good liquidity of £6.1bn comprising £4.2bn of cash at 30 June, and a £1.9bn undrawn revolving credit facility (RCF). A further £2bn undrawn term loan  was also announced in July and finalised in August. The group ended H1 with net debt of £1.7bn excluding lease liabilities (FY 2019 net cash of £1.4bn).

The group reported successful actions to reduce costs, with £350m delivered in H1 towards a 2020 target of £1bn. These actions included a fundamental restructuring of Civil Aerospace, with a 4,000 group headcount reduction by 27 August, with further potential disposals expected to raise at least £2bn, including ITP Aero and other assets.

The Board decided that given the uncertain macro outlook they would no longer be recommending a final shareholder payment of 7.1 pence per share in respect of 2019, resulting in cash savings equivalent to £137m. For the same reasons, the Board has not approved an interim shareholder payment for 2020. A range of options to further strengthen the balance sheet are currently under review.

CEO Warren East commented: “We ended 2019 with good operational and financial momentum. However, the COVID-19 pandemic has significantly affected our 2020 performance, with an unprecedented impact on the civil aviation sector with flights grounded across the world. We have responded rapidly to increase our liquidity, with £6.1bn at the end of H1 and a further £2.0bn term loan agreed in H2, to help weather the continued uncertainty around the timing and shape of the recovery in the civil aviation sector. We have made significant progress with our restructuring, which includes the largest reorganisation of our Civil Aerospace business in our history. This restructuring has caused us to take difficult decisions resulting in an unfortunate but necessary reduction in roles. These actions will significantly reduce our cost base, which combined with recovery in Power Systems and continued resilience in Defence, will help us to deliver significantly improved returns as the world recovers from the pandemic.

While our actions have helped to secure the Group’s immediate future, we recognise the material uncertainties resulting from COVID-19 and the need to rebuild our balance sheet for the longer term. We have identified a number of potential disposals that are expected to generate proceeds of more than £2bn, including ITP Aero and a number of other assets. Furthermore, in light of ongoing uncertainty in the civil aviation sector, we are continuing to assess additional options to strengthen our balance sheet to enable us to emerge from the pandemic well placed to capitalise on the long-term opportunities in all our markets.”

Chart and Technicals

Source: FactSet and Hargreaves Lansdown

In line with aerospace industry stocks and the majority of FTSE100 constituents, RR shares fell sharply through February and into March, twice bouncing off a 250p then multi-year low. Despite recovering and punching back above the 50-day moving average in May, the stock succumbed again at the start of July, trading below the yellow MA envelope, even briefly dipping below 250p to set a new multi-year low at 212p before recovering in the run up to the results. The NVI (negative volume index (traded volume to determine trend strength or confirm a price movement) has improved since the end of June, and if RR can ‘climb back’ into the price range envelope after the results today, and in the process regain the 50-day moving average, then recovery of the falling 200-day MA is possible, although expect a retest of 212p multi-year lows before any sustained recovery.

Summary and Atlantic View

While it’s aerospace counterparts face something akin to a perfect storm, as a corporate entity Rolls Royce has many more strings to its proverbial bow. It is this multi-sector offering that will ultimately be the saviour of this iconic company, and while the group are rightly hailed as the world’s leading aero engine manufacturer, a solid cash / liquidity position has enabled Rolls Royce to pivot rapidly to meet the COVID challenge. A resilient ongoing defence business performance and a recovery in Power Systems provide Rolls with the time to decide on the best course of action to restructure and streamline the aerospace business, and with actions / disposals already underway in this regard, the catalysts will soon be in place to drive a recovery. The decision to suspend the dividend will no doubt see some investors look elsewhere, but despite COVID uncertainties, Atlantic believes Rolls Royce has the tools at its disposal to engineer a decent recovery in the share price by December 2020. We recommend buying the shares on the current weakness.

