Market opening: The FTSE-100 is expected to open around 15-points lower this morning.
New York: Wall Street extended losses for the second consecutive day amid disappointing corporate earnings reported yesterday. Furthermore, weakness in the healthcare sector due to allegations against a top drug company hurt investor sentiment. The S&P 500 slipped 0.6%, with the energy sector losing the most.
Asia: Equities are trading lower, taking negative cues from the Wall Street. Additionally, a downslide in commodity prices dented investor confidence. The Nikkei 225 shed 0.6%, while the Hang Seng was trading 0.9% down at 7:00 am.
Continental Europe: Markets ended in the green amid mixed quarterly earnings released yesterday. Investors await a key meeting of the European Central Bank to be held today. Germany’s DAX and France’s CAC 40 rose 0.9% and 0.5%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices decreased 1.8% and 0.8%, respectively. The spread between the two varieties stood at US$2.7 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.02% lower yesterday at 744.88.
UK public finances improve in September
As per data from the Office for National Statistics, UK’s public borrowing fell to £9.4bn in September 2015 from £11bn in September 2014, below economists’ expectations of £10.1bn. For the six months between April and September, public sector net borrowing stood at £46.3bn, 13.6% lower than a year ago. The decrease in borrowing was mainly due to an increase in tax receipts.
Metminco Limited, the diversified mineral exploration and development company with projects in Peru and Chile, announced yesterday that following the release of the Los Calatos Strategic Mining Study on 21 September 2015, a number of parties have entered into a process with a view to forming an alliance to help develop Metminco’s wholly-owned Los Calatos project in Peru. The interested parties have been granted access to a data room relating to the project and Metminco has established a timetable for the conduct of due diligence, site visits and submission of proposals. To assist in the process Metminco has appointed the LinQ Group, an experienced advisor in the mining and resources sector having advised companies across multiple jurisdictions and commodities in sourcing capital and structuring equity, debt and hybrid structured instruments. The LinQ Group will assist Metminco in the process to identify and evaluate the most suitable partner as well as evaluating financing options to advance the Company’s strategy.
Our view: We are encouraged with the level of interest from third parties in the Los Calatos project. Given the project’s low cash cost estimate (C1 costs) of US$1.29/lb net of by-products and its estimated life of mine of 22 years we expect a wide spectrum of strategic partners to be interested with the view to help develop the economic potential of the project. We look forward to the outcome of the Strategic Mining Study. In the meantime, we place a Speculative Buy rating on the stock.
Ortac Resources, the exploration and mine development company, announced yesterday that it has raised gross proceeds of £0.4m through a placing of 800M new ordinary shares at a price of 0.05p per share. The funds will be used to further develop its existing portfolio of mineral projects and for general working capital purposes. Application has been made for the shares to be admitted to trading on AIM, which is expected on or around 26 October 2015 and will rank pari passu with existing issued ordinary shares of Ortac. Following admission the Company will have 4,332,211,373 ordinary shares of no par value in issue, each share carrying the right to one vote. The Company does not hold any ordinary shares of the Company in treasury.
Our view: Ortac is providing technical support as Zamsort continues to progress the Kalaba project, a copper and cobalt deposit in Zambia. We are encouraged with the development as Zamsort moves the project towards production with the commencement of the procurement process for the construction of the process plant at Kalaba. We look forward to updates on the potential plant design as well as continued exploration results within the highly prospective Zambian Copper Belt. In the meantime, we maintain a Speculative Buy on the stock. Beaufort Securities acts as a joint corporate broker to Ortac Resources plc.
Yesterday, Asiamet Resources (Asiamet) released an update on the mineral resource estimate for the Beruang Kanan Main (BKM) deposit in the company’s fully owned KSK Contract of Work in Kalimantan, Indonesia. A total of 231Mlbs (105,000 tonnes) of contained copper has been added as indicated resources, while 35Mlbs (18,000 tonnes) of contained copper has been added as inferred resources. As per the latest evaluations, BKM has indicated resources of 15 million tonnes at 0.7% Cu containing 231MIbs (105,000 tonnes) of copper at a 0.2% copper cut-off grade. While, inferred resources amount to 49.7 million tonnes at 0.6% Cu containing 657MIbs pounds (298,000 tonnes) of copper at a 0.2% copper cut-off grade. The company has also identified two distinct near surface higher grade zones. The work on the resource estimation was independently done by Duncan Hackman of Hackman & Associates Pty Ltd.
