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Beaufort Securities Breakfast Alert: Ariana Resources, Dekeloil, Sirius Minerals, Vodafone

Published: 08:06 26 Apr 2016 BST

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The markets
Europe
The FTSE-100 finished yesterday's session 0.78% lower at 6,260.92, whilst the FTSE AIM All-Share index closed 0.09% better-off at 731.72. Continental markets ended in the negative terrain, following unexpected weakness in Germany's (Eurozone's largest economy) business confidence. Germany's DAX and France's CAC 40 fell 0.8% and 0.5%, respectively.
Wall Street
Wall Street turned lower yesterday amid unimpressive earnings. The Fed meeting over interest rate, due later this week, also remained at the centre stage. The S&P 500 closed 0.2% down, led by Energy, while Consumer Staples led the gainers.
Asia
Markets are trading in the red, tracking overnight losses in US equities. Focus remained on the outcome of the Bank of Japan meeting this week. The Nikkei slid 0.5%, as yen gained strength against the US dollar. Meanwhile, the Hang Seng was trading 0.7% down at 7:00 am.
Oil
Yesterday, WTI and Brent Crude Oil prices decreased 2.5% and 1.4%, respectively. The spread between the two varieties stood at US$1.8 per barrel.

Headlines
UK factory output edges up in three months to April: CBI
As per the Confederation of British Industry, the quarterly gauge of factory output swung to +1 in the three month to April compared with -2 at the beginning of the year. Although orders have continued to fall, the pace has remained similar to that over the three months to January. The agency expects lower exchange rates to support manufacturers and exporters whose businesses were impacted by slowdown in global trade.
EU bank to lend £1bn to support affordable housing in UK
The investment arm of the European Union plans to lend £1bn to help build more social housing in the UK. This would be the bank's largest such initiative in Europe. The new loan comes in addition to £4.2bn pounds the EU investment Bank has lent for social housing and urban renewal in Britain since 1998.

Company news

Ariana Resources (LON:AAU, 1.58p) – Speculative Buy
Ariana Resources, the gold-silver exploration and development company with several projects in Turkey and a technology-metals subsidiary in Western Australia, announced yesterday an update of its JORC-compliant resource estimate for the Kiziltepe project. Following its recent drill programme and an extensive review of the geological model, Ariana has increased the overall resource by 44,500oz Au and 886,000oz Ag to 195,200oz Au and 3.15Moz Ag, excluding resources from the nearby Kepez vein which was previously included. In addition, Whittle optimisation of the proposed pit shells demonstrates a potential increase of the mine life from c. 8 years to c. 10 years at a designed throughput rate of 150,000t per annum. The overall resource now stands at 2.4Mt grading 2.5g/t Au and 40.3g/t Ag. Of note is that the resource estimates are quoted gross with respect to the Red Rabbit Joint Venture and that Ariana will own 50% of the production when the Kiziltepe mine is operational.

Our view: Whist the overall grade at Kiziltepe was reduced from 3.12g/t Au and 46.97g/t Ag to 2.49g/t Au and 40.29g/t Ag there was a substantial increase in overall tonnage from 1.5Mt to 2.4Mt. Of note is that the revised resource estimate now excludes several subsidiary veins where resources have already have been established and could potentially extend the mine life. Given the potential for enlarged resource we are encouraged with the proposed increase in the mine throughput from 150,000t per annum to 200,000t per annum. As such, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Ariana Resources plc

DekelOil (LON:DKL, 1.38p) - Buy
DekelOil Public, operator and 51% owner of the vertically integrated Ayenouan palm oil project in Côte d'Ivoire, yesterday provided an update on its progress to complete the existing senior debt refinance on improved terms with the West African Development Bank (BOAD). The senior debt facility of €6.9m with annual interest of 10.5% was used to assist in funding the construction of the Company's 60 t/hr (tonnes per hour) extraction Mill, one of the largest in West Africa. To execute the refinance the Company has completed a credit rating process with a leading African focused Credit Rating Agency, Bloomfield Investment Corporation (Bloomfield), and received a rating of A- on short term loans and BBB- on long term loans, based on the Company's audited results for FY2014. All local government requirements has also been completed so the Company is in full compliance to commence a process of offering terms to local and regional banks, insurance companies and pension funds. The Company is working with Sogebourse CI (subsidiary of Société Générale S.A) to refinance on materially improved terms and will provide a further update on final debt terms and timing of completion in the near future. Its Executive Director, Lincoln Moore commented "We are making excellent progress in ensuring DekelOil has a balance sheet more befitting of our status as an established producer. Combined with further progress being made on the ground, as demonstrated by our record Q1 2016 production performance, and a first full quarter contribution from our recently commissioned kernel crushing plant, the strong momentum behind the business continues into 2016".