To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here

Atlantic View – More growth to come at Admiral as insurer shrugs off COVID

by John Woolfitt, Atlantic Capital Markets

More growth to come at Admiral as insurer shrugs off COVID

Fundamentals & Statement Summary

Insurance giant Admiral (ADM), who’s brands include Confused.com, Elephant.co.uk, Bell and Diamond, delivered a solid set of first half results on Wednesday morning. Although the results were impacted by the COVID crisis, which saw group turnover slip 4% to £1.69 billion largely as a result of the impact Admiral’s own Stay at Home premium refund, excluding this turnover actually increased by 2%. Customer numbers were 6% higher at 7.17 million, with the group share of pre-tax profits of £286.7 million & statutory PBT of £286.1 million, growing by 30% and 31% respectively, primarily as a result of strong prior year reserve releases in the UK and internationally and also some non-recurrence of negative items in 2019 including the £33 million Ogden discount rate impact (the rate used to calculate returns on investments for accident claimants who accept lump sum compensation. The amount claimants receive is adjusted according to the interest they can expect to earn by investing it).

UK Insurance recorded a 7% reduction in turnover to £1.25 billion due to the impact of the Stay at Home premium refund, with customer numbers growing to 5.58 million (30 June 2019: 5.32 million). Significant profit growth of £59.1 million in UK Insurance was recorded, primarily attributable to favourable development in prior year loss ratios for UK Motor, and higher investment income. Profit growth excluding the impact of the Ogden discount rate impact in H1 2019 (£33.3 million) was £25.8 million. UK Household profit improved in H1 2020 to £5.5 million (H1 2019: £4.2 million) despite bad weather which impacted the current period by around £5.3 million.

International Insurance businesses made a combined profit of £6.5 million (£2.7 million loss in H1 2019), with continued profit in the European operations and lower losses in the US. The combined International insurance turnover grew by 3% to £329.5 million (H1 2019: £319.5 million) and customer numbers by 10% to 1.49 million (30 June 2019: 1.36 million), both figures negatively impacted by the reduced demand in the early Covid lockdown period.

The Comparison result increased to £13.1 million from £7.4 million in H1 2019, mainly driven by a very strong first half from confused.com in the UK.

The Admiral Board declared an interim dividend of 70.5 pence, made up of a normal dividend of 55.0 pence per share and a special dividend of 15.5 pence per share, 12% higher than the 2019 interim dividend of 63.0 pence per share. The payment represents 85% of first half earnings.

CEO David Stevens commented: “A year ago I described our results as ‘frankly a bit dull’. With the benefit of hindsight there’s a lot to be said for ‘dull’ if the alternative is a global pandemic.”

“Our response to that pandemic highlighted two of Admiral’s key strengths – competent execution in the short term and sustainable values for the long term. We adapted quickly to the new circumstances, pirouetting from one working model to another and compressing years of learning and development into a matter of weeks through a phenomenal collective effort across the company at all levels. Alongside this adaptability, we also stayed true to our long-term commitment to balanced outcomes for all our stakeholders, notably through our £25 a vehicle ‘Stay at Home’ rebate.”

“This year’s interims benefit again from our consistently competent underwriting and conservative reserving on past years, feeding into another strong set of results in the core business and beyond. Thank you to all our staff, shareholders and customers who have made this possible.”

Chart and Technicals

Source: FactSet and Hargreaves Lansdown

The 2020 COVID19 crisis amounted to little more than a brief blip on the Admiral chart. Shareholders picking up the stock on the brief intraday low of 1,887p on March 12th will now be sitting on substantial gains, as ADM went on to recover the rising benchmark 200-day moving average just 5 days later. Since then the stock has continued to trade at the ‘top’ of the envelope, breaking out in early May and again at the start of April in the run up to the results statement. A peek at the 3 and 5 year charts shows a clear, upwardly mobile trading pattern, and despite the fact that ADM now trades at all time highs, the strong underlying performance and solid fundamentals provide solid support for continued growth and progress, particularly given the manner in which the stock shrugged off COVID. Our next target is based on the 3 year envelope projection, which points to an upper envelope target of 2,788p by October 2020.

