The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 2.10 points up at 7:00 am.
New York: Wall Street ended in the red following slowdown in the manufacturing sector and a continued fall in commodity prices. The S&P 500 declined 0.3%, dragged down by the energy sector.
Asia: Equities are trading mixed. Disappointing economic data from China and the US, along with flagging oil prices, now at a six-month low, impacted investor sentiment. The Nikkei 225 slipped 0.2%, while the Hang Seng was trading 0.1% up at 7:00 am.
Continental Europe: Markets ended higher on positive corporate earnings reports. Investors largely ignored the slump in oil prices and a decline in Greece’s stock market after it reopened for trading yesterday. Germany’s DAX and France’s CAC 40 advanced 1.2% and 0.8%, respectively.
Crude Oil: Yesterday, Brent and WTI crude oil prices dropped 5.2% and 4.1%, respectively. The spread between the two varieties stood at US$4.4 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.06% higher yesterday at 751.61. To read our latest research click here.
Today’s news
UK’s government starts selling RBS shares
The UK’s government started with the first sale of shares in Royal Bank of Scotland (RBS) to raise £2bn. UK Financial Investments (UKFI), the agency that holds the government’s 79% stake in RBS, is expected to sell around 600 million shares, representing 5.2% stake in the bank.
ECB exceeds monthly asset purchases
The European Central Bank (ECB) exceeded its monthly asset-buying target of £60bn in July by purchasing £67bn of public and private debt, as per its quantitative easing programme.
Company News
StratMin Global Resources (LON:STGR) – Speculative Buy
StratMin Global Resources, the graphite mining and exploration company with assets in Madagascar, announced yesterday that is has successfully completed the second stage of its Loharano plant optimisation. Since commissioning, the plant has been taken through a series of performance improvements and is now operating at a steady state recovery in excess of 94% carbon. With operations now stabilised the plant will move to twenty four hour production six days a week, delivering up to 900kg per hour of refined graphite. Further efficiencies are expected once the plant is in continuous production. The final stage of the Loharano optimisation program is expected to add production flexibility to serve niche flake graphite applications with the plant being able to produce grades up to 96% purity. In the meantime, exploration activities continue at Loharano and Mahefadok with detailed topographical and ground geophysical surveys which will be followed up with mapping and drilling in order to define a JORC-compliant resource.
Our view: The Company’s efforts are finally delivering tangible results and we are encouraged with the progress from commissioning to long term commercial operations and potentially sustainable profitability. We view this announcement as an important milestone as it demonstrates StratMin’s technical capabilities in delivering high purity flake graphite. We look forward to the JORC compliant resource estimate for the final feasibility study and results from the proposed Mahefadok flake graphite plant. In the meantime, we maintain our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to StratMin Global Resources plc
Motive Television (LON:MTV) – Speculative Buy
Motive Television yesterday announced that Motive Television Services Ltd, its fully-owned subsidiary, has been appointed Prime Contractor and System Integrator for the upcoming launch and continued operations of Siyaya Free To Air TV (PTY) Ltd. (‘Siyaya’) television services. Under the new appointment, Motive is responsible for ensuring that the major international vendor/suppliers selected by Siyaya, with Motive’s assistance, deliver on their commitments on time and on budget. This is in addition to Motive developing, installing and testing its own technology and continuing to advise and share its expertise and experience.
Our view: Siyaya is a recent entrant targeting the large and growing middle class in South Africa with innovative television services. It is an example of the major opportunities available for Motive in supporting successful television companies in emerging markets. Having first established a role as Siyaya’s technology partner back in 2013, Motive remains contracted to install, integrate, and operate Siyaya’s Video-on-Demand (“VOD”) platform in conjunction with the expected launch of Siyaya’s television services on the Sentech Freevision DTH satellite service in the first half of 2014. This additional contract announced yesterday will be able to leverage its patented technology and proprietary expertise to participate directly in the success of Siyaya’s VOD platform. It brings responsibility for assisting with selecting, coordinating, managing and bringing together the technical work of a consortium of major international and South African providers to ensure that Siyaya has a successful launch followed by ongoing operation. Within this, there appears to be significant opportunity for Motive to generate well in excess of the of $5m gross revenue over the next 3-5 years from the new contract cited in its press release. Typically investment in such turnkey satellite platforms with 20+ channels would be in excess of US$10m, before even considering content or the set-top boxes themselves. Motive will provide some of its own IP to this contract, while also collecting significant prime contractor advisory and facilitation fees. The work will further build its know-how, contacts and reputation, which should attract other international players looking to set up similar platforms in emerging territories. The news underlines the fact that Motive can provide access to technologies and abilities that can generate long-term repeat business and licensing. Motive’s lowly valuation belies these facts and, accordingly, Beaufort reiterates its Speculative buy recommendation on the shares.
