The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 2.5 points up at 7:00 am.
New York: Wall Street ended in the red for the fourth consecutive day amid disappointing quarterly corporate results. Concerns over slow economic growth added to the losses. The S&P 500 slipped 1.1% to end below its 50-day moving average. For the week, the markets declined by 2.3%.
Asia: Equities are trading lower, following losses in overseas markets on Friday. Commodity prices slumped to all-time lows, weighing on investor sentiment. The Nikkei 225 fell 1.0%. The Hang Seng was trading 2.6% down at 7:00am, tracking stocks in mainland China.
Continental Europe: Equities ended lower on mixed corporate earnings and a dip in commodity prices. Germany’s DAX and France’s CAC 40 declined 1.4% and 0.6%, respectively.
Crude Oil: On Friday, prices of Brent and WTI crude oil declined 1.2% and 0.6%, respectively. The spread between the two varieties stood at US$6.5 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.187% lower on Friday at 754.92. To read our latest research click here.
Today’s news
UK referendum on EU membership to be held next June
British PM Davis Cameron told that a referendum on the country’s EU membership will be held in June 2016. The PM showed signs of early referendum owing to recent efforts taken by EU to keep Greece in the Eurozone.
Tighter rules for Eurozone integration: Padoan
Italian Economic Minister Mr Padoan suggested Eurozone needs better integration to avoid the risk of a member leaving the union. Establishment of a common euro zone budget, completion of banking union and common unemployment schemes are some of the key actions which may strengthen the bloc.
Compan News
DDD Group (LON:DDD) – Speculative Buy
On Friday, DDD informed that its Australian subsidiary, Dynamic Digital Depth Research Pty Ltd (DDD) has filed a lawsuit in Los Angeles alleging LG Electronics (LG) on the infringement of three of DDD’s US patents. As per the complaint, the automatic 2D to 3D function executed by LG’s televisions infringes DDD’s US Patent No. 6,477,267 ‘Image Conversion and Encoding Techniques’, U.S. Patent No. 6,496,598 ’Image Processing Method and Apparatus‘, and U.S. Patent No. 7,489,812 ’Conversion and Encoding Techniques’. According to the company, LG’s 3D televisions pursued the development of their 3D TVs in full knowledge of the existence of DDD’s patents and technologies, and in the process took advantage of DDD’s decades of research and development, thereby creating an unfair market environment. DDD Group intends to obtain injunctive relief as well as unspecified monetary damages from the infringements. Further, the company also announced its retention of Quinn Emanuel Urquhart & Sullivan, LLP (Quinn Emanuel) to work alongside Dominion Harbor Group to safeguard DDD’s intellectual rights and impose its patent portfolio. The Quinn Emanuel team working on the LG case includes its partners William Price (Washington, DC), Alan Whitehurst (Washington, DC), Amar Thakur (Los Angeles), and Marissa Ducca (Washington, DC).
Our view: DDD Group filed a lawsuit against LG for illegal use of its patents and expects its payments in due course of time. The company has taken help of experienced litigators who are likely to help enforce DDD’s rights in the LG case and boost the returns on company’s investments in IP (intellectual property). DDD Group has been investing heavily to improve its IP and has licensed the technology to various companies on reasonable agreement terms. In addition, the company’s recently signed agreement with SplitmediaLabs, one of the leading developers of broadcast and streaming tools, is expected to strengthen the product offering and growth potential of DDD Group. In view of the above argument, we reiterate a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to DDD Group plc
Motive Television (LON:MTV) – Speculative Buy
Motive Television on Friday announced today that its fully-owned subsidiary had amended the Service Level Agreement (‘SLA’) with long-standing customer Digiturk to upgrade and extend the Content Express™ platform. The platform will be used by Digiturk to support the delivery of ultra-high definition content, often referred to as ‘4K UHD’, for UHD televisions. Digiturk, the largest satellite broadcaster in Turkey with over 2.5 million subscribers, commercially launched their Motive technology enabled, on-demand services in January 2013 and has been operating the services since then. The 4K UHD upgrade of Content Express™ requires increasing the speed of datacasting of programme content to a target of 15mbps, while continuing to deliver standard definition, and high definition content formats for the majority of Digiturk users. The upgrade will also deliver 4K posters and promotional material. As a result of this addition, Motive’s SLA with Digiturk will be extended through to the end of 2016, under which the Company receives engineering development and support fees. Additionally, the licensing agreement with set-top box maker Sagemcom will be extended to incorporate royalties on set-top boxes containing Motive’s 4K UHD software. On Friday, Motive also held its AGM; all resolutions were duly passed.
