Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 2.5 points up at 7:00 am.
New York: Wall Street closed in the red. Industrial shares were top laggards, with General Electric posting losses following the deal closure with Alstom. However, energy shares gained on increased merger activity. S&P 500 closed nearly flat for the day, halting its six-day rally.
Asia: Markets are trading higher this morning, driven by improved manufacturing data from leading economies such as the US, China and Japan. However, gains were capped owing to conflicts in Iraq and Ukraine. Nikkei edged up 0.1%. Hang Seng was trading 0.3% higher at 7:00 am, buoyed by sharp gains in China Resources Enterprise.
Continental Europe: Disappointing PMI data from the Eurozone, particularly France, and ongoing turmoil in Iraq dragged equities lower. French manufacturing activity shrank further in June, while Germany’s private sector continued to expand. Germany’s DAX and France’s CAC 40 fell 0.7% and 0.6%, respectively.
Crude oil: On Monday, prices of Brent and WTI crude oil fell 0.6% and 1%, respectively. The spread between the two varieties stood at US$8.0 per barrel.
UK small caps: Yesterday the FTSE AIM All-Share index closed 0.27 points (+0.03%) higher at 785.49.
UK mortgage demand gathers pace
The quarterly Credit Conditions Survey by the Bank of England (BoE) revealed that mortgage demand in the UK increased in Q2 2014 and lenders expect it to grow further in the next three months. The maximum loan-to-value and loan-to-income ratios rose in the last three months. However, in the next quarter, the loan-to-income ratio is likely to decline, for the first in over two years, due to the new mortgage rules.
On Monday, Altona Energy informed that the timeline for finalising the terms of the Arckaringa joint venture, between Altona and Sino-Aus, was extended up to 31st July 2014. Besides, the two parties have decided to arrange a follow-up visit for Sino-Aus to the project site in the coming weeks, which was rescheduled earlier due to a bad weather.
Our view: Altona continues to make progress towards its potential joint venture with Sino-Aus and Wintask for the Arckaringa Project. With the grant of renewed Program for Environmental Protection and Rehabilitation (PEPR) and the Water Affecting Activity Permit (WAAP) approvals last month, the company marked key milestones towards starting exploration and development work on the asset. A 100% stake in this project, acquired in 2013, has helped the company in making speedy decisions concerning it at the operational and corporate levels. The conclusion of the above mentioned joint venture negotiations could provide a meaningful upside to the company. We maintain a Speculative Buy rating.
Yesterday, Beacon Hill Resources (BHR) announced conditionally raising of £1.5m gross at 0.25p per share, through placement of 600 million new ordinary shares to institutional investors. The issue was arranged by Novum Securities Limited and is still subject to the shareholder approval at the Annual General Meeting scheduled on 23rd June 2014. Around £745,000 of the total funds would be utilized to refinance final settlement of amounts outstanding to Darwin Strategic Limited under the loan note instrument dated 3rd October 2013. The balance funds, existing cash of ~US$2.5m and anticipated US$1.1m in VAT refunds would be used to provide adequate working capital up to the end of third quarter of 2014. Beacon aims to complete expansion project funding for the Minas Moatize site by the end of that period. The company informed that many investors had shown interest in acquiring a stake in it or in its Minas Moatize Coking Coal project. Meanwhile, legal documentation for the sub-lease of five locomotives and 67 wagons was had been completed and was awaiting final approvals from the Mozambique customs officials.
Our view: With completion of a £1.5m funding, BHR is likely to commence construction of the Minas Moatize expansion project, including the expansion of the washplant capacity in Mozambique to 2.8 million tonnes per annum (mtpa), this year. This step is likely to transform the company into a Tier 1 producer. The sub-lease of the rolling stock is expected to generate additional revenues for the company. In 2013, the Minas Moatize mine had delivered 31% y-o-y increase in the JORC compliant resources and holds potential for further expansion. Given an attractive asset base of proven and probable saleable reserve of 16.2 million tonnes (Mt) and continuing cost savings, BHR is likely to deliver positive cash flows in majority of the projected price scenarios. We reiterate a Speculative Buy.
Yesterday, IP Group stated that its portfolio company Diurnal Limited reported favourable results from a six-month Phase-2 clinical study in 16 adults suffering from congenital adrenal hyperplasia (CAH). CAH is a rare disease and is characterised by deficiency in cortisol, which is a critical hormone for regulating metabolism and the response to stress. As per Diurnal, its Chronocort® As Treatment for Congenital Adrenal Hyperplasia (CATCH) trial successfully met its primary endpoint and provided significant control of the disease. Diurnal has begun Phase-3 activities progressing Chronocort® towards market authorisation. As a part of its takeover of Fusion IP in January 2014, IPO holds 41.8% interest in Diurnal, which is a spin-out company from the University of Sheffield.
