The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 2.7 points down at 7:00 am.
New York: Wall Street continued its winning streak for the fourth straight day, amid the earning season’s commencement and a modest recovery in oil prices. Developments in Greece also remained in focus. The S&P 500 advanced 0.5%, with the healthcare sector leading gainers.
Asia: Markets are trading mixed, despite 7% growth in China’s GDP for the April–June period and positive growth in industrial output and retail sales. The Nikkei rose 0.4% as the Bank of Japan kept the monetary policy unchanged at the end of its two-day review meeting. The Hang Seng was trading 0.7% lower at 7:00 am.
Continental Europe: Equities ended in the green, amid stabilization in oil prices following Iran’s nuclear deal. Meanwhile, speculations were rife that the Greek parliament would pass the legislation needed to get a third bailout. France’s CAC 40 and Germany’s DAX increased 0.7% and 0.3%, respectively.
Crude Oil: Yesterday, WTI and Brent Crude Oil prices increased 2.8% and 1.8%, respectively. The spread between the two varieties stood at US$5.5 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.37% higher yesterday at 755.14. To read our latest research click here.
Today’s news
Carney hints at earlier interest rate hike
At the Parliament’s Treasury Committee meeting, the Bank of England’s Governor Mark Carney stated that the time for an interest rate hike was ‘moving closer’ in the country. He cited steady growth, stable domestic costs and a stronger sterling as the primary reasons for the recent economic recovery. The BoE has held rates at a record low of 0.5% for over six years since the financial crisis.
Company News
Providence Resources (LON:PVR) – Speculative Buy
Yesterday, Providence Resources informed that it has been granted an 18-month extension to Licensing Option (LO) 13/04 (till 30th November, 2016) by the Irish Minister of State at the Department of Communications, Energy and Natural Resources. The extra time given by the ministry would ensure the completion of various technical studies, including the important Lower Jurassic source rock expulsion model. The LO constitutes the Silverback exploration project, which is estimated to produce around 1.36bbo (billion barrels of oil). The LO is fully operated by Providence and is located in the South Celtic Sea Basin, nearly 125km off the south coast of Ireland at 100 metres water depth.
Our view: Providence Resources continues to focus on its strategy of expansion in the potentially under explored regions. The aforementioned licensing extension is another step towards the same as it is likely to provide easy access to the abundant oil resources present in that area. We expect the company to conclude some key studies on the source rock modelling during this period. In addition, the company has recently recognised several shallow buried Cretaceous four-way dip-closure at the Newgrange prospect and also improved its capital position by raising US$28m through a combination of open and institutional offer. In light of the above developments, we maintain our Speculative Buy rating on the stock.
W Resources (LON:WRES) – Speculative Buy
Yesterday, W Resources informed that the Environmental Department of the regional Government of Extremadura has granted environmental permit for development of the company’s Fast Track Mine (FTM) at the La Parrilla tungsten mine in Spain. The approval came in earlier than anticipated and allows the Mining Department to advance with the development approval for the FTM, expected in September 2015.
Our view: The grant of environmental permit takes W Resources a step closer to the commencement of production at its La Parrilla tungsten mine in 2016. The site is believed to have the largest tungsten deposits in the western world with expected resources of around 46.92 million tonnes at 0.09%. The site is well connected to the highway via a 3km road with easy availability of water and electricity. Further, the government’s strong support for the project is likely to boost the company prospects. The FTM is expected to be completed by next year and would start production of 1,200 to 1,300 tonnes of 66% tungsten trioxide concentrate and 110 tonnes of tin per year. The full mine is anticipated to be operational by 2018, and would produce at a rate of about 5,000 tonnes of tungsten trioxide and 400 tonnes of tin. In addition, the company has also taken several measures including metallurgical and ore test work in Germany, infill drilling and equipment testing and selection to accelerate the project construction. Thus in view of the overall optimism, we reiterate a Speculative Buy on the stock.
AstraZeneca (LON:AZN) – Hold
Yesterday, AstraZeneca informed that the US FDA has approved its drug IRESSA (gefitinib), 250mg once daily, for the first-line treatment of patients with metastatic non-small cell lung cancer (NSCLC). The drug was granted the orpahan status by the Drug Designation by the US FDA in August 2014 for the treatment of EGFR mutation-positive NSCLC. The company has also partnered with QIAGEN to provide the therascreen® EGFR companion diagnostic test for IRESSA in the US. The test rapidly identifies EGFR mutation status through a tumour tissue sample, in order to guide the use of IRESSA in the treatment of patients with metastatic NSCLC.
