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Beaufort Securities Breakfast Today including Corac Group, Petra Diamonds and Unite Group

Last updated: 10:28 08 Oct 2013 BST, First published: 09:28 08 Oct 2013 BST

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The Markets

Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 13 points down at 7:00 am.

New York: Wall Street ended in the red as US investors grew increasingly worried over a potential government default in the absence of a rise in the debt ceiling. The S&P 500 dropped 0.9%, mainly on a decline in consumer discretionary and financial sectors.

Asia: Markets are trading volatile as the ongoing concerns in the US continue to unnerve investors, though strong economic data from China provides support. The Nikkei 225 closed 0.3% higher and the Hang Seng was trading 1% up at 7:00 am.

Continental Europe: Equities slumped on light trading amid aggravating default concerns in the US. Air France KLM fell 1.18% on weak earnings data. France’s CAC 40 remained broadly flat, while Germany’s DAX edged down 0.4%.

UK small caps: Yesterday the FTSE AIM All-Share index closed 1.05 points (-0.13%) lower at 781.70. 

Today’s news

UK house price index grows at highest rate in 11 years

The Royal Institute of Chartered Surveyors reported that the house price index in the UK climbed to +54 in September, up from a revised +41 in August, surpassing market estimate of a reading of +45.

China’s service sector grows in September

According to the HSBC/Markit, service purchasing manager’s PMI in China stood at 52.4 in September. The reading indicates a slower rate of expansion from the previous month’s 52.8. The composite PMI also recorded a modest reading of 51.2, lower than 51.8 in August.

Japan’s current account in surplus for seventh straight month

As per the data released by the Ministry of Finance, Japan’s current account displayed a surplus of ¥161.5bn in August versus ¥577.3bn in July. The reading is well below the market forecast of ¥520bn and was down 63.7% on y-o-y basis.

Company News

Corac Group (LON:CRA)

Corac Group announced the amendment of agreement between its subsidiary Corac Energy Technologies (CET) and Aramco Overseas Company for revision in the scope of work in development of an In-pipe Gas Compressor (IGC). The amendment has resulted in an upward revision in the contract value to more than £1m, while enabling CET to support the design, development, build and test stages of the system. The amendment follows joint reviews with the Aramco team of the available wells and the technical options for providing compact compression at the wellhead. The company plans to design the system to satisfy a range of well conditions with several hundred candidate wells. Detailed design and build of the revised system would start immediately with field testing expected in early 2015.

Our view: The amendment in the deal between CET and Aramco has expanded the opportunity horizon for Corac Group, by involving the company in the key stages through to the final system offering. An upward revision in the contract value has enhanced the underlying potential of the deal. Given the flexibility of the upcoming system, it is likely to enjoy good demand in the industrial spheres. With the addition of several global industrials to Corac’s clientele, a growing presence across multiple geographies and an existing strong order book, the future outlook of the company looks quite bright. We retain our Speculative Buy for the stock.

Petra Diamonds (LON:PDL)

Yesterday, Petra Diamonds reported production of 816,735 carats for the three months to 30th September 2013 amid recent industrial action at some of the group’s South African mines, which concluded on 16th September, 2013. After these quarterly results, the company has kept its full year guidance unchanged at 3 million carats. Further production and sales details for Q1 2014 would be covered in the interim management statement due for release next month.

Our view: Petra Diamonds has successfully tackled the industrial actions in its South African mines, to deliver a resilient performance during the quarter. As a result, the production guidance for the full year has been kept unchanged at 3 million carats. Though this piece of news is favourable for the company, it offers no additional value for the shareholders as the production outlook for the current year is maintained at the same level from what was stated in the preliminary results for Q1 2014 released earlier. Therefore, despite the revenue and profit generating potential of the company, we would wait for further clues to ascertain meaningful addition to the share price. Currently, we would recommend a Hold rating for the stock.

Unite Group (LON:UTG)

The Unite Group reported the estimated Net Asset Value (NAV) of the UNITE UK Student Accommodation Fund. As on 30th September, the NAV stood at £713.3m (£0.952 per unit) versus £705.7m (£0.944 per unit) on 30th June 2013, marking a 1.1% increase over the period. Property portfolio, comprising of 21,673 beds in 59 properties across multiple cities in the UK, was valued at £1,340m. Property values have gone up 1% since 30th June 2013 as a result of rental growth and accelerating asset management activity, while from year-to-date (YTD) basis, it has risen 2.1% on a like-for-like (LFL) basis. Valuation yields were maintained at 6.67%. The lettings cycle for academic year 2013-14 is mostly complete, with an occupancy rate of 98%. Recovery of £1.5m of the £30m deposit from Landsbanki added 0.2% to the NAV, while the WiFi installation costs contributed a -0.3%.

Our view: Unite Group is nicely consolidating its position as a prime developer and provider of student accommodation in the UK. The group reported a 1.1% rise in the NAV, with a major contribution from the property value increases. The recent issue of convertible bonds valuing £89.9m has provided the company an economic source of funding, while pushing forward its regional development programme. With an attractive pricing strategy, sound location choices and sufficient financial backing, Unite Group is well set to venture into further growth and revenue opportunities going forward. We remain Buyers of the stock.

Economic News

US consumer credit

As per the data released by the Federal Reserve yesterday, US consumer credit rose by US$13.63bn to US$3.04trln in August. This reading has outperformed the market expectations of an increase of US$12.0bn. Previous month’s consumer credit growth was revised slightly downwards to US$10.40bn from US$10.44bn.

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