Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 42.20 points up at 7:00 am.
New York: Wall Street declined sharply amid continued tensions in Greece and the sell-off in the Chinese market. The S&P 500 shed 1.7% to close below the 200-day moving average and ended in the red for the year.
Asia: Equities are trading higher, as Chinese regulators implemented various measures to stabilise the markets. The Nikkei 225 pared initial losses to add 0.6% by close amid a weaker yen, whereas the Hang Seng was trading 4.5% up at 7:00 am.
Continental Europe: Markets recovered marginally, as Greece sought a third aid package from the Eurozone’s rescue fund to avoid bankruptcy. France’s CAC and Germany’s DAX advanced 0.8% and 0.7%, respectively.
Crude Oil: Yesterday, prices of WTI crude oil prices decreased 1.3% whereas those of Brent Crude Oil improved 0.4%. The spread between the two varieties stood at US$5.4 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.80% lower yesterday at 744.19. To read our latest research click here.
Osborne presents Budget 2015
UK chancellor George Osborne presented his first Conservative Budget, in which he increased the minimum wage to £7.20 per hour from £6.50. Moreover, he pledged to cut corporation tax to 19% by 2017 and 18% by 2020 from 20%. In addition, he informed that it would take four years instead of the previously stated three years for the country’s large budget deficit to turn into surplus.
Lagarde stresses on Greek debt restructuring
IMF Chief Christine Lagarde emphasised that Greece’s huge debt required restructuring and the organisation remains committed to solve the crisis with sincerity and promptness. However, she maintained that the IMF cannot bend the rules for Greece and European leaders must try to retain the country in the Eurozone.
Eurasia Mining, the Russian focused PGM exploration and development company, announced yesterday that Prime Minister Dmitry Medvedev has approved the Company’s application for a Mining Licence of 21.5 km2 at West Kytlim in the Urals. The announcement first appeared on the Russian government website, prior to the company being informed. The licence has been granted to Eurasia’s subsidiary ZAO Kosvinsky Kamen on the basis of first discovery and includes the rights for extraction of gold and platinum. Russia’s licencing agency, RosNedra, has informed the Company that the formal licence will now be registered in Late August or early September with a lump sum payment of c £24,000 (2.13m roubles) to be paid within 30 days of licence registration.
Our view: The approval of the West Kytlim Mining Licence is a major milestone for Eurasia and its shareholders. Management can now focus its attention on development and production from its alluvial platinum project. We look forward to a detailed development plan for West Kytlim in the near term. In the meantime, we reiterate our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Eurasia Mining plc
Beowulf Mining (LON:BEM) – Speculative Buy
Yesterday, Beowulf released an update on its application for an exploitation concession on the Kallak North’s iron ore project in Sweden. The update follows the County Administrative Board’s (CAB) announcement on 7th July 2015. The Swedish Government interrogated the CAB on grounds of economic viability of the Kallak North assignment. The CAB’s findings suggested that the project is expected to create economic benefits both at the local and national level. It is likely to create new jobs for citizens, improve tax collections and also provide an impetus to the mining and services sector. The project would not obstruct national interests as the Concession is designated as an Area of National Interest (ANI) for minerals. Further, the company has been advised to work with the local communities and not interfere in the reindeer herding practiced by the Sami villagers. The company should also study the impact of mining activities on tourism and transport infrastructure, recommends the CAB.
Our view: The above update on the concession on the Kallak North’s iron ore project is an important step forward for Beowulf as the company has been in discussions with CAB and the Swedish Government regarding its application, for more than a year now. Following the above developments, the company may be in a position to commence its operations shortly. Further, the volumes of ore, quality of magnetite and the concession’s ANI designation are other advantages of the project apart from high grade hematite with over 68% Fe. The location is favourable due to its connectivity to the local infrastructure and the presence of a hydroelectric power station nearby. The company plans to work around the CAB suggestions with a focus on meeting the required environmental standards. The company’s recent change to its management and improved stance on Sweden has set a development tone for them. Despite the downward pressure on the benchmark iron ore prices on the back of oversupply and slowing economic activity in China, we note that high quality iron ore products continue to fetch premiums relative to the benchmark 62% Fe. Therefore, we retain our Speculative Buy rating to the stock.
