The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 14.90 points up at 7:00 am.
New York: Wall Street ended in the red following a decline in technology companies’ earnings. The S&P 500 slipped 0.2%, with the information technology sector losing the most.
Asia: Markets are trading higher on reports that the Greek Parliament has approved a second package of policy changes early this morning. The Nikkei 225 advanced 0.4% on optimism surrounding domestic earnings, especially after better-than-expected results from Nidec Corp. The Hang Seng was trading 0.5% up at 7:00am, tracking the Chinese market, which reported gains for the sixth consecutive session.
Continental Europe: Equities ended lower amid disappointing quarterly results from US technology stocks. Furthermore, a decrease in commodity prices also hurt investor sentiment. Germany’s DAX and France’s CAC shed 0.7% and 0.5%, respectively.
Crude Oil: Yesterday, WTI and Brent Crude Oil prices fell 2.3% and 1.6%, respectively. The spread between the two varieties stood at US$6.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.63% lower yesterday at 753.40. To read our latest research click here.
Today’s news
BoE ending closer to interest rate hike
The minutes of Bank of England (BoE)’s 8th July meeting indicated an increase in the interest rate this year, especially in light of Governor Mark Carney’s speech last week. The decision on the interest rate would be taken in the Monetary Policy Committee (MPC) meeting in August.
UK records highest car production in seven years
As per figures from the Society of Motor Manufacturers and Traders (SMMT), the number of cars produced in British factories increased 5.4% to 143,759 in June. For the first half, production stood at 793,642 cars, 0.3% higher than during the same period in 2014 and the highest since 2008.
Company News
MySQUAR Limited (LON:MYSQ) – Speculative Buy
MySQUAR, the Myanmar-language social media and entertainment platform whose principal activity is to design, develop and commercialise Myanmar-focused internet-based mobile applications, yesterday released an update in its user acquisition numbers. These continue to deliver quite exceptional growth, with total user numbers as at 17th July 2015 surpassing the important milestone of 1,000,000. This represents an increase of approximately 29 % on total users as at 31 May 2015 being 774,636 total users as stated in the Company’s AIM Admission Document and an increase of approximately 10% in total users since 30th June, as announced on 8th July 2015.
Our view: In the world of social media, there are generally one or two big winners and a whole crowd of losers. Timing, of course, is everything! Enormous value has been created by ‘internet-build’ enterprises simply being in the right place at the right time. MyCHAT appears to ‘tick both of those boxes’, by offering the first and only such Burmese-language platform in what is, realistically, the world’s last major telecom frontier. With network coverage expanding and a tech-hungry population gaining access to ultra-cheap Android-based smartphones for the first time, MySQUAR’s user numbers have now started to compound dramatically – and, as has been seen so often with operators in other territories, the gathering momentum becomes quite hard to stop. The Group operates comprehensive marketing campaigns, celebrity endorsements and launch events that are coupled to strategic partnerships with telcos, device manufacturers and mobile phone retailers (who install MySQUAR Apps bundles when ‘cracking’ each product sale). Quite simply, MySQUAR is becoming the Myanmar’s local language ‘go to’ site for social media, with increasing long-term value being attributed to its brand name. Acquisitive global operators with very deep pockets are likely to recognise this fact along with their quite urgent need to position themselves in the country. Soon or later, MySQUAR could be approached, and any agreed take-out or partnership agreement would likely be at a significant multiple of today’s price. We retain our Speculative Buy recommendation on the stock.
Beaufort Securities acts as corporate broker to MySQUAR Limited
Ferrum Crescent (LON:FCR) – Speculative Buy
Ferrum Crescent, the direct reduction (DRI) pellet developer focused on its Moonlight iron project in Limpopo Province, South Africa announced yesterday an update regarding the first funding payment due under the BFS financing agreement with Principle Monarchy Investments (PMI). Following a meeting with PMI, Ferrum understands that the company has concluded a financing agreement which enable it to fulfil all of its stated immediate commitments under the BFS agreement with Ferrum for the advancement of the Moonlight project. Ferrum also announced that Hatch Goba has formally agreed to be engaged as the lead study consultant for the BFS. Details of Hatch Goba’s work plan will be provided once the first ZAR2m payment has been received.
