The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 7.6 points up at 7:00 am.
New York: Wall Street rallied amid upbeat corporate earnings and Greece’s short term solution to its debt crisis that raised hopes of the country staying in the Eurozone. The S&P 500 advanced 0.8%, primarily led by the utility sector.
Asia: Markets are trading positive on encouraging cues from the global indices. The Nikkei 225 gained 0.3%, whereas the Hang Seng was trading 1.2% up at 7:00am, tracking the rise in Chinese shares.
Continental Europe: Equities ended in the green after the Greek parliament approved the reform plans and ECB provided emergency funds to the banks. France’s CAC 40 and Germany’s DAX were both up 1.5%.
Crude Oil: Yesterday, the prices of WTI crude oil decreased 1.0%, whereas those of Brent Crude Oil improved 0.8%. The spread between the two varieties stood at US$6.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.07% higher yesterday at 756.76. To read our latest research click here.
Today’s news
Yellen hints gradual rate hike
Fed Chair Janet Yellen indicated that the central bank plans to raise the interest rates in a gradual and prudent manner, considering the improvement in the labour market and the overall economy. However, Ms Yellen abstained from revealing any dates, stating that an earlier hike may threaten recovery, whereas a delayed hike may overheat the economy.
Eurozone confirms financial assistance to Greece
The Eurogroup finance ministers confirmed the grant of a three-year bailout to Greece. The ECB has extended the cap on the amount Greece’s central bank can lend to its banks by €900m (£627m) from around €89bn at the end of June.
Company News
Jubilee Platinum (LON:JLP) – Speculative Buy
The company is selling its non-platinum assets, executing a binding cash sale agreement for ZAR 110.5 million (circa £5.8m) at Middelburg. The company retains the right to 5MW platinum furnace at the Middelburg operations with secured power. Jubilee retains all intellectual property relating to the development of the Platinum in Waste processing strategy, valued at ZAR 100million ((circa £5.2m). The sale is subject to shareholder approval at a General Meeting. Proceeds from the disposal are capable of funding the capital required for the construction and commissioning of the Dilokong Chrome Mine platinum surface processing project. By way of a Special Purpose Vehicle, the sale is to Siyanda Resources Proprietary Limited, a respected mining and beneficiation specialist company.
Our view: The effect of the disposal to the Jubilee Group is that it will release cash to support the Group’s on going investment into platinum surface projects. In addition it will release significant management time spent on the Middelburg operations and will also enable management to focus on bringing the current projects to production and to grow the Group’s strategy of processing and producing its own PGM. Thus, exchanging assets with limited growth, medium cash generative with potentially high cash generative platinum assets, offering significant growth. We retain our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Jubilee Platinum plc
DekelOil Public Limited (LON:DKL) – Speculative Buy
DekelOil released the statement of its CEO, Mr Youval Rasin at the company’s Annual General Meeting held yesterday. According to the statement, the company continues to make good progress at its oil extraction Mill that commenced operations in February 2014. Production for the first six months of 2015 stood at 21,836 tonnes of Crude Palm Oil (CPO), up 53% on the total production figure for the first nine months of operation. Moreover, the company has several initiatives planned to increase the profitability of Ayenouan in 2016. Nearly 1,900 hectares of fresh fruit bunches (FFB) have been planted to date to augment the existing smallholder feedstock. The company also intends to add a kernel crushing plant to sell Palm Kernel Oil and animal feed to the local market at the factory gate when it becomes operational in Q4 2015. DekelOil also plans to focus on the development of the 24,000 hectares located at our second project area at Guitry.
