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Beaufort Securities Breakfast Alert Asiamet Resources, Costain, Motive Television, San Leon Energy and others

Beaufort Securities Breakfast Alert Asiamet Resources, Costain, Motive Television, San Leon Energy and others

The Markets

Market opening: The FTSE-100 is expected to start the session sharply lower this morning.

New York: Wall Street ended in the red amid a continuous fall in oil prices. Investors remained concerned about the slowdown in China and increased geopolitical tensions. The S&P 500 fell 1.3%, dragged down by the energy sector.

Asia: Equities are trading lower, as a huge sell off in the market in China closed the market for the second time this week. The Nikkei 225 fell 2.3%, while the Hang Seng was trading 2.6% down at 7:00 am.

Continental Europe: Markets ended in the negative as weak economic data released in China freshened concerns about a slowdown in the country. In addition, the downslide in oil prices hurt investor sentiment. France’s CAC 40 and Germany’s DAX shed 1.3% and 0.9%, respectively.

Crude Oil: Yesterday, Brent and WTI prices decreased 6.0% and 5.6%, respectively. The spread between the two varieties stood at US$0.3 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.07% lower yesterday at 734.05.

– US MBA mortgage applications; US ADP employment change; US trade balance; US factory orders and US durable goods orders

Today’s news

Eurozone growth at four month high in December

According to Markit, the final reading of the Purchasing Managers’ composite index (PMI), which combines the manufacturing and services sectors’ surveys, stood at 54.3 in December from an earlier estimate of 54.0. The improvement was driven by the services industry with a PMI reading of 54.2 in December.

San Leon Energy (LON:SLE) – Speculative Buy

Yesterday, San Leon Energy announced successful drilling of the Rawicz-15 well to 1580m measured depth below rotary table (MDBRT). The well testing programme is expected to start in two weeks. The thickness of the reservoir is consistent with the forecast and the reservoir is of better quality than Rawicz-12.

Our view: The completion of drilling at the Rawicz-15 well is a positive development for San Leon. The Rawicz well is estimated to have more than 50 billion of standard cubic feet (Bcf) of 2P reserves and is expected to be the largest gas development project in Poland for the next 20 years. Recently, San Leon initiated asset optimization and cost reduction strategy, which led to relinquishing of certain non-core Polish licences. This move supports its long-term strategy to focus on development and production. The company may save on the annual license fees for the relinquished Polish license, while staying committed to the remaining acreage in Poland, including the Baltic Basin shale licence and the Rawicz field. We believe San Leon is moving in the right direction and is comfortably positioned to face the challenging market conditions. Therefore, we maintain our Speculative Buy rating on the stock.

DDD Group (LON:DDD) – Speculative Buy

DDD Group plc, the advanced imaging and 3D solutions company, yesterday announced that it had been granted a new US patent that expands the patent coverage of DDD’s latest TriDef SmartCam solutions. The new patent (Application 13/232,586) was filed in September 2010 and describes image processing technology for modelling the human body using face detection from which improved depth information is generated. Applications of the new patent include removing the background from a photo or video sequence in real-time and other depth enhanced image effects that the Group recently began commercialising in its new TriDef SmartCam and soon-to-be-released UPix applications.

Our view: As DDD continues to expand its licensing program into new growth markets including video conferencing, game casting and social photography, it is important that it continues to secure patent protection in key markets for the core inventions that form the foundation for the Group’s new products. As such, its patent library will continue to evolve in step with its commercial activities. Last July’s filing of infringement litigation against LG Electronics, in which DDD is presently seeking to treble ‘material damages’ due to the wilful nature of the infringement, perfectly highlights both the need for and the potential bonanza opportunity created through, the Group’s proactive stance on such filings. Ahead of such an outcome, however, cash burn will undoubtedly continue to place strain on the balance sheet as the Group rolls out 2D applications, appoints licensees and undertakes end-user marketing. But given the market size for gamecasting/video conferencing that is forecast to deliver growth from hundreds of millions of existing end-users, potential shareholder rewards remain very large indeed. Beaufort retains its Speculative Buy recommendation on DDD Group.