Our view: While the first payment of ZAR2m was initially, under terms of memorandum signed on 5 May 2015, to be made by 1 June 2015, Ferrum’s Board remains confident that PMI will conclude of all financial arrangements in the coming weeks and fulfil its immediate commitments. We are encouraged with the engagement of Hatch Goba as lead study consultant and look forward to details of Hatch Goba’s work plan. In the meantime, we reiterate our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Ferrum Crescent plc
Motif Bio (LON:MTFB) – Speculative Buy
Motif Bio plc, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday announced that, further to the Company’s announcement on Friday 17 July 2015, the US Food & Drug Administration has designated iclaprim, a broad-spectrum antibiotic designed to be effective against multi-drug resistant bacteria, as a Qualified Infectious Diseases Product (‘QIDP’) for hospital acquired bacterial pneumonia (‘HABP’), the final condition of the £22 million placing which was announced on 23 June 2015 has been satisfied. As a result, the Company now expects that admission and dealings in the 44,000,000 placing shares (the ‘Placing Shares’) will commence on 27th July 2015. The Company requested QIDP designation for iclaprim for two serious and life threatening infections, HABP and acute bacterial skin and skin structure infections (‘ABSSSI’). QIDP designation has been confirmed for HABP and an additional administrative step has been requested by the FDA in order to confirm QIDP designation for ABSSSI. Motif has already complied with the requested additional administrative step and is awaiting confirmation of the grant of QIDP designation for ABSSSI from the FDA, which is expected shortly.
Our view: This news highlights iclaprim’s enormous opportunity, another important milestone passed and the value being created by Motif Bio management. QIDP designation, provided under the Generating Antibiotic Incentives Now Act (‘GAIN Act’), makes iclaprim eligible for certain incentives, including priority review and fast track designation. QIDP designation also means that iclaprim is eligible for an additional five-year extension of Hatch-Waxman exclusivity, giving a total of 10 years of market exclusivity which will run from the date of approval. This is clearly a very exciting time for Motif. Given the opportunity already identified in HABP and ABSSSI together with a number of other potential indications, the prospective market value for this novel antibiotic is very large indeed, potentially running in billions of US$. The much publicised global need for such new drugs means that iclaprim must already be under review by Big Pharma, with a view to farming-in to Motif’s opportunity in exchange for financing late stage development and subsequent commercialisation. Realistically, such an outcome might be expected before end-2016. The value this will accrue to Motif should then be quite considerable. Beaufort repeats its Speculative Buy rating for Motif Bio and confirms a price target of 110p/share.
FinnAust Mining (LON:FAM) – Speculative Buy
Yesterday, FinnAust Mining announced the appointment of Roderick McIllree as its non-Board interim Chief Executive Officer (CEO). Mr. McIllree holds a Bachelor of Science degree (Mineral Exploration and Mining Geology), and a Post-Graduate Diploma in Mineral Economics. He has over 20 years of experience operating in both the resources and financial sectors, having worked as an exploration geologist, a mining analyst and a corporate adviser. He was the founder and Managing Director of ASX listed Greenland Minerals and Energy Ltd up until August 2014 and is currently a Non-Executive Director of AIM listed Noricum Gold Limited.
Our view: FinnAust’s association with Mr. McIllree is likely to prove beneficial for the company as he brings his rich experience and knowledge regarding the mining sector and global financial markets to the table. The company is at an exciting juncture as it continues to plan the next phase of its existing Finnish assets. Presently, results from the recent 15,000m diamond drilling programme are being assessed and several local geophysical programmes in and around the Outokumpu belt in Finland are also being completed. With the appointment of Mr. McIllree, the company’s focus is expected to shift to define and execute the company’s strategy. Given the above developments and the company’s possession of several prospective high-grade copper, zinc and nickel assets, we maintain a Speculative Buy on the stock.
ARM Holdings (LON:ARM) – Buy
Yesterday, ARM Holdings announced its results for the second quarter (Q2 2015) and half year (H1 2015) ending 30th June 2015. The company’s revenues for the H1 2015 increased 22% to £456m led by an improvement of 41% in the technology royalty. For Q2 2015, the company’s revenue climbed to £228.5m from £187.1m in Q2 2014, due to the adoption of latest technologies. The Processor licensing and royalty revenues rose 3% and 31% y-o-y, respectively for the quarter. Meanwhile, the interim dividend for Q2 2015 increased 25%. The operating expenses for H1 2015 stood at £199.3m, an increase of 16% as compared to H1 2014. Pre-tax profits expanded 28% to £244.4m followed by an improvement in the EPS to 14.40 from 11.02. On the operational front, ARM Holdings signed 54 processor licenses to implement biometric sensors for mobile payments. Further, it also subscribed to a new licence with a major Chinese OEM, signed 7 ARMv8-A processor licences, 9 Mali™ multimedia processor licences and 5 POP IP licences to keep it updated the latest technology in the market. On a year on year basis, the ARM based chips shipped increased by 26% to 3.4bn.
Our view: ARM Holdings made huge investments in advanced technology products, automotive applications and enterprise infrastructure as it signed licenses for many of these products. The developments were widely accepted in the market, as the company delivered a strong half yearly performance. We expect the royalty revenue to grow faster owing to company’s recent signing of new licenses and the rise in royalty per chip in mobile devices. The company is likely to meet its full year revenues guidance if the macroeconomic changes do not hold back consumer spending. Going ahead, the company plans to make investments to develop innovative products and enhance shareholder returns. In light of the above argument, we reiterate a Buy rating on the stock.
