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Beaufort Securities Breakfast Today including Berkeley Group and Ophir Energy

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The Markets

Market opening: Markets could open lower today. FTSE 100 futures were trading 103.5 points down at 7:00 am.

New York: Wall street ended lower on Ben Bernanke’s comments that the Fed may start tapering its stimulus programme towards the end of 2013 if the economic condition continues to improve. The S&P 500 fell 1.4%.

Asia: Markets are trading sharply lower, dragged down by Chinese manufacturing data, which fell to its lowest level in nine months in June. The US Fed announcing possibility of a stimulus cut later this year accelerated the downtrend. The Nikkei declined 1.8%, while Hang Seng was trading 2.6% lower at 7:00 am.

Continental Europe: Equities closed in the red, as anticipation of the Fed’s likely announcement of a stimulus cut by the year-end weighed on investor sentiment. Germany’s DAX and France’s CAC 40 fell 0.4% and 0.6%, respectively.

UK small caps: The FTSE AIM All-Share index closed 0.1% higher yesterday

Today’s news

China’s manufacturing activity declines to nine-month low

The preliminary estimate China’s manufacturing HSBC Purchasing Manager’s Index (PMI) dropped to a nine-month low of 48.3 in June, below the final reading of 49.2 in May. New orders and new export orders contracted at a quicker pace during the month.

IMF urges Spain to act urgently

In its review report, the IMF urged Spain and Europe to take immediate action to boost growth and jobs, stating that Spain’s unemployment level is ‘unacceptably high’ and the outlook remains tough. The international lender stressed on the need to move faster towards a full banking union, which would allow Spanish firms to compete for funds on their own merits. Meanwhile, Spain’s trade deficit fell 51.1% y-o-y to €1.64bn in April, the Commerce Ministry said yesterday.

Company News

Ophir Energy (LON:OPHR)

Yesterday, Ophir Energy announced the spudding of Starfish-1, its first well in Offshore Accra PSC, Ghana. The well will be drilled by Stena DrillMax drillship, the company informed. The well is located in water depths of 1,500 metres (m) and has a target depth of 3,850m. As per Ophir’s estimates, the Starfish prospect has a mean prospective resource of 292 million barrels of oil equivalent (mmboe) with a 20% probability of success. Drilling at the well would be completed in around 40 days. Ophir Energy holds a 20% equity stake in Offshore Accra PSC.

Our view: Ophir announcing the commencement of drilling operations in Ghana is positive news for the company, enabling it to further expand its geographical footprint. In recent months, Ophir has successfully completed evaluation and testing programs across its Tanzanian assets The completion of Drill Stem Test (DST) at the Mzia-2 prospect was a significant milestone for the company, increasing the estimated recoverable resources from the Mzia field to 4.5 trillion cubic feet (tcf). Furthermore, the Jodari flow test has shown excellent reservoir deliverability potential of the younger Tertiary reservoirs in Tanzania, with the mean recoverable resource estimate increasing by 700 billion cubic feet (bcf) to 4.1 tcf. Furthermore, the additional seismic programmes acquired over the last one year are expected to start reaping positive results with the identification of significant new plays and prospects which could materialise once drilling commences later this year. Considering Ophir’s strong position in deep water acreage in the African region and high drilling success rates, we maintain our Buy rating on the stock.

Berkeley Group Holdings (LON:BKG)

Yesterday, Berkeley Group Holdings announced its preliminary results for the year ended 30th April 2013. Revenues rose 31.8% to £1.4bn, boosted by the sale of 3,712 new homes (2012: 3,565) at a significantly higher average selling price of £354,000 (2012: £280,000). Operating profit was up 27.3% to £280m. Profit before tax was at £270.7m, up 26% compared to £214.8m during the last year. Lower net financing costs and decrease in the effective tax rate from 26.4% to 22.5% also contributed to the improved profitability. Profit after tax jumped 32.6% to £209.7m for the year. The company undertook investments to the tune of £314.6m, acquiring 3,021 residential plots. Basic EPS soared 32.2% to 160p, while Net Asset Value per share was up 20.2% to 1,009.1p. Berkeley has assets comprising 25,684 plots in the land bank, a small dip from 26,021 plots in the last year. The average selling price in the land bank also rose to £378,000 from £345,000 on 30th April 2012. The Board announced the payment of an interim dividend of 59p, payable in September 2013. Berkeley is on track to achieve its long-term strategic plan of returning £1.7bn to shareholders by meeting three milestone payments of £568m in 2015, and £567m in 2018 and 2021.

Our view: Berkeley delivered another resilient performance for the full year recording significant increase in revenues as well as profits. The strong profitability could be attributed to company constructing houses on land purchased at huge discounts during the economic downturn. The healthy housing momentum seen in London and South England, where Berkeley has a solid exposure, augurs well for the company. The ‘Help to Buy’ scheme has also imparted a strong impetus to housing sales and present market conditions, in terms of consumer demand and mortgage supply, has been encouraging. The siginificant reduction in net debt level reflects the company’s focus on operational improvement. The company is on a rapid expansion path, having committed £315m last year to acquire ten new sites and currently has 73 of its 87 sites now under construction. This in turn underpins Berkeley’s ability to boost future earnings. Taking into account these positive factors, we believe the stock has room for a further meaningful appreciation. Thus, we remain Buyers of the stock.

Economic News

US MBA mortgage applications

US Mortgage applications dipped 3.3% in the week ended 14th June, after rising 5% in the preceding week, the Mortgage Bankers Association said yesterday. The number of refinancing applications fell 3.4% for the week, while its share in the total mortgage activitiy remained unchanged at 69%. The seasonally adjusted index for loan requests was down 3%.

US FOMC rate decision

The US Federal Reserve Open Market Committee maintained the pace of its US$85bn monthly bond purchasing programme and held the benchmark interest rate at effectively zero. The Fed said it would wait for a more significant decline in unemployment before tapering its asset purchase programme. Late last year, the Fed policymakers had committed to maintaining its monetary policy support until unemployment falls below 6.5%. Fed officials do not expect to reach that mark until sometime in 2014 at the earliest.


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