"Having backed Brexit with an overwhelming majority yesterday, voting in favour of triggering article 50 by 31st March 2017, MPs also supported the labour motion calling for the government to unveil its proposals ahead of this date in order to permit minister to 'properly scrutinise' the plans. Accepted the motion was Theresa May's concession to keep her timetable on track, but has it made the likely outcome any clearer? No really is the answer. The government is still awaiting the result of its appeal at the Supreme Court, which is expected in January, which will require MPs to separately approve the issue if it loses. Meanwhile, of course, the EU's lead Brexit negotiator, Michel Barnier, has conveyed three principal messages regarding the process of this divorce, namely: LON:i) that negotiations should be shorter than the prescribed two years, lasting less than 18 months; LON:ii) the EU-27 remain his overriding priority and; LON:iii) the final outcome will be financially worse for the UK than under its existing EU membership. While not mentioning the UK's outstanding financial liabilities to the EU in his recent deliberations, Mr Barnier told colleagues he estimated the British exit bill wcould be as much as EUR60bn, and settling this matter would be a necessary first step toward building a new partnership. Not that European woes will be on the minds of investors first thing this morning. US equities surged once more overnight, as the Dow Jones burst through to another record high and all other major indices surged well in excess of 1%. Traders were unable to point at a specific trigger for this buying, other than pointing at a large number of futures contracts that had been placed by automatically by program trading algorithms which, in turn, accelerated purchases in the cash markets, as strategists across New York recommended sharp increases in equity weightings while suggesting that the Trump-inspired bear market in government bonds still has some way to go. Asian equities mostly rode again on Wall Street's coat-tails, with the ASX leading the way as its commodity-heavy index continued to drive higher on spiking minerals prices and the expectation of increased global activity. The Nikkei also put in a strong performance, despite reporting growth figures quite sharply below first estimates, leaving only the Shanghai Composite to record a fractional loss. Europe today is due to make its interest rate decision, followed by a press briefing by ECB president, Mario Draghi; bond investors are already betting that he will confirm a 6-month QE extension, although they will remain sensitive to any suggestion of a future timetable beyond September 2017 to commence tapering. No significant macro data is expected from the UK today, but later this afternoon the US is due to release its jobless claims numbers. UK corporates due to report earnings or trading updates include Capita LON:CPI), DS Smith LON:SMDS), Mulberry Group LON:MUL), Ocado LON:OCDO), Servoca LON:SVCA), Sports Direct LON:SPD) and TUI LON:TUI). Traders will also remain aloof for further details regarding the overnight transaction between Russia and a consortium formed by Glencore LON:GLEN) and Qatar, in which a 19.5% stake in the state-controlled oil giant, Rosneft, was sold in a deal valued at US$11.3bn. Such a disposal of part of the country's 'crown jewels' will quite possibly be seen as a sign of financial stress from Putin's government, and lead investors to consider what other valuable assets might also be put on the auction block. London equities will again ride the bullish wave coming from across the Atlantic, with the FTSE-100 seen rising some 15 points in early trade."
- Barry Gibb, Research Analyst
The FTSE-100 finished yesterday's session 1.80% higher at 6,902.23, whilst the FTSE AIM All-Share index closed 0.32% up at 813.45. In continental Europe, the CAC-40 finished 1.36% higher at 4,694.725 whilst the DAX was 0.85% better-off at 10,986.69.
In New York last night, the Dow Jones gained 1.55% to 19,549.62, the S&P-500 added 1.32% to 2,241.35 and the Nasdaq rose 1.14% to 5,393.76.
In Asian markets this morning, the Nikkei 225 had risen 1.11% to 18,701.55, while the Hang Seng improved 0.55% to 22,927.31.
In early trade today, WTI crude was up 0.02% to $49.87/bbl and Brent was down 0.04% to $53.02/bbl.
Sports Direct sees sharp fall in profits
Sports Direct (LON:SPD) has reported a big drop in half-year profits after being hit by the fall in the pound. The retailer, which has been heavily criticised for the treatment of some of its workers, said underlying pre-tax profits fell 57% to £71,6m. Chief executive Mike Ashley said the past six months had been "tough for our people and performance". The company said it was continuing in its efforts to become the "Selfridges" of sports retail.
