The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 11.50 points down at 7:00 am.
New York: Wall Street bounced back after three consecutive sessions of declines. Markets were cheered by the job addition in the services sector, which reached its highest in July, and ignored the dip in commodity prices and mixed corporate earnings. The S&P 500 improved 0.3% driven by the information technology sector.
Asia: Equities are trading mixed amid a slump in oil prices and expectations of an interest rate hike by the Fed. The Nikkei 225 rose 0.3%, while the Hang Seng was trading 0.6% down at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended higher amid positive corporate earnings. The increase in services sector activity in China improved investor sentiments. France’s CAC 40 and Germany’s DAX advanced 1.7% and 1.6%, respectively.
Crude Oil: Yesterday, WTI and Brent Crude Oil prices dropped 1.3% and 0.8%, respectively. The spread between the two varieties stood at US$4.4 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.14% higher yesterday at 756.14. To read our latest research click here.
Today’s news
Greece close to bailout deal: Tsipras
Greece’s prime minister Alexis Tsipras announced that the country is in the final stage of the bailout deal with lenders to avail €86bn to keep it secure for the next three years. In the next two weeks, Greece needs to close the bailout deal or secure a bridge loan to meet its immediate financial needs and make a payment of £3.5bn to the European Central Bank.
Company News
Jubilee Platinum (LON:JLP) – Speculative Buy
Jubilee Platinum, the Mines-to-Metals company focused on platinum mining and recovery, announced yesterday that it has secured funding for both of its surface platinum projects, DCM and Hernic PGM. The debt component of project financing equates to £12.9m (ZAR255m) and is progressing through the final contract phase after achieving credit committee approval from a major financial institution. The capital required to develop both surface tailings projects is £13.71m (ZAR271m) and the working capital require to bring the projects to positive earnings is estimated at £3.8m (ZAR48.3). The company also announced that it completed a placing of 71,834,833 new ordinary shares in Jubilee at a price of 3.4 pence per share for gross proceeds of £2.44m. The combined funds from the placing, debt financing as well as the recent sale of non-platinum operational assets (subject to shareholder approval) will cover funding requirements for the design, construction, commissioning and working capital for both platinum surface projects.
Our view: Jubilee Platinum continues with its strategy of fast tracking both of its surface platinum processing projects. Securing the funding required to develop the DCM platinum and Hernic PGM projects represents a major milestone for the company. Management anticipates production from the projects during 2016, targeting 42,000 ounces of PGMs per annum. Despite the recent downward pressure on platinum prices, we believe Jubilee has the technical expertise and facilities to become a significant low cost PGM producer in the near term. As such, we reiterate our Speculative Buy on Jubilee Platinum.
Beaufort Securities acts as corporate broker to Jubilee Platinum plc
Rosslyn Data Technologies (LON:RDT) – Speculative Buy
Rosslyn Data Technologies, a leading global ‘big data’ technology company, yesterday announced that it has recently won a milestone contract which, the Board believes, demonstrates the scalability and applicability of Rosslyn’s platform. The contract is with a large global enterprise in the Fortune 500. This enterprise has chosen the RAPid Big Data cloud analytics platform to replace an incumbent analytics solution to support an increasing need to include analytics, as a value-added layer, to its existing services for the enterprise’s largest clients across several industry verticals. Over the next few months, Rosslyn will be working closely with this new partner to develop and deploy four instances of an application that will enable the analysis of operational data, providing insight into business critical Service Level Agreements between the partner and their clients.
Our view: Momentum is building. Cloud adoption amongst major corporations is gathering pace and the need to successfully manipulate big data has never been more obvious. In reality, the multi-year contacts with US Fortune 500 and UK FTSE companies secured by Rosslyn to date should, at this stage, only be seen as a ‘taster’ for what is to potentially come. They represent just one or two divisions within giant multi-national enterprises that are effectively ‘trying Rossyln’s technology out’. Many such giant corporations have, of course, already attempted to create of their own bespoke data handling systems, only to find that their end product becomes too inflexible or rigid to be considered a potential long-term solution amid a perpetually changing environment. By comparison, Rosslyn’s RAPid platform combines four key technologies: data extraction, cleansing, enrichment and visualisation, to perpetually learn and update through single cloud operation. It enables users to question and access detailed data on ‘moving targets’ in order to take informed decisions. This is what is different about Rosslyn’s offer and what competitors have found difficult to emulate. RAPid’s success could result in its eventual implementation and embedding across entire organisations, whereupon it would effectively achieve the status of ‘strategic operational asset’. The current year to end-April 2016 should provide early evidence of such progress, with revenues possibly doubling that achieved in the period just ended. Rosslyn’s lowly valuation presently belies this fact, although its technology is clearly being eyed enviously by the likes of PWC who understand the likely cost and time required to create a comparable, and much needed, product in-house. We retain our Speculative buy on the stock.
