The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 1.10 points up at 7:00 am.
New York: Wall Street ended in the green, as focus shifted to the Fed’s two-day meeting that concludes today, from Greece’s debt negotiations. The S&P 500 added 0.6%, with consumer staples leading the gainers.
Asia: Equities are trading mixed ahead of the outcome of the Fed’s monetary policy meeting. The Nikkei 225 ended 0.2% lower, led by weak trade data for May as exports missed expectations. The Hang Seng was trading 0.9% up at 7:00 am, ahead of an important vote on an electoral reform package.
Continental Europe: Markets rebounded despite concerns over Greek debt negotiations. Investors await the decision on an interest rate hike and other policies from the Fed. Germany’s DAX and France’s CAC 40 climbed 0.5% each.
Crude Oil: Yesterday, Brent and WTI crude oil prices increased 1.7% and 0.8%, respectively. The spread between the two varieties stood at US$3.7 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.41% lower yesterday at 767.66.
Today’s news
House price growth in UK decelerates in May: ONS
According to the Office for National Statistics (ONS), house price growth in the UK slowed to 5.5% y-o-y in May after a 9.6% gain in April. The average house price increased 5.8% in England and 2.2% in Scotland, whereas it declined 4.3% in London, its lowest since October 2012.
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).
Hummingbird Resources (LON:HUM) – Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced today an improved technical study on its 1.8Moz Yanfolila gold project in Mali. Highlights from the technical studies show improved pit slopes of Komana East and Komana West deposits with oxide pit slopes at 40-44 degrees (vs 30-33 degrees from optimisation study) and fresh rock pit slopes at 52-56 degrees (vs 36-45 degrees). Overall, this will increase the recoverable ounces to 553,000oz or by 38% compared with the optimisation study. In addition, an orientation drilling grid (40m) for grade control was completed at Komana East with 35 holes for 1,004m at 5m x 5m spacing covering 30 vertical meters (3 benches) with the best intercepts returning 8m grading 11.29g/t (KEGRC0002) and 11m grading 8.22g/t gold (KEGRC0006). At Komana West a 50m orientation grid was completed over starter pit with 62 holes for 2,459m at 5m x 5m spacing covering 30 vertical meters (3 benches), best intercepts returned 3m grading 17.34g/t (KWGRC0036) and 6m grading 9.12g/t (KWGR0060). Plant earthworks are progressing well with 75% completion against a planned 55% completion by this time.
Our view: We are encouraged with the progress being made on the technical studies from the Yanfolila gold project. The improved pit slope design for Komana East and Komana West should significantly increase recoverable ounces thereby allowing Hummingbird to focus on the two initial pits and simplify the mining process during early mine life while leaving the additional three pits (Sanioumale East and West and Guiren West) to be developed later. Hummingbird continues to technically de-risk Yanfolila while potentially improving the overall project economics. With the 1.8Moz Yanfolila project continuing towards near term production and the 4.2Moz Dugbe project providing additional upside, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Hummingbird Resources plc
Kefi Minerals (LON:KEFI) – Speculative Buy
Yesterday, Kefi Minerals announced that it had conditionally raised £2.9m gross through the placement of 362.5 million new Ordinary Shares of 0.1p each at a price of 0.8p per share. The proceeds from the funding would be used towards the next phase of development at the Tulu Kapi project in Ethiopia and other exploratory endeavours. Permission has been sought from the shareholders to issue shares for cash on a non-pre-emptive basis at the AGM. The shares are expected to be admitted to the AIM Market of the LSE on 19th June 2015. The placing of shares was facilitated by Brandon Hill Capital Limited and Beaufort Securities Limited along with a subscription direct with the company by Ausdrill International. The company has also granted warrants to Brandon Hill and Beaufort to subscribe 12,156,250 and 2,343,750 Ordinary Shares, respectively, exercisable for three years at the Placing Price. Following the admission, KEFI will have 1,744,447,480 Ordinary Shares in the issue.
Our view: The successful raising of capital signifies that the company remains on track to commence gold production in the near term. The project financing is at an advanced stage and with completion of the definitive feasibility study; the company expects to make development commitments with short-listed project financiers in Q3 2015. In a short span of two years, Kefi Minerals has managed to enhance its Mineral Resources and Ore Reserves from 200,000 oz and nil respectively to approximately 2 million ounces and 1 million ounces. The company is well placed to experience more good news as two of its major prospects – Tulu Kapi and Jibal Qutman – are expected to commence production over the next two years. Kefi is the operator of these two advanced gold development projects within the highly prospective Arabian-Nubian Shield and expects them to be cash generative in the near term. The company has enjoyed unstinted support from the local governments in terms of tax breaks and other permits. Therefore, in view of the company’s rapid progress on its prospects, we reiterate a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Kefi Minerals plc
W Resources (LON:WRES) – Hold
Yesterday, W Resources announced the completion of mine development study at the La Parrilla Mine in Spain. The study, covering a span of six months, is expected to provide a considerable opportunity for production enhancement. The company has decided to develop the Mine in two stages. The Fast Track Mine (FTM) would use the existing concentrator plant from La Parrilla tailings project and produce at a rate of 1,200-1,300 tonnes per annum of 66% WO3 concentrate and 110 tonnes of 52% tin concentrate from mid-2016. On the other hand, the full mine (FM) would be developed in 2017-18 with an aim to improve the production to 5,000 tonnes per annum of tungsten (WO3) concentrate and 400 tonnes of tin. The other project highlights indicate an operating cost of US$121/mtu after tin credit. The initial capital outlay is projected to be US$16.0m in 2016, followed by an estimated US$36.0m for development of the full mine in 2017-18. Incorporation of the latest ore-sorting and jigging technology support a metallurgical recovery of 72% at low operating costs. The first production of tin concentrate not only boosted the revenues but also lowered unit tungsten costs while increasing the concentrate grade.