Summary and Atlantic View

The manner in which Admiral literally shrugged the COVID crisis aside has clearly impressed the markets, with gains showing across the wider insurance sector as we publish this note. A gain in revenues and the general comparison result show an exceptionally strong performance across the board, despite the ‘stay at home’ premium rebate. The Atlantic team have long admired the stock: we view Admiral as a well run company with a ton of growth potential still waiting in the wings. Our view is clearly shared and underwritten by the Board, given the dividend hike declared with the results. Despite the fact that the shares now trade at all time highs, with Admiral, the trend is still very much your friend and we believe our target of 2,788p will be hit by October 2020. Atlantic rating: Buy.

To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here

Atlantic View – The Reinvention Of BP – Is It Too Early To Buy In?

by John Woolfitt, Atlantic Capital Markets

The Reinvention Of BP – Is It Too Early To Buy In?

Fundamentals & Statement Summary

Oil giant BP (BP.L) today (Tuesday August 4th) announced a record $6.7 billion loss for Q2 2020 as the COVID crisis hit the group hard across its energy businesses and at the pumps. As result BP cut its dividend for the first time in a decade, and outlined plans to sharply reduce its oil and gas output and boost renewable power generation. The net loss was in line with analysts’ expectations and came about after the BP took the decision to wipe $6.5 billion off the value of oil and gas exploration assets and revised oil and gas price forecasts.

Net debt at the end of the quarter fell $10.5 billion to $40.9 billion, with gearing also down to 33.1% vs. 36.2% at the end of the previous quarter. A dividend of 5.25 cents per share was announced for the quarter (10.5 cents previously), aligned with BP’s new distribution policy.

The group said Global GDP is expected to contract by 4-5% this year, and consequently global oil demand is expected to be around 8-9 million barrels of oil per day lower than 2019 and gas markets are likely to remain materially oversupplied.

BP CEO Bernard Looney outlined a strategy to “reinvent” BP in line with a global transition to low-carbon energy.

“These headline results have been driven by another very challenging quarter, but also by the deliberate steps we have taken as we continue to re-imagine energy and reinvent BP.”

“In particular, our reset of long-term price assumptions and the related impairment and exploration write-off charges had a major impact.”

Within 10 years, BP aims to have increased its annual low carbon investment 10-fold to around $5 billion a year, building out an integrated portfolio of low carbon technologies, including renewables, bioenergy and early positions in hydrogen and CCUS. By 2030, bp aims to have developed around 50GW of net renewable generating capacity – a 20-fold increase from 2019 – and to have doubled its consumer interactions to 20 million a day while at the same time shrinking its oil and gas production by 40% compared with 2019.

“We believe our new strategy provides a comprehensive and coherent approach to turn our net zero ambition into action. This coming decade is critical for the world in the fight against climate change, and to drive the necessary change in global energy systems will require action from everyone.” Looney said in a statement.

“So, in the years ahead, bp is going to significantly scale-up our low-carbon energy business and transform our mobility and convenience offers. We will focus, and reduce, our oil, gas and refining portfolio. And, as we drive down emissions on our route to net zero, we are committed to continuing to deliver long-term value for our stakeholders.”

BP said in its strategy update it aimed to “reset a resilient dividend” of 5.25 cents per share per quarter and return at least 60% of future surplus cash as share buybacks.

Chart and Technicals

Source: FactSet and Hargreaves Lansdown

BP’s 233.7p multi year low hit on March 18th, on the face of it provided investors with a once in a lifetime entry point in the midst of the COVID19 crisis. The stock went on and recovered the 50-day moving average intra-day late April, holding the level before falling away in June. The yellow envelope marks the upper and lower price 44 day price ranges: while the stock trades below this level a retest of the multi-year low is likely to occur if the market falls. If BP can ‘climb back’ into the price range envelope after the results today, and in the process regain the 50-day moving average, then our next target is the ‘falling’ benchmark 200-day moving average, currently at 395p, by the end of Q3 2020.