Beaufort Securities acts as corporate broker to Motive Television Plc
AFC Energy (LON:AFC) – Speculative Buy
Yesterday, AFC Energy informed that it has successfully commissioned and started operation of its first KORE fuel cell system located in Stade, Germany. During the last week’s trial, AFC’s technical team introduced hydrogen into the fuel cells and achieved a peak production of 7.56kW, using just one operational cartridge (out of 24). The commission marks the completion of Milestone 9, a total of 11 milestones, set by AFC on 8th December 2014.Further, AFC plans to start with Phase 2 power generation ahead of its schedule, allowing the company to sell power into the German grid through its Power Purchase Agreement (PPA) with Stadtwerke Stade. Once the fuel system is fully operational by the end of 2015, it would be world’s largest alkaline fuel cell system, functioning at an industrial facility selling power to national electricity grid.
Our view: AFC’s years of investment turn fruitful as it started the operations of its first fuel cell system. The company achieved the production with minimal resources ahead of its stipulated time reflecting its operational efficiency and technological advancement. Further, company’s recent signing of PPA with Stadtwerke Stade would complement the developments as it plans to commercialize energy generated from the system. AFC’s fuel operation at Stade is about to conclude and the electricity sales from the systems would be the first commercial revenue earned by AFC. In addition, the rich operational experience of its local partner in the distribution of electricity into the German power grid would strengthen AFC’s process flow. Going ahead, AFC expects its key project POWER-UP to demonstrate world’s largest alkaline fuel system at Air Products industrial gas plant by December 2015. In view of the above developments, we maintain a Speculative Buy rating on the stock.
Fox Marble (LON:FOX) – Hold
Fox Marble, the AIM listed company focused on marble quarrying and finishing in Kosovo and the Balkans region, yesterday provided investors with an operational update. It detailed the fact that revenues for the half year are lower than expected at €110k. This shortfall of half year revenues against expectations is due to slower than expected completion of deliveries of the Group order book as a result of delays in accessing the new Malesheva quarry (‘Malesheva 2’) containing supplies of Illyric White marble and slower than expected development of our Sivec quarries. It also noted that Development of its Sivec quarries in Macedonia has been subject to delays as the Company seeks to access higher grades of material. Management also explained that it had been informed of a fire at Prometec SrL, the company responsible for supplying and refurbishing two major pieces of machinery due to be installed at the factory. The fire has destroyed the entire Prometec SrL stock, including the equipment due to be shipped to Fox Marble. By cost this amounts to just under 25% of the budgeted machinery for the factory. Whilst the direct financial loss to the Group is expected to be minimal, as the equipment is insured, this will cause further delays to the start of operations at the factory while alternative machines are sourced. This, in turn, will impact the expected full year revenues for 2015. The Company’s cash balance at 30th June 2014 was €5.6m.
Our view: Yesterday’s news came as something of a ‘bolt from the blue’. Indeed, FOX appears to have had more than its fair share of teething problems over the past couple of years. Yet the reality is that investors were rather more expecting to hear a recital of positives from any management operational update, possibly in terms of the new factory’s throughput, projected processing capacity or even something exciting on the order book front. To instead be told that only half of a current €2.8m order book will be realised this year is quite distinctly a disappointment and, as a result, Beaufort has decided to take its long-term Speculative Buy recommendation down to Hold. The fact remains, however, that the Group’s business opportunity with what must rate as one of the world’s most exciting portfolios of high grade on-surface dimensional stone to a giant and highly fragmented international customer base is enormous. Its management is highly capable and the business remains cash rich, while capital costs have already been committed with little further expenditure anticipated going forward. Labour and transportation costs are low, yet global demand continues to increase while pricing remains firm and rising. The fact, however, is that the Group now needs to demonstrate to shareholders this can all contrive to turn elementary extraction and processing into a significantly larger long-term and visible order book and distributable profits. When this appears on the horizon, Beaufort will be quick to upgrade the shares again.
Vmoto Limited (LON:VMT) – Speculative Buy
Yesterday, Vmoto Limited provided a market update for the second quarter ended 30th June 2015. The company traded in line with the expectations with over 22,041 units sold for 2Q15, up 13% q-o-q, driven by higher margin sales in the international markets sales that increased 40% compared with 2Q14. The unite sales to Chinese retail stores and distributors increased by 16% on 2Q14. . In China, the company now has a sales network of 43 outlets through a combination of its own retail outlets and appointed third party distributors for the UK and Ireland markets. Inroads were also made in the North America, Italy, Switzerland and New Zealand markets. In line with a previous announcement, Vmoto’s three and four-wheel joint venture was formally established and is now operational. The company consolidated its shares 10 for 1 and also raised US$8.9m through the placement of new shares to its new and existing investors. Going forward, the company expects an increase in production and sales over the coming months.
