The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 7.9 points up at 7:00 am.
New York: Wall Street ended in the green amid optimism over positive developments in Greek debt talks. Moreover, investors cheered the unexpected rise in durable goods orders and new home sales. The S&P 500 gained 0.1%, with telecommunications leading gainers.
Asia: Equities advanced on positive cues from global indices. The Nikkei 225 rose to an 18-year high before adding 0.3% by close due to an underlying growth in the corporate earnings. The Hang Seng was trading 0.2% up at 7:00 am.
Continental Europe: Markets ended sharply higher on speculations of a Greece debt deal. In addition, an upbeat PMI report from the Eurozone and Germany lifted sentiment. France’s CAC 40 and Germany’s DAX advanced 1.2% and 0.7% respectively.
Crude Oil: Yesterday, Brent and WTI crude oil prices increased 1.8% and 2.2%, respectively. The spread between the two varieties stood at US$3.4 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.08% higher yesterday at 770.32.
Today’s news
UK factory order index at two-year low: CBI
According to the Confederation of British Industry’s survey, total order book balance fell to -7 in June, the lowest since July 2013, from -5 in May. The agency cited weak demand for export orders due to a stronger pound as the primary reason for the decline. However, the index remained above its long-run average of -15.
Company News
Alecto Mineral (LON:ALO) – Speculative Buy
Yesterday, Alecto Minerals announced that it has raised £300,000 gross through the placement of 300 million new ordinary shares of 0.01 pence each at a price of 0.1 pence per share with an existing institutional investor. The Placing Shares will represent nearly 21.43% of the company’s enlarged issued share capital of over 1.4 billion shares. The proceeds from the placing are expected to be used for exploring potential acquisition opportunities in Africa and other working capital requirements of the company. In addition, the company has made an application to the LSE for admission to trading on AIM. The new shares are expected to be admitted to AIM on 26th June 2015 and would rank pari passu in all respects with the company’s existing ordinary shares.
Our view: The successful placing of shares to raise £300,000 gross gives a boost to Alectos’s plans to advance negotiations for partnership opportunities at its West African gold assets. The company’s core portfolio comprises the KerbouléGold Project in Burkina Faso and the Kossanto East Gold Project with an estimated gold reserve of 247,000 ounces along with two promising gold projects in Ethiopia. Discussions are underway to establish a potential joint venture for the Kossanto West Gold Project. The company made remarkable progress in 2014, if the last fiscal results are anything to go by. To combat the slump in the gold price, the management undertook steps to reduce the monthly expenditures and also maintain the optionality of its present portfolio. It is also seeking exposure to more advanced projects through joint ventures or early monetization opportunities. With a strong balance sheet and successful fundraising, we believe the company is on the right track to become a prominent gold producer going forward. We expect the share prices to reflect the true value of the company’s assets once the gold price recovers and therefore retain Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Alecto Mineral plc
Motif Bio (LON:MTFB) – Speculative Buy
Motif Bio, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday announced a conditional placing of 44,000,000 new ordinary shares, through Zeus Capital and Northland Capital Partners as joint brokers to the Company, at a placing price of 50p per ordinary share with institutional investors to raise £22m. The Placing is conditional; inter alia, upon, i) Shareholders approving the Resolutions at the General Meeting; and (ii) the successful grant of the QIDP designation for iclaprim in the US (such grant not to be later than 24 July 2015). In the release, Graham Lumsden, CEO, noted: “At our IPO, we indicated that we would, with sufficient funding, be in a position to commercialise iclaprim within 36 months of our listing, and this fund-raising is key to realising this exciting goal. We are confident that we remain on target”. The net proceeds of the Placing will be used: (a) to complete preparations to enter Phase III trials with iclaprim, including: (i) ensuring that trial sites for the Phase III trials are set up and ready for the trials to be conducted; (ii) re-qualifying existing iclaprim API; (iii) formulating iclaprim clinical trial supplies; (iv) sourcing vancomycin clinical trial supplies, and (v) commencing the Phase III trials of iclaprim; (b) to fund part of the ABSSSI trials for iclaprim; (c) for additional preparations to enable “first patient in” in the second half of 2015; (d) to advance the Company’s portfolio, including potentially initiating the chemistry programme for MTF-001 and investing in external collaborations to potentially secure one or more novel antibiotic programmes from existing relationships that the Company has established; and (e) to start development work on an oral formulations of iclaprim and on exploring additional iclaprim indications and formulations.