Beaufort Securities acts as corporate broker to Beowulf Mining plc
CityFibre Infrastructure Holdings (LON:CFHL) – Speculative Buy
Yesterday, CityFibre provided an update on the sales in its York CORE network for the month of June 2015. During the month, the company signed contracts covering 70 new connections, spanning a diverse range of sites and having a total contract value (TCV) of £527,000. The latest additions to the network take the incremental TCV added to the York project to £3.4m, a 79% increase over the initial anchor contract. Thus the company’s TCV/capex coverage on these new connections exceeds 100%, with an average payback period of 24 months.
Our view: The latest sales figures from York are important indicators of the growing popularity of the ultra-fast connectivity in the city. The company has grown manifold in terms of connected sites, marking the strength of its shared infrastructure model. Further, the above update indicates that CityFibre remains well on track in progressing towards commercialisation and providing future-proof internet connectivity through its fibre optic infrastructure. Recently, the company reported a similar uptake success of its network services in Edinburgh and Peterborough. The company already has some impressive contracts and national level partners, and joint ventures with UK’s leading broadband service providers to cover a large customer base. In addition, the company has also deployed around 20% of fibre network in Kirklees where the company aims to bring the gigabit connectivity by September 2015. The company’s strong financial position is likely to facilitate the future growth of the fit-for-purpose local access broadband infrastructure. Thus in view of the above developments, we retain a Speculative Buy on the stock.
Angle (LON:AGL) – Speculative Buy
Yesterday, Angle announced the appointment of Dr Daniel Costin Danila, MD, as a scientific advisor to the company with immediate effect. Dr Danila has been associated with primary research on prostrate cancer and has also been involved in the development and adoption of CTCs as predictive biomarkers to select suitable treatments. He is an assistant attending physician at Memorial Hospital Cancer Center in New York and an instructor with the Weill Cornell Medical College. Further, Dr Danila served as the principal investigator for analysing CTCs from metastatic prostate cancer patients for molecular biomarkers predictive of tumour sensitivity to targeted treatments. He received his MD from Carol Davila University of Medicine and Pharmacy in Bucharest, Romania and was a research fellow, intern and resident at Massachusetts General Hospital prior to joining Memorial Sloan Kettering Cancer Center in 2005.
Our view: Dr Danila’s appointment as the company’s scientific advisor comes at an important juncture for Angle as its Parsortix systems continue to gain acceptance from credible institutions. Recently, the Barts Cancer Institute used the company’s Parsortix systems to harvest CTCs from the patient’s blood sample that were clinically important to provide repeatable, non-invasive liquid biopsy for prostate cancer patients. According to World Cancer Research Fund International, Prostate cancer is the second most common cancer in men and the fourth most common overall with over 1.1 million cases of this cancer being recorded in 2012. The company’s Parsortix system possesses the unique ability to harvest the CTCs from the patient’s blood sample that can be combined with other technologies to discover personalized care to cancer patients. On the other hand, the company has extended its patent protection in the Chinese and the Australian markets as these major markets that are witnessing a growing interest in the liquid biopsies. The above developments testify Angle’s successful transition from a support services company to a specialist med-tech company. Thus eyeing the rapid progress of the Parsortix product, we believe this is an opportune time to invest in the company and therefore reiterate a Speculative Buy rating on the stock.
Galliford Try (LON:GFRD) – Buy
Yesterday, Galliford Try provided a trading update for the year ended 30th June 2015. During the period, the company’s sales rates averaged a 0.71 per site per week, up 49% y-o-y while the year end carried forward positions stood at £343m. Overall house completions for the period were 3,177 units and the new land bank was up 13% to 15,750 plots. Price of an average Linden Homes rose 7% to £327,000 and the company also secured all the plots for FY 2016 and 87% plots for FY 2017. The company’s contracting order book in Galliford Try Partnerships improved to £825m from £500m in 2014 and significant progress was made in the business, including opening a new office in the North West and entering into contracts on the major Silvertown Way regeneration project in London. On the construction front the company maintains a stready cash position of over £170m along with an order book of £3.5bn with 88% of the new financial year revenue secured. The company expects to announce its results for the full year on 16th September 2015 and anticipates the pre-tax profit to be towards the upper end of expectations range.