Beaufort Securities acts as corporate broker to DDD Group plc

Motive Television (LON:MTV) – Speculative Buy

Motive Television Plc, the technology provider to broadcasters and pay television operators, yesterday announced that TabletTV Plus has been approved by the Apple App Store and is now available for UK customers. This new App greatly enhances the user experience for TabletTV users in the UK and provides a number of additional features. TabletTV Plus will initially be available for iOS platform (iPad) tablets only; an Android tablet version will be forthcoming. TabletTV Plus, which was originally launched in November in the United States, met with highly favourable reviews and sold most of the available inventory of TPods. Motive has access to sufficient supply of tuners to satisfy high levels of UK demand.

Our view: Motive takes another important step in increasing customer appeal of its product offering in the UK. TabletTV Plus effectively creates a portable home television platform. It offers a simple, inclusive, and low cost way for viewers to access sports, movies, news, and entertainment in one place; it captures everything on Freeview plus everything available over the Internet, while also providing users with the ability to view content on large-screen TV’s or to share the tuner with others. Indeed, along with Content Express and BYODTV, Motive has a long list of obvious consumer ‘likes’, meaning the potential to multiply future revenues is undoubtedly there. Having said that, the immediate key to success for Tablet TV appears to remain its ability to ensnare the right distribution/enfranchisement with hardware manufacturers and/or broadcasters. Mass international uptake may demand at least one mainstream tablet producer to start the ‘ball rolling’ by committing to incorporate the tuner into its device and, presumably, embed the App into its system after having licensed it or formed some other usage agreement with Motive. This would, of course, require the tablet designer to accept that free OTA reception can comfortably co-exist alongside ‘paid for’ digital streaming. In so doing, this should also speed transition of the Group’s business proposal from one dependent on one-off unit sales, to a significantly more profitable subscription or advertising-based model. Elsewhere, with product development now largely paid for, a giant maritime opportunity can be identified for the Group’s BYODTV, while its Content Express also finds itself positioned to penetrate important new territories. Both of these could accrue new streams of revenue and longer-term contracts within the current year, whereas TabletTV possibly remains hindered by a 2-year or more tablet production cycle before being able to gain significant momentum. Motive’s lowly valuation presently wholly discounts a further round of equity funding in order to support continuing development losses. Beyond this, however, it is possible to perceive quite considerable value within Motive’s IP that is capable of being monetised either through outright sale/licensing of one or more of its different technologies or expansion of product revenues.

Beaufort Securities acts as corporate broker to Motive Television Plc

Asiamet Resources (LON:ARS) – Speculative Buy

Yesterday, Asiamet Resources (Asiamet) informed that a preliminary economic assessment (PEA) of the Beruang Kanan Main (BKM) deposit in the company’s fully owned KSK project in Kalimantan, Indonesia, is underway as per schedule. PEA is supervised by Orelogy, an Australia-based mine planning consulting firm, and expects to deliver by the end of Q1 2016. Through PEA, the company is assessing the economics of developing an open pit mine and heap leach SX-EW processing facility that utilizes the near surface copper resources defined in the 2015 BKM Resource estimate. Some key deliverables of the assessment include a conceptual mining study, estimation of capital investment sufficient to sustain operations, development of conceptual operating plans and related operating costs, and analysis of economic value of the project on the basis of the capital and operating cost estimate. PEA would also include a basic risk assessment and defining scopes of work essential for any banking feasibility study on the project.

Our view: The aforementioned update is encouraging for Asiamet, as it continues to progress well at its BKM deposit. The company is on schedule for the completion of PEA by the end of Q1 2016. Asiamet is well-assisted by the consultants who have significant experience and exposure to operating conditions in Indonesia. The BKM deposit holds considerable indicated and inferred resources. As per the latest evaluations, BKM has indicated resources of 15 million tonnes at 0.7% copper, containing 231 million Ibs (105,000 tonnes) of copper at a 0.2% copper cut-off grade. Inferred resources total 49.7 million tonnes at 0.6% copper, containing 657 million Ibs pounds (298,000 tonnes) of copper at a 0.2% copper cut-off grade. The significant inventory of mineral resource provides the company an opportunity to enhance plant output and improve mine life. Furthermore, Asiamet has identified targets for copper mineralisation at Beruang Kanan South (BKS), Beruang Kanan West (BKW), and BKZ polymetallic prospects. The company has started assessment of these targets using surface exploration and scout drilling. We believe Asiamet has bright prospects, supported by its enhanced resource potential. Therefore, we maintain our Speculative Buy rating on the stock.