Yesterday, IP Group announced its half-yearly results for the six months ended 30th June 2015. During the six months, the company’s net tangible assets and the Oxford equity rights asset increased to £700.6m from £449.4m a year ago. Adjusted pre-tax profits, excluding amortization and reduction in fair value, improved to £70.1m from £15.0m in H1 2014. During the period, the company raised £178.8m net, through the issue of new equity capital and had net cash and deposits of £219.6m as of 30th June 2015. In addition, the company acquired a strategic holding in Oxford Sciences Innovation and Modern Biosciences reached the first development-related milestone. The company has now formed spin-out companies from each of the three universities with which it has a pilot commercialisation agreement in the US. On the portfolio front, the fair value of the portfolio stood at £478.2m with capital provided portfolio companies and projects amounting to £55.1m. Portfolio companies Oxford Nanopore Technologies launched PromethION Early Access Programme whereas Diurnal Limited made progress with its treatment of chronic endocrine diseases. Tissue Regenix Group and Actual Experience completed funding rounds of £20m and £15.2m, respectively. Post period; the company secured a £30m, 8-year debt facility from the European Investment Bank.
Our view: IP Group had an extremely successful first half with quite a few of its portfolio companies making significant advances. The company has till date backed nearly 20 spin-out companies from the University Of Oxford that enjoys an impressive track record in innovation and entrepreneurship. The Group is also making solid progress in the US after forming its first spin-out company from each of the three universities that it is working with. IP Group’s balance sheet was considerably strengthened with over £200m of available capital while the company overall remains well placed to continue its strategy of supporting compelling opportunities both in the UK and the US. Thus in view of the above results and the overall progress made by IP Group through its portfolio companies, we reiterate a Buy on the stock.
Ferrexpo (LON:FXPO) – Speculative Buy
Yesterday, Ferrexpo announced its interim results for the six months ended 30th June 2015. During the period, the company’s pellet production grew 8% to 5.8 million tonnes with the sales volume rising 3% to 5.7 million tonnes. However, revenues declined 33% to US$512m and the pre-tax profit fell 42% to US$143m owing to a 46% y-o-y decline in the iron ore price in the first half of 2015. Though, the improved iron content in the company’s pellets and lower freight rates reduced some impact of the iron ore price decline. During the period, the company also reduced its capital investment significantly to US$25m and the cash cost of production was also trimmed due to local currency devaluation, lower oil prices and increased operating efficiencies. The company extended its 2016 Eurobond maturity to 2018 and 2019 that included a prepayment of US$154m. On the other hand, Ferrexpo received US$42m for the sale of its 15.51% stake in Ferrous Resources, during the period. The company’s dividend for the period remained unchanged from that of the previous year at 3.3cents.
Our view: Ferrexpo possesses one of the largest iron ore deposits in the world and has global transport and sales operations to provide high quality iron ore pellets to its diversified customer base in the steel industry. The most important achievement of the company for the year was that it managed to reduce the financial impact of the decline in the iron ore prices through the improvement in the volume and quality of pellet output. The growth in steel output, especially in China is expected to remain weak and the iron prices may not recover in the near term. However, we believe that the company has been taking the right steps to stem its losses though quality enhancement and cost cutting initiatives. Moreover, the company’s majority of operations in the Ukraine benefit from the low cost base and devaluation of the Ukrainian currency. Given the recent fall in the share prices, we see an interesting buying opportunity for this undervalued company and therefore retain our Speculative Buy rating on the stock.