Our view: DekelOil is in the process of upgrading the credit rating assigned by Bloomfield. The rating is expected to significantly improve as it will now be based on the recently released FY2015 final results, where full year revenue expanded +134% to €23.4m (FY2014: €10m) and achieved EBITDA of €3.7m compared to a loss of €0.4m a year ago. Discussion for improved term refinancing with BOAD follows successful completion of the removal of the Biopalm Energy Ltd capital note of €5.1m in December 2015, and the significantly improved senior debt terms replaced a €8.65m loan with interest rate of 10.5% secured with BIDC-EBID (ECOWAS Bank of Investment and Development) to a new seven year €9.15m loan with interest rate of 7% secured with NSIA Banque Cote D'Ivoire in March 2016, that results in an estimated €270,000 reduction in annual interest costs. The completion of BOAD refinance is the final part of a successful strategy to streamline the Company's financing structure and will reflect DekelOil's transformation into a fully operational and profitable palm oil company, moving it step forward towards its objective to implement a dividend policy in the future. Beaufort reiterate its Buy rating on DekelOil.

Beaufort Securities acts as corporate broker to DekelOil Public Limited

Sirius Minerals (LON:SXX, 18.25p) – Hold
Sirius Minerals yesterday published financial results for 9 months to December 2015, having recently changed its year-end to December. The results reported a net cash position of £29m, but otherwise there was little new information. The highlight for the period was undoubtedly receiving permitting (planning approvals) without any objections as well as some additional "offtake commitments". Post-period end the main news was publication of highlights of the nearly complete Definitive Feasibility Study. Key points are Stage 1 Capex of $1.63bn followed by Stage 2 Capex of $1.93bn and an NPV of $15bn.

Our view: Relative to most other junior exploration/development mining companies Sirius has delivered, both on the ground (drilling, marketing/offtake, feasibility studies, permitting,) and through value for shareholders. At 18.25p the Sirius Minerals market cap is currently £419m ($607m). The outlook from here will be dominated by financing the mine, a very significant challenge given the quantum required. Other outcomes include project level investment in the form of a joint venture or an outright sale. If Sirius takes the traditional equity, debt and offtake finance route, it is hard to see the share price increase from current levels. A potential acquirer could conceivably pay more than $600m but it would then need to fund the $1.63bn and $1.93bn, so a total of over $4.0bn. This limits the number of potential acquirers thereby reducing the likelihood of it happening. Given the uncertainty we recommend a hold.

Vodafone Group (LON:VOD, 227.35p) - Buy
Yesterday, Vodafone revealed that its money transfer service M-Pesa had registered more than 25 million active customers. The active customers increased 27.1% to 25.3 million across Africa, Asia and Europe for the year ended 31st March 2016, following market launches in Albania and Ghana. The customer addition was supported by a network of more than 261,000 agents across 11 M-Pesa countries. Meanwhile, the company continued to enhance its services and offerings through the introduction of new features and partnerships with public and private sector organisations. The company also entered into government partnerships in Lesotho, Kenya and India for different government initiatives. In India, Vodafone launched the M-Pesa application to pay for goods on Ebay, for taxis with TabCab and to book train tickets on India's national railways. In Lesotho, Vodafone launched a service enabling customers to convert airtime to M-Pesa credit to pay for emergency treatment. In Mozambique, M-Pesa is being used by government agencies to pay salaries and allowances; moreover, utilities are accepting M-pesa payments. In Kenya, the World Food Programme is using M-Pesa to help deliver its food aid in the country's refugee camps. Qatar Airways and KLM now accept M-Pesa for air tickets from Tanzania. Furthermore, several other deals have been made with partners to enable customers transact with other services and across borders.

Our view: Vodafone marked another year of accelerated growth, with its money transfer service gaining momentum. Since its launch in 2007, the company's M-Pesa application found wide usage and gained acceptance among its 25 million active customers. Through M-pesa services, customers benefitted from hassle-free money transfers for savings, loans, payments of salaries and benefits, and settlement of bills and fees, among others. The company has been working towards enhancing the features and capabilities of the M-pesa application as well as striving to make it compatible with other mobile money services. For instance, Tanzania became the first market in Africa in which major operators, including Vodafone's local Vodacom unit, agreed to interconnect their mobile money services. The company also entered into several partnerships with governments and other global development agencies to expand the usage of its M-pesa application. These are major breakthroughs for the company; considering the concept of M-pesa is still in an early stage, it offers great potential in terms of growth and providing a stable revenue stream for the company. Thus, in view of the update, we maintain a Buy rating on the stock.

Economic news
Germany IFO
The business climate index for Germany edged down to 106.6 in April from 106.7 in the previous month, the survey results from IFO institute revealed yesterday. The reading missed the market expectation of a 107.1. Executives' expectation index increased to 100.4 from 100.0 in the previous month, but came in below the expected reading of 100.9. The current assessment index deteriorated to 113.2 from 113.8, lower than the market expectations of 113.8.
US new home sales
New home sales in the US declined 1.5% m-o-m to a seasonally adjusted annual rate of 511,000 units in March 2016, the Commerce Department said yesterday. The annualised sales figure for February was revised to 519,000 from the previously reported 520,000. Economists had expected new home sales to increase to an annualised rate of 512,000.

 

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