The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 5.8 points down at 7:00 am.
New York: Wall Street closed moderately higher, as the Fed held the interest rate constant without revealing the timing of a rate hike. The central bank cut GDP forecast for 2015 to 1.8-2%, but raised long-term growth estimates. The S&P 500 added 0.2%, with utilities leading the gainers.
Asia: Equities are trading lower. The Nikkei 225 shed 1.1%, as the Bank of Japan commenced its two-day policy meeting. The Hang Seng was trading flat at 7:00 am, as Hong Kong’s government vetoed a China-backed electoral reform package.
Continental Europe: European markets ended in the red, as investors cautiously scrutinised the developments in Greece while awaiting the conclusion of the Fed’s two-day policy meeting. France’s CAC 40 and Germany’s DAX contracted 1.0% and 0.6% respectively.
Crude Oil: Yesterday, the prices of Brent Crude Oil increased 0.3% whereas that of WTI crude oil declined 0.1%. The spread between the two varieties stood at US$4.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.22% lower yesterday at 765.94.
Today’s news
BoE unanimously votes to keep interest rates unchanged
The minutes of the Bank of England (BoE)’s Monetary Policy Committee ended 3rd June indicated policymakers voted 9-0 to keep interest rates unchanged at 0.5%. The report stated the UK’s monetary policy would be determined by inflation in the country and would not rely on the actions of other central banks.
Decline in Chinese house prices slows in May
China’s National Bureau of Statistics stated house prices in the country fell 5.7% y-o-y in May after a 6.1% drop in April. However, the prices rose 0.2% m-o-m, the first increase in over an year. China’s central bank bolstered the property market by reducing interest rate cuts in May to boost lending, as a weak property market is a major risk for the country’s economy.
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).
Xtract Resources (LON:XTR) – Speculative Buy
Xtract Resources, the diversified exploration and development company focused on production from its Chepica copper and gold mine in Chile, announced today an operational update and its return to profitability. Production during the month of May had a profit before capital outlay of US$150,000 and management expects a cumulative profit of US$400,000 for the quarter two months ahead of its planned return to profitability. Operationally, Chepica’s off reef development has increased from one to four ends to open up new areas for stoping including: two ends at Chepica Main, one end at Colin and one end at Theoni. On reef development has increased from one to three ends: two at Colin and one at Theoni. At Chepica Main, the entrance and surrounding area is being supported with wire-mesh and shot-crete to prevent any block failure for the coming rainy season. Development at Colin is continuing from the footwall to access the continuation of the reef system. Access is currently at 45m below surface and development will allow access to a depth of 85m via a decline. Borehole results confirm continuity of mineralisation with intersections of 5.5m grading 5.05g/t Au, 11.48% Ag and 0.77% Cu (Borehole CH100) and 5.9m grading 1.77g/t Au, 11.56% Ag and 1.14% Cu (Borehole CH101). At Theoni, a new portal has been cut and development is currently underway to intersect mineralisation approximately 60m from current access. The drive is being developed as an exploration drive and drilling is planned to compliment further development. Finally at Salvadori, mining continues on surface and a second cut has been developed after the first cut was mined out. Xtract has engaged a geological contractor to collate all geological information and build a 3-D model of all ore bodies. In addition, the contractor will assist in the mining lay-out as well as the 3,000m drill programme currently planned.
