The Markets
Market opening: Markets are likely to open flat today. FTSE 100 futures were trading unchanged at 7:00 am.
New York: The Wall Street edged lower on weak factory orders data and concerns over Greece’s debt. Utilities’ shares fell following a jump in bond yields. S&P 500 slipped 0.1% yesterday.
Asia: Equities are trading mixed this morning. The Nikkei 225 slipped 0.3% on profit taking. The Hang Seng was trading 0.8% higher at 7:00 am after the Chinese PMI for May rose to 53.5 from 52.9 in April.
Continental Europe: European markets closed in the red despite upbeat inflation data. Greece was back in focus as the date to repay €300m to the IMF edged closer. Germany’s DAX and France’s CAC 40 lost 0.9% and 0.3%, respectively.
Crude Oil: Yesterday, the prices of WTI and Brent Crude Oil firmed up 1.8% and 0.9%, respectively. The spread between the two varieties stood at US$4.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.06% lower yesterday at 775.40. To read our latest research click here.
Today’s news
Creditors draft final offer for Greece
International creditors have presented Greece with a draft final offer to break long-winded negotiations. It is interesting to note that on Monday, Greece’s Prime Minister Alexis Tsipras submitted his own separate proposal to the creditors. The country is required to repay about €1.25 bn to the IMF this month.
Company News
Ariana Resources (LON:AAU) – Speculative Buy
Ariana Resources, the Anglo-Turkish gold exploration and development company focused on Turkey, announced today that it has received confirmation through its joint venture company, Zenit Madencilik San. ve Tic. A.S. (Zenit), that the Prime Ministry in Turkey has formally approved its application to the Department of Forestry and Water Affairs (DFWA) for the Red Rabbit gold project in western Turkey. With the approval of the permits by DFWA, subject to payment of statutory forestry fees, Ariana and its JV partner Proccea Construction can proceed with the development of the Kiziltepe Mine.
Our view: The approval of the permit application represents a significant milestone for Ariana and its JV partner. Ariana owns 69.9% (eventual 50% share at mine start up) of the Red Rabbit JV comprising a JORC-compliant mineral reserve estimate of 1.1Mt grading 3.1g/t Au and 39.8g/t Ag. With a US$33m debt financing agreement already in place, Ariana and its partner can now focus on the initial construction phase of the Kiziltepe mine. Ariana also has a JV agreement in place with Eldorado Gold (51%) over the Salinbas-Ardala projects in NE Turkey. With today’s announcement, Ariana has just cleared a major hurdle and we look forward to a construction timeline in due course. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Ariana Resources plc
Advanced Oncotherapy (LON:AVO) – Speculative Buy
Advanced Oncotherapy, the developer of next generation proton therapy systems for cancer treatment, this morning released audited results for the year ended-December 2014, a year of significant progress in the development of the Group’s LIGHT system. Against such a background, the figures themselves were largely irrelevant. They detailed revenue for the year of £0.106 million (2013: £0.068 million), resulting in loss per share from continuing operations for the year of (0.75)p (2013: (0.86)p). Over £12 million was raised during the period to fund development and debt significantly reduced. The Board detailed a number of key milestones in the development of the LIGHT system have been completed following the close of the financial year in line with expectations. It also stated that it remains on track to install its first unit in Harley Street by the end of 2016 with first patient treatment expected in 2017.
Our view: This is groundbreaking big science and it’s progressing at an extraordinary pace. The formation of a management team to deliver LIGHT through to commercial launch and operation has already been completed. Key supply chain partners have been appointed: ScandiNova (RF Power), Toshiba (Klystron), VDL (CCL module), Pyramid (beam focusing nozzle) and ICT (software). An oversubscribed placing following the year end raised £20 million (net) to develop and install first the UK’s first Proton Therapy Centre using the LIGHT System in Harley Street, which will be followed by the first commercial sale to Sinophi Healthcare. The enormity of this opportunity and the market potential it presents has already been significantly detailed in Beaufort initiation research of September 2014 and subsequent updates. In simple terms, if AVO delivers exactly ‘what it says on the tin’, the operational and cost advantages LIGHT offers will effectively render first generation proton therapy devices all but obsolete. Its principal limitation would then become simply its capacity to deliver to a global opportunity that will grow dramatically beyond its current US$2.5bn size, as it will also becomes the natural replacement for the more antiquated X-ray radiation machines that are installed in huge numbers around the globe. Given such an outcome, of course, major international competitors wishing to remain in the game will almost certainly be willing to pay a handsome price, one way or another, to get their hands on AVO’s proprietary technologies. Advanced Oncotherapy plc remains one of Beaufort’s key investment picks for 2015.
Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc
Frontier Resources International (LON:FRI) – Speculative Buy
Yesterday, Frontier Resources provided an operational update on the assets in Oman and stated that it has entered into to farm-out discussions with Middle East-based partners for the Block 38 oil prospect in Oman. In Oman, with the interpretation of the available 2D seismic data at the Block 38 in the Rub Al Khali Basin, the company has identified a large structure suitable for drilling without additional seismic work. Moreover, the company has now been provided with an advantage to make changes in the work programme by swapping a 3D seismic survey for a 2D seismic programme and an exploration well. The block is fully -owned by Frontier and an Exploration and Production Sharing Agreement was signed on 25th November 2014. The update also mentions that the farm-in deal would include a carried interest for the company though the initial drilling programme and repayment for cost incurred totalling to around US1.6m.
