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Sunrise Resources, Bovis Homes Group

Sunrise Resources, Bovis Homes Group

Markets
Europe

The FTSE-100 finished yesterday's session 0.36% higher at 6,941.19, whilst the FTSE AIM All-Share index closed 0.61% higher at 784.66. In continental Europe, markets ended mixed on weak economic data from Japan, which overshadowed the improvement in oil prices. Germany's DAX gained 0.2%, driven by gains in auto stocks. France's CAC 40 ended 0.1% lower.
Wall Street
Wall Street ended in the green as a rally in oil prices led to gains in energy stocks. Additionally, positive corporate earnings releases boosted investor sentiment. The S&P 500 closed 0.3% higher in yesterday's trading session.
Asia
Equities are trading lower as investors remain concerned over the health of the global economy. The Nikkei 225 fell 1.6% as a strong yen exerted pressure on export-driven stocks. The Hang Seng was trading broadly flat at 7:00 am.
Oil
Yesterday, Brent oil prices increased 2.9% to US$48.35 per barrel, while WTI prices rose 2.8% to US$45.74 per barrel.

Headlines
UK house prices fall in August

As per property tracking website Rightmove, the average asking price for a house in the UK dropped 1.2% m-o-m in August to £304,222, after declining 0.9% in July, marking the biggest drop since November 2015. On a y-o-y basis, house prices advanced 4.1% following a 4.5% rise last month.

Company news

Sunrise Resources (LON:SRES), 0.21p) - Speculative Buy
Sunrise published an update which discussed steady progress at its diatomite and pozzash projects in Nevada. The pozzash is progressing nicely, test work has shown its suitability for use in cement with further tests expected to see how the clay content can be reduced. The diatomite project is being progressed by its partner EP Minerals a private equity backed industrial minerals business with diatomite filter operations in the same area. EP Minerals has recently paid its dues on Sunrise's licences for 2016 so is expected to progress with its evaluation/exploration activities. It's next payment to Sunrise is $450k due in June 2017.

Our view: Sunrise picked up these two industrial minerals projects in Nevada for virtually nothing (the cost of pegging the ground) and both could become very profitable. If EP Minerals takes the diatomite into production Sunrise will receive an undisclosed revenue royalty, which we think is likely to be 5% - 10% and potentially more (a standard 1.0% to 2.5% royalty would have probably been disclosed). Whatever the royalty, Sunrise generated the project for virtually no cost. The Pozzash is a similar story but earlier stage. Sunrise also has silver, copper-gold, and a carlin style gold project, all acquired for low cost, all prospective and potentially valuable.

Beaufort Securities acts as corporate broker to Sunrise Resources Plc

Bovis Homes Group (LON:BVS, 813p)– Buy
Bovis yesterday announced its half year results for the six months ended 30 June 2016. Operational highlights included, growth in legal completions of 5% to 1,601 new homes (H1 2015: 1,525), average sales price on legal completions increased by 14% to £254,500 (H1 2015: £222,300), while holding consented land bank of 19,477 plots across 138 sites plus strategic land bank of 25,484 plots across 90 sites. Management detailed the fact that over 90% of planned home sales for 2016 had been achieved as at 12 August, and that successful launches of new show homes in recent weeks had met with strong customer interest. During the first six months of 2016, the Group generated an operating cash inflow before land expenditure of £135.2 million (H1 2015: £79.0 million), demonstrating strong underlying cash generation from its asset base and the volume growth delivered. As a result of the Group's land investments, payments in H1 2016 associated with land purchases less cash recoveries on land sales were £120.0 million (H1 2015: £95.3 million). With a cash outflow from non-trading items totalling £52.8 million including the dividend payment of £35.3 million (H1 2015 dividend payment: £30.8 million), the overall net cash outflow for the six months ended 30 June 2016 was £37.6 million (H1 2015: £64.0 million). In accordance with the Group's stated intention, it is maintaining a progressive payout, this amounts to an interim dividend of 15.0 pence per share (2015 interim dividend: 13.7 pence). It will be paid on 18 November 2016 to holders of ordinary shares on the register at the close of business on 23 September 2016. The dividend reinvestment plan, introduced in 2012, gives shareholders the opportunity to reinvest their dividends.

Our view: In response to Brexit, Bovis is chorusing the same 'it is too early to say, but so far everything looks all right to us' already provided by the other UK housebulders. Beaufort has taken a more optimistic view on current valuations commenting, in other recent reviews of sector peers, that they all seem to have been in something of a 'phoney bear market' for more than a year now, and the absurd further dive in share prices that took place on June 24th appeared to discount just too much when one considers the forward visibility, still excellent fundamental background and the embarrassing amounts of cash they all continue to throw off. Although Bovis itself has regained about half of its 'Referendum result' losses, the shares are still priced below tangible net book value which, by this measure, means it is trading at a 25% discount to its sector. Offering a 5.5% yield on a sub-10x 2017E P/E, the shares seem too cheap given that Westminster appears to be doing everything possible to make the way for a soft landing before pressing the Article 50 'button' to enter a 2-year period of negotiation, while the Bank of England is also playing its part by keeping interest rates 'lower for longer' while pumping excessive amounts of liquidity into the system. This means that attractive mortgage conditions will remain available to house buyers for some time to come, which is music to the ears of housebuilders. Beaufort remains overweight in the sector and keeps Bovis on its Buy list.

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