Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 176.0 points down at 7:00 am.
New York: Wall Street closed in the red over continued decline in crude oil prices and poor Chinese industrial output. However, upbeat consumer sentiment in the domestic economy pared losses. S&P 500 shed 1.6% on Friday and 3.5% for the week.
Asia: Markets extended weekend losses with deteriorating business sentiment in Japan. Nikkei digested the victory of Shinzo Abe’s Liberal Democratic Party in the snap election, and closed 1.6% down. Hang Seng was trading 1.0% lower at 7:00 am.
Continental Europe: Markets suffered losses after Eurozone’s industrial production missed analysts’ expectations. Comments from the IMF that additional US$15bn was needed for the war-torn Ukraine hurt sentiments further. France’s CAC 40 and Germany’s DAX contracted 2.8% and 2.7%, respectively.
Crude Oil: On Friday, prices of WTI and Brent Crude Oil declined 3.6% and 2.9%, respectively. The spread between the two varieties stood at US$4.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.71% lower on Friday at 693.12.To read our latest research
UK house prices decline in December
Rightmove, a property tracking website, revealed the UK house prices fell 3.3% m-o-m in December following a 1.7% drop in the previous month. However, on y-o-y basis, house prices climbed 7%, lower than an 8.5% rise in November.
Inspirit Energy Holdings (LON:INSP)
Inspirit Energy announced an agreement has been reached with Barchester Healthcare to install a micro-CHP unit in one of its care homes as part of the Inspirit Energy Field Trials. Founded in 1992, Barchester Healthcare is now one of the biggest independent care providers in the UK with 17,000 staff, supporting more than 11,000 people in over 200 care homes throughout the country. Barchester is a strong and growing organization, building 14 new homes over the last two years and embarking on a programme of updating existing homes. Following on from initial site surveys of several Barchester Healthcare Care homes, Meadow Beck Care Home in York with 60 beds has been selected for the field trial. The Inspirit Energy micro-CHP unit will operate at near full utilization throughout the year, thus delivering maximum benefit. The Inspirit micro-CHP appliance will be installed to operate in tandem with their existing system to demonstrate controls integration and optimization as well as to prove the performance efficiency and the cost savings potential of the product.
Our view: This is important news. Barchester Healthcare has already been around to ‘kick the tyres’; now it is taking the m-CHP for a proper test run. Inspirit management know that its ‘over-engineered’ product can deliver exactly ‘what it says on the tin’. For an independent operator like Barchester, this means the installation of an efficient ‘green’ technology that is not only 100% reliable but also capable of producing cost savings that amount to a four-year or less payback on its original investment. Being hard task masters, their subsequent approval will not only result is a major installation contact for Inspirit, but will also provide the independent endorsement that many other similarly-sized small commercial operators are crying out for. As Beaufort has already stated, Micro Combined Heat and Power Systems are a revolution waiting to happen. This giant prospective global and highly addressable market will be increasingly powered by governments striving to comply with the EU’s 2020 carbon emissions targets. The market has been waiting for a true ‘killer application’ to be put on the table. Inspirit’s high value-added Sterling Engine design, however, does appear to tick this box and Barchester’s trial should be proving that. The Board is now taking preparatory steps to move from prototyping to volume production. Potential rewards, both in terms of own manufacture and external licensing, for Inspirit are very large indeed.
Beaufort Securities acts as corporate broker to Inspirit Energy Holdings plc
Tertiary Minerals plc, the AIM traded company building a significant strategic position in the fluorspar sector, on Friday announced audited results for the year ended 30th September 2014. Operational highlights for period included: (i) An exploitation (Mine) Permit application submitted for the Storuman Fluorspar Project in Sweden, (ii) Work continuing on the Storuman Preliminary Feasibility Study, (iii) Release of a large maiden JORC compliant Mineral Resource Estimate for the MB Project in Nevada, USA: Indicated 8.9 million tonnes grading 10.3% fluorspar (CaF2) and Inferred 29.5 million tonnes grading 10.4% fluorspar (CaF2) at 8% CaF2 cut-off, together with (iv) a third drill programme completed at MB Project, with the key objective being to further increase the size of the Inferred Mineral Resource and to target potential for higher grade fluorspar. Whilst, at this stage, the audited figures themselves are largely academic, the Group reported a loss of £358,807 for the year (2013: £451,160) after administration costs of £423,459 (2013: £437,857) and after crediting interest of £4,412 (2013: £5,668).
