The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 2.50 points up at 7:00 am.
New York: Wall Street moved up for the second day after the Fed decided to leave the interest rate unchanged. An improvement in commodity prices boosted investor sentiments. The S&P 500 advanced 0.7% driven by the energy sector.
Asia: Equities are trading higher. The Nikkei 225 gained 1.0% amid positive corporate earnings and after the industrial output in Japan increased to 0.8% in June. The Hang Seng was trading 0.2% up at 7:00 am, tracking the stocks in China.
Continental Europe: Markets ended in green following strong corporate earnings results. Investors also kept a close watch on the closure of the two-day FOMC meeting seeking signals of change in interest rates. France’s CAC40 and Germany’s DAX increased 0.8% and 0.3%, respectively.
Crude Oil: Yesterday, WTI and Brent Crude Oil prices improved 1.7% and 0.2%, respectively. The spread between the two varieties stood at US$5.4 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.03% lower yesterday at 749.16. To read our latest research click here.
Today’s news
UK retail sales growth slows in July: CBI
According to the Confederation of British Industry (CBI), sales balance in the UK slowed for the second consecutive month, dropping to +21 in July from +29 in June, missing the economists’ expectations of an increase to +30.
Company News
Eurasia Mining (LON:EUA) – Speculative Buy
Yesterday, Eurasia Mining announced the re-commencement and acceleration of development studies at its Monchetundra PGM licence area. In 2010, the company had discovered high grade platinum and palladium mineralization near the surface in the West Nittis area of Monchetundra licence, followed up by confirmatory drilling in 2013. These results had confirmed the presence of ‘Hanging Wall’ Copper-Platinum Group Metal, (copper-PGM) type ore. The company plans to submit a feasibility study later this year or early in 2016, to the government agency Rosnedra to obtain a Discovery Certificate. The planned work includes a drilling programme to calculate the resources and sufficient core samples for metallurgical testwork. Additional drilling for hydrogeological tests will be carried out, as well as for base-line environmental sampling.
Our view: The resumption of exploration work at the Monchetundra licence augurs well for Eurasia Mining. Moreover, the receipt of a Discovery Certificate is likely to improve the intrinsic value of the project and may propel the company to expand into the open unlicensed ground if the mineralization extends there. On the other hand, the company recently obtained a mining permit for its West Kytlim alluvial deposit in the Urals in Russia. We remain hopeful that the company would present a detailed development plan for West Kytlim in the near term and Monchetundra has the potential to transform into a significant asset. Thus in view of the above developments, we retain our Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Eurasia Mining plc
DDD Group (LON:DDD) – Speculative Buy
Yesterday, DDD Group announced the renewal of its license agreement with Samsung Electronics. The agreement has been extended till the end of 2016 for the use of DDD’s TriDef® 2D to 3D technologies with Samsung’s 3D video processing chips, also used in Samsung’s Smart TVs and various Samsung 3D consumer products.
Our view: DDD extended its license with Samsung for the seventh successive year to provide them diverse 3D content for a variety of 3D TVs. Earlier this year, the company also entered into a agreement for its TriDef® SmartCam™, an innovative real time background replacement solution for current Windows PC applications, with SplitmediaLabs for use in its popular XSplit Broadcaster and XSplit Gamecaster application. This partnership is expected to bring the TriDef® SmartCam™ abilities to a new and quickly growing audience that is hooked onto game video sharing, mainly on Twitch and YouTube. Going ahead, the company plans to focus on the development of 3D sensor market and 2D streaming market along with extending their services to technology clients. In view of the above argument, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to DDD Group plc
Northcote Energy (LON:NCT) – Speculative Buy
Yesterday, Northcote announced that the company in collaboration with its Joint Venture (JV) partner Gaia Ecologica, has formed a JV entity Mayan Drilling Fluids SAPI de CV( JVCO) for the development of a remediation facility, in Tabasco, located in Mexico. The company is the funding partner with 51% equity in the JVCO and Gaia, the operating partner with 49% stake. In addition, Northcote would also incur all the initial expenditures for the execution of Mayan’s business plan and would be entitled to 85% of distributable cash flow till pay-out along with 9.0% internal rate of return (IRR) on its investment. Post the implementation; the profits would be distributed based on equity ownership. During the phase1 of the project, the JVCO would build and commission the facility in the first six months, at a projected cost of less than US$1m. The facility would operate the entire day with a capacity to handle more than 700tonnes per day, having the potential to increase based on the growth in demand. The facility is expected to operate in the price range of US$60 to US$100 per ton of waste treated, similar to the plants in South Texas. Juan Osmon, the President of Gai would serve as President of Mayan Drilling Fluids, and Randall Connally to represent Northcote on the Board. In a separate announcement, the company informed that Randall Connally, CEO of the company acquired 9,523,809 ordinary shares at an average price of 0.16p per share.