Our view: DekelOil’s upgradation of the logistics system has given a major boost to the company’s overall efficiency in receiving the feedstock for processing. The company utilized the crucial harvesting season (March to June) to their advantage and surpassed its own estimates and production levels of 2014. Moreover, the installation of 60 tonne per hour Mil with a total capacity of 70,000 tonnes per annum underpins the progress made already while the scaling-up process continues. In addition, a Kernel Crushing Plant (KCP) at Ayenouan remains under construction and is expected to be operational in Q4 2015, thereby leading to an overall positive impact on the sale of sell Palm Kernel Oil and animal feed to the local market. Further, West Africa seems to be a promising destination for palm oil developers and continues to attract those who are seeking future expansion. Going ahead, we expect a sharp rise in the company’s profitability due to combined production from the existing plants and the new KCP. In view of the above argument, we reiterate Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to DekelOil Public Limited plc
Great Western Mining Corporation (LON:GWMO) – Speculative Buy
Yesterday, Great Western Mining (GWM) released an update on its M2 copper gold exploration target. As per the company, two site programmes have been completed on M2 with one of them conducted with Donald G Strachan, company’s independent geological consultant. The programme focused on Northern section of M2 and found that Copper and gold occur with hematite and magnetite in a different style known as Iron-Oxide-Copper-Gold (IOCG). The study further showed that the favourable geologic environment for IOCG mineralization besides the Bass Mountain is 4km long, more than 1 km wide and could be further extended in the southwest. The samples and mapping has identified that high value silver copper grades and thicknesses may exist along the M2 IOCG contact in the North and Southwest bass region. The upgradation of near surface M2 copper resource will include drilling bore holes south along extensions towards a thicker, more consistent and expected higher grade IOCG beneath Bass Mountain. As per Joint Ore Reserves Committee (JORC) gold (Au) is present in sub-ppm with copper (Cu) at a ratio of 1Au/50,000 Cu, implying that the M2 open pit copper resource includes 16,000oz (ounces) of Au. The ratio is expected to be same in grades projected besides Bass Mountain.
Our view: GWM is entering an exciting phase as the above developments give it an opportunity to explore the huge resources available in the M2 copper gold exploration target. The company has been able to increase the IOCG volumes and confirm on the positive conditions for high grade IOCG deposits. We expect the company to encounter substantial quantities of gold in these sites in wake of the steady copper gold ratio. Further, the identification of the two high grade silver-copper prospects adjacent to their main copper-gold target are likely to further boost the company’s overall prospects. Thus in view of the above, we reiterate a Speculative Buy on the stock.
Sports Direct International (LON:SPD) – Buy
Yesterday, Sports Direct declared its preliminary results for the year ended 26th April 2015. During the period, the company’s revenues increased to £2,833m, from £2,706m in 2014, led by 5.5% growth in the Sports Retail segment revenues. Gross margin for Sports Direct segment increased 1.7 percentage points to 44.6%, while the like-for-like (LFL) stores gross contribution in the segment was 7.4 % following a 10.5% rise in 2014. The improved revenues led a 15.7% rise in the underlying EBITDA to £383.2m and a 20.5% increase in underlying pre-tax profit to £300.3m. At the end of the period, the company’s underlying free cash generation was £301.8m and the debt was reduced to £59.7m. Consequently, the underlying EPS also improved 21.2% to 38.9p. On the operational front, the company remains on track to expand its operations and has already started construction of Shirebrook campus consisting of an additional warehouse and office facility, over an area of 700,000 sq ft. Further, Sports Direct strengthened its relationship with Debenhams by purchase of an extra strategic investment in the business, which subsequently increased its beneficial interest from 6.6% to 15.0%.
Our view: Sports Direct continues to deliver impressive results despite difficult trading conditions and a decline in Football craze due to England’s early exit from FIFA World Cup 2015 coupled with unusual weather conditions. The company has shown persistent improvement in financial performance and also met its target under the 2011 Share Scheme. Going ahead, we expect the company to improve its product range and availability, optimize its stores and web offerings and introduce further enhancements to its store portfolio. Moreover, Sports Direct expansion of its Shirebrook campus is expected to be complete later this year and is likely to enhance its training facilities for employees. Thus in view of the overall encouraging updates, we expect the company to maintain its growth momentum and create value for its shareholders. We retain out Buy rating on the stock.
Premier Oil (LON:PMO) – Speculative Buy
Yesterday, Premier Oil informed that the company along with its Joint Venture partners Talos Energy and Sierrra Oil & Gas has been granted Blocks 2 and 7 in Mexico’s Round 1 auction held in Mexico City on 15th July 2015. The blocks are situated in the shallow water Sureste Basin in the Gulf of Mexico, known for its highly productive hydrocarbons. The blocks are expected to have various leads and contain tertiary clastic plays which are typical of the Salinas sub basin. Further, Premier plans to acquire, assess and reprocess 3D seismic data in order to find drilling locations by the end of 2016.
Our view: Premier Oil continues to move to new geographies to remain competitive in a challenging industry. The company seems to be using the reduced oil price environment to increase its exploration expenditure even as its industry peers cut back on these investments. The aforementioned grant provides the company an easy and cost friendly entry to a region which is known for its abundant oil and gas resources. Owing to its strong asset base, we expect Premier to generate healthy cash flows to fund its future developments as well as manage its balance sheet. In view of the above optimism, we maintain a Speculative Buy on the stock.