Our view: The approval of IRESSA by the FDA is an encouraging development for AstraZeneca and the physicians and patients of metastatic NSCLC, as now they have a new choice of first-line treatment. The company has been a flag-bearer for of research into targeted therapies for EGFR mutated lung cancer and looks forward to bringing more new drugs to improve the outlook for patients at all stages of the disease. The company has of-late made advances with some orphan drugs that substantiated the company’s capability in developing drugs for rare and typical diseases. It enjoys a well diversified portfolio and drug pipeline that has been further strengthened by the recent additions of medicines for the opioid induced constipation and several others in oncology. However, the recent termination of the co-development contract with the Amgen and the negative revelations regarding the behavioural impacts of Brodalumab, have put a question mark to the labelling and the future commercial appeal of the drug. On the other hand, The company has been facing some growth related concerns as some of its key medicines face patent expiry the coming years and may be substituted by cheaper generics. Despite all this, AstraZeneca continues its stronghold in the pharmaceutical industry with several drugs in the research stage. Therefore, we retain our Hold on the stock.
Yesterday, Carillion released a trading update for the first half of 2015, ahead of its interim results to be declared on 26th August 2015. During the period, the company witnessed substantial improvement in the revenues due to progress on contract mobilizations in support services. The overall performance was in line with the expectations and Carillion expects to deliver better results for the entire year. positive operating cash flows were seen in the first half owing to the improved profit figures and the non-operating cash flows are also expected to rise due to investments in PPP (Public Private Partnership), acquisitions and pensions. In view of the above investments and payment of the 2014 final dividend in June 2015, the company expects a minor increase in the net borrowing for the half year to £200m (31st December 2014: £177.3m). The company started 2015 with secured and probable orders worth £18.6bn and made a record revenue visibility of 85%. For the first half of 2015, the revenue visibility is expected to increase to around 96% and the value of total orders to be about £17bn. Meanwhile, Carillion’s pipeline has increased to over £40bn from £39.2bn at the beginning of the year. Separately, the company also announced that it has been granted a contract worth £80m by BP in Oman for its Khazzan gas project, located 350km South West of Muscat. The deal specifies building of accommodation facilities which comprise of an operational base, residential complex for 250 people and other infrastructure buildings. The work on the deal is expected to commence in September 2015 and complete by mid-2017.
Our view: Carillion’s expected strong performance in the first half amid challenging situations in UK shows its resilience to deal with such circumstances. The company is on track to deliver expected revenue, margins and healthy cash flows for the entire year despite the slowdown in contract awards due to the UK General Election. Going ahead, expected improvement in market conditions, rise in the number of orders and an increase in pipeline contracts would likely help the company achieve its target and remain competitive. Further, company’s latest contract in Oman mirrors its strong brand image in the sector to deliver high quality solutions. In view of the above argument, we reiterate our Buy rating on the stock.
Economic News
Germany CPI
Consumer price inflation (CPI) in the Germany stood at -0.1% m-o-m in June following a similar decrease in the month of May and was in-line with economists’ projections, as per the estimates published yesterday by Destatis. On y-o-y basis, consumer prices rose 0.3% y-o-y, following a similar increase last month. Core prices, excluding those of energy, advanced 1.3% y-o-y.
UK CPI
The UK consumer price index (CPI) remained flat in June, after a 0.2% increase in May, and declined the market expectations by 0.1%, the Office for National Statistics (ONS) said yesterday. On y-o-y basis, consumer inflation remained flat in June, in line with the market estimates after rising 0.1% in the previous month. Core consumer price inflation – which excludes energy, food, and tobacco – was recorded at 0.8% y-o-y in June, after a 0.9% increase in May.
UK PPI
The UK producer price index (PPI) output remained flat in June, following a rise of 0.1% in May, 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 1.5% in June, decelerating from a decline of 1.6% seen in May. The reading matched the market forecast.
Germany ZEW survey
The Centre for European Economic Research/ZEW reported that the German economic sentiment slipped to 29.7 in July from 31.5 in June, as against the market expectation of fall to 29.0. Meanwhile, the gauge of current situation increased to 63.9 in July from 62.9 in the previous month, exceeding the market expectations of an index reading of 60.0.
US advance retail sales
US advance retail sales fell 0.3% m-o-m in June after rising 1.0% in May, the Commerce Department said yesterday. The reading came in line behind the market expectations of a 0.3% rise. Excluding the sales of motor vehicle and parts, retail sales dipped 0.1% in June, below the expected improvement of 0.5%.