Our view: Tertiary’s strategic plan is on track. The passing of key milestones during the year to September 2014 on its two principal projects in Europe and North America has added considerable value. It is also realistic to anticipate further positive news coming from results of its more recent drill programme in Nevada. At 38.4 million tonnes grading 10.4% CaF2 (fluorspar), the MB Mineral Resource is already more than doubled the amount of fluorspar contained in the Company’s reported Mineral Resources at its other fluorspar projects in Swede and Norway. Importantly, it also anchors the Company’s ambition to be a supplier of fluorspar to the two largest buying regions outside of China – North America and Europe – where fluorspar (CaF2) is an essential raw material of fluorine in the chemical, steel and aluminium industries. 2015 is set to see Tertiary take a number of significant strides forward. In common with most of the minerals exploration sector, however, Tertiary Minerals’ share price has tumbled during the course of 2014. This appears largely unwarranted by current fluorspar prices, the outlook for international supply or the positive corporate news flow. Beaufort accordingly reiterates its Speculative Buy recommendation and sees significant opportunity for the shares to bounce sharply off their current levels.
Beaufort Securities acts as corporate broker to Tertiary Minerals plc
On Friday, Bellway issued its interim management statement for the 18 week period ended 30th November 2014. Reservation per week stood at 147 compared to 144 for the same period in 2013; cancellation rates remained around 10.4%. Operating margin for the fiscal year is expected to be approximately 20% whereas the volume growth is likely to be in excess of 10%. Moreover, the company made several land investments adding up to £233m. Bellway also renewed its revolving credit facilities of £125m, taking the total bank facilities to £300m. The company has proposed a final dividend of 36.0p per ordinary share which is likely to take the total dividend for the year ended 31st July 2014 to 52.0p, an increase of 73.3%.
Our view: Despite a cooling housing market in the UK and tough comparatives boosted by the government’s ‘Help to Buy’ scheme last year, Bellway continues to experience high levels of demand for its product, as evident from the high reservation rates. The company scores with its affordable pricing in the region, while its selling price remains ahead of the initial acquisition expectations. In line with its disciplined investment approach, the company has strategically augmented its land bank through acquisition of high quality land sites. The focus on trimming the administrative and construction cost to improve margins have ensured an attractive rate of return on the invested capital. Given the above and the attractive land additions to the kitty, we are confident that the company is capable of creating additional value for its shareholders. We reiterate a Buy rating.
Mytrah Energy provided a financing and trading update on the wind farm operations in India. The company successfully raised US$65m of the US$70m financing package through a non-convertible corporate bond on the Bombay Stock Exchange. This financing facility would be used to refinance an existing US$15m mezzanine facility by IDFC for the development of new wind power projects. The company expects an underlying EBITDA circa US$65m in this fiscal and is on track to a financial closure on a number of new projects.
Our view: Mytrah’s access to financing from major lenders in public and private sectors is testimony to the fact that the company has come a long way since its inception to become one of the largest independent power producers of wind energy in India. The company already possesses 524.85 MW of revenue generating wind assets that have continued to perform well throughout the 2014. Wind energy is one of the cheapest, fastest to market and cleanest form of energy. Moreover having a base in a power-hungry country like India is likely to provide a ready market to the company for servicing the ever-growing electricity requirements of a growing economy. In view of the above and the company’s diversified portfolio of wind assets, we recommend a Speculative Buy rating on the stock.
The US producer price index (PPI) for final demand dropped 0.2% in November, after edging up 0.2% in October, the Bureau of Labor Statistics stated on Friday. The reading was below market expectations of a 0.1% decline. Core producer prices, excluding food and energy, remained unchanged after rising 0.4% in the previous month. On a y-o-y basis, PPI increased 1.8% in November, matching the market forecast.
US University of Michigan confidence
US consumer sentiment jumped to 93.8 in December, from 88.8 in November, as per the preliminary reading released by Thomson Reuters/University of Michigan on Friday. Markets had expected an index reading of 89.5. The gauge of current economic conditions increased to 105.7 vis-à-vis 102.7 last month. The consumer expectation index climbed to 86.1 from 79.9, reaching its highest in eight months. The one-year inflation expectation rose to 2.9%, up from 2.8% in the previous month.