Our view: Xtract has made significant process since acquiring Chepica and turning around mine operations into generating profits. We continue to be encouraged with the increased mine flexibility at Chepica as management expects to have three major areas ready for stoping within four months. We also look forward to continued mine profitability as well as updates from the drilling program and resulting resource estimates. As such, we see consistent production delivery with the increased mine flexibility that should have a significant positive impact on mine profitability moving forward. We maintain our Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Xtract Resources plc
Tertiary Minerals (LON:TYM) – Speculative Buy
Tertiary Minerals, the AIM-listed company focused on the identification, acquisition, exploration and development of mineral projects in the fluorspar sector, yesterday announced a 67% increase in the updated total resource estimate (JORC compliant) for its MB project in Nevada, USA. Salient features of the updated mineral resource estimate, prepared by Wardell Armstrong International, include a combined Indicated and Inferred categories of 86.4Mt grading 10.7% CaF2 (using a 9% CaF2 cut-off grade). Management believes that the higher grades and thick intersections recently identified in the Western Area during Phase 3 drilling could represent an area near the core of the mineralised system. The MB fluorspar deposit remains open at depth and in all lateral directions. Tertiary is currently planning a geophysical programme to focus on the geology and structural controls with the aim of targeting higher grades and increasing an already large mineral resource estimate.
Our view: We are encouraged with the continued progress being made at MB and this latest resource estimate confirms our belief that MB project is a world class and strategic fluorspar asset. The maiden resource (see RNS dated 16 April 2014) had a total JORC compliant resource (Indicated and Inferred categories) of 38.4Mt grading 10.4% CaF2 (using a cut-off grade of 8% CaF2). We look forward to more details of the geophysical programme and continued development of the MB deposit. In the meantime, we reiterate a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Tertiary Minerals plc
Ormonde Mining (LON:ORM) – Speculative Buy
Yesterday, Ormonde Mining declared its final results for the year ended 31st December 2014. The operating losses for the period narrowed to €1.6m from €1.8m in 2013 due to the absence of any write-off in exploration costs. Consequently, the basis loss per share decreased to €0.0036 from €0.0045. On the other hand, in January 2014, the company received the environmental permit for Barruecopardo tungsten project in Spain. Its Spanish subsidiary, Saloro SL, obtained the Mining concession in November 2014. Fairport Engineering Limited has completed the basis engineering work and other preparations for the development of the project have been put in place. Beyond the above period, the company secured a funding package of US$99.7m from Oaktree Capital Management in April 2015. The package is divided between project equity of US$44.2m and project debt of US$55.5m, for a 70% stake for Oaktree interest in a new JV company named Barruecopardo JV.
Our view: The above update suggests that the company is well-placed to develop the Barruecopardo project into an important low cost, long life tungsten mine. The company has the potential for significant expansion and may become a major supplier of tungsten to the European countries. Moreover the availability of a financing package for the company’s flagship project would ensure rapid progress towards development stage in 2015. Oaktree is a major alternative investment manager with nearly US$90.8bn of assets under management by the end of 2014. Its interest in the project underpins the credibility of the underlying potential. Apart, Ormonde is also making progress towards divesting its interest in the La Zarza Copper-Gold Project in order to focus on the development of its project at Barruecopardo Thus, with the tungsten project gathering momentum, we maintain a Speculative Buy on the stock.
Berkeley Group Holdings (LON:BKG) – Buy
Yesterday, the Berkeley Group Holdings announced its unaudited preliminary results for the year ended 30th April 2015. Revenues for the period soared 30.8% to £2,120.0m and the operating profits widened 39.8% to £524.1m. Pre-tax profits jumped 42% to £539.7m, supported by the positive results from a share in joint ventures. Consequently, the earnings per share grew 41.1% to 313.0p. The company’s other financial fundamentals indicated a net cash of £430.9m against £129.2m in April 2014 whereas the net asset per value rose 12.5% to 1,199p from 1,066p in 2014. Sale of a portfolio of ground rent assets fetched £99.8m for a profit of £85.1m. On the operational front, 28 new or improved planning consents were secured and a new joint venture with National Grid, targeting the delivery of over 7,000 new homes from 10 initial sites was established. Land holdings increased to 37,473 plots compared with 35,963 plots in April 2014 and the cash due over the next three years on forward sales stands at £2,959m. Apart, the company also announced an interim dividend of 90p per share payable in September 2015, marking the first milestone payment of 434p per share. The company expects the outlook to remain positive with normal market conditions with good underlying demand aided by a decisive General Election result.
