The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 19.90 points down at 7:00 am.
New York: Wall Street ended lower amid disappointing quarterly earnings from several blue chip stocks. The S&P 500 declined 0.4%, with the telecommunication sector losing the most.
Asia: Markets are trading lower, tracking the decline in global indices. A fall in commodity prices further impacted investor sentiment. The Nikkei 225 decreased 1.2%, whereas the Hang Seng was trading 1.1% down at 7:00am.
Continental Europe: Equities ended in the red as investors focussed on corporate earnings reports and the prices of major commodities. Germany’s DAX and France’s CAC shed 1.1% and 0.7%, respectively.
Crude Oil: Yesterday, the prices of Brent and WTI crude oil increased 0.7% and 0.4%, respectively. The spread between the two varieties stood at US$6.7 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.03% higher yesterday at 758.21. To read our latest research click here.
Today’s news
Osborne tightens government spending plans
UK Chancellor George Osborne announced his spending review, with a proposal to slash £20bn from the Whitehall budgets in the next four years. The Whitehall departments are advised to cut their budgets by 40% and ensure savings of 25%. Furthermore, the Chancellor has ordered ministers to sell off publicly owned land to provide at least 150,000 homes by 2020.
Company News
Northcote Energy (LON:NCT) – Speculative Buy
Yesterday, Northcote Energy informed that the Lutcher Moore #20 well (LM#20) targeting the Frio formation at the Shoats Creek Project in Louisiana, encountered an approximately ten-foot pay section in the Frio 5030′ sand formation. The company has commenced completion measures by setting the production casting. Northcote has been able to get 2-3 feet structurally higher than the Luther Moore #16 well, and expects an increase in the reserves recoverable. The company has also scheduled for perforation and testing for the week of 27th July, the test rates for the same to be declared later.
Our view: The aforementioned well was drilled as a twin to Lutcher Moore #16 well, which produced over 100,000 barrels of oil prior to casing failure in 1984. Further tests would confirm the commercial viability of the well. A good cement job and good perforation of the pay zone are key elements required to make a solid well. The company’s engineers will work on the final phases of completion and analyze the logs to make the best possible well that could eventually improve initial production and maximize long term recovery. Further, Northcote’s prospects in Mexico are expected to witness huge activity and plans are in progress to expand the operations to Indonesia to extend the company’s international presence. Thus, in view of the above argument, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Northcote Energy plc
Ariana Resources (LON:AAU) – Speculative Buy
Yesterday, Ariana Resources announced the confirmation of new gold targets at the Kepez and Karakavak prospects at the Kiziltepe Sector of the Red Rabbit Gold Project in western Turkey. The company has identified various new vein systems carrying significant quantity of gold and silver at Karakavak by conducting follow-up soil and rock-chip geochemical programmes. Ariana also encountered coincident gold (>20 ppb (parts per billion) Au) and silver (>150ppb Ag) soil anomalies along the 1,800m stretch in Kepez West. The construction at the site is expected to start shortly, ahead of the first gold pour in second half of 2016, with a target of around 20,000oz (ounces) per annum.
Our view: Ariana’s new gold targets at the Kiziltepe Sector strengthen the huge resource potential of the Red Rabbit Gold Project, currently having JORC (Joint Ore Reserves Committee) compliant resource of 475,000oz of gold equivalent. Kepez West and Karakavak are high priority resource development areas located close to Kiziltepe, expected to have various important drilling targets. The company has started the construction of its resource base at the Kiziltepe sector and expects the production to start by next year. Going ahead, Ariana plans to carry out the drilling programmes in the prospects along with the construction of Kiziltepe mine. Thus, in view of the above developments, we reiterate a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Ariana Resources plc<
Kibo Mining (LON:KIBO) – Speculative Buy
Yesterday, Kibo Mining informed that its Joint Development Agreement (JDA) with Chinese engineering company SEPCO III, has met all necessary conditions and now possesses unconditional status. Kibo had recently signed the JDA with SEPCO III for the Mbeya coal-to-power project (MCPP). Both the parties have also finalised the detailed work schedule and implementation plan to complete Bankable Feasibility Study (BFS) for the project.
Our view: The unconditional status of the JDA with SEPCO III is an important milestone for Kibo as it moves a step closer to the development of MCPP. The BFS is now funded to completion and the implementation of JDA now provides the company with access to SEPCO III’s technical capabilities and its robust EPC providers. The company plans to leverage on the expertise of its strategic partner and expects to increase the pace of the project along with maintaining the highest international standards. In addition, Kibo has projects in the Lake Victoria Goldfields in southern Tanzania, with around 700,000oz JORC compliant gold resource and the highly prospective Haneti nickel project in central Tanzania. We expect the company to take advantage of the stable operating environment for the mineral resource industry in Tanzania and continue to develop its prospects. Therefore, we reiterate a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Kibo Mining plc
San Leon Energy (LON:SLE) – Speculative Buy
Yesterday, San Leon Energy announced the removal of Polish licenses from its portfolio, in line with its new long term strategy. San Leon relinquished the Czersk, Budzów, Ilawa and Praszka licences. Meanwhile, its interests in the Bieszczady area having eight license blocks would be taken up by PKN ORLEN.
