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Beaufort Securities Breakfast Alert including: Chariot Oil and Gas, Polo Resources, Rose Petroleum, Audioboom and others

Beaufort Securities Breakfast Alert including: Chariot Oil and Gas, Polo Resources, Rose Petroleum, Audioboom and others

The Markets

 

Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 28.5 points up at 7:00 am.

 

New York: Wall Street rallied after the Fed continued its supportive policies for the economy. Investors cheered the recovery in the energy sector as the US data indicated declining oil inventories. The S&P 500 advanced 2.3% in yesterday’s trading session.

 

Asia: Markets gained strongly, aided by positive trading worldwide. Moreover, the focus remained on Chinese president’s official visit to Macau this weekend and the Fed’s ‘patient’ comment. The Nikkei rose 2.3% at close, while the Hang Seng was trading 0.9% higher at 7:00 am.

 

Continental Europe: Equities closed mixed after energy and mining shares rebounded. However, Russia’s economic woes and the impending outcome of Greece’s presidential elections concerned investors. France’s CAC 40 added 0.5%, whereas Germany’s DAX declined 0.2%.

 

Crude Oil: Yesterday, Brent and WTI crude oil prices increased 2.2% and 1.0%, respectively. The spread between the two varieties stood at US$4.7 per barrel.

 

UK small caps: The FTSE AIM All-Share index closed 0.06% higher yesterday at 680.21. To read our latest research click here.

Today’s news

 

UK households optimistic about financial prospects

 

Markit’s Household Finance Index, which gauges households’ overall financial health, declined marginally to 42.7 in December from 42.8 in the previous month. The indicator was above the 2014 average reading and the third highest in the survey’s 71-month history.

 

Rise in UK wage growth outpaces inflation

 

The Office for National Statistics stated that average weekly earnings excluding bonuses rose 1.6% y-o-y in October, unchanged from September, while the inflation in October stood at 1.3%.

Company News

Jiasen International (LON:JSI) – Speculative Buy

Yesterday, Jiasen International assured investors that the sudden fall in the company’s share price was unfounded and the company is trading in line with the market expectations.

Our view: Jiasen had already warned investors that despite higher revenues, a lower net profit was expected in 2014 due to increased costs. During the nine months to 30th September 2014 period, the company’s revenues rose 10%; however, gross profit margin contracted by 3.9% to 33.1% owing to increasing cost of materials and shifted focus to premium property projects. Jiasen caters to a niche customer segment for solid wood door, panels and assorted fixtures. There seem to be huge growth opportunities in this segment given the accelerated pace of urbanization in China, resulting in the rising demand for value-added products. The company is actively looking for acquisition of regional competitors and distributors to sustain a compounded annual growth in excess of 10% that it has maintained over the past five years. Thus in view of the above and the naturally high cash generative business of the company, we reiterate our Speculative Buy rating.

Beaufort Securities acts as corporate broker to Jiasen International plc

Audioboom (LON:BOOM) – Speculative Buy

Audioboom provided a trading update for the year ended 30th November 2014. The company took its registered users tally to 3.14 million, up 64% over last year. The number of content partners grew manifold to over 2000 from 297 in November 2013 from various new sectors including news, radio, gaming, sports and universities. The company associated with the likes of Sky News Radio, Astro Radio, KSL NewsRadio (US) and Global Radio Group to share news content, across different geographies. The addition of Ladbrokes provided access to another 80,000 online customers for the previews of important football matches. WASPS Rugby Club and Pakistan Cricket Board would be uploading the post match interviews and analysis for Audioboom users. Moreover, several new partners have been added in the UK and rest of the world. Meanwhile, two existing content partners: Sky Sports News and Big D & Bubba have widened their published content on Audioboom. The company expects to release the audited results for the year ended 30th November 2014 on 23rd February 2015.