Rockhopper Exploration (LON:RKH) – Speculative Buy

Yesterday, Rockhopper Exploration (Rockhopper) released an update on the status of the Ombrina Mare project, offshore Italy. The Italian Parliament approved the 2016 budget law, which imposes restriction on any offshore oil and gas activity, including the general ban on exploration and production activity within 12 nautical miles of the coast of Italy. The Ombrina Mare project is located within this limit and the company would conduct a review to study the impact of legislation on the project. Rockhopper has been given a 12-month extension to the suspension of the Ombrina Mare exploration permit to 31st December 2016.

Our view: The restriction imposed by the Italian Parliament is disappointing news for Rockhopper, as it would not be able to conduct any oil and gas activity at its Ombrina Mare project. The company has been accorded 12 months before the suspension of its exploration permit. However, the budget law would not impact any other project of Rockhopper in offshore Italy. Recently, the company announced the merger with Falkland Oil and Gas. We believe the merger opens up many opportunities for Rockhopper in the Falkland Islands. Capitalising on a strong technical team with exploration and appraisal track record, the company is well-placed to leverage on the prevailing growth opportunities in the target area. In addition, Rockhopper is progressing well at its Guendalina gas field and completed the Side track well GU2-Dir. Rockhopper plans to invest in the Greater Mediterranean and North African region, which would further enhance the company’s resources. We believe Rockhopper has long-term growth potential and would repay when the oil sector stabilizes. In light of the above argument, we maintain a Speculative Buy rating on the stock.

Costain Group (LON:COST) – Buy

Yesterday, Costain Group (Costain) released a trading update for the year ended 31st December 2015. The company’s order book stands at £3.9bn (31st December 2014: £3.5bn) and includes more than £1.1bn of revenues secured for 2016 (as on 31st December 2014: more than £1.0 billion secured for 2015). Costain sustained a strong bidder position, with over £500m as on 31st December 2015. The cash at the end of the period stands at more than £100m. The company successfully completed the acquisition and integration of Rhead Group, which would be generating earnings in 2016. Costain would declare the full-year results on 2nd March 2016.

Our view: Costain performed well in 2015 and expects to meet its full-year target. The company boasts of a record order book, along with securing revenues for 2016. Costain continued to focus on long-term relationship with customers, as more than 90% of the order book holds repeat business. One of the key contracts won by the company was by Highways England that covers the long-term maintenance and development of highways on the country’s Trunk Road Network and is worth £750m. Considering the continuous addition of contracts, the strong order book, and enhanced cash position, we believe Costain would maintain its leading position in the market. Therefore, we maintain our Buy rating on the stock.

Economic News

US MBA mortgage applications

US home mortgage applications, including both refinancing and home purchase, decreased 11.6% in the week ended 1st January, after a 17.4% fall in the preceding week, the Mortgage Bankers Association said yesterday.

US ADP employment change

Jobs in the US private sector grew by 257,000 in December, after 211,000 jobs added in November, ADP reported yesterday. The markets expected 198,000 jobs addition for the month.

US trade balance

US trade deficit narrowed to US$42.37bn in November from a revised reading of US$44.58bn in October, the Commerce Department yesterday. Economists had expected a trade gap of US$44.0bn.

US factory orders

US factory orders fell 0.2% m-o-m in November after a revised increase of 1.3% in October, the US Department of Commerce said yesterday. This was in line with the market expectations. Excluding orders for transportation equipment, factory orders decreased 0.3% in November, after a 0.1% increase in October.

US durable goods orders

US durable goods orders remained flat in November, following a similar reading in October, the Commerce Department said yesterday. Excluding orders for transportation equipment, durable goods orders remained same, after a 0.1% fall in the previous month.

Important Risk Warnings and Disclaimers 

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