Armadale Capital (LON:ACP, 3.40p) – Speculative Buy
Armadale Capital announced today a maiden JORC-compliant resource of 40.9Mt grading 9.41% total graphic content (TGC) for its Mahenge Liandu graphite project in south-east Tanzania. The highly prospective Liandu project is located in an area of proven course flake, high-grade graphite resources and is adjacent to Kibaran Resources' (KNL.A) Epanko project (23.3Mt grading 9.4% TGC) and Black Rock Mining's (BKT.A) Mahenge graphite project (162.5Mt grading 7.8% TGC). Metallurgical testwork, to determine initial purity and flake size distribution, is on-going and is expected to be finalised by Q1 2017.
Our view: Armadale's management has delivered, as promised, its maiden JORC resource on Mahenge by year end. We are encouraged by the high-grade total graphite content of 9.41%, more specifically the higher-grade zone comprising 32.2Mt grading 10.47% TGC within the ore body. We look forward to results from the metallurgical test work confirming initial purity and flake size due in Q1 2017. The company is looking to capitalise on the expected growth in the graphite market driven by increasing applications particularly in the energy storage market. Management has cleared its first hurdle with a significant maiden resource estimate, we expect these resources to expand following the 2017 drill programme which is expected to commence post wet season in Tanzania. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Armadale Capital PLC
SerVision (LON:SEV, 1.50p) – Speculative Buy
When SerVision, the AIM quoted developer and manufacturer of digital video security, announced in its interims results for the 6 months ended 30 June 2016, the Directors were cautiously optimistic of an improved result for the year when compared to 2015. This continues to be the situation. Notwithstanding this, the current cash position of the Company remains tight. The Directors are in discussions with a number of parties regarding long term future funding but, in the meantime, have decided that it would be prudent to secure short term funding for the Company. On 5 December 2016, a facility letter was entered into with CSS Alpha (BVI) Ltd to borrow US$215,000 of unsecured short term financing at an interest rate of 1% per month, repayable in instalments between January and May 2017. The short-term loan is subject to a US$15,000 arrangement fee, payable to the Lender on the draw-down of the loan by the Company. The loan has been drawn down in full.
Our view: SerVision's Chairman and CEO, Gidon Tahan, is demonstrating his confidence in his Company's future. He has provided a personal guarantee to the Lender covering the amount of the loan in the event that the Company defaults on its repayments. Mr Tahan is receiving no payment, nor any other benefit, for providing this guarantee. The provision of the guarantee by Mr Tahan is deemed to constitute a related party transaction under the AIM Rules. The Directors of the Company (with the exception or Mr Tahan), having consulted with the Company's nominated adviser consider the terms of the guarantee to be fair and reasonable insofar as the Company's shareholders are concerned. Operationally, a number of positive signs were demonstrated with release of its interim results at the end of September which recorded higher revenues and reduced losses. In particular, SerVision's decision to open an office in the UK had paid off, contributing over 50% to SerVision's revenues during the period while management also engineering a sharp fall in overall administrative costs. Having strengthened its relationship with DHL, the UK office carried out installations of SerVision's mobile video solutions for more than 100 DHL vehicles in H1 2016. The Company's R&D team also took initiatives to improve the performance of its IVG and SVCentral monitoring software by adding new features and functions to both platforms. Recently, SerVision supplied a first order of 28 IVGs for a new project in China and a further one for 70 IVGs that will be deployed on police vehicles in Tegucigalpa, Honduras. It has also started IVG pilots with a number of bus companies, both in the UK and around the world. In the light of these ongoing developments and the improved performance in H1 2016, Beaufort retains its Speculative Buy rating on the shares.
