The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 39.20 points up at 7:00 am.
New York: Wall Street ended in the green on encouraging developments in Greece and upbeat growth in existing home sales on the domestic front. The S&P 500 added 0.6%, primarily led by the energy sector.
Asia: Equities are trading higher on positive cues from global markets. The Nikkei 225 rose 1.9% after reaching a 15-year high. The Hang Seng was trading 0.8% higher at 7:00 am, as China’s PMI was better than expected despite contraction.
Continental Europe: Markets ended significantly higher, as Greece and its creditors were close to agreeing on a deal after Jeroen Dijsselbloem, head of the Eurogroup of Eurozone’s finance ministers, informed the latest reform proposals from Greece were ‘broad and comprehensive’. France’s CAC 40 and Germany’s DAX advanced 3.8% each.
Crude Oil: Yesterday, Brent and WTI crude oil prices increased 0.5% and 0.1%, respectively. The spread between the two varieties stood at US$3.7 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.23% higher yesterday at 769.73.
Today’s news
Greece close to signing debt deal
Yesterday, the Eurozone’s finance ministers in Brussels welcomed the latest reform package from Greece, which comprises cuts in the pension bill and includes raising additional money from VAT. The European leaders may sign a deal this Thursday, which could avert Greece’s exit from the Eurozone and a debt default on payments.
EU extends sanctions against Russia
The European Union (EU) extended economic sanctions, including access to some financial markets and ban on certain technologies, against Russia for its destabilising role in the conflicts in Eastern Ukraine. The sanctions, which were due to expire in July, would now expire on 31st January 2016.
Company News
San Leon Energy (LON:SLE) – Speculative Buy
Yesterday, San Leon issued a notice to its shareholders that an extraordinary general meeting (EGM) would be held on 15th July 2015 at the Herbert Park Hotel, Ballsbridge, Dublin 4, Ireland. The resolutions to support the Share Capital Reorganisation, the Rule 9 Waiver and the Placing would be proposed at the meeting.
Our view: The announcement for the EGM comes close on the heels of a proposal to raise £29m, earlier this month. The proceeds are expected to fund the progress at the Rawicz and Siekierki projects in Poland and also pay for the Tarfaya licence onshore where drilling would begin in Q3 2015. The company would issue a total of 36.25 million new shares at a price of 80p, thereby increasing the capital base by around 140%. The company recently identified over 50 billion cubic feet of proven and probable (2P) gas reserves at the Rawicz project, which may commence production in 2016. Meanwhile the company’s others prospects seem to be gaining momentum following the spudding of the Gierałtowice prospect and the oil discovery at the Sidi Moussa block in Morocco. The financial backing from the Toscafund Asset Management and its increased stake in San Leon, further reaffirms our faith in the company’s ability to drive growth in future. Thus in light of the above developments, we retain a Speculative Buy on the stock.
Providence Resources (LON:PVR) – Speculative Buy
Providence Resources issued a technical update for the Newgrange Prospect at the Goban Spur basin located offshore Ireland. The preliminary evaluation of the 2D seismic data for the newly acquired southern Porcupine Polarcus, confirmed the presence of a significant 1000 sq. km four way dip closed structure and also enhanced the structural and stratigraphic imaging of the previous 2D seismic data. The Newgrange prospect reservoir has demonstrated low seismic velocities of nearly 3,000 metres/sec against those seen in the offset 62/7-1 well. Moreover, shallow gas effects were interpreted in the northwest side of the prospect and work continues towards evaluation of the underlying stacked Jurassic potential. Providence Resources holds an 80% stake in the prospect and operates FEL 6/14 on behalf of its partner Sosina Exploration.
Our view: The presence of the shallow buried Cretaceous four-way dip-closure at the Newgrange prospect bodes well for the company as it is far more significant than the Kinsale Head gas field. The prospect also enjoys higher pressure regime due to its deep water location. As the company continues further assessment of the prospect, we believe that Newgrange remains a promising deep-water exploration proposition through a combination of material and high density prospective resources and low exploration drilling expenses. Recently, the company improved its capital position by raising US$28m through a combination of open and institutional offer. Additionally, discussions are underway over the Barryroe asset with various counterparties that may help in unlocking its true value. Thus in view of the above developments, we upgrade the stock to a Speculative Buy.
