The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 5-points lower.
New York: Wall Street ended marginally higher in a quiet trading session yesterday. Investors digested positive corporate updates and rally in oil prices. The S&P 500 edged 0.1% up, with the telecommunications sector gaining the most.
Asia: Equities are trading mixed, as investors remain concerned over the volatility in oil and commodity prices. The Nikkei 225 gained 1.9%, as a weaker yen buoyed export-driven stocks. The Hang Seng was trading 0.1% lower at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended lower, fluctuating between gains and losses. Volatility in oil and commodity prices exerted pressure on basic resource stocks. Germany’s DAX ended broadly flat, while France’s CAC 40 shed 0.8%.
Crude Oil: Yesterday, WTI and Brent oil prices increased 1.2% and 0.8%, respectively. The spread between the two varieties stood at US$1.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.08% lower yesterday at 706.05.
Today's news
UK manufacturing output slips to its lowest since 2009. As per the Confederation of British Industry, UK’s manufacturing output fell to -15 in the three months to March, from 0 in February, marking the largest decline since 2009 in the three months to March. The drop was due to volatility in the food and drink sector. The total monthly order book balance improved marginally to -14, and export orders were unchanged at -19.
Company News
SerVision (LON:SEV, 2.25p) - Speculative Buy
Yesterday, SerVision provided an update on its operations in the UK. The company entered into a partnership with Maple Fleet Services, a solution-led company that designs, manufactures and installs safety and security applications for the logistics industry. SerVision would initially supply 85 systems, including training and support over an initial two-year period. The first order is worth £73,814, and the company would receive an additional £5.20 per month per vehicle over the term of the contract. SerVision also entered into an agreement with Stobart Rail, one of the UK’s top rail infrastructure and engineering businesses, to supply its MVG200 video systems to Stobart Rail’s extensive road rail fleet of vehicles. Initially, the company would supply and install 50 systems. In addition, the contract includes recurring data billing of £7.50 per month per vehicle; SerVision has received a purchase order of £20,000 for the initial phase of the contract. Furthermore, the company received an order from Manchester Airport after eight months of pilot testing. As per the deal, the company would install systems into 12 of the airport’s airfield operational vehicles, with SerVision receiving a purchase order worth £21,900. The company signed a new contract with Up Front Car Holdings Limited to supply its MVG200 system for accident incident notification reports for insurance purposes. Meanwhile, Rotherham Metropolitan Borough Council appointed SerVision UK as an official approved supplier to supply and install its MVG200 and MVG400 systems in the city’s licenced taxis. Moreover, the company partnered with Verilocation, a vehicle tracking and telematics company, to integrate its video systems into the systems of Verilocation’s existing and new client base. Thus far, SerVision received an order of £19,980 for hardware. The company is progressing well in its relationship with DHL, as it has completed half of the initial installation of 101 vehicles in the UK and invoiced £116,000 for the work until date. SerVision informed its partnership with Matrix Telematics has witnessed regular ongoing hardware sales, totalling £27,865 so far.
Our view: The aforementioned update is encouraging for SerVision. The company has performed well across operations in the UK, as it entered into partnerships and contracts across the market from lease hire to rail and traditional logistic fleets. Most deals are long-term contracts, which would ensure recurring revenue for SerVision. The company initiated a number of new deals, including the agreements with Maple Fleet Services, Manchester Airport, UP Front Car Holdings and Verilocation. This clearly reflects the acceptance and demand for SerVision’s services in the market. Additionally, the company has strengthened its relationship with DHL, as the latter placed new orders for its high security specification systems to install in other divisions due to the success of the initial project. We believe SerVision is well placed with some attractive contracts to enhance its market position. We look forward to further developments from the company and maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to SerVision plc
Caledonia Mining Corporation (LON:CMCL, 48.50p) - Speculative Buy
Yesterday, Caledonia Mining released its operational and financial results for Q4 2015 and FY 2015. Gold production for the year was 2.5% higher than 2014 and 2% higher than management's target at 42,804oz. On-mine cash costs increased 7.5% to US$701/oz from US$652/oz during 2015 due to lower average grade, whereas all-in sustaining costs (AISC) increased 7.1% to US$1,038/oz over the same period due to higher sustaining capital investment. The average realised gold price was 8.5% lower than 2014 and consequently, the gross profit fell to US$13.2m from US$18.5m during 2015 despite higher production. Adjusted earnings per share for the year were down 22% to USc8.1 per share compared with 2014. Payments to the community and Zimbabwe government for the year declined to US$7.4m from US$12.4m due to the reduced royalty rate and the lower income tax payable on reduced profits and increased capital investment. As at 31 December 2015 Caledonia's cash balance was US$10.9m compared with US$23.1m in 2014.