Our view: The year ended June 2015, proved to be another great one for Galliford Try as the company maintained its growth momentum aided by encouraging market conditions. The company made significant additions to its impressive line of contracts despite the run -up to the General Elections in May. Furthermore, successful integration of the Miller construction business gave a major forward push to the business. The company’s well-thought-out strategy for long-term collaboration and the recent surge in the house building and the construction business, driven by the government’s ‘Help to Buy’ scheme, led to a significant top-line growth. We expect the company’s strong order book and solid land bank to uphold the company’s prospects. Thus, in view of the above, we believe the company still has the ability to generate meaningful returns despite the recent run-up in the share prices. We retain our Buy rating on the stock.
Yesterday, Micro Focus announced its audited preliminary results for the year ending 30th April 2015. During the period, the company’s revenues reportedly increased 92.7% to US$834.5m.Operating profit decreased to US$147.2mn in 2015 from US$155.7mn in 2014. The company incurred higher finance costs of US$56.2mn in 2015 compared with US$8.2m in 2014 mainly due to new bank facilities availed by the company. The impact was seen in the pre-tax profit that declined 38.2% to US$91.4m. Consequently, basic earnings per share also declined 30.9% to 58.54 cents. On the operational front, the company completed the acquisition of The Attachmate Group (TAG) in November 2014 for a consideration of US$2.5bn. The acquisition contributed nearly US$416.0m to the company’s revenues. Micro Focus generated strong cash flows of US$288.7m. Raised money through new debt deals and paid US$72.7m to the shareholders through dividends. The company also proposed a final dividend of 33.0 cents per share, up 10%, thereby taking the total dividend for the year to 48.4 cents.
Our view: The year 2015 was significant for Micro Focus considering its long term strategy to create a global business. The company’s acquisition of TAG was in line with this plan as the company aims to become a prominent player in the sector. The acquisition would expand the company’s presence in mature and emerging economies and also improve its operational efficiency, with better product delivery and sales. The company nearly doubled its revenues if reported in constant currency and expects better revenue growth, improved margins and strong cash conversion going forward. However, this acquisition has increased the company’s debt dramatically to US$1,403.5, up 437.7% and the repayments may eventually pressurize its bottom line metrics. Moreover, the stock price rose more than 50% in the past ten months, thereby providing limited scope for further upside in the near term. Thus in view of the above, we maintain our Hold rating on the stock.
Yesterday, Rio Tinto informed that preparations are underway to start metal shipments from the Kitimat aluminium smelter in Canada following an extensive overhaul of the facility. The production of aluminium, at the facility is expected to increase 48% subsequent to the modernisation of the smelter. The company Is now focussing on ramping up its annual production rate of 420,000 tonnes. The modernised smelter is powered exclusively by Rio Tinto’s wholly owned hydro power facility and uses the company’s proprietary AP40 smelting technology that is likely to halve the smelter’s overall emissions.
Our view: With the modernization of the aluminium smelter, Kitimat is likely to become one of the most cost efficient smelters in the world. Moreover the project well situated on the west coast of Canada to service the growing aluminium demand from the Asia-Pacific region and the North American market. The Company weathered the commodity price downturn quite well with larger shipments, lower costs and higher volume sales. Despite tough trading conditions and indefinite economic trends, Rio Tinto is well placed to generate higher margin profits due to its cost and quality advantage over the industry peers. Of late the company has been streamlining its capital and operating expenditures to adapt to the changing market conditions. Thus in view of the above, we reiterate a Buy on the stock.
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, rose 4.6% in the week ended 3rd July, following 4.7% decline in the preceding week, the Mortgage Bankers Association said yesterday. The refinance index increased 2.7% while the loan requests for home purchases, a leading indicator of home sales, climbed 6.6%.
UK RICS house price balance
The monthly house price balance for June jumped to +40 from +34 in May, as per figures released by the Royal Institution of Chartered Surveyors (RICS). The analysts had estimated a rise of +36 for the month.