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Beaufort Securities Breakfast Alert Mariana Resources, Premier African Minerals,Ferrum Crescent, Next Plc and others

Last updated: 09:15 30 Apr 2015 BST, First published: 08:15 30 Apr 2015 BST

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The Markets

Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 6.6 points down at 7:00 am.

New York: Wall Street closed lower after the Fed meeting failed to indicate the timing of the rate hike. Investors continued to focus on corporate earnings, lower mortgage applications and the slowdown in first-quarter GDP growth. The S&P 500 shed 0.4% yesterday.

Asia: Equities tracked world indices to trade lower today. The Nikkei 225 lost 2.7% when it opened after a holiday as the Japanese factory output declined 0.3% in March and the Bank of Japan upheld its massive stimulus programme at its monthly meeting. The Hang Seng was trading 0.7% down at 7:00 am.

Continental Europe: Markets closed in the red as investors eyed sharp gains in the euro against the dollar while awaiting the outcome of the two-day Fed meeting. A weak bond auction in Germany and poor economic sentiment in the Eurozone added to the downside. Germany’s DAX and France’s CAC 40 lost 3.2% and 2.6%, respectively.

Crude Oil: Yesterday, prices of WTI and Brent Crude Oil increased 2.7% and 1.9% respectively. The spread between the two varieties stood at US$7.3 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.19% lower yesterday at 752.40. To read our latest research click here.

Today’s news

UK retail sales growth cools in April: CBI

The Confederation of British Industry’s retail sales balance stood at +12 in April compared to +18 in March. The drop is ascribed to the declining sales among grocers, despite a broad-based increase among most types of retailers. On the other hand, the optimism over next month’s sales improved strongly.

UK consumer confidence remains steady ahead of election

GfK said its monthly consumer confidence index remained unchanged at +4 in April, its highest level in 12 years. The survey suggests that the British are optimistic about personal finances and the economy; however, this has not translated into an improvement in the index reading over the last month.

Bristol Beaufort Investor Evening – 13th May 2015 

We are delighted to invite yout to join us at our first Bristol Investor Evening of the year, co-hosted with Hardman & Co. Click here to book your FREE place now. The event will take place on WEDNESDAY, 13th MAY 2015 at the Bristol Marriott Royal Hotel, College Green, Bristol and will feature presentations from the following listed companies…

- Primary Health Properties (LOM:PHP)

– United Cacao (CLONHOC)

Mariana Resources (LON:MARL)

– Strat Aero (LON:AERO)

Click here for more information and to register your place for FREE now!

Compsny News

Ferrum Crescent (LON:FCR) – Speculative Buy

Ferrum Crescent, the direct reduction iron (DRI) pellet project developer, yesterday submitted its quarterly activities and cashflow report for the period ending 31 March 2015. The period saw the final confirmation of where the Phase 1 mine development work will be located for the first 10 years of mine life at the Moonlight Iron Project. Following analysis of the 10 reverse circulation (‘RC’) drill holes, the first 10 year development model will be based on Zones A, B and C and further infill drilling will commence next to establish a JORC (2012) Ore Reserve and for advanced beneficiation work to be undertaken as part of the DRI plant design process. The success of infill drilling will also determine whether bulk sampling is necessary to complete the full mine design and plant costings. It also detailed that discussions progressing with potential development parties resulted in the formal termination of the investment agreement with Anvwar Asian and that the internal RSA steel supply route under evaluation with parties.

Our view: Since recommencing the BFS at the Moonlight project in the last quarter of 2014, Ferrum has managed to both confirm the projects ‘first 10-year’ location for open pit mining and has also begun advanced pit design work. Using the recent drilling data the Group will continue to progress the economic model of both the mine and the DRI pellet complex to be situated at the Thabazimbi railhead. Recent work has also assisted the company’s negotiations with development parties and related infrastructure groups. It remains true that overall iron ore market conditions remain difficult, with prices under severe pressure on the back of growing global supply and slowing economic activity in China. But against this backdrop, FCR plans to produce 6Mtpa of high quality iron ore pellets that should fetch a premium price relative to the benchmark 62% Fe. Beaufort considers strategic partnership discussions with the aim to develop high quality iron ore pellets remain key elements to unlocking Moonlight’s value.

Beaufort Securities acts as corporate broker to Ferrum Crescent plc

Next (LON:NXT) – Buy

Yesterday, Next released its trading statement for the 13 weeks ended 25th April 2015. Full price sales beat company expectations to rise 3.2%, of which 1.9% came from the opening of new space. The sales improvement was primarily ascribed to the launch of the company’s ‘New-in’ brochure that coincided with a warmer weather. Total sales increased 4.1% y-o-y due to a longer end of season sale in winter and a larger mid-season sale. Excluding VAT, the Next Retail and Next Directory sales rose 0.5% and 9.2% respectively, thereby taking the Next Brand total sales up 4.1%. Further, the company maintained its half yearly and annual profit guidance. Next expects total full price Brand sales growth to be in the range of 1.5-5.5% and total shareholder returns to be 5.8-12.2%. Since the company’s share prices remained above the buyback price limit, Next declared a special dividend of 60p per share.

