The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 4.4 points up at 7:00 am.
New York: Wall Street remained largely unchanged after trading in a narrow range. Investors digested a recovery in bond yields and considered key economic indicators to gain an insight on the timing of an interest rate hike. The S&P 500 closed flat in yesterday’s trading session.
Asia: Markets are trading mixed. The Nikkei ended 0.3% lower, despite an unexpected 3.8% rise in core machinery orders in April. The Hang Seng was trading 0.4% up at 7:00 am, even as mainland China stocks declined due to their exclusion from MSCI’s emerging market index.
Continental Europe: Markets ended lower, as Greece’s international creditors reportedly suggested an extension of its bailout programme until 2016 amid disagreements over the conditions. Germany’s DAX and France’s CAC 40 fell 0.6% and 0.2%, respectively.
Crude Oil: Yesterday, the prices of Brent and WTI crude oil climbed 3.5% and 3.4% respectively. The spread between the two varieties stood at US$4.7 per barrel
UK small caps: The FTSE AIM All-Share index closed 0.26% lower yesterday at 772.09.
Today’s news
UK trade deficit narrows in April: ONS
According to the Office for National Statistics, the UK’s trade deficit in April narrowed to £1.2bn from an upwardly revised £3.1bn in March. Export volumes in April rose 4.8%, the largest increase since September 2014. Meanwhile, the deficit of £8.6bn in goods was somewhat offset by surplus of around £7.4bn on services.
Osborne to announce new budget rules at his Mansion House speech
UK Chancellor George Osborne is expected to commit to a new ‘fiscal settlement’ to ensure a permanent budget surplus in the country. The new measures are designed to cut national debt and plan for an uncertain future. The government is likely to run a surplus by the end of 2018.
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).
Karelian Diamond Resources (LON:KDR) – Speculative Buy
Karelian Diamonds, the diamond exploration company focused on Finland, announced today that five further pits along strike from its original discovery of kimberlite in the Kuhmo region of Finland have all intersected kimberlite. The pitting results reveal that the kimberlite body is a dyke that extends for at least 250m along strike with widths of up to 2m intersected. The kimberlitic dyke remains open in both directions along strike. Kimberlitic samples were collected from each pit and the company is continuing its evaluation of the extent and the diamondiferous potential. Infill till samples together with an extensive detailed ground magnetic survey has also identified new exploration targets within the immediate area suggesting that there may be more than one kimberlite source present.
Our view: The increasing strike length of the recently discovered kimberlite dyke is exciting news for Karelian and could be a game changer depending on the extent and diamondiferous content of the kimberlite body. The Kuhmo region of Finland hosts several previously discovered kimberlites and exhibits similar geology and geochemistry as the Arkhangelsk region in Russia, an area which hosts one of the largest diamond mines in Russia. We maintain a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Karelian Diamonds plc
Kibo Mining (LON:KIBO) – Speculative Buy
Kibo Mining, the exploration and development company focused on mineral and energy projects in Tanzania, announced yesterday that the recently signed Joint Development Agreement (JDA) with SEPCO III has been approved by the SEPCO III board of directors. On 20th April 2015, Kibo signed a JDA with SEPCO for the completion of the Definitive Feasibility Studies and development of the Mbeya Coal to Power Project (MCPP) with China based SEPCO III. The JDA is subject to a number of conditions precedent, of which finalisation of due diligence (including a site visit) and SEPCO III board approval were the most significant.
Our view: The approval of the JDA by SEPCO III’s board of directors paves the way for SEPCO to make an equity investment in MCPP to a maximum of 15% of the total equity in the SPV, which will ultimately hold the MCPP asset. SEPCO III’s equity investment will contribute to the completion of the DFS and relating activities leading to the point of financial close, which is expected by October 2015 and December 2015, respectively. We view the approval as a significant milestone and expect the pace of the feasibility work to increase as well as potentially de-risking the project by attracting financing at the project level. In view of the progress to date, we maintain a speculative buy on the stock.
Beaufort Securities acts as a corporate broker to Kibo Mining plc.