Our view: Audioboom continues to scale new heights with the acquisition of diverse and interesting content partners to cater to a wider audience. A few days back, the company entered into strategic partnership with Audible Limited to provide a customized recommendation engine to the listeners; thereby adding new revenue stream. The company has left no stone unturned to capture larger market share which is evident from the ever increasing number of registered users. Given the above, we believe the company is in a superior position to exploit the expanding app market through its innovative technology. We retain our Speculative Buy rating.

Polo Resources (LON:POL) – Speculative Buy

Yesterday, Polo Resources announced results for the year ended 30th June 2014. On 12th December 2014, the company’s total assets including cash, receivables, payables and equity investments added up to US$117.8m for a net asset value of 27.2p per share. During the period, Polo’s gold investment – the Nimini Holdings’ Komahun Gold Project – witnessed an increase in the indicated mineral resource estimate to 0.55 million ounces of gold and the Environmental and Mining Licences for Komahun were renewed for 2014/2015. Signet, Polo’s key oil and gas investment, implemented a dividend in specie and a share buy-back offer due to which Polo received US$22.8m. The company acquired a strategic 33.2% stake in Celamin that holds phosphate interests in Tunisia, and a 4.2% interest in West Australian gold explorer Blackham Resources. In November 2014, the company subscribed for new shares in Weatherly International, a mining, development and exploration company focusing on copper in Namibia representing an interest of approximately 7.06% in Weatherly’s enlarged share capital.

Our view: Polo’s strategy of focusing on core assets and a transaction driven business model with an exposure to metals, mining and energy sectors, provides additional benefits to the company. The significant strengthening of the balance sheet is testimony to the fact that the company has persistently unlocked portfolio value through regular acquisition of undervalued and high potential assets, offering dual benefits to the shareholders. With a solid balance sheet and cash reserves, the company continues to delve deeper into additional investment opportunities. In view of the above and strong probability of near term returns, we are optimistic about the company’s future prospects and retain a Speculative Buy on the stock.

Rose Petroleum (LON:ROSE) – Speculative Buy

Rose Petroleum announced the commencement of initial operations for completion of the State 16-42 Paradox well in the Gunnison Valley Federal Unit, located in Utah. The casing was pressure-tested 5000psi to confirm that there were no obstructions in the well. On 20th December, the first zone of interest will be perforated and would be first of several zones that would be evaluated in this well. Apart from production, the vertical completion in the 16-42 well would test the potential pay zones for drilling new wells in future that would be positioned through the 3D seismic data. Rose owns nearly 80,000 gross acres in the Paradox Basin and over 245,000 acres collectively between the Paradox and the adjacent Uinta Basin.

Our view: With expected completion of the last phase of operations at Rose’s State 16-42 Paradox well, the company has taken an important step ahead. The completion would be followed by further horizontal drilling to demonstrate the full potential of the Paradox assets. Additionally, the recent success at the Mancos well instils confidence in the company’s acquisition strategies as Rose had first acquired a stake in this property just nine months back. In light of the above events, we are confident that the company is on the right growth track and is capable of delivering positive returns to its shareholders in future. We retain our Speculative Buy rating.

Chariot Oil & Gas (LON:CHAR) – Speculative Buy

Chariot Oil & Gas provided a pre-close operational update for the year 2014. Several of the Namibian licenses were repositioned to inject additional capital into the company, along with two successful farm-outs. The company expects to recover up to US$13.5m from the new partners with the final approvals of the relevant state authorities. In Brazil, with the addition of a partner and reduction in the cost of Chariot’s initial 3D seismic tender, the net financial exposure of the company has narrowed to US$7.5m. In the last 13 months, the company has secured important partners in the new countries of interest with Woodside in Morocco, AziLat in Brazil, and Cairn in Mauritania. In Morocco, Chariot is looking to secure industry partners on the Mohammedia and Loukos licences, following the completion of ongoing technical studies by H1 2015. Moreover, the Nour well encountered light oil in Jurassic reservoirs in the offshore. In Mauritania, Chariot plans to add new industry partners in Q1 2015. In Brazil, Chariot has halved its financial exposure with the introduction of AziLat as a partner. Meanwhile, Petrobras and BP are also expected to drill the first deep test in the Barreirinhas basin shortly.