Our view: It is always painful for retail investors to see discounted institutional placings that they are not able to participate in (such as this one) for their favoured holdings. That said, Motif had already made it clear that a large lump of new funding for clinical trials would be required by September. So at least the Group’s needs for the next 18 months or so are now in place. More to the point, adding three blue-chip institutional investors to its declarable shareholder list is a very significant endorsement of the technology and its opportunity. It probably also means that Motif will have continuing easy access to future funding for iclaprim’s later indications. The total cost for PhIII clinical trials for the skin indication appears to leave a shortfall of almost £10m outstanding although, given the significance of the development, it is quite realistic to imagine this being sourced from a charitable foundation such as, for example, The Wellcome Foundation. Whatever, having taken this step forward, Motif has positioned itself to proceed with its product development independently, rather than being forced to go ‘cap in hand’ to Big Pharma begging for cash. For shareholder’s this is very important. Whilst it is almost certain that the various different indications of iclaprim will eventually be farmed-in by the sector Giants who, ultimately, dominate late development and global commercialisation of prescriptive therapies, Motif’s bargaining position has now been strengthened considerably. The potential pay-off for early stage investors remains huge. Beaufort recommends Motif as a Speculative Buy and retains its price target of 110p/share.
Amphion Innovations (LON:AMP) – Speculative Buy
Amphion Innovations, the developer of medical and technology businesses, yesterday announced its Preliminary Results for the year ended 31 December 2014. Key Points included Adjusted NAV per Share at 19th June 2015 of 10p (15.7 US cents) and details of its successful AIM flotation of Motif Bio plc on 2 April 2015 at 20p per share. Since listing, Motif’s shares have risen sharply and are trading near 60p per share at which level Amphion’s holding is worth approximately £25m and, following the favourable December 2014 Appeals Court decision, DataTern expects to see some tangible progress during the next six to 12 months. Amphion’s business model continues to focus on starting and building high potential companies based on innovative and proprietary, but basically proven, technology. Revenue in 2014 was US$484,700 (2013: US$1,016,990) while total administrative expenses were US$3,494,351 in 2014 compared to US $3,593,735 in 2013. As a result, the operating loss for the year was US$3,009,651 compared with US$2,576,745 as reported in the same period of last year. Revenue remained below that of the prior period due partly to the absence of licensing income from DataTern and partly from the inability of Partner Companies to contribute management fees. Post-closing on 6th June, Amphion raised £1.54m gross with a view to paying don/restructuring existing debt and supporting DataTern’s patent litigation programme. Yesterday, it also detailed the fact that it did not participate in Motif Bio’s further equity placing that raised a further £22m for the company, thereby taking Amphion’s direct and fully diluted participation down to 29% of the enlarged business.
Our view: Amphion’s high value portfolio of early stage tech, IP and physical science investments appears significantly undervalued. It is, of course, presently dominated by the recent and very successful quotation of Motif Bio, whose opportunity has now been highlighted by the entrance of several blue chip institutions into the Company’s share register. Elsewhere, however, clear value can also be ascribed to its other minority holdings, which include close to 12% of AIM-quoted Kromek, plus private equity participations in AXCESS Intl. Firestar Software, m2m Imaging, PrivateMarkets and WellGen, all of which made progress during the period. All are being prepared for independent market quotation or trade sale, with m2m Imaging possibly at the front of this queue. The 100%-owned and consolidated DataTern, which was awarded a favourable ruling from the FCCA in Q2’2014’s MicroStrategy case, is expected to result in a financial award or settlement before the end of this year. The value of the Group’s current direct holding in Motif Bio (pre-placing) alone is almost 50% higher than Amphion’s entire market capitalisation. Adding the remaining quoted (at market) and private interests (using the most recent FMV assessment) before subtracting all outstanding debt, suggests a prudent value of Amphion of almost £29m, or over twice its market capitalisation. Interestingly, recent IPO’s of early stage other tech/biotech development vehicles (like PureTech, Allied Minds, etc.), suggest the market is happy to pay between a 1.2x and 1.3x premium to FMV for such investments. Notwithstanding this, Amphion is presently a cheap way into Motif Bio, while also finding itself positioned to offer exciting newsflow from its portfolio in the coming months, including potential ‘bonanza’ opportunity from favourable IP litigation. We assign a Speculative Buy rating to the stock.