Our view: Northcote’s decision to setup a remediation facility follows its future roadmap to invest heavily in the Mexican energy sector. The company has designed the development strategy in such a manner that the site would start generating cash flows just after its commission. Further, the site is located close to the port reducing the distance that oil and gas operators would require to transport their waste for remediation. The facility increases the diversity of Northcote’s services and would keep them competitive in an industry which has witnessed sharp movements in commodity prices. Going ahead, the company expects to increase its activities in fast growing Mexican energy sector and expand the operations to Indonesia to extend the company’s international presence. In view of the above developments, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Northcote Energy plc
Taylor Wimpey (LON:TW.) – Buy
Yesterday, Taylor Wimpey declared its results for the half year (H1) ended 28th June 2015. The revenues for the company increased to £1,335.3m from £1,190.1m in H1 2014, led by a rise in total house completions to 5,842, up 2.6% and a 9.2% y-o-y upsurge in total average selling price to £225,000.Taylor’s operating profit margin advanced 310 basis points to 19.2%, leading to a pre-tax profit of £238m against £178.4m in the previous year. The net cash for the company soared 342% to £87.6m, prompting a hike in EPS to 5.8p from 4.7p. During the period, Taylor’s return on net operating assets improved 540 basis points to 23.2% and the tangible net asset value per share increased 11.5% to 82.1p. Further, the company announced an interim maintenance dividend of 0.49p to be paid on 2nd October 2015 and also proposed a cash return of £300m payable in July 2015. On the operational front, Taylor acquired 3,620 high-quality plots in the UK short term land market and converted 5,666 plots from the strategic pipeline. The company was selected by the Ministry of Defence along with Dorchester Regeneration to develop Prince Phillip Barracks in Bordon, Hampshire, to construct 2,400 new homes over the next 15 years. Taylor’s order book currently has 8,120 homes with a total value of £1,859m. Further, the company also contributed £166m to local communities to provide local infrastructure, affordable homes, public transport and education facilities.
Our view: Taylor delivered strong half yearly results owing to the improvement in house completions and an increase in average selling prices. The company continues to expand with the current scale of landbank at 77,000 plots, and plans to target additional sites with minimal capital and risk. Taylor’s recent partnership with Dorchester Regeneration is expected to be fruitful owing to the size of the project, low initial investment leading to low land risk, thereby reducing the exposure to overall market fluctuations. The company continues on its plan to increase shareholder value as it announced £300m cash return to shareholders in July 2016. Overall, the company’s prospects look good with a huge order book aided by improving macroeconomic conditions. In view of the above argument, we reiterate a Buy rating on the stock.
Sky (LON:SKY) – Buy
Yesterday, Sky released its full year results for the twelve months ended 30th June 2015. During the period, the company’s statutory revenues surged 34% to £9,989m and the EBITDA improved 13% to £1,738m. On an adjusted basis, the revenues expanded 5% to £11,283m and the operating profit was up 18% to £1,400m. Pre-tax profit increased 6% to £1,196m. However, the basic earnings per share declined 2% to 56.0p. On the operational front, the company added 973,000 new customers, up 45% y-o-y and reported 4.6 million new paid-for subscription products. Region wise, the company continued to grow in the UK, Ireland, Germany, Austria and Italy. During the period, the company also secured many rights deals and also made progress with its original content. The company premiered Fortitude drama series and the Italian political drama 1992, across all five territories and the fifth series of HBO’s Game of Thrones was launched exclusively to Sky customers across all markets. The newly commissioned dramas include The Last Panthers, The Young Pope, and a new co-production with HBO and Canal+. The company successfully bid for Premier League’s tender process in the UK, and won the rights to telecast 126 live Premier League matches a season from 2016 to 2018. Sky’s NOW TV continued to witness good progress with transactions totalling almost 1.5 million for the year. On the innovation front, Sky has tried to bring forward best range products and services to its customers through investments in Sky Box Sets, launch of a brand new Sky Online service in Germany and enhancing its digital capabilities in service, among others. The company also proposed a full-year dividend of 32.8 p per share, up 3% y-o-y.