Our view: 2015 was a pivotal year for Caledonia as the company continues to implement its Revised Investment Plan (announced Nov 2014) with nearly US$17m investment at the Blanket mine for the period. As a result, gold production is estimated at 50,000oz for 2016 and 65,000oz in 2017. Despite the lower realised price y-o-y we are encouraged with revised mine plan to date and the AISC of US$1,038/oz which we expect to be lower in 2016 on the back of higher production ounces. As a result, we maintain a Speculative Buy rating on the stock.
Angle (LON:AGL, 78.50p) - Speculative Buy
ANGLE plc yesterday announced that the results of Barts Cancer Institute's ongoing work with ANGLE's Parsortix system had provided evidence in support of the use of Parsortix in the detection and assessment of prostate cancer. Barts patient data suggests that the Parsortix system may be used both to detect prostate cancer and to assess its aggressiveness, all through a simple blood test. This is crucial because it means that men with low level disease could avoid unnecessary and potentially harmful solid biopsy and surgical intervention instead having ‘active surveillance’, whereas men with an aggressive form of disease could be fast-tracked for further investigation and treatment. The current gold standard for detection is the prostate-specific antigen (‘PSA’) blood test, which is known to have low sensitivity and low specificity (i.e. high levels of false positives) and the digital rectal exam (DRE - which is less effective than the PSA test). Where the PSA level is high or the DRE indicates an enlarged prostate, a solid prostate biopsy will be undertaken to detect cancer and assess the aggressiveness of the disease. This process results in many men having invasive biopsies unnecessarily. Barts Cancer Institute (BCI), Queen Mary University of London presented a poster on 19 March 2016 at the 10th ISMRC International Symposium on Minimal Residual Cancer: Liquid Biopsy in Cancer Diagnostics and Treatment in Hamburg.
Our view: Barts results are highly encouraging for the use of the Parsortix system for a clinical application in prostate cancer. They open the potential of another highly differentiated liquid biopsy application for it in a key area of medical need, which cannot be addressed by ctDNA or antibody-based CTC systems, where there is the potential to improve patient care and at the same time reduce healthcare costs. The exciting part of this research is the new opportunity to be used for assessment of disease severity as well as detection. ANGLE now intends to work with BCI and other leading cancer centres to develop and implement clinical studies to validate the use of the Parsortix system as a clinical application in the routine detection, assessment and treatment of prostate cancer patients. The multi-centre clinical studies need to be specified, but might be expected to take at least 18 months to complete. As a product-based solution, Parsortix’s potential addressable market in the US alone, which has already been estimated to be as large as US$14 billion by 2025, now appears to have potential to create even further medical application. Importantly, its technology is both unique and highly protected. Beaufort accordingly retains its Speculative Buy recommendation on the shares in anticipation of the medtech world increasing recognising the value Angle has created.
Hutchison China Meditech (LON:HCM, 1,905.0p) - Buy
The Company has announced that Hutchison Chi MediPharma Limited (HMP), its drug R&D subsidiary, has initiated SANET-p, a Phase III registration trial of sulfatinib (HMPL-012) in China in patients with pancreatic neuroendocrine tumors (NETs). The first patient was dosed on March 18, 2016. The protocol for SANET-p is similar to SANET-ep, a Phase III registration trial in patients with extra-pancreatic NETs. SANET-p is a randomized, double-blind, placebo-controlled, multi-center Phase III sulfatinib registration study to treat patients with low or intermediate grade advanced NET whose disease has progressed, locally advanced or distant metastasized and for whom there is no effective therapy. Patients are randomized at a 2:1 ratio to receive either 300 milligrams of sulfatinib orally once per day, or placebo, on an every 28-day treatment cycle. The primary objective of this study is to evaluate the progression-free survival of sulfatinib as compared to that of placebo, with secondary endpoints including objective response rate (ORR), disease control rate, time to response, duration of response, overall survival, safety and tolerability. Approximately 195 patients are expected to be enrolled in the SANET-p study from more than 20 centers across China, with top-line results expected in 2018. HMP believes that sulfatinib's VEGFR/FGFR1 inhibition profile has strong potential in second-line thyroid cancer patients, particularly in China where there are few safe and effective treatment options for this patient population. Including this trial, HMP is conducting five Phase II and Phase III clinical trials of sulfatinib in China and the U.S.