Our view: The above update seems to be a positive step by Frontier for its growth as the company is likely to proceed with drilling without the need for a 3D seismic survey. The company seeks to enter into farm-out discussions with Middle East-based partners for the Block 38 oil prospect in Oman. This would not only attract important potential partners, but also limit Frontier’s risk exposure in the asset. The company’s strategy looks promising as it boasts of significant technical know-how for oil and gas exploration and development in the Middle East and Southern Africa region. In view of the great potential of these assets and an aggressive exploration strategy of the company, we maintain a Speculative Buy rating.
CityFibre Infrastructure (LON:CFHL) – Speculative Buy
Yesterday, CityFibre announced it has commenced construction of the first phase of a city-wide fibre network called the Edinburgh CORE. The first phase is a 50km deployment in the city centre which is focused to bring the benefits of ultra-fast gigabit internet connectivity targeting an estimated reach of 7,000 businesses. Since the precise network route of the Edinburgh CORE will be influenced by demand, CityFibre has launched its ‘Gig Up Edinburgh’ campaign which would allow the businesses and institutions to register their interest in ultra-fast internet connectivity on the edinburghcore.com website.
Our view: The company seems to be well on track in maintaining its progress of commercialisation and providing fibre optic infrastructure. The commencement of the development of ultra-fast gigabit internet connectivity in Edinburgh in partnership with Commsworld proves to be the first major step in transforming the way city does business. The company already has some impressive contracts and national level partners, and joint ventures with UK’s leading broadband service providers to cover a large customer base. The company’s futuristic designs are likely to benefit businesses greatly by fulfilling their demands for ultra-fast connectivity. Moreover, the company remains well capitalized to service the future growth for the fit-for-purpose local access broadband infrastructure. In view of the above, and the rising demand for the fit-for-purpose local access broadband infrastructure, we retain a Speculative Buy on the stock.
Yesterday, Wolseley released its third quarter interim management statement for three months ended 30th April 2015. During the period ongoing business revenues increased 12.4% y-o-y to £3,301m on constant exchange rates. Like-for-like (LFL) sales growth was 7.5% for the period. In addition to this, the trading profit stood at £195m, up 20.3% over the year. On the operational front, the company’s LFL revenue rose 8.3% in the United States and was up 7.6 % in Britain and up 8.8% in Nordic countries. Wolseley completed three bolt-on acquisitions during the period, with total annualised revenue of £69m. The company expects the group’s LFL revenue to grow 6% for next six months and trading profit to remain in line with expectations.
Our view: Wolseley reported a strong top-line growth and earnings rise in the quarter, mainly driven by LFL sales growth, acquisitions, and an exchange rate boost. In addition to this, US, which accounts to be the major market, outperformed with record growth in revenue and LFL sales. Meanwhile, the company expects the cash conversion and trading profit to be in line with its expectations. Also, continuous investment in development of a more efficient business model could prove to be beneficial for the company for its growth and help improve market share. Hence we recommend a Buy rating on the stock.
British American Tobacco (LON:BATS) – Hold
Yesterday, British American Tobacco’s Canadian subsidiary, Imperial Tobacco Canada was ordered by the Quebec Superior Court in Canada to compensate the smokers to the tune of billions of pounds. The plaintiffs here included around one million smokers in Quebec who were not able to quit and were diagnosed with lung or throat or laryngeal cancer or emphysema. The judgment states that company would have pay damages of CAD10.4bn (£5.5bn) to smokers in Canada. Moreover, the judgement also states the provisional execution order would require them to pay in total CAD1.131 billion, wherein, Imperial Tobacco Canada’s share of the total damages would be CAD10.4 billion. Also, no payments will have to be made until request to stay the provisional execution order has been heard and a judgement is made.
Our view: The company has been severely impacted and hit due the ruling which is the outcome of a ten-year legal case against BAT’s Canadian subsidiary, Imperial Tobacco Canada. The company might have to bear an unaffordable penalty of the compensation claim. However, keeping in that the tobacco industry has a strong track record of overturning or reducing such penalties on appeal. Also, to diversify from the tobacco business, the company also launched an e-cigarette brand, Vype in the UK and began consumer trials of a tobacco heating product. Therefore keeping in mind the current scenario, we rating to Hold on the stock.
Economic News
Germany unemployment change
The number of people without a job in Germany fell by 6,000 on a seasonally adjusted basis to 2.78 million in May, the Federal Labour Agency said yesterday. Economists had forecasted unemployment to drop by 10,000 for the month. The seasonally adjusted unemployment rate was unchanged at 6.4% in May.
UK mortgage approvals
The Bank of England reported mortgage approvals for house purchase in the UK rose to 68,706 in April, the highest in 14 months, from 61,976 in March. The market expectations were 63,500.
Eurozone CPI estimate
As per the estimates published yesterday by Eurostat, Eurozone reported consumer price inflation (CPI) of 0.3% y-o-y in April, beating economists’ projections of 0.2%. CPI remained flat in April. Core prices, excluding those of energy, food, and tobacco, stood at 0.9% y-o-y, versus market expectations of 0.7%. Core inflation rate was 0.6% in April.
US factory orders
US factory orders fell 0.4% m-o-m in April, following a revised rise of 2.2% in March, the US Department of Commerce said yesterday. Economists had forecasted a decline of 0.1% for the month. Durable goods orders fell 1.0%, while non-durable goods orders inched up 0.2%.