Our view: This is a further important endorsement of Motive’s technology. Its Content Express™ solutions platform provides a one-stop shop for digital terrestrial broadcasters, satellite, DTT cable pay television platforms, and Internet OTT content providers to offer new services. Specific terms of the SLA and licensing agreement itself are confidential, although the Company estimates a value to Motive of more than £150,000 due to the 4K UHD addition from engineering fees and licensing royalties. Based on recently reported figures, more than 190,000 set-top boxes containing Motive’s licensed technology have been shipped for use by Digiturk subscribers. This, together with the Company’s recent BYOD partnership news and an anticipated re-launch of TabletTV in the next couple of months, which will incorporate the new PVR and OTT features as well as integration of Google CastT, momentum continues to build. It is possible to perceive quite considerable value within Motive’s IP, while recognising that it is capable of being monetised either through licensing or even outright sale of one or more of its different technologies or expansion of product revenues. On this basis, Beaufort repeats its Speculative Buy recommendation.
Beaufort Securities acts as corporate broker to Motive Television Plc
Audioboom (LON:BOOM) – Speculative Buy
On Friday, Audioboom declared its unaudited interim financial results for the half year ended 31st May 2015. The company’s revenue increased to £46,000 from £24,000 (5 months ending 31st May 2014) as the number of registered users exceeded 4 million compared with 3.1 million at the end of November 2014. The total number of mobile app installation advanced to 1.5 million with more than 550,000 added in May alone, a monthly record. Audioboom also posted an increase in content partners to over 3,000 as compared to 2,000 in November 2014. The net cash used in operating activities increased to £2.66m (5 months ended 31 May 2014: £0.65m) and the cash reserves stood at £6.19m. However, the company’s pre-tax loss widened to £3.3m from £2.1m in the same period last year. On the operational front, the company partnered with Russell Brand to position the mobile app for the younger generation. During this period, Audioboom also engaged in a revenue referral agreement with Audible, Amazon’s subsidiary and signed an agreement with Nobex radio to make on-demand and listen again functionality available to radio stations. The company entered in a vehicle deal with AUPEO! and app integration with Apple CarPlay and Android Auto. Apart from this, the company made an agreement with content aggregator Cloud Africa to enter in the African market. Further, Audioboom announced the appointment of Nick Candy as a non-executive director in April 2015 and David McDonagh as Chief Financial Officer in May 2015. Beyond the period, the company entered into a revenue sharing agreement with Cumulus Media, US’s second largest radio group.
Our view: Audioboom delivered excellent financial results along with the addition of new content partners, rise in the number of app installations and improved customer base. The company’s partnership with Russell Brand has been fruitful as it led to a record number of downloads for the month of May. Audioboom plans to develop a Hispanic version of their app to expand into the South and American markets. Cumulus Media (Audioboom’s Radio partner in US) would use company’s platform to provide on-demand broadcasting and advertising tools for its entire radio network, comprising over 450 stations and more than 100 nationally syndicated shows with nearly 240 million unique listeners. We expect the company to benefit from the deal with Cumulus owing to an increase in monthly listens and registered users apart from the steady flow of advertising revenues as per the agreement. Overall, the company seems to have good long term potential and remains on track to achieve its profitability target in 2017. Therefore, we reiterate a Speculative Buy rating on the stock.
On Friday, Pearson declared its unaudited interim results for the first half of 2015. During this period, sales increased to £2.2bn with a 1% increase in terms of CER (Constant Exchange Rate) and 5% headline growth. The improvement was primarily led by growth in North America, Brazil and China. The deferred revenues from continuing operations rose 3% at CER to over £750m owing to its increasing digital and services business. However, the company’s adjusted operating profit from continuing operations declined by 4% at CER to £72m (2014: £73m) leading to a decrease in EPS to 4.4p from 4.7p. On the other hand, the company’s dividend per share rose by 6% to 18p for the first half. Further on 23rd July, Pearson announced the sale of FT Group to Nikkei Inc. for a cash consideration of £844m.
Our view: Pearson witnessed slight improvements in overall performance despite lower college enrolments in the UK and South Africa and smaller textbook adoption in US schools. The company’s focus remained on providing accessible and affordable education worldwide. Plans are underway to move towards digital services with enhanced technologies to cater to the growing demands in this segment. In lieu of the same, the company expects to invest in courseware, developing new products and building a single infrastructure to manage the resources and content. Pearson expects its new services to kick off well in the markets with adoption from people in all ages. Further, an improvement in curriculum change is expected to stabilize the UK and US college enrolments. In view of the above developments, we reiterate a Buy rating on the stock.
