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Northland Capital Partners View on the City Union Jack Oil, Stratex International, Serabi Gold, Advanced Computer Software Group and others

Northland Capital Partners View on the City Union Jack Oil, Stratex International, Serabi Gold, Advanced Computer Software Group and others

Stratex International (LON:STI) – BUY*: Goldstone update

Market Cap: £10.6m; Current Price: 2.3p; Target Price: 7.7p

  • From yesterday; completes investment in Goldstone
  • Goldstone Resources has approved the resolutions allowing Stratex International to invest £1.25m.
  • Following the Consolidation and the Subscription, there will be 62,286,363 shares in issue.
  • Stratex now holds 33.45% of Goldstone (20,833,333 shares), with warrants to subscribe for a further 20,833,333 shares at 7p per share.
  • Jonathan Best, Dr. Hendrik Schloemann and Benjamin Hill will step down from Goldstone’s board and Christopher Hall, Bob Foster and Emma Priestley will be appointed.
  • Stratex closed up 10% and Goldstone up 3%.
  • No change to forecasts, rating or price target.

NORTHLAND CAPITAL PARTNERS VIEW: Positive news for both Stratex International and Goldstone Resources that will see the injection of £1.25m into Goldstone and Stratex gain a 33.5% interest in Goldstone. The £1.25m will go towards adding shallow oxide resources, completing metallurgical and mine optimisation studies as well as drilling number of deeper drill holes to test for high grade shoots at depth at the Homase-Akrokerri Project. Goldstone is also considering acquiring smaller deposits located in and around the vicinity of Homase-Akrokerri or acquiring/partnering on other West African assets owned by funding-stressed companies. Goldstone owns 65% of the Homase project, located in in Ghana, and has an option to increase its stake to 85% by completing a feasibility study. It also owns 100% of the adjacent Akrokerri project. The combined projects have a JORC compliant resource estimate of 602,000oz Au at a grade of 1.77g/t Au. At its earlier stage exploration projects in Senegal and Gabon, Goldstone considering potential joint ventures to move the projects forward.

Union Jack Oil (LON:UJO) – CORP: Well update 

Market Cap: £6m; Current Price: 0.25p

  • From yesterday: Egdon announces Burton dry well
  • Yesterday operator Egdon (EDR.L) announced that the Burton on the Wolds-1 (BOTW1) conventional well in PEDL201, Leicestershire, drilled dry.
  • Wireline logs indicated weak hydrocarbon shows in thin sands in the key target, the Rempstone Sandstone Group, but the formation was interpreted as being water bearing. The well is being plugged and the land restored. 
  • UJO has a 10% interest in the vertical well and is paying 15% of well costs, the other interested parties are; Edgon Resources (32.5% operator); Celtique Energie Petroleum Limited (32.5%); Terrain Energy Limited (12.5%) and Corfe Energy Limited (12.5%). The well came in ahead of schedule and within budget.
  • We expect the rig to now move on to test the Wressle-1 well also operated by Egdon where UJO has an 8.33% stake.
  • UJO shares lost around 20% yesterday.

NORTHLAND CAPITAL PARTNERS VIEW: A disappointing outcome for the latest exploration well. The key news now relates to the testing of Wressle-1. If successful on appraisal, Wressle-1 could see near term cash flow and has the potential to be transformational in its own right. Share price weakness could present a low cost entry opportunity ahead of those results. UJO has a strong balance sheet (with £3.5m of cash as at 29th September) to continue to participate in UK exploration activity with additional shale potential identified on its acreage.


Pendragon PLC (LON:PDG): IMS

Market Cap: £448m; Current Price: 31p

Ahead of FY14 expectation

The business produced a strong 3Q where operating profit was +29% on a +5% increase in gross profits as the benefits of operational gearing kicked in. Key brands Stratstone and Evans Halshaw are performing strongly on the back of a 17% increase in visitors and as a result the business expects to be ahead of FY14 expectation. 

The balance sheet is in robust shape with net debt/EBITDA ratios around 0.7x and well under the target range of 1.0 – 1.5x, this provides headroom to expand the UK footprint.  

NORTHLAND CAPITAL PARTNERS VIEW: Strong 3Q performance and we expect the stock will trade well on the back of today’s positive news. The stock trades on 11.5x FY14 consensus earnings falling to 10.8x FY15 which doesn’t appear demanding in our view. It also offers prospective investors a dividend yield of c. 2.0% growing to c. 2.5% in FY15.


Week Ahead (03/11/14)

View from the trading desk

The Fed, as expected, completed the taper of QE and focus immediately turned to the timing of the first interest raises. The parsing of the FOMC utterances focused on the dropping of the view that there was ‘significant underutilisation’ of labour resources and this was now ‘gradually diminishing’. Rates will stay low for a ‘considerable time’ but the Fed has baked in more flexibility if data proves more positive. The third round of QE was unprecedented in terms of scale and duration (potentially indefinite) and the effects have not been as anticipated with gold failing to appreciate, US inflation expectations still rooted to the floor, bond yields going up, the dollar only strengthening in the run up to the end of purchases and US equities rather than bonds the key beneficiaries of the programme. As such, there has to be some uncertainty on the ramifications of the end of QE. With the prospect of rate rises, further strengthening of the dollar looks likely, impacting exporters and maintaining downward pressure on inflation. Beyond the US, QE resulted in large inflows to developing countries helping fund infrastructure and corporate investment as well as consumer spend. Given the slowing of growth in China and the ongoing problems in the Eurozone and the fall in commodity prices (partly a function of a stronger dollar), the end of QE and the return of higher rates could have a marked impact on emerging markets.

