Proactive Investors - Run By Investors For Investors

Beaufort Securities Breakfast Today including Lekoil Limited, Aggreko and Whitbread


The Markets

Market opening: Markets could open higher today. FTSE 100 futures were trading 3.5 points up at 7:00 am.

New York: Wall Street rallied amid optimism that the US Fed would refrain from tapering its US$85bn of monthly bond purchases at the ongoing FOMC meeting. The S&P 500 closed 0.8% higher.

Asia: Japanese stocks outperformed Asian counterparts, boosted by stronger-than-expected trade data. Chinese equities fell, weighed by brokerage shares, which tumbled on reports that regulators could end the nine-month freeze on initial public offerings. The Nikkei closed 1.8% higher, while Hang Seng was trading 0.8% down at 7:00 am.

Continental Europe: Markets closed mixed. Germany’s upbeat ZEW sentiment for May lifted the DAX 0.2% higher. However, investor caution ahead of the US Fed’s much-awaited monetary policy decision capped gains. France’s CAC 40 dipped 0.1%.

UK small caps: The FTSE AIM All-Share index closed 0.5% lower yesterday.

Today’s news

Japanese exports surge in May

Japanese exports surged 10.1% y-o-y in May, beating economists’ forecast of 6.5% and at the fastest pace since December 2010, the finance ministry said today. Imports grew 10% y-o-y on increased purchases of liquefied natural gas. The trade balance showed a deficit of ¥993.9bn vis-à-vis economists’ forecast of ¥1.2trln and a downwardly revised ¥881.9bn in April.

ECB balance sheet grows as banks tap funding

The balance sheet of the ECB and the Eurozone’s 17 national central banks grew by €4.08bn to €2.55trln in the week ended 14th June as banks tapped more funds in the ECB’s main refinancing operation. Meanwhile, ECB Chief Mario Draghi said there have been positive signs of market stabilisation, suggesting that interest rates are becoming a more effective tool again.

Aggreko (LON:AGK)

Yesterday, Aggreko announced its trading update for the half year ended 30th June 2013. Performance during the period was in-line with expectations; the management reiterated its full-year guidance. Both, underlying and reported revenues are expected to increase by around 5% from last year, while trading profits would remain unchanged from the same period last year. The Americas are expected to see underlying revenue growth of 11% while in Asia, Pacific and Australia (APAC) underlying revenues would be 6% higher from the previous year. Europe, Middle East and Africa (EMEA) are expected to expand by around 8% on an underlying basis. The Local business, which accounts for almost three-fifths of Aggreko’s sales, had a robust first half with underlying revenues up around 9% (+8% on a reported basis). Growth at the Power Projects division is anticipated to edge up about 1% with margins slightly lower from last year due to mobilisation costs arising from the 220 megawatt (MW) of gas plants being commissioned in Mozambique and the Côte d’Ivoire. Order intake stood at around 400MW, including a summer peak-shaving contract in Tunisia of over 100MW as well as the earlier announced 122MW cross-border project supplying power to Namibia and Mozambique. Additionally, the company has won two more contracts for its new Heavy Fuel Oil (HFO) engine product.

Our view: Aggreko reported a steady first half update with underlying revenues expected to rise by around 5% y-o-y, in line with management expectations. The Local business, aided by the acquisition of Poit Energia, continues to drive revenues while trading in Power Projects remained subdued, albeit the prospect pipeline has improved since the start of the year. In the second half, revenues from Power Projects are expected to be higher than in the first half as new gas contracts in Mozambique and Côte d’Ivoire come on-line. It has also secured large orders for the new Heavy Fuel Oil (HFO) engine. Aggreko has been able to leverage its industry-leading technical expertise and its extensive gas-powered generation fleet to meet the rapidly growing power demand of Southern Africa. Its association with the Southern African Power Pool, which is one of the largest interconnected grids in the world, will enable it to closely collaborate with others member nations to supply reliable power as demand grows. The company is banking on its growing presence in emerging markets, where demand for electricity has fast outpaced supply, to drive growth in power business. We maintain our Buy rating on the stock.

Lekoil (LON:LEK)

Yesterday, Lekoil announced that it’s wholly owned subsidiary Lekoil 113 Nigeria Limited has acquired a 6.502% participating interest (around 16.3% cost interest and around 12.2% revenue interest) in Oil Mining Lease 113 (OML113) from Pan Petroleum Aje Limited (PPAL), a wholly owned subsidiary of Panoro Energy ASA. Lekoil has agreed to pay a sum of US$30m for the asset. The company is confident to pool-in the required capital to fund the deal. OML 113 is located offshore Nigeria in the Benin Embayment adjacent to the Oil Prospecting Lease 310 (OPL310) field where Mayfair Assets & Trusts Ltd, a subsidiary of Lekoil Nigeria, has a 30% economic interest. The Aje oil and gas field located in the OML113 area has an estimated unrisked contingent resources of 198.7 million barrels of oil equivalent (mmboe) consisting of gas, gas liquids and condensate. The net unrisked 2C contingent resources in OML113 attributable to Lekoil Nigeria, is around 25.3 mmboe. The transfer of participating interest from PPAL to Lekoil 113 requires Lekoil to deliver a bid bond of US$3m. Lekoil has already secured the bid bond and in few days, it will be issuing the same to Panoro Energy.