Our view: At a time when most of the British retailers are struggling for a growth in the top-line, Next strengthened its position with a robust expansion aided by warmer than usual weather. Further, the management’s reiteration of the revenue and profit guidance instils confidence in the company’s performance going forward. Business fundamentals remain solid as the company made investments into stores in the home market, while enhancing its online customer base. Over the past two financial years, Next returned over £1bn to the investors by means of special dividends and share buybacks. We expect the future growth to be supported by improving macroeconomic factors, lower inflation and rising real wages, thereby leaving the consumers with a higher disposable income. Thus in view of the overall optimism, we retain a Buy on the stock.

London Stock Exchange Group (LON:LSE) – Buy

Yesterday, London Stock Exchange Group released its interim management statement for the period ended 28th April 2015 along with revenues and KPIs for the three months ended 31st March 2015. Revenues jumped 86% to £581.0m and total income increased 79% to £602.5m following the acquisition of Russell Investment Management. The Information Services Segment grew 42% with the inclusion of the Russell Indexes, and improved 5% on an organic and constant currency basis. The capital markets reported a revenue growth of 2% due to money raised and the addition of new issues in the UK main market. The secondary markets were benefitted from strong trading in various instruments including equities, derivatives at IDEM and fixed income trading at MTS. Revenues for Post Trade Services in Italy improved 4% at constant currency with increased clearing and settlement activity while the LCH.Clearnet was flat after adjusting for currency changes. Technology Services revenues increased 5%, the release informed. Meanwhile, the company has made progress towards integration of the Russell Index and the sale of the Russell Investment Management remains on track with the company receiving several interest indications.

Our view: The acquisition of Frank Russell aided LSE’s diversification strategy and marked a crucial milestone towards the group’s geographical expansion. The business is located in the largest global financial services market of North America and we expect this business to prosper at good pace. Following the acquisition, the Russell business contributed significantly to the growth and is expected to chip-in around one-third of the total revenues of LSE. The company has already announced plans to sell-off Russell Investment Management, and focus remains on maximising benefits by merging the latter’s indices business with FTSE. Most of the segments have performed well and the company is well positioned to leverage its international open access market infrastructure to steer innovation and bring market efficiencies. We expect LSE to benefit from the continued positive market trends and deliver lucrative shareholder returns. Thus we retain our Buy rating on the stock.

British American Tobacco (LON:BATS) – Buy

Yesterday, British American Tobacco released its interim management statement for the three months ended 31st March 2015. Revenue increased 1.7% at constant exchange rates but declined 5.8% at current rates. The cigarette volume from subsidiaries declined 3.6% to 152 billion. The company’s market share grew 40 basis points driven by Global Drive Brands volume growth of 5.7%. Volumes of Rothmans were up 36.9% followed by Lucky Strike (5.0%), Pall Mall (2.4%) and Dunhill (1.2%). However, Ken volumes declined 1.6%, the release informed. Meanwhile, the company continues to explore innovative products such as Vype in the UK e-cigarette market and remains on track to launch Voke, a nicotine inhalation product. The company also plans to test market a tobacco heating product in 2015. In a separate release, the company informed that it has made an application to the UK Listing Authority and the London Stock Exchange to Block List its 1.5 million ordinary shares at 25p each under the British American Tobacco Sharesave Scheme. The shares are expected to be admitted to the official list and trade on the LSE from 1st may 2015 and would rank equally with the existing shares.

Our view: BATS’ quarterly revenues declined due to the adverse impact of a stronger pound and growing health awareness among cigarette consumers. Tobacco companies are struggling with their turnover growth owing to increased taxes and changing consumer preferences. The company’s key markets in Brazil, Russia and Vietnam saw some weakness with people preferring cheaper cigarettes. To combat these issues, the company has launched e-cigarettes and the industry has seen considerable consolidation. We expect the company to report higher profits once the cyclical problems in key emerging regions subside, and its position in the vaporiser market enhances. We feel that the company has the financial strength and the geographical reach to weather the transitory phase in the tobacco industry. Thus in view of the strong fundamentals, we retain a Buy on the stock.

TSB Banking Group (LON:TSB.) – Hold

Yesterday, TSB Banking Group released its unaudited quarterly results for the three months ended 31st March 2015. Total income increased to £224.2m from £219.2m due to rise in the interest and similar income and the fee and commission. Operating expenses expanded to £171.1m from £89.1m due to the absence of defined benefit pension scheme settlement gain. Pre-tax profit stood at £34.3m compared to £102.8m in the previous year. Customer deposits increased £108.7m during the quarter. On the strategic front, the company acquired 7.9% share of all new and switching bank accounts, above the targeted of 6% share, and received mortgage applications worth more than £700m through the newly launched TSB mortgage broker service. TSB’s net promoter score increased 5 points to 14 in the quarter. The company launched a new banking app and continued its investment in the digital and branch proposition. TSB plans to shut 17 of its branches ahead of the takeover by Banco de Sabadell that has made a share cash offer worth 340p for the entire business.