The findings of the Asset Quality Review were generally welcomed with 25 (out of 130) failing and 24 (out of 123) failing the stress test. Factoring in the capital raising and conversion during 2014 so far, this number reduced to 14 with a total shortfall of €9.5bn. Of the top tier banks, only Italy’s Banca Monte dei Paschi di Siena still needs to raise capital. The bigger question is whether the test will encourage more lending. On the positive side, the test has been hanging over lenders for most of the year and the cost of capital for peripheral banks should improve because of the better transparency and comparability. But it’s a considerable ask to expect the outcome to address the eurozone’s high unemployment, stagnant growth, weak demand and low inflation. We would argue that the issue is more about demand than supply.

The travails of Tesco (LON:TSCO) continued with the announcement that the Serious Fraud Office has launched an official criminal investigation into the accounting irregularities. Meanwhile Next (LON:NXT) warned for the first time since 2008 following the unseasonably warm weather. The company had also flagged the potential issue in September and management had upped its guidance back in March. As a result, the shares fell only 0.3% and are up 20% YTD. The concern persists about the weaker retailers.                 

Sales & Research thoughts                

TMT: Tuesday sees interims from the perennially upbeat Advanced Computer Software (LON:ASW). In September’s pre-close, the company said H1 was in line with expectation with revenue growth of 9% to no less than £108.1m, adj. EBITDA +14% to ≥£25.3m and cash conversion of 100% with net debt reduced £11.5m to £37.9m as it pays down debt in the ongoing buy-and-build strategy. H1 saw the integration of Computer Software Holdings (LON:CSH), the largest acquisition to date, as well as the completion of the Northern Irish contract. Although the Health & Care division represents a smaller proportion of the group since CSH, it remains an area of focus given the read across for EMIS (LON:EMIS) and Servelec (LON:SERV). Recent newsflow has also been positive from First Derivatives (LON:FDP)(interims, Wednesday) with the standout feature the contract win with IEX, a high-growth equity trading venue based in New York (and featured in Michael Lewis’s ‘Flash Boys’), for trade surveillance and analytics. The win represented a considerable endorsement for its Delta Surveillance software. 

Mining: Copper was up 3% this week following news of planned strikes in Indonesia and Peru, and rumours that China's State Reserve Board (LON:SRB) has resumed purchasing copper. Employees at Freeport-McMoRan's Grasberg copper mine located in Indonesia are expected to hold a one-month strike from next week, after the company failed to make changes to local management following a fatal accident. Workers at Peru's biggest copper mine, Antamina, owned by BHP Billiton, Glencore Xstrata, Teck and Mitsubishi, are also planning an indefinite strike in two weeks’ time demanding a bonus to offset a reduction in proceeds from a profit-sharing agreement. Gold was down 2.3% following Hawkish comments from the Fed. Gold prices are likely to remain volatile in the lead up to the Swiss referendum on the 30th Nov that could potentially force the country’s central bank to hold 20% of its balance sheet in gold (currently 7.7%). A Yes vote would require the purchase c. 48moz Au of gold over five years.

1. Northland Capital Partners Limited (“Northland”) acts as Nominated Advisor and/or Broker to the company.

2. Northland) and/or its affiliates companies do beneficially own 1% or more of any class of the issuer’s equity securities, as of the end of the month immediately preceding the date of issuance of the research report or the end of the second most recent month if the issue date is less than 10 calendar days after the end of the most recent month. 

3. The authoring analyst or any associate of the authoring analyst does maintain a long or short position in any of the issuer’s securities directly or through derivatives, including options or futures positions.

4. Northland, its affiliated companies, partners, officers, directors or any authoring analyst of Northland has provided services to the issuer for remuneration during the preceding 12 months other than investment advisory or trading services.

5. Northland or any of its affiliated companies has performed investment banking services for the issuer during the 12 months preceding the date of issuance of the report.  

6. A partner, director, officer, employee or agent of Northland or any of its affiliated companies is an officer, director, employee or advisor of the issuer.  Disclosures are applicable for all companies

7. The authoring analyst, or any associate of the authoring analyst, has viewed the material operations of the issuer. 

8. The authoring analyst, or any associate of the authoring analyst, received reimbursement for travel expenses.

9. Northland makes a market in the securities of this company.




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The past is not necessarily a guide to future performance. The value of shares and the income arising from them can fall as well as rise and investors may get back less than they originally invested. The information contained in this document has been obtained from sources which Northland Capital Partners Limited believes to be re¬li¬able. The Com¬pany does not warrant that such information is accurate or complete. All estimates and prospective figures quoted in this report are forecasts and not guaranteed. Opinions included in this report reflect the Company’s judgement at the date of publication and are subject to change without notice. If the investment(s) mentioned in this report are denominated in a currency different from the currency of the country in which the recipient is a resident, the recipient should be aware that fluctuations in exchange rates may have an adverse effect on the value of the investment(s). The listing requirements for securities listed on AIM or PLUS markets are less demanding, also trading in them may be less liquid than main markets.

Northland Capital Partners Limited and/or its officers, as¬sociated entities or clients may have a position, or other material interest, in any securities men¬tioned in this report. Northland Capital Partners Limited does not provide recommendations on securities of firms with which it has a corporate relationship. More information about our management of Conflicts of Interest, Investment Research Methodology & Definition of Recommendations can be found at 

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