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Beaufort Securities Breakfast Alert including Armadale Capital and Shoe Zone

Published: 07:48 15 Jan 2015 GMT

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The Markets

Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 150.5 points down at 7:00 am.

New York: Wall Street fell sharply following the World Bank’s decision to cut its global growth projections for 2015 and 2016. Weak US retail sales data also weighed on the sentiment. The S&P 500 lost 0.6%, primarily dragged down by the financial sector.

Asia: Equities are trading higher after a rebound in energy prices, largely ignoring the disappointing machinery orders data in Japan and US retail sales data. The Nikkei added 1.9% at close, whereas the Hang Seng was trading 0.7% higher at 7:00 am.

Continental Europe: Markets ended significantly lower on volatility in oil and copper prices. In addition, the World Bank’s lower global economic growth forecast affected investor sentiment. France’s CAC 40 and Germany’s DAX dropped 1.6% and 1.3%, respectively.

Crude Oil: Yesterday, WTI and Brent Crude Oil prices increased 5.6% and 4.5%, respectively. The spread between the two varieties stood at US$0.2 per barrel.

UK small caps: The FTSE AIM All-Share index closed 0.69% lower yesterday at 697.40.

Today’s news

UK house price growth eases in December

The Royal Institution of Chartered Surveyors stated the monthly house price balance fell to +11 in December from +13 in November. The agency ascribed the slowdown to tighter lending rules, taxation and the upcoming national election.

UK service firms record high profit rate

According to the Office for National Statistics, British service companies reported a profit rate of 16.8% in Q3 2014, a record high, compared to 14.9% in Q2 2014. However the profitability of oil & gas firms declined to 13.9% from 17.2% in Q2 2014.

Trainline.com Share Offer

Trainline Investments Holdings Limited has announced its intention to proceed with an initial public offering of the Shares of Trainline plc on the London Stock Exchange and Beaufort has been appointed as an intermediary for private investors. The company has not announced when the Share Offer will open, but the Offer Period is likely to be short and investors may need to act fast.

Company News

Armadale Capital (LON:ACP) – Speculative Buy

Armadale Capital provided an update on the Mkopoto Gold Project in the Katanga province of the Democratic Republic of Congo. The company also outlined the development and commercial plans for 2015 and 2016. The drilling programme has been finalized and the Definitive Feasibility Study, conducted by Bara Consulting and CSA Global, is expected to be published in Q1 2015. The company aims to attain an all-in sustaining cost of less than US$700 per ounce (oz) of gold (Au). The metallurgical test work is expected to further improve the low-cost gravity separation process. Subject to financing approvals, the project construction would commence by H2 2015. The project’s NPV is calculated to be US$55.3m at a discount rate of 8% and a gold price of US$1,250 per oz of Au.

Our view: The acquisition of the Mkopoto Gold project in November 2013 has proved to be one of the best decisions taken by Armadale Capital. The project has shown a spectacular resource upgrade of 78% to 678,000 oz Au, while maintaining its cost efficiency. The rapid advancement to the production stage has ensured that the company is all set to explore the potential of this wonderful asset. Recent award of the mining licences also bode well for the company. With better understanding of the metallurgy of the project, we believe the company is well positioned to recover gold from the shallower oxide ore and create value for the shareholders in the near term. In view of the above positives and diversified projects including the KwaZulu Natal coal operations and Witwatersrand acid drainage projects, we reiterate a Speculative Buy rating on the stock.

Shoe Zone (LON:SHOE) – Hold

Shoe Zone announced its maiden preliminary results for the 52 weeks ended on 4th October 2014. Revenues declined by 10.8% to £172.9m due to planned closures of some of the Grade 3 stores. However, gross profit improved to £28.6m from £27.4m in 2014 and pre-tax profit more than doubled to £11.4m from £5.1m. Earnings per share were computed to be 16.08p compared to 6.91p a year ago. On the operational front, the company improved the product range and launched 15 factory outlets. Online presence was enhanced through tie-ups with Amazon and eBay to acquire new customers. The company also appointed Mr Ian Filby and Mr Charlie Caminada to the Board. Post period; six new stores were opened to take the total number of stores to 545. The company expects its performance to remain in line with market expectations in 2015. The company proposed a maiden dividend of 3.6p per share

Our view: Shoe Zone’s results paint a mixed picture about the company’s business prospects going forward. The company did report a significant improvement in the bottom line due to the shutdown of smaller Grade 3 stores, which were either bleeding or generating lower profits. However, the closures impacted the top line, which fell 11% y-o-y. The strategy to reorganise the product range and expand into online selling mode paid off, helping the company achieve 26% growth in the online medium. However, we feel that the company’s shares have run their course; up 40% versus a 6.3% decline for the FTSE100. Given the above, we change the rating to a Hold for now.

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