Our view: The company’s pre-tax profits declined compared to the previous year but jumped 153% from £13.5m in the fourth quarter of last year. Apart from the deposits, the new lending also improved 18.4% and is expected to grow over £1.5bn for the year. Lloyds was forced to spin out TSB in June 2014 under the terms imposed by the EU at the time of its £20bn bailout by the UK taxpayer. Sabadell made an offer in March this year to acquire all the issued and to be issued share capital of the TSB. We expect the acquisition to enhance TSB’s growth and efficiency but the offer is yet to be completed. We understand that the company is well-funded and meets the regulatory capital requirements. The company has done well in the past on operational and financial fronts and continues to do so even now. However, in anticipation of the offer being completed, the company’s share price witnessed a sharp rally recently and offers limited scope for upside potential. Thus we retain our Hold on the stock.

Premier African Minerals (LON:PREM) – Sell

Yesterday, Premier African Minerals informed that it has signed a subscription agreement arranged by Darwin Strategic Limited for 66 Loan Notes for a gross value of £1.65m with each note having a face value of £25,000. The loan would be issued in three tranches with the Tranches 2 and 3 subject to the achievement of certain milestones. Premier would receive 85% of the Par value equivalent to £21,250 per Loan Note issued that would be redeemable after a period of 18 months unless repaid or converted. The Tranche 1 (aggregate Par Value of £450,000) payment would be made with the signing of the agreement but the Tranche 2 (aggregate Par Value of £750,000) payment would be made on 3rd May 2015 only if the necessary process machinery and equipment for the RHA Tungsten mine is ready for shipment. The Tranche 3 (aggregate Par Value of £450,000) would be made on 1st June 2015 subject to delivery of the process plant at the RHA tungsten mine along with assembling and commissioning. Premier would repay 7 notes each month from 1st October 2015, failing which Darwin has the right to convert up to 7 Loan Notes at 105% of Par Value into new ordinary shares at the conversion price of 90% of the share price. The loan notes are secured by a fixed and floating charge over the assets of the company. Darwin has also been issued with warrants to subscribe over 16.7 million new Ordinary Shares at an exercise price of 2.9p per share.

Our view: With the signing of the aforementioned agreement for Loan Notes, Premier has secured the complete funding requirements of its RHA tungsten project. However, we feel that the terms and conditions of the agreement are more in favour of the lender and are subject to the achievement of certain milestones by the company. The clauses enlist several conversion triggers including production commencement by 1st July 2015. The other triggers include securing sales contracts or off-take contracts at discounts less than 35% of the spot price or the WO3 percentage in the monthly production being below 60%. Moreover, in case of a default or a change in control, the company may have to pay up to 120% of the Par Value for the Loan Notes. Based on this, we understand that most of the conditions in the agreement give a definite upper-hand to Darwin as they are subject to its judgement and satisfaction. Thus in view of the strict rules for the redemption, we downgrade out rating to a Sell for now.

Econonmic News

Eurozone M3 Money Supply

Eurozone’s M3 money supply expanded at an annual pace of 4.6% in March after growing 4.0% in the previous month, beating the market forecast of an improvement to 4.3%, the European Central Bank said yesterday. Loans to the private sector rose 0.1% and to the government, improved 2.5%. On a three-month average from January to march, growth in money supply stood at 4.1% y-o-y.

Eurozone Consumer Confidence

The gauge of Eurozone consumer confidence declined to -4.6 in April from -3.7 in March and came in line with the market expectations, the European Commission said yesterday. The economic confidence index edged down to 103.7 in April from 103.9 in the previous month, while the measure of industry confidence slid to -3.2 from -2.9.

US MBA Mortgage Applications

US mortgage applications declined 2.3%w-o-w in the week ended 24th April, following a similar rise in the previous week, the Mortgage Bankers’ Association said yesterday. Refinance index dropped 3.7%, while the gauge of loan requests for home purchases remained unchanged over the week.

US GDP

US real GDP grew at an annualised rate of 0.2% in Q1 2015, after rising 2.2% in the preceding quarter, the Commerce Department stated yesterday. The economists had expected a growth of 1.0%. Meanwhile the reading on core consumer prices, which exclude food and energy prices, rose by 0.9% for the quarter following a 1.1% increase in the preceding quarter.

FOMC rate decision

The US Federal Reserve Open Market Committee (FOMC) upheld the benchmark interest rate at record low of 0-0.25%, without commenting on a timeline for the rate hike.

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