Our view: The strong results from the Definitive Feasibility study reaffirm La Parilla’s position as a cost efficient and a highly competent mine. The most prominent recent development from the company’s camp was the connection of the La Parrilla tailings to the Spanish national power grid. In addition the exploration at the CAA/ Portalegre gold project has also shown good progress and the company is in the process of seeking partners for the farming opportunities. Régua project development in Northern Portugal was substantiated at total resource of 4.46 million tonnes at a grade of 0.308% WO3. However, like many other metals, tungsten prices remain considerably below the price levels seen four years ago. The company awaits an environmental approval in December to commence the timely development of the fast track mine. Presently, the company is looking at a time span of two-three years for the production to reach full capacity. Thus we would like to wait to get some more clarity on the tungsten demand levels, its prices and the production capacity of the company. We downgrade the stock to a Hold for now.
Yesterday, Flowgroup announced a significant reduction in the expected number of boiler installations for 2015. On 4th June 2015, the European Court of Justice ruled that the reduced 5% rate of VAT on energy-saving products was in breach of EU laws and therefore the new VAT to be levied would be at the usual 20%. The move has pushed the company to step up its cost reduction programme to offset these additional expenses. Though the UK government has not made its position completely clear in the case, yet the company has initiated steps to ensure that the customers are not affected. As part of the plan, the company intends to make further modifications to the product specification and re-launch the ‘Boiler that pays for itself’ campaign in Q4 2015. Flowgroup also informed that its target cash flow generation by Q4 2015 and the profitability by Q1 2016, may take longer to be realised.
Our view: Considerable amount of uncertainty has been added to the company’s prospects in view of the changes to the tax system. The reduced VAT rate was a UK Government initiative under its Green Deal to promote energy efficient products such as the Company’s Flow boiler. The tax break gave the company a considerable upper hand and a good proposition to the customers at competitive pricing. The roll back of these benefits is likely to hurt the company in the near term as is evident from the change in the company’s installation programme that has to be rolled back in wake of these developments. The company is not in a position to transfers these costs to the customers and therefore it needs to make significant refinements to the product specification. The company’s initial projection for cash generation by the year and the subsequent profitability in the next year has been pushed back tentatively. Though we still feel that the market of the Flow Energy business remains attractive but we would like to adapt a wait and watch approach in view of the above changes and therefore move the stock to a Hold for now.
Crest Nicholson (LON:CRST) – Buy
Crest Nicholson released its half-yearly results for the six months ended 30th April 2015. Revenues for the period grew 38% to £333.2m in 2015 and the gross profit jumped 32% to £91.8m. Operating profit for the six months jumped 42% to £63.6m due to controlled administrative expenses. Consequently, pre-tax profit climbed 52% to £58.3m and the basic earnings per share improved 51% to 18.6p. On the operational front, the housing legal completions rose 3% to 1,124 and the open market unit completions were up 8%. Sales per outlet week pre Private Rental Sector sales were 12% higher at 0.93. Housing revenue were 29% up on 2014, reflecting volume growth and an improved Average Selling Prices. The overhead efficiency pushed up the operating margins 60bps to 19.1% and the full year growth expected to be in range of 20-25%. During the period, the company’s strategic and short-term pipelines saw several additions and gross development value rose 22% to £10.1bn. The mid-June 2015 forward sales stood at £436.4m, up 26% against the previous year. The company also proposed an interim dividend of 6.4p per share, up 56%. Crest’s future plans include growing towards 4,000 homes and £1.4bn revenue by 2019.
Our view: Crest Nicholson reported a strong trading update riding on the robust demand and improving economic scenario. The operational results were benefitted from the growth in sales, average selling prices and earnings. The improved purchaser confidence, rising disposable income along with the availability of competitive mortgages, bode well for the company. The company was further benefitted from its disciplined approach to land buying and ramping of strategic pipelines. Crest Nicholson is likely to maintain the growth momentum for the rest of the year as its forward sales data looks impressive. With the general elections over, the company can look forward to a period of greater certainty for the business and future prospects. Given the above, we feel that the company remains in a strong position to create long term wealth for the shareholders and therefore reiterate a Buy on the stock.