Our view: CAH has been identified as an orphan disease in Europe, with an estimated 30,000 sufferers, besides another 21,000 in the US. This may provide good commercialisation opportunity for Diurnal’s Chronocort® drug after it is introduced in the market. Meanwhile, the equity issue of £100m before expenses, in February 2014, is expected to spur IP Group’s overall growth through additional capital infusion into existing as well as new early stage opportunities, within and outside the UK. A recent deal with the University of Manchester, pilot IP collaboration with the Princeton University, and commercialization of Chronocort® are indicative of upbeat revenue potential and a sound operational base of the group. We maintain a Buy.
Yesterday, Verona Pharma decided to stop the in-house development of the VRP700 drug after the second phase of a clinical trial to study the efficacy of a single dose of the drug did not meet the primary endpoint of a statistically significant reduction in cough frequency compared to placebo. The drug was meant for the treatment of chronic severe cough in patients with idiopathic pulmonary fibrosis (IPF). Verona, however, plans to look for opportunities to gain value from the drug after reviewing data from the study done till now. Going forward, Verona plans to continue to work towards the development of its novel lead drug, RPL554, which is being developed as a nebulised treatment for acute exacerbations of Chronic Obstructive Pulmonary Disease (COPD). The next set of clinical data for this drug is expected in early 2015. The stock plunged 32.5% in yesterday’s trade.
Our view: Despite positive initial outcome, Verona has delivered disappointing results from its study to develop the VRP700 drug. Even as the development of its lead drug – RPL554 continues, the latest development seems to have put a major dent in the revenue generating prospects of Verona. We downgrade our rating on the stock to a Sell.
Yesterday, the Portuguese Ministry for the Environment, Territorial Planning and Energy granted W Resources a trial mining licence – Villa Seca-Santo Adriao, over the Régua tungsten deposit in Portugal. The license covers initial mining areas within the deposit and is spread over an area of 4.74 sq. km. The award of the mining license would enable the company to continue its drilling programme and metallurgy testing on the project and start off initial mining therein.
Our view: W Resources has recorded an important milestone at the Régua Tungsten project, with enhanced visibility of tungsten output in the coming period. The project boasts of JORC-2008 compliant resource of 4.46 million tonnes (Mt) grading 0.308% tungsten trioxide (WO3). Availability of robust infrastructure facilities and the fact that the deposit has not been mined previously, add to the upside at the project. Meanwhile, the La Parrilla Tailings project continues to add to the company’s overall production. With multiple low-cost development opportunities across its assets and an upbeat momentum of tungsten prices, the company seems well-positioned to become a mid-tier minor metal producer in the coming period. We reiterate a Speculative Buy rating.
Eurozone manufacturing PMI
Data from market research group Markit Economics showed that the preliminary reading for Eurozone’s manufacturing Purchasing Managers’ Index (PMI) fell to a seasonally adjusted 51.9 in June from 52.2 in May, against the market forecast for a hold at 52.2. Manufacturing expanded at the slowest pace in seven months. Services PMI dropped to 52.8 in June from 53.2 in May. The composite PMI stood at 52.8 in June as against 53.5 in the previous month.
Germany manufacturing PMI
German preliminary manufacturing Purchasing Managers’ Index (PMI) inched up to a seasonally adjusted 52.4 in June from 52.3 in May, as reported by Markit Economics. Market had expected the index to rise to 52.5 in June. Services PMI slid to 54.8 in June from 56.0 in the preceding month, while composite PMI dropped to 54.2 from 55.6.
US manufacturing PMI
The flash manufacturing purchasing managers index (PMI) for the US edged up to 57.5 in June from 56.4 in May. The index, beating market forecast of 56, is at its highest level since May 2010. The output sub-index jumped to 61 in June from 59.6 in May, while the new orders rose to 61.7 from 58.8, both marking their highest level since 2010.
US existing home sales
The National Association of Realtors reported the existing home sales for the US improved 4.9% m-o-m to a seasonally adjusted annual rate of 4.89 million units in May from a revised level of 4.66 million units in April. Exceeding the market expectation of a 1.9% increase to 4.74 million units, sales hit a seven-month high in May.