International Greetings (LON:IGR) – Speculative Buy
Yesterday, International Greetings announced its audited preliminary results for the year ended 31st March 2015. Revenues for the period improved 2% and jumped 4.5% at like for like exchange rates to £229.0m as record volumes of gift packaging and greetings were sold worldwide. Underlying operating profits in Europe soared 32% following the successful acquisition and integration of Enper BV Giftwrap in Holland. Pre-tax profits, exceptional items and LTIP charges jumped 21% to £9.2m against £7.6m in 2014. Consequently, the diluted earnings per share before the exceptional items increased 29% to 10.7p from 8.3p a year ago. Cash from operations rose 18% to £17.9m from £15.2m and net debt reduced 20% to £29.4m from £36.9m, thereby bringing down the leverage to 1.8 times. On the operational front, a major capital investment in the Wales production facility was completed. A new gift bag manufacturing facility was installed in China that is expected to be deployed throughout 2015/16. During the period, the company also won major licenses including new franchises with Disney and Universal Studios. The board recommended a full year dividend of 1p for the fiscal.
Our view: International Greetings reported an impressive set of results for the year that saw an increase in revenues and cash balances along with a decline in debt position. Moreover, the resumption of dividend payment, a year ahead of schedule, signifies the confidence and the ability of the company to deliver meaningful business returns to its shareholders. The company possesses a full strength management team that continues to look around for opportunities to grow both organically and through well considered acquisitions. A widespread geographic reach provides varied revenue streams with diversification benefits. Thus, eyeing the overall performance of the company on all counts, we reiterate a Speculative Buy on the stock.
Mariana Resources (LON:MARL) – Speculative Buy
Yesterday, Mariana Resources reported a further increase in the high grade gold-copper (Au-Cu) intercepts from the ongoing drill program at the Hot Maden Project, located in the eastern Turkey. Assay results from the drill holes HTD-12 through HTD-14, demonstrated continuity of a very high grade Au-Cu core within the mineralised Au-Cu zone. Also, the mineralisation remains open to the south as well as both up dip and down dip. Drill hole HTD-13, the ‘step back’ hole to test the down-dip extension to the HTD-05, intersected 109.9 metres (m) @ 11.9 grammes per tonne (g/t) Au and 1.13% Cu from 259.1m. Drill hole HTD-12 successfully intersected 38m @ 3.0 g/t Au and 1.74% Cu from 227.0m and drill hole HTD-14 intersected a north west-trending, post mineralization fault zone.
Our view: The encouraging updates from the pending assays have verified the continuation of the high grade Au-Cu body at the Hot Maden prospect along with a surrounding Zinc halo. The mineralization extends in several directions, thereby providing an opportunity for further expansion. The model is expected to be helpful in not only assessing the resource potential but also guiding the search for extensions through better understanding of the mineralization in the area. The Hot Maden project was acquired in January 2015 through the acquisition of Aegean Metals Group that fully owns the Hot Maden (Au-Cu) and Ergama (Au-Ag) prospects in Turkey. Additionally, the company possesses other promising prospects in Peru, Argentina, Suriname and Chile. The company’s strategy focuses on acquiring prospective land packages offering the high probability for economic returns. The company’s other successful gold-silver discovery campaigns include Las Calandrias Project and Sierra Blanca Project. Thus, in view of the company’s promising asset base and its track record for previous explorations, we maintain a Speculative Buy rating on the stock.
Economic News
Germany manufacturing PMI
As per the data released by Research Group Markit, the reading for the manufacturing PMI of Germany for June 2015 stood at 51.9, above May’s reading of 51.1. The market had expected a reading of 51.2.
Eurozone manufacturing PMI
Manufacturing PMI for the Eurozone climbed to 52.5 in June 2015, a 14-month high, from May’s 52.2, data from Markit Economics showed yesterday. The reading was ahead of the market estimate of 52.2.
US durable goods orders
US durable goods orders fell 1.8% m-o-m in May following a revised decline of 1.5% in April, the Commerce Department said yesterday. The reading fared worse than the economists’ expectations of 1.0% reduction. Excluding a 3% drop in the orders for transportation equipment, durable goods orders edged up 0.5% in May after falling 0.3% in the previous month.
US manufacturing PMI
The flash Markit PMI for the US declined to 53.4 in June, lowest since October 2013, falling behind 54.0 in May. The analysts, on the other hand, were expecting the reading to improve to 54.1.
US new home sales
New home sales in the US improved 2.2% to a seasonally adjusted annual rate of 546,000 units in May, the Commerce Department said yesterday. The annualised sales figure for April was revised up to 534,000 from the previously reported 517,000. Economists had expected new home sales to increase at a slower pace of 1.2% recording annualised rate of 523,000. The median price of a new home stood at US$282,800 in May, marking a 2.9% decline from the previous month.