The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 1.1 points down at 7:00 am
New York: Wall Street ended in the red for the third consecutive day amid rising concerns over the impending rate hike by the Fed after the strong jobs report on Friday. The S&P 500 fell 0.7%, with the information technology sector leading the losers.
Asia: Markets are trading lower following a weak lead from the Wall Street. Regional indices dropped on poor inflation figures in China and renewed concerns over the possibility of an interest rate hike in the US. The Nikkei 225 closed 1.8% lower, whereas the Hang Seng was trading 1.1% down at 7:00 am.
Continental Europe: Equities continued to fall, as Greece’s financing deal and the G7 summit remained in focus. Germany’s DAX contracted 1.2% despite an expansion in industrial output and a strong gain in stocks of Deutsche Bank. France’s CAC 40 declined 1.3%.
Crude Oil: Yesterday, the prices of WTI and Brent Crude Oil declined 1.7% and 1.0% respectively. The spread between the two varieties stood at US$4.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.21% lower yesterday at 774.12.
Today’s news
Retail sales in UK recover in May
The British Retail Consortium stated the value of total retail sales increased 1.1% y-o-y in May 2015 after a 1.3% decline in April. The rise reflected an expansion in the domestic housing market and an improvement in furniture sales, along with the stabilisation of food sales.
IMF raises growth forecast for Spain
The International Monetary Fund (IMF) upgraded Spain’s growth forecast for the second time in three months to 3.1% in 2015, much ahead of the European average. Despite high unemployment, job creation in the country gathered momentum and the economy recovered amid lower oil prices, euro depreciation and the ECB’s accommodative monetary policy.
Company News
MySQUAR – AIM IPO of a Myanmar-based Internet-build group, focussed on Mobile Social Media Services
You may have seen reference in the Financial Times and other press sources of this upcoming AIM IPO in which Beaufort is sole broker.
MySQUAR is a technology group focussed on internet-content build in Myanmar, a country which until recently had been effectively cut-off from the rest of the world. Its first main product now rapidly building users is ‘MyCHAT’, a free to use social media and mobile chat service. The Company has recognised that offering local language and locally-derived content is the best route to acquisition and retention of massed users still very new to the worldwide web. Within a short 15 months its services could be accessible by over 40m residents. MySQUAR is positioned to be the local platform of choice in what will shortly become Southeast Asia’s fastest growing online territory. The Company is expected to have over 1m users by the end of the year with rapid growth continuing into the foreseeable future. With users comes monetisation opportunities, including gaming, news, information, financial and payment services.
Should wish to have more information or are interested in getting involved, please contact your Beaufort Broker on 020 7382 8300 (London) or 0117 910 5500 (Bristol).
Ariana Resources (LON:AAU) – Speculative Buy
Ariana Resources, the Anglo-Turkish gold exploration and development company, announced yesterday that its Kiziltepe gold and silver mine has been granted Strategic Investment status by the Turkish Government. The Kiziltepe mine is part of the Red Rabbit JV in Western Turkey with local partner Proccea Construction. The Strategic Investment status provides enhanced investment incentives and demonstrates continued support by the Turkish Government for the development of the mine. Enhanced investments include addition 50% reduction (total 90% reduction) in corporate tax and exemptions from customs duties and VAT on imported components and equipment.
Our view: On the back of the recent approval of the forestry permits required to begin construction of the Kiziltepe mine, Ariana continues to receive good news. The granting of Strategic Investment status should help improve the Kiziltepe mine economics. Not only has the corporate tax rate been lowered to 2% in the early years of operation instead of the standard 20% rate, Ariana will receive interest repayment support on any Turkish Lira or foreign currency loan secured as well as VAT and customs duty exemption on domestic and foreign machinery and equipment. In addition, the Turkish Government will pay the social insurance contribution for all mine employees for seven years. In light of the above incentives, we reiterate a Speculative Buy on the stock. Beaufort Securities acts as a corporate broker to Ariana Resources.
Beaufort Securities acts as corporate broker to Ariana Resources plc
Cyan Holdings (LON:CYAN) – Speculative Buy
Yesterday, Cyan Holdings announced that the company has conditionally raised approximately £4.1m gross though the placement of over 2 billion ordinary shares at 0.20p. The proceeds are expected to fund staffing costs for the delivery and deployment of customer projects as well as development and delivery of managed. The fundraising resolution would be presented in the general meeting on 30th June 2015. Subsequently, the shares are expected to be admitted to AIM on 1st July 2015. The company’s expanded share capital would comprise of over 6.5 billion ordinary shares. The placement was facilitated by Allenby Capital Limited and Beaufort Securities Limited.