On Friday, Vodafone announced its trading update for the first quarter ended 30th June 2015. The company’s total revenues decreased 0.9% to £10.1bn, compared to the previous quarter. However, the company’s organic service revenue rose 0.8% to £9.2bn due to strong growth in AMAP (Africa, Middle East and Asia Pacific) with India and Turkey growing by 6.9% and 15%, respectively. Vodacom, company’s African division grew 4.5% organically. Vodafone also witnessed minor improvement in the European region with the UK service revenue inching 0.2% (Q4: 0.6%). The company’s Project Spring remains strong with 71% completion in mobile-build with 4G outdoor coverage in Europe reaching 75%. The company now has 24.1 million 4G customers across 18 markets, with 4G accounting for 35% of all data traffic in European market. Vodafone made progress in unified communications as it has 12.3 million fixed broadband customers and also launched broadband services in the UK. The company’s enterprise business grew for the second consecutive quarter, advancing 1.8% Q1 driven by improving trends in mobile and continuous fixed growth.
Our view: Vodafone started the year on a positive note with improvement in service revenues and upsurge in the customer base. The company’s emerging market segment boosted the results while the European markets are slowly gaining momentum with an increase in customer demand for 4G services. Vodafone’s Project Spring is in full swing as it has modernized 80,000 mobile sites, added 36,000 2G, 47,000 3G and 41,000 4G sites, and upgraded 71,000 sites to high capacity since its inception. The company plans further expansions in this project to enable the customers enjoy greater network coverage and better quality. Further, Vodafone’s key strategic units’ unified communications and enterprise continue to deliver strong performance justifying the huge investments made on them. The trading for the first quarter was in line with the expectations and we believe the company would remain highly competitive in the telecom market. In view of the above argument, we reiterate a Buy rating on the stock.
On Friday, Aggreko announced a revision of the interim and full year guidance for the year 2015. Some decline is expected in the overall performance on the back of security challenges in Yemen, and the unfavourable terms of the Bangladesh contract. The company’s 325MW of gas contract extensions in Bangladesh are entering the final stages of approval, and it expects to obtain 180MW by the first half of 2016 and the remaining 145MW over the next three years. The trading terms are expected to be less favourable for these extensions and would be applicable from Q2 2015. In Yemen, the ongoing security challenges impacted the company’s ability to operate at its full capacity. In addition, the company also witnessed a decline in volumes and pricing in its shale oil business due to lower oil prices. As a result of these trading issues, Aggreko’s full year pre-tax profit is expected to remain in between £250m and £270m at current exchange rates1. The company aims to announce the Interim Results for the half year to 30th June 2015 on 6th August 2015.
Our view: Aggreko’s poor form from the year 2014 seems to have carried forward to the new fiscal as well. The company continues to reel under the impact of lower oil prices, leading to a slowdown in its shale gas business in North America. Meanwhile, the new developments in Bangladesh approval process have been unfavourable and the slow and the business environment in Yemen have remained challenging in the wake of security concerns. Further, Aggreko has been forced to downwardly revise its annual profit guidance due to the above reasons and adverse currency movements. However, the company continues to do well in the emerging markets. We expect the appointment of the new CEO, who suggested the split of the company’s business into power and rental solutions, to have positive impact in the long run. The company has delivered in the past and is likely to do well again. Thus in view of the mixed outlook, we retain our Hold rating on the stock.
Economic News
Germany manufacturing PMI
As per the data released by Markit, manufacturing PMI of Germany for July decreased to 51.5, compared with the June reading of 51.9. The markets had expected a reading of 51.9.
Eurozone manufacturing PMI
Manufacturing PMI for the Eurozone stood at 52.2 in July, below the estimates and June reading of 52.5, data from Markit Economists showed on Friday.
US new home sales
New home sales in the US decreased 6.8% to a seasonally adjusted annual rate of 482,000 units in June, the Commerce Department said on Friday. The annualised sales figure for May was revised down to 517,000 from the previously reported 546,000. Economists had expected new home sales to increase at a slower pace of 0.30% recording annualised rate of 548,000. The median price of a new home stood at US$281,800 in June, marking a 1.8% decrease from last year.
US manufacturing PMI
The final Markit PMI for the US stood at 53.8 in July, ahead of the preliminary estimates and market expectations of 53.6. The final US PMI for the month of May was recorded as 53.6.