The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 5.5 points up at 7:00 am.
New York: Wall Street ended in red for the third consecutive day, as disappointing quarterly earnings of several blue-chip companies continued to weigh on investor sentiment. The S&P 500 slipped 0.6%, dragged down by the utilities and material sector.
Asia: Equities are trading lower, extending overnight losses from the global markets. Moreover, a slump in commodity markets impacted the sentiment. The Nikkei 225 fell 0.7%, as the IMF warned the country to step-up reform measures. The Hang Seng was trading 0.9% down at 7:00am after a contraction in China’s manufacturing sector.
Continental Europe: Equities ended mixed, paring initial gains from optimism over Greek parliament’s approval of the second bailout plan. Furthermore, weak earnings of top European companies concerned investors. France’s CAC 40 edged up 0.1%, whereas Germany’s DAX declined 0.1%.
Crude Oil: Yesterday, WTI and Brent Crude Oil prices declined 1.5% each. The spread between the two varieties stood at US$6.8 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.38% higher yesterday at 756.28. To read our latest research click here.
Today’s news
Retail sales in UK drop in June
According to data from the Office for National Statistics, total retail sales in the UK declined 0.2% m-o-m in June after a 0.3% increase in May, as the annual rate of spending for the quarter slipped to its lowest level in over two years. The fall was ascribed to decline in food and non-food store sales (down 0.3% and 0.7%, respectively).
Greece to resume bailout talks with creditors
Greece and its international creditors are likely to restart talks for the €86bn rescue plan in Athens today. Greece’s government expects to complete the negotiations by 20 August 2015. Yesterday, the country’s parliament approved the second batch of tough, new reform measures.
Company News
Frontier Resources International (LON:FRI) – Speculative Buy
Yesterday, Frontier Resources announced the conversion of outstanding amount of US$206,164 into 37.8 million new ordinary shares to AGR Energy Limited at an issue price of 0.35p per new ordinary share. Frontier Resources also agreed to the issue of the new settlement shares to its directors at the same issue price as final settlement of the Loan Agreement. A total of 5.0 million new ordinary shares have been issued to Mr Herbert in view of £17,611, the company owes him as per his letter of appointment. Likewise, Mr O’Donovan has been issued 2.9 million new ordinary issues in view of £10,000 owed to him by the company under his letter of appointment. In addition, CFPro Limited (a company controlled by Mrs Spurrier) has been allotted with 4.3 million new ordinary shares in lieu of £15,000 owed to them for the accounting and administrative services provided to Frontier. Post the issue of the new shares, the company’s issued share capital comprises of 340.5 million shares, with voting rights. The admission and trading in the new shares on AIM is expected to start on or around 31st July 2015.
Our view: Frontier’s successful conversion of shares follows its issue of 42 million ordinary shares on 21st July to enhance the capital structure of the company. The issue of shares to the directors is likely to improve their interest toward the company’s growth. In addition, Frontier recently informed that it is likely to continue with drilling without the need for a 3D seismic survey at Block 38 in Oman and is planning to enter into farm-out discussions with Middle East-based partners for the same. The company’s strategy looks encouraging as it is expected to attract potential investors and also limit Frontier’s risk exposure in the asset. In view of the above, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Frontier Resources International plc
Angle (LON:AGL) – Speculative Buy
Yesterday, Angle declared its audited preliminary results for the year ending 30th April 2015. Loss from continuing operations widened to £3.9m from £2.2m in 2014. During the period, Angle raised £8.2m, net of expenses, and its cash balance stood at £8.4m. On the operational front, the company added six new world class cancer centres to strengthen its Key Opinion Leader platform. Angle successfully determined the first clinical application for Parsortix cell separation system in detecting ovarian cancer and other cancer women’s cancers, following successful patient study with the Medical University of Vienna. The company improved its intellectual property as it was granted a second US patent along with the patents granted in China and Australia. Angle also initiated two corporate collaborations. On a separate note, leading translational researcher Jim Reuben from MD Anderson and leading medical oncologist Daniel Danila from Memorial Sloan Kettering joined the company’s Scientific Advisory Board to facilitate clinical adoption of the Parsortix system.
Our view: Angle made significant progress following the validation of Parsortix cell separation system by world class cancer centres. Going forward, the company plans to use its funds to conduct advance extensive study in ovarian cancer. This is likely to help the company launch Parsortix as a diagnostic tool to help the clinics select the best treatment and improve patient outcomes. Further, Angle is in the process of seeking FDA (Food and Drug Administration) approval in the US to harvest cancer cells from patient blood. We expect the company to improve its share in the cancer diagnostic market owing to the rapid progress in the Parsortix system. In view of the above developments, we maintain a Speculative Buy rating on the stock.
Yesterday, SABMiller released its trading update for the quarter ending 30th June 2015. Group net producer revenue (NPR) increased by 3% over the previous year on level beverage volumes, indicating NPR per hectolitre (hl) growth across all regions. Group NPR growth was boosted by Africa, Latin America and Asia Pacific. The company experienced beverage volume growth Latin America and Africa. The Group’s North American NPR was in line with the previous year amid mixed performances from different brands of Miller. However, SABMiller reported NPR decline in Europe primarily impacted by the timing of the Easter trading period and adverse price positioning of its brands. The Group’s reported NPR declined by 10% due to devaluation of currencies with respect to the US dollar.
