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Beaufort Securities Breakfast Alert: Wall Street ended marginally lower amid sharp fall in oil price

Published: 08:32 11 Jul 2016 BST

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Markets
Europe

The FTSE-100 finished Friday's session 0.87% higher at 6,590.64, whilst the FTSE AIM All-Share index closed 0.88% better-off at 705.54. In continental Europe, markets ended sharply higher, erasing losses incurred earlier in the week. Positive jobs data released in the US reduced concerns over the health of the US economy. Germany's DAX and France's CAC 40 gained 2.2% and 1.8%, respectively.
Wall Street
Wall Street ended in the green, led by upbeat jobs data for June. Moreover, a rise in oil prices lifted investor sentiment. The S&P 500 advanced 1.5%, with the materials sector gaining the most. For the week, the markets closed 1.3% higher.
Asia
Equities are trading higher, as investors cheered Japanese Prime Minister Shinzo Abe's huge victory in the upper house elections. The Nikkei 225 soared 4.0%, while the Hang Seng was trading 1.5% up at 7:00 am.
Oil
On Friday, Brent oil prices increased 0.8% to US$46.76 per barrel, while WTI prices rose 0.6% to US$45.41 per barrel.

Headlines
IMF cuts growth forecast for Eurozone
The International Monetary Fund (IMF) downgraded its economic growth forecast for the Eurozone to 1.6% for 2016 and 1.4% for 2017 from 1.7% for both the years. The agency cited implications of the UK's decision to leave the European Union as the reason for the reduction in growth forecast.

Company news

Kibo Mining (LON:KIBO, 5.88p) – Speculative Buy
Kibo Mining, the exploration and development company focused on energy projects in Tanzania, announced Friday results from its Mining Definitive Feasibility Study (MDFS) - the coal mine component of the Mbeya Coal to Power Project (MCPP). The salient features of the MDFS compared with the mining pre-feasibility study are as follows: an IRR of 69.2% (representing a 15% improvement), a payback period of 2.4 years (representing a 7% improvement) and a peak funding requirement of US$17m (representing 54% reduction). In addition to this, the all-in cost margin has been declared at 39%, an improvement from the 49% cost margin as stated in the pre-feasibility study based on greater accuracy in modelling key cost drivers. Modified terrace mining method has been confirmed as the most accurate and cost-effective mining method. As such, Kibo has reduced the over-all amount of coal required for the power plant by 23% as stated in the pre-feasibility study, bringing about significant environmental and cost benefits.

Our view: This above results are another important tick in the box as the two key components for the completion of an integrated bankable feasibility study are now complete. We look forward to results from the integrated coal mining and power plant bankable feasibility study in the near term. In the meantime, we maintain a Speculative Buy on the stock.
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Beaufort Securities acts as corporate broker to Kibo Mining PLC

AVEVA (LON:AVV, 1,805.0p) - Buy
AVEVA released a trading update for the period from 1st April 2016 to date. After the announcement of FY 2016 results on 24th May 2016, AVEVA's operational and financial performance has been in line with expectations. The company has not seen any substantial change in trends and expects the seasonality in FY 2017 to be similar to FY 2016. After the Brexit, foreign currency exchange rates have been volatile and sterling has weakened against the Euro and the US dollar. AVEVA expects a currency benefit in FY 2017 from the translation of overseas earnings, provided the rates remain at these levels for a long time. The company recorded solid cash generation during the period, leading to net cash of £133.0m as at 30th June 2016. Separately, Richard Longdon would step down as Chief Executive and Director of AVEVA with effect from 31st December 2016. Mr Longdon was with AVEVA for 33 years, with 17 years as Chief Executive. Mr Longdon would move to the role of president for 12 months after stepping down from his current role. During this period, he would be a representative and ambassador for AVEVA and provide insights into the market and customers. James Kidd, Chief Financial Officer, has been appointed Deputy Chief Executive with immediate effect. He would assume the role of Chief Executive on 1st January 2017. Furthermore, the board announced the appointment David Ward as Chief Financial Officer and Director of AVEVA with immediate effect. Mr Ward has been the Head of Finance at AVEVA since 2011.

Our view: AVEVA'S performance for the aforementioned period has been in line with expectations. The company enjoys a healthy balance sheet with solid cash position. AVEVA is all set to pay the final dividend of 30p per share on 5th August 2016, subject to shareholders approval at the AGM. We note the resignation of Mr Longdon as Chief Executive and Director. The appointment of James Kidd is a positive development, given that he has been a board member since 2011 and has been actively involved in the commercial and operational development of AVEVA. Furthermore, the appointment of David Ward as Chief Financial Officer is a good move, considering his vast experience in the finance field. In light of the above developments, we maintain a Buy rating on the stock.
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Ilika (LON:IKA, 45.0p) - Speculative Buy
Ilika declared its audited results for the year ended 30th April 2016 (FY 2016). During the period, revenue decreased to £0.6m from £1.1m in FY 2015. Revenue includes £450,000 of grant income recognised from Innovate UK. Administrative expenses increased to £3.8m from £3.6m in FY 2015, mainly due to increased spending on research and development during the year. Loss before tax widened to £3.9m from £3.0m in FY 2015, leading to a loss per share of 5.2p compared with 4.1p in the previous year. Cash, cash equivalents and bank deposits totalled £3.0m (FY 2015: £6.0m). As at 30th April 2016, net assets were worth £3.4m compared with £6.5m in FY 2015. On the operational front, Ilika launched its Stereax™ M250 solid state battery IP at the IDTechEx exhibition in Berlin. The company defined the Ilika Stereax™ roadmap to cover the future development pathways for Stereax™. The roadmap focussed on three main battery requirements: miniaturisation, capacity in a small footprint and increased performance. In September 2015, Ilika received notice of grant in China for its patent application supporting solid state batteries jointly filed with Toyota Motor Company in July 2011. In September 2015, Ilika was also awarded the lead role in a £2.15m, three-year Innovate UK grant-funded project with BAE Systems, GKN, Reliance Precision Engineering and the University of Sheffield. In February 2016, the company informed that it would participate in a two-year project with Seagate and the University of Southampton. Mike Inglis, the former Chief Commercial Officer of ARM Holdings was appointed as Non-Executive Chairman.

Our view: Ilika performed strongly in FY 2016, especially on the operational and technical aspects. The company's revenue dropped mainly due to its focus on internally funded battery development programme. Ilika continued with the improvement in yield and productivity of battery pilot line. The company made good progress in relation to development of solid-state battery. Ilika's solid-state batteries have a lot of benefits over lithium-ion batteries, which include faster charging time, lower leakage currents, non-flammable nature and possible integration to IC components to reduce end device size. Furthermore, with the launch of Stereax™ M250, Ilika has taken the solid-state battery concept to the next level of evolution with its expertise in material development. The battery is expected to gain wide acceptance as its 'fit-and-forget' design enables IoT sensors to be fitted without further maintenance. In IoT batteries, self-sufficiency is a critical requirement, as they may be deployed at difficult-to-service places. In addition, Ilika secured grants for aerospace alloys to continue the development of aerospace alloys and materials for electronics applications. We are encouraged by the company's progress in FY 2016 and look forward to further updates. Therefore, we maintain a Speculative Buy rating on the stock.

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