Our view: As a reminder, in 2014, HMP completed the first-in-human Phase I clinical trial of sulfatinib in China; the detailed results were presented in early November 2015. The Phase I clinical data indicated that sulfatinib has a superior ORR in NET patients. An ORR of 44% was observed for sulfatinib in 18 evaluable patients, compared to less than 10% for sunitinib and everolimus, the two approved targeted therapies for pancreatic NET patients. Further, in October 2014, HMP initiated a multi-center, single-arm, open-label Phase Ib/II study in broad spectrum NET patients (pancreatic, gastrointestinal, liver, lymph and lung, among others) in China to further evaluate the efficacy, safety, tolerability, and pharmacokinetic characteristics of sulfatinib. This study completed enrolment of 81 patients in December 2015. HMP expects to report top line results of this study during the course of 2016. A Phase I study in Caucasian patients also began in November 2015 in the U.S. Once HMP has established the Phase II dose among Caucasian patients in this U.S. Phase I study, HMP expects to start a U.S. Phase II study in broad-spectrum NET patients in the second half of 2016. In addition to these NET studies, in March 2016 HMP initiated a Phase II study in China to evaluate the safety, pharmacokinetics and efficacy of sulfatinib in patients with both medullary and differentiated thyroid cancer. We continue regard Hutchison Chi-Med as a core holding and await results of various studies mentioned above in 2016 and beyond. We reiterate BUY.
Inspired Energy (LON:INSE, 13.75p) - Speculative Buy
Final results, although broadly in line with earlier guidance, disguise an underlying confidence evidenced by continuing the 2015 growth into Q1 2016. A whopping dividend increase of 40%, the stock now yields an historic 3%. Revenue grew 40%, cash generation improved 56% to £2.72m and the procurement corporate order book is up 75% to £24.5m. Without acquisitions, this order book rose 25% to £17.5m.
Our view: In 2015 Inspired Energy recorded its fifth consecutive year of record revenues and profits with revenue increasing by 40% and adjusted EBITDA by 25%. The Corporate division continues to gain traction; both through organic growth and the added services the Company’s strategic acquisitions have delivered. The Company’s strong organic growth has been enhanced by the successful completion of the acquisitions of WPUK and STC, which are both integrating extremely well in a relatively short period of time and have proved earnings enhancing. Inspired Energy has increased the breadth of its target customer base, whilst broadening their sector specialism to now include Leisure, Logistics and the Public Sector. Importantly, momentum from 2015 has carried through to the first quarter of this year, with the Procurement Corporate Order Book growing to £25.5 million. The Company are seeing the trend for growth in the year continuing on a positive trajectory. The Company’s high client retention rates maintained with renewals across the Group at 85%. We retain our Speculative BUY stance and continue to believe Inspired Energy is excellent value.
Quadrise Fuels International (LON:QFI, 12.50p) - Speculative Buy
Yesterday, Quadrise Fuels International (Quadrise) declared its unaudited interim results for the half year ended 31st December 2015. During the period, the company’s operating loss widened to £2.37m from £2.25m in H1 2015, primarily due to increased R&D expenses and engagement of additional management resources to support the projects. Consequently, pre-tax loss fell to £2.35m from £2.22m in H1 2015, leading to a loss per share of 0.29p vis-à-vis 0.27p in H1 2015. Cash reserves at the end of period stood at £6.50m compared with £9.81m as on 31st December 2014. On the operational front, the company executed contracts with Maersk Line A/S and Compañia Española De Petróleos S.A.U. (CESPA) to proceed with the Letter of No Objection (LONO) programme in 2016 using Marine MSAR. The programme would start when Marine MSAR supplies are available for loading at Algeciras, and would continue for up to 10 months to provide about 4,000 hours of engine operating data. Quadrise’s project with a client in Saudi Arabia, which would witness a pilot plant produce MSAR fuel and then use it on a trial basis in a 400-megawatt generation unit, is expected to begin trials in the autumn of 2016 and be completed by spring 2017. Quadrise Research Facility, a global service base in the UK, was further expanded with facilities to support the extended scope of operations, logistics and product development services. The company’s board appointed Mike Kirk, who joined Quadrise’s board as a non-executive director in December 2015, to succeed Ian Williams as Executive Chairman from 1st April 2016.
Our view: Quadrise performed modestly in the first half of FY2016. The company is an emerging supplier of MSAR, which is a low-cost alternative to fuel oil in the shipping, refining and power generation markets. MSAR provides potentially significant economic and environmental advantages for end users over conventional heavy fuel oil. In this regard, Quadrise’s LONO programme is progressing as per schedule, as the company signed contracts to proceed with the programme in 2016 using Marine MSAR. The production would occur at the CEPSA San Roque refinery, and MSAR would be supplied through the Algeciras bunkering port. Moreover, the commercial-scale MSAR manufacturing unit (MMU) and associated equipment to be supplied by Quadrise were fabricated and shipped to the refinery in March 2016. The company has made good progress with another project in Saudi Arabia and expects to complete it by 2017. Quadrise has undertaken initiatives such as the enhancement of support resources and expansion of specialist management capacity in view of the anticipated transition to multi-site, multi-client and geographically diverse operations. Furthermore, the company remains fully funded to carry out its operations, as it expects to generate revenue in 2017. In light of the above developments, we maintain a Speculative Buy rating on the stock.