Motif Bio (LON:MTFB) – Speculative Buy
Motif Bio, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday reported non-statutory financial statements of its wholly-owned subsidiary, Motif BioSciences, Inc. for the year ended-December 2014, being the period prior to the completion of the Company’s merger, acquisition, and admission to AIM. Since then Motif has converted and restructured its liabilities, acquired the iclaprim assets, and raised new funds of approximately US$4.3m, before issue costs of approximately US$1.0m, through a placing and subscription of new shares and seen its shares admitted to trading on AIM. For the period in question, the Group reported an operating loss of US$1.10m (US$0.67m), which translated into 0.13cents (0.13cents) basic and diluted loss per share. Post Balance Sheet highlights include the U.S. Food and Drug Administration (FDA) agreed to the proposed Phase III clinical development programme for iclaprim (15th April), the signing of Letters of Intent and interim agreements with a leading global Clinical Research Organisation (1st June) and its Motif Bio plc selection to present at the 2015 BIO Equity Conference and at the 2015 BIO International Convention, two leading global partnering and investor events for the Biotechnology sector.
Our view: Motif is almost unique. It is one of a very few opportunities for AIM investors to gain exposure to a late stage clinical asset that already has a wealth of safety and efficacy data from previously completed Phase III trials. More to the point, being as a novel antibiotic, iclaprim is in an area in which growing resistance is now widely acknowledged as posing a major, and relatively near term, global health threat. Importantly, it works in a different way to most other antibiotics and has a very low propensity for resistance development. This is significant because, as bacteria continue to develop resistance, several different classes of antibiotic with different mechanisms will be needed to help fight against the looming public health crisis. Assuming that the clinical programme can be completed successfully, iclaprim may become an essential addition to the range of effective, life-saving antibiotics used by hospital doctors. Here the signs are very good, with iclaprim’s safety and efficacy is understood to be well supported, having already been tested on over a thousand patients. Now, with new incentives from governments, including the GAIN Act in the US and broad recognition by politicians/regulators of the need to help speed the development of novel antibiotics, Motif Bio plc is perfectly placed to make an important contribution. Big pharma recognises the urgent need to get involved in such programmes, which suggests development funding should now be relatively easy to secure. Having won such backing the drug might realistically be expected to target sales in excess of US$1bn/year. On this basis, Beaufort awards Motif Bio a ‘Speculative Buy’ rating and sets a price target of 110p/share.
Mariana Resources (LON:MARL) – Speculative Buy
Mariana Resources, the exploration and development company with projects in South America and Turkey, announced yesterday an update on its drill programme (Phase II) at the Hot Maden project in eastern Turkey, operated by its JV partner Lidya Madencilik Sanayi ve Ticaret (70%). Significant high grade Au-Cu incepts have confirmed continuity of mineralisation and extended the mineralisation to the south for a current total length of 225m. Mineralisation remains open to the south. Highlights of the assay results include: drill hole HTD-10 returning 100.2m grading 5.6g/t Au and 1.3% Cu. Additional Zn mineralisation was also intercepted with 47m grading 0.82% Zn, 44m grading 0.7% Zn and 40m grading 0.56% Zn. Drill hole HTD-11, located 100m south of HTD-10 returned 107.7m grading 4.2g/t and 0.9% Cu with additional zinc mineralisation intercepted over 11m grading 1.99% Zn and 18.5m grading 1.17% Zn. Drilling to date indicates a corridor of higher grades (>10g/t Au) which appears to be correlated north to south with drill holes: HTD-04(33.4m grading 18.3g/t Au and 3.3% Cu), HTD-05(13m grading 88g/t Au and 2.5% Cu), HTD-10(43m grading 11.7%Au and 2.2% Cu) and HTD-11(14.2m grading 27g/t Au and 0.9% Cu).
Our view: Drilling results continue to return spectacular intercepts from Mariana’s Hot Maden project located in eastern Turkey. Drill holes DTH-10 and DTH-11 have confirmed mineralisation and extended the strike length to the south, currently at 225m and remains open. These results also highlight the apparent corridor of high grade mineralisation (>10g/t Au) .We also note that there are significant intervals of Zn mineralisation that may indicate formation of a distinct Zn halo around the Au-Cu mineralised zone. In light of the continued high grade Au-Cu intercepts from Mariana’s Hot Maden JV project, we reiterate a Speculative Buy on the stock.