Our view: Chariot has proactively revamped its investment strategy as declining oil prices have made the markets more competitive for oil producers. The company enjoys a comfortable position with rich cash reserves, reduced commitments and low-cost exploration through intelligent partnering. The adverse impact of a low oil price cannot be completely undone, but the lower costs and focus on high margin assets provides scope to offset a major part of it. Even though the investor sentiment is low for the oil sector, we see this as a time of exciting opportunity for the company and its shareholders to explore new prospects at competitive prices. Thus, considering all the factors, we maintain a Speculative Buy rating.

Saga (LON:SAGA) – Speculative Buy

Saga provided a trading update for the period from 1st August 2014 to 16th December 2014. Trading remains in line with the market expectations owing to a flexible business model catering to a wider market climate, the release informed. On the other hand, Mr Jonathan Hill is expected to join the business as the CFO on 7th April 2015, replacing Mr Stuart Howard. The company expects to provide further update on the strategy on 15th January 2015.

Our view: Saga specialises in providing customized products and services for the customers above the age of 50. The company has been showing steady improvements in term of business and performance since its IPO, earlier this year. The company provides a wide range of tailored products ranging from holiday packages, insurance, personal finance and healthcare to its customer base of 2.7 million. There are around 22.8 million (over 50 people) in the UK and the segment is likely to grow over 28% in the next 20 years. The company has extensive plans to capitalise on its insights and structural advantages to benefit the customers as their wants and needs undergo a change with progressing age. In light of the above factors, we see a great business opportunity for the company and therefore recommend a Speculative Buy rating on the stock.

Economic News

UK jobless claims change

UK jobless claims in November fell 26,900, following a decline of 20,400 in October, the Office for National Statistics said yesterday. Markets had expected claims to drop by a lower margin of 20,000. The claimant-count rate fell to 2.7% in November, in line with expectations, from 2.8% in the preceding month.

UK ILO unemployment rate

UK unemployment rate dropped to a five-year low of 6.0% in the three months ended October, from 6.2% in the three months ended July, the International Labour Organisation (ILO) stated yesterday. The street expectation was 5.9%. Compared to the preceding three months (May-July), during the period, the number of unemployed people declined 63,000 to 1.96 million.

Eurozone CPI

Consumer price inflation (CPI) in the Eurozone moderated to 0.3% y-o-y in November, matching the market expectation, from 0.4% in October, preliminary data from the EU’s statistical office Eurostat showed yesterday. Core inflation, that excludes energy, food, & tobacco, stood unchanged at 0.7% in November. On m-o-m basis Eurozone CPI dropped 0.2% in November.

US MBA mortgage applications

US mortgage applications fell 3.3% w-o-w in the week ended 12th December after rising 7.3% in the prior week, the Mortgage Bankers’ Association said yesterday. Over the week, refinance index remained flat, whereas the gauge of loan requests for home purchases declined 6.9%.

US CPI

US consumer price index (CPI) declined to a seasonally adjusted 0.3% m-o-m in November following a 0.1% drop in October, as per the US Bureau of Labour Statistics. Economists expected the index to remain unchanged. Core consumer prices, excluding food and energy, rose 0.1% in November after a similar pace of increase in the previous month, but the prices were below the estimate of a 0.2% rise. On a y-o-y basis, CPI stood at 1.3% in November vis-à-vis 1.4% in October, while growth in core prices fell to 1.7% from 1.8%.

US FOMC rate decision

The US Federal Reserve Open Market Committee (FOMC) decided to hold the benchmark interest rate at a record low of 0-0.25%. Furthermore, the Fed promised to maintain an accommodative monetary policy by keeping the benchmark interest rates at record low levels despite the recent decline in the unemployment rate to 5.8%. The Fed members anticipate the benchmark interest rate to rise from zero to a median of 1.125% by the end of 2015.



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