Summary and Atlantic View

In the current climate, it might seem somewhat risky to back an oil company as a buy. However, as I have outlined in our Atlantic Month Ahead Atlantic presentation here, we are market neutral and seeking long term growth opportunities that minimise risk. The losses announced by BP today, although substantial, were in line with analyst expectations, while the strategy shift completely repositions the group’s forward investment proposition by consistently reducing the reliance on oil and increasing revenues from an integrated portfolio of low carbon technologies, including renewables, bioenergy, hydrogen and CCUS. These moves tick most of the boxes in regard to the Atlantic investment strategy, and while near term COVID risks remain, we expect any early evidence of revenue growth from BP’s low carbon portfolio to act as a catalyst for the share price. Added to this, there is still a dividend on offer: this quarterly dividend can be collected before the ex-dividend date of August 13th. Atlantic rating: Buy.

To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here

Atlantic View – Impairment Shock At Lloyds Banking Group #LLOY Despite Balance Sheet Strength

Impairment Shock At Lloyds Banking Group #LLOY Despite Balance Sheet Strength
by John Woolfitt, Atlantic Capital Markets
Fundamentals and Statement Summary
Eponymous banking giant Lloyds (LLOY) this morning reported half year results to June 30. The bank plunged into the red after recording a £3.8 billion provision for bad loans arising from the coronavirus crisis – almost £1.8 billion higher than financial analysts had expected. The results revealed a pre-tax loss of £602 million compared to profits of £2.9 billion for the same period in 2019, on net income of £7.4 billion, also 16% lower. Lloyds said it had set aside £2.4bn for possible loan losses in the three months to June alone as the UK economy became mired in the coronavirus lockdown.
The bank also pointed to a strong balance sheet, well positioned to absorb coronavirus impacts. This was in part due to a £29 billion increase in customer deposits during the period as a result of reduced consumer spending and “inflows to the Group’s trusted brands in an uncertain environment.”

The group loan to deposit ratio now sits at 100 percent, “providing significant potential to lend into recovery, with a strong liquidity position.” Lloyds said a CET1 ratio of 14.6 percent “provides significant headroom above lower regulatory requirements of c.11 per cent as a cushion against potential credit impairment.”
There have been early signs of recovery in the Group’s core markets, mainly in consumer spending and the housing market, but the outlook remains highly uncertain and the impact of lower rates and economic fragility will continue for at least the rest of the year. Looking forward, group operating costs are expected to be below £7.6 billion, with impairments expected to be between £4.5 billion and £5.5 billion.
CEO António Horta-Osório said that the impact of the coronavirus pandemic in the first half of 2020 “has been profound on the way we live our lives and on the global economy. We remain fully focused on helping our customers and the UK economy recover, in collaboration with Government and our regulators.”
“Although the outlook is uncertain, the Group’s financial strength and business model allow us to help Britain recover and play our part in returning our country to prosperity. Our customer focused strategic plan remains fully aligned with the Group’s long term strategic objectives, the position of our franchise and the interests of shareholders.”

Chart and Technicals
Source Factset & Hargreaves Lansdown

Shares of Lloyds have been trading in a tight range since the March “COVID sell-off” and, despite recovering the 50-day moving average in April, they dipped below this line in June and are now approaching the bottom of the range. The trend here is certainly weak, and if the stock continues to trade below this benchmark, we will expect a retest of 23.42p, a level last hit on November 21 2011. Shares are currently trading at 26.20p, and an end of week close above 28.4p will be required if the stock is to recover the 50-day moving average at 32.32p.

Summary and Atlantic View

Albeit Lloyds is long standing favourite of investors, fund managers and traders, it seems that the higher than expected impairment charge will mean that opportunities for share price improvement in the short term are going to be few and far between. That said, Lloyds is blessed with a strong balance sheet and a decent CET1 ratio to provide headroom above the regulatory requirements to protect against potential credit impairment. Unlike Barclays, Lloyds doesn’t have an investment banking arm to boost profits, so it is wholly reliant on making traditional banking and money lending as profitable as possible. For now the stock is mired in a trading range between 32p and 26p. Given this backdrop and uncertain outlook, for now Atlantic Capital Markets remain holders of the shares, although at either end of this trading range, they are a buy on weakness, particularly if the stock dips to the 10 year low of 23.42p, or conversely a sell into strength around 32p. Atlantic Rating: Hold
To take advantage of this trading idea, speak to a member of our dealing team on 01872 229000 or visit the Atlantic Capital Markets website here
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