Our view: The second quarter has been quite busy for the Vmoto’s business as the sales of its electric two-wheel vehicle products continue to rise across various sales channels, especially in the international markets. The company’s efforts in the past three years to propel Vmoto’s transformation into a leading global electric two-wheel vehicle company are finally witnessing tangible results. Vmoto has remained focussed on enhancing its production and distribution capabilities to support strong growth and earnings in the next few years while seeking potential new customers across the globe. Eyeing the international appeal of the company’s products, a discussion has been initiated with a prominent European supermarket group having more than 300 stores, and a high-tech North American company developing shared transportation and communication systems for electric vehicles. Thus in view of the above developments and the company’s improving brand image, we maintain our Speculative Buy rating on the stock.
HSBC Holdings (LON:HSBA) – Buy
Yesterday, HSBC declared its interim results for the half year (H1) ended 30th June 2015. During the period, the adjusted revenues for the company advanced 4% to US$30.8bn led by a growth in client facing global banking and markets (GB&M), mainly in Equities and Foreign Exchange. HSBC also witnessed an improvement in Principal Retail Banking and Wealth Management division with strong performance in Asia. HSBC’s adjusted operating expenses jumped to US$17.6bn owing to the increase in costs related to expansion, regulatory programmes and compliance expenses. During the period, the adjusted pre-tax profit improved to US$13.0bn from US$12.7bn in H1 2014 and the EPS being US$0.48p (H1 2014: US$0.50p). On the operational front, the company entered into an agreement to sell its Brazil business to Banco Bradesco S.A. for a consideration of US$5.2bn. Further, HSBC made substantial progress in reducing risk weighted assets (RWAs) of around US$50bn mainly related to GB&M. The company also announced an interim dividend of US$0.10p to be paid on 2nd October 2015.
Our view: HSBC delivered solid half yearly results with the Asian region accounting for 69% of the first half earnings. Over the years, the company has made investments to expand its business in the Asian markets and results reflect its success. HSBC continued to improve its operations as it witnessed a reduction in RWAs and lately signed agreement to sell off its underperforming Brazil business. In addition, the company recently announced removal of around 50,000 employees in the next three years and expects a reduction in costs by up to US$5bn. Going ahead, HSBC plans to exploit the huge opportunities in the untapped Asian markets to serve with them world class financial facilities. Further, an increase in disposable income in the UK and stability in the US economy would aid company’s prospects in these regions. Overall, HSBC remains fundamentally strong and with its plans to build strong capital base and reorganize RWAs would help it maintain position in the market. In light of the above argument, we reiterate a Buy rating on the stock.
Economic News
Germany manufacturing PMI
As per the data released by Markit, the final reading for the manufacturing PMI of Germany for July stood at 51.8, higher than the preliminary estimate of 51.5, but down from 51.9 in June.
Eurozone manufacturing PMI
Manufacturing PMI for the Eurozone rose to 52.4 in July, from 52.2 in June, final data from Markit showed yesterday. The reading was higher than the market forecast of 52.2.
UK manufacturing PMI
UK manufacturing PMI increased to 51.9 in July from 51.4 in June, data from the Markit and Chartered Institute of Purchasing & Supply showed yesterday. The reading was better than the market forecast of 51.5.
US personal income and spending
US personal income advanced 0.4% m-o-m in June, after a revised 0.4% rise in May, according to the US Commerce Department. The reading came higher than market expectations of 0.30%. Personal spending increased 0.2% m-o-m in June, in line with the market forecasts after a downwardly revised 0.7% growth in May.
US manufacturing PMI
As per Markit, the final manufacturing PMI for the US stood at 53.8 in July, unchanged from the preliminary estimates, and in line with the market expectations. The reading in June was 53.6.
US construction spending
US Construction spending increased 0.1% m-o-m to an annual rate of US$1.06tr in June, as per a report released by the US Commerce Department. Economists expected spending to rise 0.6% during the month.
US ISM manufacturing
US manufacturing PMI fell to 52.7 in July from 53.5 in June, as per the Institute of Supply Management (ISM). Economists had forecaste a reading of 53.5. The index for new orders rose to 56.5 from 56.0 the previous month, while the production index jumped to 56.0 from 54.0 in June. Meanwhile, the employment index slipped to 52.7 from 55.5 and the prices index declined to 44.0 from 49.5 the previous month.