Avanti Communications (LON:AVN) – Speculative Buy
Yesterday, Avanti Communications announced the contract win from SENTECH, a South African state owned enterprise that reports to the Ministry of Telecommunications and Postal Services. The multi year contract entails delivering significant deployments across public sector services and government sites. The company would provide the services through its HYLAS 2 Ka-band satellite, having 100% coverage of South Africa. SENTECH delivers satellite broadband connectivity to South Africa’s public sector at scale, across hundreds of public state institutions and government sites.
Our view: The contract win is a major step forward for Avanti and highlights the strength of its capabilities in the communications sector. The mutually beneficial deal would enhance SENTECH’s data connectivity technology platform and extend its broadband structure. Avanti enjoys the first mover advantage in the EMEA region for the high throughput satellite data communications. Recently, the company reported a strong rise in the quarterly revenues driven by the quality and flexibility of its services, a necessity in the telecom world. The company was ably supported by its Ka-band satellite fleet that provides high-capacity, high quality data connections. The main advantage of this satellite fleet is that they can cater to a greater range of applications and users compared to the legacy satellite technologies. On the other hand, the company continues to develop its distribution platform through the new and extended contracts with the larger telecom companies. Avanti possesses a patent protected, cloud-based flexible customer interface and made a further investment of US$1.2bn in the network capabilities comprising satellites, ground stations, datacentres and a fibre ring. Thus, given its competitive positioning and incremental opportunities in the pipeline, we reiterate a Speculative Buy rating on the stock.
Oxford Instruments (LON:OXIG) – Hold
Yesterday, Oxford Instruments announced its preliminary results for the year ended 31st March 2015. Orders grew 13.0% to £386.6m resulting in revenue growth of 7.1% to £385.5m. However, on an organic currency basis, the orders were flat and the revenues declined 5.4%. Adjusted pre-tax profit stood at £35.6m (2014: £47.1m), mirroring the impact of macro headwinds in Japan and Russia, and weaker-than-expected trading in Industrial Analysis. The adjusted EPS for the period stood at 48.2p against 67.7p in 2014. On the operational front, the post acquisition integration of Andor Technology remains on track and the cost reduction plans delivered higher-than-projected planned savings. Other activities in the portfolio management included acquisition of MIR and a joint venture to combine Oxford Instruments’ Omicron business with Scienta Scientific AB. Eyeing future organic growth; investments in the R&D were increased to £35.2m compared with £27.9m in 2014. The company proposed a final dividend of 9.30p, thereby taking the total dividend for the year to 13.0p from 12.4p last year. On 1st September 2014, Professor Sir Richard Friend joined the company board while Professor Sir Mike Brady stepped down from the Board on 9th September 2014.
Our view: The results mark an end to the unimpressive year for Oxford Instruments as the company witnessed a decline in the constant currency revenues and the underlying pre-tax profit. Reeling under the impact of a delicate political situation in Russia, the company witnessed the cancellation to many orders following the unexpected tightening of European Union export sanctions. Though the company acted swiftly to contain the damage through extensive cost control measures, but the slight recovery towards the year end could not lead to an overall positive result. The company’s long terms strategies are well placed and the successful acquisition of MIR bodes well for the future prospects of Oxford Instruments. However, given the added uncertainty with the subdued results and a cautious statement, we downgrade the stock to a Hold for now.
Economic News
Eurozone GDP
Eurozone GDP expanded 0.4% q-o-q in Q1 2015, in line with the initial estimates, against a revised reading of 0.4% growth in Q4 2014, European Union’s statistic office revealed yesterday. On a y-o-y basis, the economy grew 1.0% from 0.9% in the previous quarter.
US wholesale inventories
US wholesale inventories grew 0.4% m-o-m in April after rising 0.1% in March, data from the Commerce Department revealed yesterday. Markets had expected inventories to rise 0.2% during the month. Durable goods inventories advanced 0.1%, while non-durable goods inventories rose 0.8%. Furthermore, the department reported that wholesale sales increased 1.6% in April compared with the previous month.