Our view: Asiamet’s sustained focus on BKM has started yielding positive results as it reports encouraging indicated and inferred resource estimate. The company has seen sharp improvement in the mineral resource inventory and has also identified discrete zones of high grade mineralization. Asiamet has completed the task in time and within the budget. The huge inventory of mineral resource provides the company an opportunity to enhance plant output and improve mine life. Furthermore, Asiamet has identified targets for copper mineralization at Beruang Kanan South (BKS), Beruang Kanan West (BKW) and BKZ Polymetallic prospects. The company has started assessment in these targets using surface exploration and scout drilling. Going forward, Asiamet plans to complete the preliminary economic assessment (PEA) at BKM. We believe the company could report strong results for the year 2015, backed by its solid asset base and ongoing efforts to enhance its resource potential. Therefore, we maintain a Speculative Buy rating on the stock.
Our view: The aforementioned update is remarkable for Merlin as it offers additional growth opportunities in China. This JV would help Merlin to speed up its expansion plans in this key market. Additionally, CMC one of the leading entertainment firms in China, would facilitate Merlin with the knowledge and understanding of local market needs and demands. Currently, the company has five attractions in China and expects to open three new attractions in the next 18 months. Furthermore, as per the recently released trading update, the company reported improved revenues owing to strong performances from LEGOLAND Parks and Midway Attractions Group. Going forward, Merlin aims to expand its global presence by opening attractions and Parks in the US, Italy and Dubai. Overall, Merlin seems to have a long-term growth potential owing to its expanding market penetration and rising number of visitors. Therefore, we maintain a Buy rating on the stock.
Yesterday, Pearson released an interim management statement for the first nine months of 2015. Sales for the first nine months were 2% up in headline terms and 2% down if reported in constant exchange rate (CER). For Q3 2015, sales fell 2% in headline terms and 5% at CER. During this period, the company initiated sale of a lot of its assets. On 17th June, Pearson announced the sale of PowerSchool for US$350m, on 23rd July 2015 the sale of FT Group (FTG) for £844m and on 12th August 2015, sale of its 50% stake in The Economist Group (TEG) for £469m. The company has narrowed its earnings per share guidance for 2015 to be in the range of 70-75p from the previously guided 75-80p.Net debt at the end of period stood at £2.1bn (September 2014: £2.0bn).
Our view: The first nine months of 2015 have been difficult for Pearson mainly due to the unfavourable exchange movements and challenging market conditions. Cyclical nature of the business and policy related issues weighed heavily on the company’s performance during this period. However, Pearson remained focused on its long-term strategy to move towards digital services having advanced technologies to cater to the rising demand in this segment. In view of the same, the company undertook a lot of initiatives including disposal of FT Group, The Economist Group and PowerSchool. In addition, it expects to invest in courseware, developing new products and building a single infrastructure to manage the resources and content. We believe Pearson has huge potential to enhance presence in online enhanced services by expanding product portfolio for a wider range of age groups. Furthermore, any favourable changes in curriculum might improve the UK and US college enrolments, thereby positively impacting the company’s performance. In light of the above argument, we retain a Buy rating on the stock.
Yesterday, ARM Holdings declared its unaudited results for the third quarter and nine months ended 30th September 2015. Revenues advanced 24% y-o-y to £243.1m in Q3 2015, while revenues for the first nine months stood at £699.1m, 23% higher than the same period last year. Pre-tax profit improved 30% to £102.9m in Q3 2015, resulting in an EPS of 6.06p against 4.57p in Q3 2014. Net cash at the end of period stood at £898.2m (31st December 2014: £861.7m). On the operational front, the company signed 38 processor licences for a variety of applications. In July, ARM Holdings acquired Sansa Security, which is a provider of hardware security IP and software for advanced system-on-chip components. The company registered a 20% y-o-y growth in ARM-based chips shipped to 3.6 billion.
Our view: ARM Holdings delivered solid performance in the first nine months of 2015 with enhanced revenues and margins. The improvement was led by royalty revenue growth, driven by premium chip pricing and higher royalty percentages from its ARMv8-A based chips. The company continued to deploy ARM technology in a wide range of products including sensors, servers, smart meters and smartphones. Furthermore, the company enjoys a healthy balance sheet with solid asset base and improved cash position. We expect the royalty revenue to grow faster capitalizing on the recently signed new licenses and the rise in royalty per chip in mobile devices. ARM Holdings is likely to meet its full year revenues guidance if the macroeconomic changes do not hold back consumer spending. Therefore, we continue to recommend a Buy rating on the stock.