Yesterday, Dignity announced that it had signed a conditional sale and purchase agreement to acquire 36 funeral locations out of the 83 owned by Laurel Funerals for a cash consideration of £38m. Four of these funeral locations are freehold properties. The acquisition would be considered complete only on transfer of trade and assets to a new entity, LMF Management Services Limited. The acquisition is expected to be completed on or around 13th July 2015. Additionally, the locations being acquired generated EBITDA of £4.1m in the year ended 31st December 2014 and the total gross assets of the locations being acquired stood at nearly £9.5m as on 28th February 2015. Also, the company has arranged a £26.25m debt facility with the Royal Bank of Scotland (RBS), which will be secured against the assets being acquired.
Our view: Dignity’s acquisition of 36 funeral homes comes as major event in its efforts towards consolidation. The highly fragmented nature of the business offers an opportunity to acquire independents units, in line with Dignity’s long-term growth strategy. The acquisition would give the company a chance to expand its geographical presence and cater to a wider segment of the market. The deal enhances the company’s prospects to deliver improved services and facilities to its customers. The strong market position of the company and a steady demand for services is likely to ensure stability to the business. Additionally, the company continues to control its operating costs and makes an efficient use of the balance sheet to enhance shareholder returns. Given the above positives and a series of smaller acquisitions in its kitty, we hold a positive view about Dignity’s future prospects. We retain our Buy rating on Dignity.
Yesterday, Whitbread reported its trading performance for the 13 weeks to 28th May 2015. Total sales firmed up 12.5% y-o-y, while like-for-like (LFL) sales rose 4.3%. The Premier Inn, total sales increased 14.3%, while LFL sales went up 6.3%. Sales in the Restaurants segment rose 1.6%, and inched up 0.1% on LFL basis. The Hotels and Restaurants segment witnessed an overall sales improvement of 9.9% with the LFL sales rising 4.1%. For Costa, total sales and the LFL sales advanced 17.2% and 5%, respectively. Further, the company issued a £450m, 3.375% bond due in 2025. The capital investment for the year is expected to be around £700m. The company’s plans for the current year include opening around 5,500 new Premier Inn UK rooms and 250 new Costa stores worldwide. Besides the growth in the committed UK project pipeline to 13,339 rooms, construction remains on track for 42 new hotel sites and 19 hotel extensions.
Our view: Whitbread put up an impressive performance in the year so far. The strong growth in the Costa and Premier Inn brands more than made up for the weakness in the Restaurants segment and the well-developed nature of various brands and segments facilitated strong business diversification. Meanwhile, the robust market demand ensured steady business and the company’s plans to open new hotels and stores across the world would give it access to a wider customer base. In the year ended 26th February 2015, Whitbread’s revenues reportedly increased 13.7% to £2.6m and the underlying pre-tax profit was £488.1m, up 18.5%. The growth milestones for 2020 included an increase in the Premier Inn UK rooms to around 85,000 and global system sales of nearly £2.5bn for Costa. Given, the strong growth potential of the various segments and the future expansion plans of the company, we retain our Buy rating on Whitbread.
Economic News
Germany CPI
Consumer price inflation (CPI) in the Germany stood at 0.1% m-o-m in May following an unchanged reading in the month of April and was in-line with economists’ projections, as per the estimates published yesterday by Destatis. On y-o-y basis, consumer prices rose 0.7% y-o-y, following a 0.5% increase last month. Core prices, excluding those of energy, advanced 1.3% y-o-y.
UK CPI
The UK consumer price index (CPI) grew 0.2% m-o-m in May, following a similar reading in April, and matched the market expectations, the Office for National Statistics (ONS) said yesterday. On y-o-y basis, consumer inflation improved 0.1% in May, in line with the market estimated and offset a similar decline in the previous month’s reading. Core consumer price inflation – which excludes energy, food, and tobacco – was recorded at 0.9% y-o-y in May, after a 0.8% increase in April.
UK PPI
The UK producer price index (PPI) output inched up 0.1% m-o-m in May, following a similar rise in April, the Office for National Statistics said yesterday. Economists had forecasted a PPI output growth of 0.1% for the month. On y-o-y basis, output prices were down 1.6% in May, decelerating from a decline of 1.7% seen in April. The reading matched the market forecast.
Germany ZEW survey
The Centre for European Economic Research/ZEW reported that the German economic sentiment slipped to 31.5 in June from 41.9 in May, as against the market expectation of lesser fall to 37.3. Meanwhile, the gauge of current situation fell to 62.9 in June from 65.7 in the previous month, marginally missing the market expectations of an index reading of 63.0.
US housing starts
US housing starts tumbled 11.1% to a seasonally adjusted annual rate of 1.036 million units in May, after climbing 22.1% in the previous month, the Commerce department said yesterday. Housing starts were reported at a revised 1.165 million units in April. The reading missed the market expectation of 1.09 million units.