Beaufort Securities acts as a corporate broker to SerVision plc
Carillion (LON:CLLN, 246.10p) – Buy
Carillion, a leading integrated support services company, yesterday announced its full year trading update for the FY2016. The Group said it expects strong growth in total revenue and increased operating profit, primarily led by Support Services division, which is expected to generate around 66% of the Group's total operating profit (FY2015: 57%), while overall operating margin is expected to be slightly lower. The increase will more than offset the reduced contributions from the sale of equity in Public Private Partnership ('PPP') projects and from Middle East construction services, while the contribution from construction services (excluding the Middle East) is expected to be in line with FY2015. Net borrowing is expected to be below £290m due to absence of working capital outflow seen in the H1. The Group noted that following strong performance in the H1 with £2.5bn new and probable orders, the momentum for order intake has slowed in the H2 as BREXIT vote has triggered UK Government Departments to reassessed their spending priorities ahead of the Autumn Statement. Lower and volatile oil prices also resulted slower pace of contract awards in the Middle East, particularly in Oman. The Group therefore expect the total value of orders and probable orders won in the H2 to be around £2bn (H1 FY2016: £2.5bn), bringing approximately £4.5bn for the full year. The total order book and probable orders will be summed to c.£16bn (FY2015: £17.4bn) for the FY2016, with revenue visibility for FY2017 of around 70% compared to 84% this time last year. Revenue visibility for the framework contracts, which is not included in the total order book and probable orders is £1.5bn over the next 5 years. The pipeline of specific contract opportunities, which the Group currently bidding or expect to bid, is expected to be in line with last year (end-FY2015: £41.4bn). Separately, the Group announced that its Canadian subsidiary, Rokstad, has been selected by Manitoba Hydro as the preferred provider for the c.£120m next phase of its Bipole lll high-voltage transmission line project. The Group expect work to begin before the end of the year, with completion scheduled for 2018. The Group will announce its preliminary results on 1 March 2017.
Our view: Carillion reported strong trading update and said it has performed in line with expectations. Although the lower profit from equity sales in PPP projects and the challenging trading environment from Middle East construction services has reduced the underlying operating profit, strong revenue growth and operating margin in Support Services division has pushed the overall underlying operating profit higher. In order to mitigate the impact somewhat, looking ahead in FY2017, the Group will focus on part of Middle East markets where the demand remains high. For PPP, the Group sees steady flow of pipeline opportunities in the health and transport sectors in the UK and Canada. The Group also welcomed the UK Government's recent Autumn Statement in which it increased its commitment to investing in economic infrastructure, particularly in sectors such as highways, digital infrastructure and railways, where Carillion is a market leader. Considering the management's confidence in FY2017 and the Group expecting increase in activities in Support Services continue to more than offset a further reduction in operating profit in PPP projects in the FY2017, we will make no change to our recommendation. The order book, framework contracts and pipeline of contract opportunities remain strong. Beaufort reiterate its Buy rating on the shares.
Joules Group (LON:JOUL, 197.00p) – Buy
Joules Group PLC, a British premium lifestyle brand, yesterday provided its pre-close trading update for the 26 weeks ended 27 November 2016 ('H1 FY2017'). During the period, revenue advanced +16.2% to £81.4m, comprised of +15.8% increase in Retail revenue to £56.7m and +17.2% growth in Wholesale revenue to £24.5m, against the comparable period (H1 FY2016). Good performance in both stores and e-commerce led Retail revenue growth while the Group achieved Autumn/Winter 2016 Wholesale order-book across all markets. Gross margin is anticipated to have improved by c.+1% year-on-year, as higher proportion of full price sales, enhanced distribution efficiencies, and favourable product mix within international wholesale sales has benefitted. On the operational front, the Group has opened 10 net new stores and it expanded product ranges within key US wholesale accounts. The Group has also launched Kidswear in a new partnership with a leading US department store. Joules' CEO, Colin Porter commented "We look forward with confidence to the second half of the financial year and beyond, despite the uncertain macro-economic outlook". Joules will release an update on Christmas trading in early January and announce Interim results on 31 January 2017.
Our view: Joules' H1 pre-close trading update was encouraging. The Group recorded growth in revenue as it increased brand footprint, expanded customer base and both new and core ranges across product categories saw strong performance. Both Retail and Wholesale channels recorded strong growth and gross margin improvement will enhance the profitability. Looking ahead, the Group said it saw strong growth in Wholesale order book for Spring/Summer 17 and is well positioned for the Christmas trading period, with confidence for remainder of the FY2017. We believe Joules remain capable to continue its growth momentum. Beaufort reiterate its Buy rating on the Shares and look forward to the Christmas trading update.