Our view: With the conditional fund-raising, the management has reaffirmed its ability to attract substantial investor interest in Cyan and its prospects. The several commercial orders for the company’s smart metering and lighting solutions are testimony to the novel technology’s capability to provide comprehensive metering solutions to the customers. Recently, the company received a Letter of Intent from the EI Sewedy, for Cyan’s mesh based solution for their utility customer in Ghana. This follows the successful meter tests conducted in Brazil, India and parts of Africa. The company’s moves gel well with the its strategy to expand in the markets that may offer higher scope of expansion for Cyan’s advanced meters that provide an accurate measurement of energy consumption, increase energy security and reduce costs. Plans are underway for incremental investments in the software solutions to add new functionalities. Thus, eyeing the positive developments and the wide range of opportunities available, we reiterate a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Cyan Holdings plc
Beowulf Mining (LON:BEM) – Speculative Buy
Beowulf Mining, the mineral exploration and development company focused on its Kallak magnetite and hematite iron ore project in Sweden, announced yesterday results from its metallurgical testwork programme on the Kallak ore. A high grade and high purity magnetite concentrate with over 71% iron content and very low deleterious elements was recovered by GTK in Finland from samples generated from test mining at Kallak North in 2013. Results also recovered a high grade hematite concentrate with over 68% iron content. In addition to the metallurgical testwork results, tailings samples were also collected to determine engineering properties with a view to minimising the tailings footprint in the mine design.
Our view: While the company continues to wait for its exploitation licence application to be approved, we are encouraged with the high grade and high quality testwork results on the Kallak ore. These results bode well for BEM’s key market targets such as pellet production and direct reduction iron processing as well as potential high purity chemical industry applications. The Kallak iron ore deposit also has high grade hematite with over 68% Fe which could provide additional upside as a potential use in sinter feed blend. Despite the downward pressure on the benchmark iron ore prices on the back of oversupply and slowing economic activity in China, we note that high quality iron ore products continue to fetch premiums relative to the benchmark 62% Fe. We reiterate a Speculative Buy on the Stock.
Falkland Island Holdings (LON:FKL) – Hold
Yesterday, Falkland Island Holdings announced its final results for the year ended 31st March 2015. The company’s revenues increased 0.8% to £38.6m while the underlying operating profit declined 2.3% to £3.8m. Underlying pre-tax profits declined 2.4% to £3.56m and basic underlying earnings per share were 22.1p in 2015 against 22.2p in 2014. The end of period cash balances stood at £7.4m against £5.7m in the previous year. Improvements were noted in the operating cash flows to £6.4 m along with reduction in the bank borrowings to £0.7m. On the operational front, the Falkland Islands Company (FIC) showed an increased activity for Spring 2015, led by a demand in corporate rented houses, hire vehicles, agency services and construction work, thereby reporting a jump of 39.4% in the pre-tax profits. Momart returned to normal activity levels and an agreement was finalized for the construction of new facilities on the East London site to increase storage capacity by 33%. The division conducted some prestigious exhibitions during the year. The Portsmouth Harbour Ferry Company reported a revenue rise 4.3% to £4.3m while adding a third model vessel ’Harbour Spirit’ to the fleet. On the other hand, the company decided to liquidate its stake in the Falkland Oil & Gas Limited (FOGL) in order to realign its portfolio. The company divested 7.8 million shares in March 2015 at a profit of £0.7m and sold off the residual holding of 5 million FOGL shares at a profit of £0.4m in April 2015. The Board did not recommend any final dividend in view of the new growth opportunities.
Our view: Despite the top-line improvement in the performances of the underlying business divisions, the company reported an overall decline in the underlying pre-tax profits. The recovery in the domestic economy failed to lift the Momart business to the success levels seen in 2014, as the division reported a revenue decline. The FIC was benefited from the record squid catch but the Ferry business faces pressure from the rising competition and the operating expenses. The company disposed of its oil and gas division (FOGL) which made some interesting discoveries since the beginning of this year, in order to realign its portfolio. Therefore, the sale of the FOGL business and the non-payment of the dividend add some uncertainty to the future strategies and plans of the company. We would like to wait for further clarity on the new opportunities and retain a Hold on the stock.
Victoria Oil & Gas (LON:VOG) – Speculative Buy
Yesterday, Victoria Oil & Gas provided an update on the New Thermal Gas Connections and monthly production for its fully owned subsidiary, Gaz du Cameroun. The company is supplying natural gas to three new industrial customers from its gas pipeline network in Douala. The connections include the new Dangote cement clinker plant located on the southern shore of the Wouri River, Douala, New Foods, a food processing business owned the Fokou Group, and Société Industrielle Camerounaise des Cacaos S.A., a subsidiary of Barry Callebaut. The company’s additional daily gas consumption stood at of 0.7mmscf (Million Standard Cubic Feet) and the average production rate for May was 12.4mmscf/d. Victoria now plans to focus on the customers in the Bonaberi industrial area, across the Wouri River.
Our view: The new gas connections to supply gas to the customers bode well for the company that only recently began to supply gas from its Logbaba power plant. The company attained an average production level of 12.4mmscf/d for the month of May, which underscores our confidence in its ability to meet the target production rate of 10.4mmscf/d in 2015. The above sales agreement follows a major gas sales agreement with ENEO Cameroon in December, to supply gas at the two power stations for US$9 per million British thermal Unit. The new customers are well placed and are on course to expand their production capacities. The location of the plant is conducive for the business as there is significant commercial growth occurring in the port-city, Douala. Thus in view of the above we can see that the company has made considerable progress with its utility business model and therefore retain our Speculative Buy on the stock.
Economic News
Germany Industrial production
Industrial production in Germany expanded by 0.9% m-o-m on a seasonally adjusted basis in April, following a revised fall of 0.4% in the previous month, the Destatis said yesterday. Economists, on the contrary, had predicted the production to grow 0.6% for the month. On y-o-y basis, industrial production improved 1.4% in April, compared to 0.2% in March and beat the market expectations of 0.9% growth.