Our view: Sky’s revenues and profits swelled for the year as the customers responded well to the quality and breadth of the content offered by the company. The combination of BSkyB, Sky Deutschland and Sky Italia in November last year has significantly benefitted the company as the expanded business provided additional leverage to operate on a greater scale. With an aim to become the one stop shop for the home phone, broadband, TV and mobile bundles, the company experimented with innovative services to produce and distribute content to its growing digital audience. Sky launched some extremely successful original drama series and aims to provide better content quality with the telecast rights for the Premier League. On the other hand, the company continues to seek value propositions among start-ups to service its intention of higher market share. In view of the above, we believe that the company would remain a strong player in the European media industry and therefore reiterate a Buy rating on the stock.
British American Tobacco (LON:BATS) – Buy
Yesterday, British American Tobacco (BATS) declared its unaudited results for the H12015 ended 30th June 2015. The company’s revenues increased 2.4% at constant rates of exchange to £6,962m, led by improvements in the American and Western Europe regions. However, the revenues at current exchange rates declined 5.9% to £6,398m because of the adverse exchange rate movements. BATS’ cigarette volume declined 2.9% to 322billion as against the anticipated decrease of around 3.5%. On the other hand, the cigarette market share in key markets continued to improve owing to an increase in the Global drive brands volume of/by?? 6.0%. The company’s profit from operations rose 3% (constant currency) to £2,533m resulting in an EPS rise to 142.4p from 93.3p in H1 2014. BATS declared an interim dividend of 49.4p, 4% higher than the previous year to be paid on 30th September 2015. On the operational front, the company invested US$4.7bn in cash to maintain its 42% stake in its associate Reynolds American as part of its acquisition of Lorillard. BATS also signed an agreement to acquire TDR, a leading independent cigarette manufacturer in Central Europe, for a consideration of €550m. Further, company’s e-cigarette brand Vype continued its strong performance in the UK. BATS also launched Vype e Tank in July this year with a range of liquids.
Our view: BATS delivered good results despite pressure of volatile currencies and challenging market conditions. The company has constantly worked to improve its product range as it continued to make changes to its existing products with a range of flavours and varying nicotine content. BATS’ expects the final approval of its latest acquisition of TDR by October this year. The deal would enhance company’s product portfolio and expects to benefit from the well established brands, enriched local leaf processing abilities and good relationships with distributors in these markets. Further, the company plans to develop a variety of tobacco heating products and expects to perform a market test in this year. BATS continued on its plan to increase dividends y-o-y as it announced an interim dividend of 49.4p to be paid later this year. We believe, the company is on track to deliver strong performance for the entire year owing to its huge range of products and global reach. Therefore, we reiterate a Buy rating on the stock.
Economic News
US MBA mortgage applications
US mortgage applications increased 0.8% in the week ended 24th July following a 0.1% increase in the previous week, the Mortgage Bankers’ Association said yesterday. Refinance index improved 1.6%, while the gauge of loan requests for home purchases dipped 0.1% over the week.
UK mortgage approvals
The British Bankers’ Association (BBA) stated mortgage approvals for house purchases climbed to 66,582 in June, from an upwardly revised 64,286 in May. The economists had forecasted a figure of 66,000. The rise in approvals indicates the housing market continues to perform well after the general election in May.
US FOMC rate decision
The US Federal Reserve Open Market Committee (FOMC) retained the benchmark interest rate at a record low of 0-0.25%.