Our view: San Leon’s relinquishment of licenses supports its long-term strategy to focus on development and production. The company is likely to save on the annual license fees on the relinquished Polish license while remaining committed to the remaining acreage in Poland including the Baltic Basin shale licence and the newly found gas at the Rawicz field. Going ahead, the company plans to take different steps apart from portfolio adjustment to achieve its new strategy. Meanwhile, San Leon’s other prospects are gaining momentum following the spudding of the Gierałtowice prospect and the oil discovery at the Sidi Moussa block in Morocco. Therefore, we reiterate a Speculative Buy on the stock.
Frontier Resources International (LON:FRI) – Speculative Buy
Yesterday, Frontier Resources International announced that it has conditionally issued over 42 million new ordinary shares at 0.35p per placing share to raise £148,413 gross, following the first placement on 17th July 2015 to raise £205,000. The new shares are expected to be admitted to LSE’s AIM on 27th July 2015 for trading. Directors Jack Keyes and Neil Herbert have subscribed £25,900 for 7,400,000 shares and £25,000 for 7,142,857 shares, respectively, from second placing at the placing price. The company owed an aggregate of £435,557 to Mr Keyes and Mrs Spurrier and has settled £54,444.63 of the Director Debt through the issue of 15,555,607 new ordinary shares. Following the issue of the Placing Shares, the Director Settlement Shares, the Loan Conversion Shares and the Adviser Shares, the Company’s issued share capital now stands at 290,532,540 Shares, with voting rights.
Our view: The successful second placing bodes well for the company especially after the AGR Energy Limited No. II and parties could not complete the subscription as planned. The proceeds ensure that the company would be able to fulfil its immediate working capital requirements and carry out its operations seamlessly. Recently, the company informed that it likely to proceed with drilling without the need for a 3D seismic survey at Block 38 in Oman and it seeks to enter into farm-out discussions with Middle East-based partners for the same. This would not only attract important potential partners, but also limit Frontier’s risk exposure in the asset. The company’s strategy looks promising as it boasts of significant technical know-how for oil and gas exploration and development in the Middle East and Southern Africa region. In view of the great potential of these assets and an aggressive exploration strategy of the company, we maintain a Speculative Buy rating.
Beaufort Securities acts as corporate broker to Frontier Resources International plc
Royal Mail Group (LON:RMG) – Buy
Yesterday, Royal Mail issued a trading update for the three months ended 28th June 2015. During the period, the trading remained broadly in line with expectations with revenues remaining flat owing to a 2% rise in the parcel revenue and a drop of 2% and 4% in the UKPIL and letter revenue, respectively. Parcel volumes increased 3%, due to growth in the low AUR import parcels and a 20% increase in Parcelforce Worldwide whereas the pricing in this segment remains quite competitive. Addressed letter volumes decreased 5%, excluding the election mailings and the total letter volume declined 4%. On the other hand, GLS continued to perform well driven by continued good performance in Italy and Germany. GLS revenues and volumes rose 8% and 9%, respectively. The company’s outlook remains unchanged with focus on cost control measures. The company plans to announce its results fro the half year ending 27th September 2015 on 19th November 2015.
Our view: The company continued to build on the lead from the previous year and benefitted from the parcel initiatives that took effect in the second half of last year. Despite a challenging trading environment, the GLS contributed positively to the overall revenues of the company. Royal Mail maintains a tight control on the costs to drive efficiency, growth and innovation. However, its letter division continues to face competitive headwinds especially with Amazon delivering an increasing number of parcels with its own delivery network, thereby undermining Royal Mail’s prospects. An effective capitalisation of structural trends in e-retailing and the optimisation of the traffic mix are likely to boost the performance of the parcel business in the coming period. Thus in view of the overall optimism, we retain our Buy rating on the stock.
Economic News
UK public finances
UK’s public borrowing fell to £9.4bn in June from £10.2bn in the previous year, as per the Office for National Statistics (ONS). The net borrowing for the first three months stood at £25.1bn, a 20% decline compared to April-June period of the last year. The tax receipts rose by £0.3 bn to £11.5bn, highest level since 1997. The corporation tax was £1.7bn, up 13.9% y-o-y.