EasyJet (LON:EZJ) – Buy
Yesterday, EasyJet announced its trading update for the quarter ending 30th June 2015. The reported revenue per seat declined 5.4% to £59.08, which was better than the company’s initial guidance in May. The trading in UK and beach routes across Europe during May and June along with effective execution of revenue management initiatives helped in delivering a good commercial performance. The total revenue for the company decreased 1.0% to £1,228m, while the capacity improved by 4.7% to 20.8 million seats. During the period, EasyJet carried a total of 19.1 million passengers, up 6.2% and the load factor grew 1.3% to 91.7%. The company witnessed an increase in cancelled flights to 1,463 in the quarter compared to a total of 648 flights cancelled in the same period last year. The increased cancellations were mainly due to the difficult operational environment arising out of increased levels of disruption including French ATC (Air Traffic Control) strike action and the fire at Rome Fiumicino. The money market deposits and net cash stood at £930m and £421m, respectively. EasyJet also had savings worth £7m, mainly through its airport and ground handling activities.
Our view: EasyJet continues to deliver its strategy to offer flights at low fares with improved performance in the UK and beach routes across Europe. With around 77% of the seats booked for the second half of 2015, the company expects the pre-tax profit to be in the range of £620~660m for the year ending September compared to £581m in the previous year. EasyJet has expanded its bases in Italy at Milan, Malpensa and Naples and awaits the opening of a new base in Venice from April 2016. Further, the company also plans to open a new base at Barcelona with three based aircraft from February 2016. We believe the company’s expansion in new geographies would improve the earning prospects and provide them extra cost flexibility. In view of the above developments, we maintain a Buy rating on the stock.
DFS Furniture (LON:DFS) – Buy
Yesterday, DFS Furniture released a trading update for the year ending 1st August 2015, with the financials reported till 18th July 2015. The company recorded a 7% increase in gross sales on a y-o-y basis, while the gross sales for the second half advanced 4%. The decline in second half revenues compared to the first one is attributed to more demand of the comparatives and extra trading day in the previous year. DFS Furniture’s acquired firms the Sofa Workshop and Dwell are recovering and have contributed 1% to the Group both in second half and full year to date. The free cash flow remains robust and the company expects the net debt to be less than 2x underlying EBITDA at year end. In November 2014, the company opened its first store outside of the UK and Ireland at Cruquius in The Netherlands. Further, Jon Massey is expected to resign from his current position as Chief Operating Officer in autumn 2015, and would remain in an advisory role to the company. DFS aims to release its preliminary results announcement on 8th October 2015.
Our view: The aforementioned results mirror DFS Furniture’s strategy to expand its product portfolio and improve its brand image, with delivery of high quality services. The company opened its first store outside of UK in Netherlands last year. Based on the initial positive feedback and customer satisfaction, the company plans to come up with two more stores in Netherlands next year. Furthermore, we expect DFS to maintain its sales growth for the entire year owing to its better position relative to its competitors and improvements in disposable income and consumer confidence in the UK. Further, the company plans to announce its first dividend to shareholders in October. Thus in view of the overall optimism, we reiterate a Buy rating on the stock.
Yesterday, Carillion announced that it has been awarded a contract by Highways England for a package of smart motorway works worth approximately £475m, through its Joint Venture with Kier. The contract would be managed by a collaborative agreement with the delivery partner sharing knowledge on the best practices. The package involves transformation of four sections of motorway in England into smart motorways. The sections are the M6 between Junctions 16 and 19 and the M6 between Junctions 13 and 15, on the M20 between Junctions 3 and 5 and on the M23 between Junctions 8 and 10. The first stage of the contract on the M6, between junction 16 and 19, is valued at £129.5m and is due to start in autumn 2015, while the remaining packages are expected to be delivered in the next four years.
Our view: Carillion’s award of contract for smart motorway works is another landmark to its strong relationship with Highways England. The company has previously worked in England as delivery partners for six similar schemes. Carillion plans to leverage its prior experience and deliver improved journey experience and safety on M6, M20 and M23 motorways. In addition, the company’s latest contract in Oman to build accommodation facilities is expected to commence in September 2015 and complete by mid-2017. Thus in view of the above developments, we maintain a Buy rating on the stock.
Economic News
US MBA mortgage applications
US mortgage applications increased 0.1% in the week ended 17th July after declining 1.9% in the prior week, the Mortgage Bankers’ Association said yesterday. Refinance index decreased by 0.5%, while the gauge of loan requests for home purchases rose 1.0% over the week.
US existing home sales
Existing home sales in the US climbed 3.2% to a seasonally adjusted annual rate of 5.49 million units in June from revised 5.32 million units in May, the National Association of Realtors announced yesterday. The reading was above the market expectation of 5.40 million units.