Our view: The impressive final year results and the soaring pre-tax profits are testimony to the fact that Berkeley is a master of financial discipline and unlocking land for new homes. Berkeley made great strides in the land holdings front, securing five new sites, 28 planning consents and moving eight new sites into production. The company delivered nearly 10% of all new homes in London and 10% of the capital’s affordable homes across 74 sites. With substantial cash due from the forward sales, the company is well positioned to deliver consistent profits for the upcoming years. On the other hand, the overall improvement in UK’s economic scenario with better employment opportunities and rising wages bodes well for the housing business. Also, the company sits in a comfortable financial position as its balance sheet continues to be strengthened by cash inflows due on robust forward sales. A clear mandate in the general elections provides political stability to the country at a national level leading to a historically low cancellation rates of 10%. Despite the recent run up in the share prices over the past one month, we believe there is further upside potential to the company in view of the encouraging business conditions. Thus we maintain a Buy on the stock.
JD Sports Fashion (LON:JD.) – Buy
Yesterday, JD Sports Fashion released its trading statement for the shareholders at the Annual general meeting. The company has made an encouraging start to the new fiscal with strong trading in the first 19 weeks. The level of sales in Europe remained upbeat despite the adverse impact of a weaker euro on the margins in JD stores outside the UK. The company expects to continue trading in line with the expectations for the year ending 31st January 2016 even as the comparatives from the previous year remain challenging.
Our view: The new fiscal has started on a strong note aided by an improving economic scenario and upbeat business conditions. For the year ending 31st January 2015, the company reported robust growth, defying strong comparatives from the previous year. The outstanding rise in the top-line and the overall profits were driven by the company’s exclusive premium brand offerings that continue to attract customers and suppliers alike. Further, the company’s high standards of visual merchandising provide a robust platform for further profitable growth, at home and in international markets. The company’s ongoing efforts to boost the product offering and customer experience resulted in the strong performance of the Sports Fashion and the encouraging turnaround in the Outdoor division. JD Sports Fashion commands a strong balance sheet and is well positioned to deliver robust revenue and earnings growth. We believe that the strong growth momentum is likely to continue in this year as well in view of the improving macroeconomic scenario and rising real wages in the UK. Thus we retain a Buy on the stock.
Economic News
UK Jobless Claims Change
UK jobless claims in May fell 6,500, to 791,800, the Office for National Statistics said yesterday. Markets had expected claims to drop by a higher margin of 13,800. The claimant-count rate stood at to 2.3% in May, missing the expected reading of 2.2%.
UK ILO unemployment rate
UK unemployment rate dropped to 5.5% in the three months ended April, from 5.7% in the three months ended January, the International Labour Organisation (ILO) stated yesterday. The reading came in line with street expectations. Compared to the earlier three months (November- January), the number of unemployed fell 43,000 to 1.81 million.
Eurozone CPI
Consumer price inflation (CPI) in the Eurozone rose 0.2% m-o-m in May in line with the previous month and the economists’ projections, as per the estimates published yesterday by Eurostat, the EU’s statistical office. On y-o-y basis, inflation improved 0.3% in May compared to flat change in April, but came in line with expectations. Core prices, excluding those of energy, food, and tobacco, grew at 0.9% y-o-y in May.
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, fell 5.5% in the week ended 12th June, following an 8.4% decline in the preceding week, the Mortgage Bankers Association said yesterday. The refinance index dropped 6.9% from last week while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 4.2%.
US FOMC meeting
The US Federal Reserve Open Market Committee (FOMC) maintained the benchmark interest rate at a record low of 0-0.25% at the conclusion of its two day meeting yesterday. The inflation rate is not expected to rise to the Fed’s 2% target until 2017. The Fed also downgraded its GDP forecast for 2015 to 1.8%-2%, from 2.3% to 2.7%, due to an adverse winter.