Our view: The acquisition of an interest in OML 113 in the Aje field, adjacent to Lekoil’s existing interest in OPL310, is in line with the company’s strategy to focus on assets in corridors of interest that have been identified in Lekoil’s detailed evaluation programme. The Aje field in the OML 113 area is estimated to have contingent reservoirs to the tune of 200 mmboe, of which, Lekoil will have economic interest in 25.3 mmboe. Also, since OML 113 is located adjacent to its existing interest in OPL310, the company would have a better estimation of its possible output levels in future. The acquisition would help the company to accelerate its production levels in the near future. The other OML113 licence interest holders include Yinka Folawiyo Petroleum (Operator), Vitol Exploration Nigeria, and Chevron. Lekoil expects significant partner optimisation benefits to arise from the new ownership structure of OML113. Given these positives and the fact that Lekoil is well placed to fund the deal, we are optimistic in the company’s ability to boost production levels in the future. We assign a Speculative Buy to this stock.

Whitbread (LON:WTB)

Yesterday, Whitbread reported its trading performance for the 13 weeks ended 30th May 2013. Total sales increased 13.8% while like-for-like (LFL) sales grew 3.1% over the previous year. Sales at the coffee chain, Costa, soared 24.8% aided by the cold weather, while LFL sales grew 8%. Costa’s total system sales were up 23.1% to £281.8m with total franchise system sales rising 21.6% to £111.8m. Costa plans to open around 300 net new stores and has raised its target to 750 Costa Express units for the full year. The Restaurants business struggled initially as sales declined due to the cold weather, but recovered in last few weeks, rising by 2.5% LFL basis. The hotel chain, Premium Inn, saw total sales grow 12.7% as total room nights sold increased by 10.9% to 3.7 million. Total revenue per available room (revpar) for UK and Ireland region rose 1.7% to £42.6. The hotel chain achieved LFL growth of 2.7%. The combined sales from hotels and restaurants increased 8.8% and 1.7% on an LFL basis. In London, the number of rooms available rose by 20.6% resulting in sales growth of 19.9%. The stock was the top gainer on the FTSE 100, rising 3.6% yesterday.

Our view: Whitbread’s latest trading update has been positive with total revenues increasing 13.8% and 3.1% on LFL basis, thanks to higher sales of Costa division. Costa Coffee continues to gain popularity in the new Asian and Middle-east markets, driving organic growth for the company. Costa’s total growth rose substantially by 24.8% and even on LFL basis, it recorded strong growth of 8%. Premium Inn also delivered a good performance with revenue growth of 12.8%. Whitbread plans to open around 4,000 rooms and ten joint site restaurants in the current year. The company has expanded rapidly over the last few years on increasing demand for more affordable hotels since the economic downturn and a rising popularity across UK for coffee on the go. The company’s ability to generate strong cash flow from operations has helped funding future organic growth and building of powerful brands like Costa. Given the continued strong trading performance of the company across all its divisions, we are confident about its ability to carry forward the positive momentum. We remain Buyers of this stock.

Economic News


The UK consumer price index (CPI) edged up 0.2% m-o-m in May, the same increase as in April, and ahead of market expectations of a 0.1% rise, the Office for National Statistics (ONS) said yesterday. On a y-o-y basis, consumer inflation rose 2.7% in May from 2.4% in April, ahead of consensus forecast of a 2.6% rise. The largest upward contributions to inflation came from transport, notably air transport, which soared 21.3% y-o-y in May, following a 0.8% increase in April. Clothing and footwear prices saw an annual increase of 0.7% whereas fuel prices witnessed a smaller decline in May. Core inflation, which excludes energy, food and tobacco, rose 2.2% in May from 2% in April. The market expectations were 2.1%.

UK PPI output

The UK producer price index (PPI) output was flat in May, in line with market expectations, the Office for National Statistics said yesterday. The PPI output had edged down 0.1% in April. On a y-o-y basis, output prices rose 1.2% in May, following a revised 0.9% increase in the previous month. Markets had forecasted an increase of 1.4% in May.

Germany ZEW survey

The Centre for European Economic Research/ZEW reported that the Economic Sentiment Index in Germany surged to a three month high of 38.5 in June, exceeding the market expectations of a 38.1 reading, after a 36.4 reading in the preceding month. The Current Situation Index dropped by 0.3 points to 8.6 in June, below market expectations of a 9.5 reading.

US consumer price index

US consumer price index rose 0.1% m-o-m in May, following a 0.4% decrease in the previous month, the US Bureau of Labor Statistics stated yesterday. Economists had expected the index to rise 0.2%. Consumer prices excluding food and energy were up 0.2% in May from 0.1% in April, in line with the market expectations. The rise in core price index was led by a 0.2% increase in clothing prices and a 0.3% increase in shelter costs.

US housing starts

US housing starts rose 6.8% to a seasonally adjusted annual rate of 914,000 units in May, the Commerce department said yesterday. The April reading was revised upwards to 856,000 units from 853,000 units, reported previously. The final reading was lower than the analysts’ expectation of 950,000. Housing starts for single-families rose 0.3% to a 599,000 annual rate and for multi-families, it rose 21.6% to a 315,000 annual rate.

© Proactive Investors 2015