Legal and General (LON:LGEN) – Buy
Legal and General reported its half yearly results for the six months ended 30th June 2015. During the period, the company’s net cash generation jumped 11% to £629m and the operating profit soared 18% to £750m. Profit after tax increased 8% to £547m whereas the earnings per share rose 7% to 9.11p. Moreover, the company’s return on equity moved up 150 basis points to 19.1%. On the operational front, the assets under management increased 12% to £714.6bn while the external net flows advanced 62% to £13.8bn. Annuity assets were up 13% to £43.4bn and the bulk purchase annuity premiums stood at £1,146m compared with £3,135m in H1 2014. The company plans to make direct investments worth £15bn, across the company over the medium term. Moreover, it remains on track to deliver nearly £80m of operating cost savings whilst incurring £40m of restructuring costs in 2015. In line with its dividend policy, the company the company increased its interim dividend by 19% to 3.45 p per share. Legal and General remains confident of delivering its 2015 operational cash guidance eyeing its strong positioning in the UK market.
Our view: Legal & General continues to deliver strong organic growth in the UK and the US from its developing as well as established businesses. The company is proactively disposing of non-core businesses to reduce its costs in real and nominal terms. These initiatives have helped the deliver better efficiency across business lines and focus on its chosen markets. With the above results, the company reports its sixth year of double digit growth in net cash, operating profit and dividends driven by financial and strategic discipline. Thus in view of the company’s efforts to provide better value for its increasing customer base and deliver attractive returns for our shareholders, we upgrade the stock to a Buy for now.
London Stock Exchange Group (LON:LSE) – Buy
Yesterday, London Stock Exchange Group presented its interim result for the six months ended 30th June 2015. During the period, the revenues from the continuing operations climbed 9% whereas the overall revenues jumped 90% to £1,164.9m following the integration and development of global indexes business, FTSE Russell, and with the sale of Russell Investment Management. Total income for the period soared 83% to £1,208.7m. Operating expenses rose 4% to £842.5m, on organic and constant currency basis, leading to a 27% rise in the adjusted operating profit to £366.1m. Adjusted EPS rose 14% at 65.5 p whereas the basic EPS stood at 43.4p. On the operational front, the company entered an agreement with CME to launch US futures contracts on FTSE Russell indexes. Meanwhile, Turquoise entered exclusive discussions with Plato Partnership, to collaborate on market structure initiatives in Europe. FTSE also started the transition to include China A shares in its global benchmarks. In the Primary Markets, activity levels remained strong, with record fund listings from a diverse range of international issuers. The company’s interim dividend increased 11% to 10.8p in line with the good performance and confidence in future prospects.
Our view: The company’s overall performance improvement mirrors the underlying growth in Capital Markets, Information Services and its Italian Post Trade businesses, in addition to the contribution from Russell Indexes and the Investment Management operations. The acquisition of Frank Russell has proved to be a crucial milestone towards the company’s geographical expansion as the former’s business is located in the largest global financial services market of North America. The businesses were combined as FTSE Russell, following the company’s US$2.7bn acquisition of the US’s Frank Russell last year. The combination has flourished at a good pace as evident from the company’s overall financial and operational performance for the period. LSE remains well-positioned to leverage its international open access market infrastructure to steer innovation and bring market efficiencies. We expect LSE to benefit from the continued positive market trends and deliver lucrative shareholder returns. Thus we retain our Buy rating on the stock.
Economic News
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, rose 4.7% in the week ended 31st July, following a 0.8% increase in the preceding week, the Mortgage Bankers Association said yesterday. The refinance index improved 5.9% from last week while the gauge of loan requests for home purchases, a leading indicator of home sales, advanced 3.3%.
US ADP employment change
US private sector jobs grew at a slower pace of 185,000 in July, after a downwardly revised 229,000 jobs in May, ADP reported yesterday. The consensus estimate was 215,000 jobs for July. Services sector was the biggest gainer with 42,000 jobs added followed by trade, transportation and utilities with 25,000 jobs.
US trade balance
US trade deficit rose to US$43.8bn in June from a revised reading of US$40.9bn in May, the Commerce Department said on Friday. Economists had expected the trade gap to reduce to US$43.0bn.