Yesterday, Rio Tinto released its second quarter production update with rise in shipments across commodities except mined copper, and semi-soft and thermal coal. Iron ore production and shipments increased 9% y-o-y and 7% q-o-q to 79.7 Mt (million tonnes) and 81.4 Mt, respectively, despite the severe and unseasonal weather in the Pilbara. The key elements of the Pilbara 360 Mt/a infrastructure expansion have been completed and the focus now shifts to creating maximum value from these assets. The other key updates suggested that the Kitimat aluminium smelter in Canada poured first hot metal during the quarter. The progressive ramp up of production towards nameplate capacity of 420 thousand tonnes is expected to complete in early 2016. The signing of the Oyu Tolgoi Underground Mine Development and Financing Plan (UDP) UDP between the Government of Mongolia, Turquoise Hill Resources and Rio Tinto on 18th May 2015 represents a step forward to restart underground development at the copper project. This would be followed by the approval of the underground feasibility study and project financing, as well as obtaining required permits.
Our view: Rio Tinto posted a sharp rise in second quarter iron ore output on the back of massive expansion plans. The company struggled to maintain its top market position in China amid declining selling prices declined and the prevailing bad weather conditions. The company now expects to ship around 340 million tonnes of Iron ore during the 2015 fiscal, down seven million tonnes from its earlier projection but up 15% on a y-o-y basis. Kitimat smelter is now producing metal and the Oyu Tolgoi underground copper project continues to show good progress. Given the above and the company’s world-class assets, financial strength, and operating and commercial excellence, we retain our Buy rating on the stock.
Dixons Carphone (LON:DC.) – Buy
Yesterday, Dixons Carphone declared its final results for the 13 months ended 2nd May 2015. During the period, the company’s pro-forma headline revenue increased 2% and 6% on local currency basis to £9,936m. On a LFL basis, the revenue grew 6% reflecting the expansion in the UK & Ireland, Nordic and Greek. EBIT for the period was up 15% to £414m and the pre-tax profit rose £381m reflecting a lower interest charge y-o-y, following the redemption of the bonds previously held by Dixons Retail in August 2014. Consequently, the company’s EPS also improved to 25.5p from 20.5p a year ago. On 16th May 2014, the company entered into an agreement to sell its interest in Virgin Mobile France and completed the disposal on 4th December 2014 for gross consideration of £104m, generating a profit of £87m. The company also disposed of its non-core operations in France, Germany, the Netherlands and Portugal. Meanwhile, the Dixons Retail was merged with Carphone Warehouse and the integration is expected to deliver at least £80m of synergies by 2016/17. Capital expenditure in the period was £186m compared with £142m in 2014 due to investments in the honeyBee and the merger. Apart, the company declared an interim dividend of 2.5p per share, up from 2.0p per share last year and also proposed a final dividend of 6.0p per share, taking the total dividend for the year to 8.5p per share, a 42% increase on the previous year.
Our view: Dixons Carphone posted strong results for the year following the merger of Carphone Warehouse and Dixons Retail and become a Uk’s biggest electricals retailer selling phones to fridges. The company’s sales benefitted from high demand, discounted prices, customer service initiatives and better free delivery options. The demise of the mobile phone retailer Phones4U in the UK further helped the company’s business. Moreover, the customers responded quite well to the Black Friday shopping bonanza and the company continued to derive merger cost saving benefits. The company did remarkably well in the Greece and Spanish markets despite the economic uncertainty in these countries. Thus in view of the above and the progress of the integration, we expect the company to continue performing well in the future. We recommend a Buy rating on the stock.
Economic News
Eurozone CPI estimate
As per the estimates published yesterday by Eurostat, Eurozone reported consumer price inflation (CPI) of 0.2% y-o-y in June, matching economists’ projections of 0.2%. On a m-o-m basis, the CPI remained flat in June. Core prices, excluding those of energy, food, and tobacco, stood at 0.8% y-o-y, in line with the market expectations.
ECB main refinancing rate
The Governing Council of the European Central Bank (ECB) maintained its main interest rate at 0.05%, matching the market expectations. The deposit facility rate and the marginal lending facility rate were unchanged at -0.2% and 0.3%, respectively.
US initial jobless claims
The number of Americans that filed their first initial claims for unemployment benefits decreased by 15,000 to a seasonally adjusted 281,000 in the week ended 11th July, the Labor Department stated yesterday. Economists had forecasted a reading of 285,000. Last week’s reading was revised to 296,000 from 297,000. The four-week moving average of jobless claims rose 3,250 to 282,500 last week.