Tullow Oil (LON:TLW) – Buy
Yesterday, Tullow Oil announced the Settlement of its Capital Gains Tax (CGT) dispute with the Government of Uganda and the Uganda Revenue Authority (URA) with respect to the farm-downs to CNOOC and Total in 2012. Following the discussions, the company would pay US$250m, comprising US$142m already paid in 2012 and US$108m to be paid in three equal instalments of US$36m until 2017, as a full and final settlement of its CGT liability. Tullow had disputed the URA’s assessment of US$473m of CGT payable following the farm-downs and appealed against the assessment before the Uganda Tax Appeals Tribunal (TAT) and commenced an International Arbitration in September 2013. In July 2014, the TAT rejected Tullow’s appeal and assessed its liability for the farm-downs at US$407m less US$142m already paid. The company had recorded a contingent liability of US$265m in its 2014 accounts. Subsequently, the company appealed to the Ugandan High Court and continued with its International Arbitration claim.
Our view: Following CGT dispute settlement, Tullow’s legal proceedings regarding the Ugandan High Court and its International Arbitration claim have been withdrawn. The above ruling comes as good news for the company following the recent favourable ruling by the Tribunal court that left the drilling operations at the company’s TEN project unaffected. The company is expected to report a net profit of US$131m this year and remains well funded to payback the remaining US$72m cost to the government. Moreover, the company’s other assets also hold a lot of promise as the company has shifted focus to the high quality, low cost production assets in West Africa so that they may sustain even at the low oil prices. The company’s share prices were penalised for an industry wide problem of reduced oil prices such that it swung to losses in 2014 for the first time in 15 years. The lower share prices are not justified in view of the strong asset base and sound fundamentals and therefore we retain a Buy on the stock.
John Laing Group (LON:JLG) – Buy
Yesterday, John Laing Group issued a pre-close trading update for the half year ending 30th June 2015. The company has committed overall investments worth £72m and witnessed good levels of bidding activity across Europe, North America and Asia Pacific. On the investment front, the company committed an investment of £41m in February 2015 for the Public Private Partnerships for the Sydney Light Rail project. The company also invested in two wind farm investment commitments in the Q2 2015 for £31m in renewable energy with an estimated installed capacity of around 55MW, in Ireland and Sweden. Total realizations for the period stood at £42m as three operational renewable energy assets sold in April 2015. Further disposals are in progress, in line with the company’s target for the full year. The company also announced that its shares would be included on the FTSE250 Index from 22nd June 2015. The current investment portfolio comprises first train for Phase 1 of the Intercity Express Programme for the UK rail network and the first distribution from Manchester Waste projects. The company also reached an agreement with the Victorian Government on 15th June 2015 regarding the cancellation of the East West Link project, resulting in the return of the company’s investment commitment. The company contributed £27m in late March 2015 to the John Laing Pension Fund in line with the agreed deficit recovery plan. The company’s outlook for the year remains strong in both PPP and renewable energy. Full year investment commitment target remains at £150-200m, with potential commitments weighted towards the second half of 2015.
Our view: John Laing Group is an infrastructure fund that primarily invests in government backed infrastructure projects such as the UK Department for Transport’s Intercity Express Programme, the Manchester Waste projects, New Royal Adelaide Hospital and Denver Eagle P3. Therefore the company’s revenue model is inflation linked and allows it to pay dividends that may grow faster than inflation. John Laing is on track to achieve its full-year targets as the market demand remains strong for secondary infrastructure investments. The company’s key projects under construction are advancing as per schedule and the operational projects continue to perform in line with the guidance. Following its return to the stock market after eight years in January, the company now possesses the financial resources to drive its growth in the UK and other international markets and take advantage of the many opportunities in both the PPP and Renewable Energy sectors. Thus in view of the promising outlook, we recommend a Buy rating on the stock.
Economic News
Eurozone consumer confidence
The gauge of Eurozone consumer confidence remained unchanged at -5.6 in June from a revised similar reading in May and came ahead of the expected -5.8, the European Commission said yesterday.
US existing home sales
Existing home sales in the US climbed 5.1% to a seasonally adjusted annual rate of 5.35 million units in May from an upwardly revised 5.09 million units in April, the National Association of Realtors announced yesterday. The reading was above the market expectation of 5.26 million units.