Our view: SABMiller continues to perk-up its top line with improvements in revenue per hectolitre across all regions. The company’s premium brands Club Colombia and Miller Lite led to its success in the Latin American region. While, the African area witnessed a 7% growth in NPR, driven by its popular brand 2M and the nominally priced Impala brand. Further, SABMiller recently acquired Meantime Brewing Company, a London-based modern craft brewer. The deal offers SABMiller an opportunity to enter into the fastest-growing segment of the UK beer market while simultaneously complementing its own range. SABMiller also plans to take Meantime’s expertise in order to create more appealing beer that may become an alternative to wine and spirits. Given the long-term prospects of the business especially in emerging markets, we maintain a Buy rating on the stock.
Fuller, Smith & Turner (LON:FSTA) – Buy
Yesterday, Fuller, Smith & Turner announced its trading update for the 16 weeks from 29th March to 18th July 2015. The company reported like for like sales growth of 5.7% in Managed Pubs and Hotels, and 4% rise in the like for like profits in the Tenanted Division. However, beer and cider volumes remained flat during the period. During the period, Fuller purchased a freehold pub, The King’s Head, in Earl’s Court Village in London and also opened The Stable in Plymouth and Winchester, while relocating The Stable in Bath. The company also bought two freeholds at existing leasehold sites – The Blackbird in Earl’s Court and The Stable in Poole.
Our view: The company started the year on a high note with improvements in like for like profits and expansions through purchase of freehold pubs. Going forward, the company expects to generate earnings from its new openings for Fuller’s Inns and The Stable. The company plans to continue with its programme to make investments to improve its existing units. Further, the Rugby World Cup in the autumn scheduled in West London, provides the company an opportunity to improve its prospects. Therefore, we reiterate a Buy rating on the stock.
Victoria Oil & Gas (LON:VOG) – Speculative Buy
Yesterday, Victoria announced operational update for the second quarter (Q2) ending 30th June 2015. Average gas production was 12.6mmscf/d (million standard cubic feet per day) in Q2, up from 4.5mmscd/f in the previous quarter and 2.6mmscf/d in Q2 2014. The sharp increase in production was due to the first grid power connections coming in one line under the deal with electricity supplier ENEO Cameroon SA (ENEO) and connection of new thermal customers, along with the Dangote Cement Plant commissioned in June 2015. The total gas sold for Q2 2015 increased nearly four times to 1,120 mmscf as compared with Q2 2014. While, the gas sold for the first half stood at 1,524.60 mmscf, surpassing the full year figures of 1,273.25 mmscf for 2014. The company had cash of US$14.2m at end of quarter. On the operational front, the company purchased the Logbaba gas production plant from Expro for US$2.6m, using cash generated from GDC (Gaz du Cameroun SA), its subsidiary and partner RSM’s contributions.
Our view: The aforementioned update shows Victoria’s strong progress, both financially as well as operationally. The company plans to use its strong cash to pursue the next stage of its growth to bring more gas online and meet the huge consumer demand. Victoria’s latest commission at the Dangote Cement Plant is an important indicator of the large current and projected demand for gas in Douala, where well design and engineering for drilling the next two wells, LA 107 and LA 108 has been accelerated. The company is also conducting 2D and 3D seismic programmes in urban environments for extrapolating key historic seismic data to assist in sub surface interpretations. Further, company’s subsidiary GDC is working to improve its gas production plant from its existing 20 mmscf/d level to up to 40 mmscf/d. We expect the company to improve its gas supply to new and existing markets and subsequently increase reserves and production capacity. In light of the above developments, we reiterate a Speculative Buy rating on the stock.
Howden Joinery (LON:HWDN) – Buy
Yesterday, Howden Joinery announced its unaudited half yearly results for the 24 weeks ending 13th June 2015. Group revenues increased to £482.6m from £435.4m in similar period last year. Operating profit rose to £60.9m from £57.6m in 2014. Meanwhile, pre-tax profits increased to £59.2m (2014:£57.2m) followed by an improvement in the EPS to 7.1p from 6.6p. The company declared an interim dividend of 2.8p per share (2014: 1.9p), to be paid to shareholders on 20th November 2015. The net cash available stood at £223.3m as compared to £161.1m in the same period last year. The company also started its share buyback programme and has spent around £4.1m on the same. In terms of business development, Howden Joinery incurred a capital expenditure of £11.7mn as it opened 14 new depots in UK taking the total to 603. The company enhanced its product range by introducing new kitchen ranges and rolled granite and premium brand appliances.
Our view: Howden Joinery delivered strong half yearly performance and is on track to achieve its expectations for the full year as it waits the peak trading period (Period 11). Positive responses to the new product developments and aggressive business expansion plans have been the key growth drivers for the company. Going forward, Howden Joinery plans to make investments to improve on different aspects of business including new depots and depot operations, new and existing employees, product development, and manufacturing and distribution. These changes would offer enhanced services to the builders. Furthermore, with support from the improving macroeconomic conditions and the majority of the home builders experiencing strong forward order books, we expect the company to maintain its growth momentum going ahead. We reiterate a Buy on the stock.
Economic News
US initial jobless claims
The number of Americans that filed their first initial claims for unemployment benefits decreased by 26,000 to a seasonally adjusted 255,000 in the week ended 18th July, the Labor Department stated yesterday. Economists had forecasted a reading of 278,000. Last week’s reading was unrevised at 281,000. The four-week moving average of jobless claims fell 4,000 to 278,500 last week.
US leading index
The Leading Economic Index for the US gained 0.6% m-o-m in June, after a revised 0.8% increase in May, the Conference Board said yesterday. Markets had expected a slight increase of 0.3% in June.
Eurozone consumer confidence
The gauge of Eurozone consumer confidence dropped to -7.1 in July compared with the reading of -5.6 in in June, the European Commission said yesterday. The reading came behind the economists’ expectations of -5.8.