The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 8.80 points up at 7:00 am.
New York: Wall Street ended in the red, amid the possibility of the Fed hiking the interest rate post the release of economic data on Friday. A drop in oil prices further dampened investor sentiment. The S&P 500 declined 0.3%, dragged by the energy sector. For the week, the markets slipped 1.2%.
Asia: Equities are trading mixed, amid a decline in commodity prices and a drop in Chinese exports in July. The Nikkei 225 rose 0.4%, while the Hang Seng was trading 0.1% down at 7:00 am.
Continental Europe: Markets ended lower following disappointing corporate earnings and poor industrial production data from Germany. Uncertainty surrounding the interest rate hike by the Fed further hurt investor confidence. Germany’s DAX slumped 0.8%, while France’s CAC 40 decreased 0.7%.
Crude Oil: On Friday, WTI and Brent Crude Oil prices decreased 1.8%. The spread between the two varieties stood at US$4.7 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.08% higher on Friday at 753.17. To read our latest research click here.
Today’s news
Chinese exports fall more than expected in July
Chinese exports dipped 8.3% in July to US$195.1bn, much lower than the market’s expectation of a 1.3% decline. This was weighed by a decrease in exports to Japan and the European Union (down 13% and 12.3%, respectively). Imports dropped 8.1% to US$152.0bn, following a 6.1% fall in June.
Company News
Premier African Minerals (LON:PREM) – Sell
On Friday, Premier African Minerals provided an update on the Definitive feasibility study of Circum’s Ethiopian Danakil Project, with a NPV of US$2.1bn. Premier holds 2% stake in the total capital base of Circum Minerals Limited. Proven and probable source of the project is estimated at 107.8 million tonnes of KCl equivalent for a minimum of 26 year project life. The expected annual production from the project is 2 million tonnes of MOP and 750,000 tonnes of SOP for Phase I. Total operating costs (FOB Djibouti) are projected to be US$83.89/t of MOP and US$ 158.95/t of SOP while considering Assumed prices of US$350/t of MOP and US$580/t of SOP. Moreover, Circum is in the process of engaging a major international investment bank for advisory on its strategic alternatives. Circum has also identified a number of Asian and Middle Eastern Groups in becoming involved in various aspects of the project’s development.
Our view: The results of the DFS augur well for Premier as the projects demonstrates having the potential to be one of the most cost effective, lowest capital intensity, and large scale potash projects in the world. In addition the project has displayed excellent economics and expansion potential. However, Premier recently secured a loan facility to fulfil the funding requirements of its RHA tungsten project, where the terms and conditions of the agreement seemed to be more in favour of the lender and was also subject to certain tough milestones. In case of a default or a change in control, the company may have to pay up to 120% of the Par Value for the Loan Notes. Thus in view of the strict rules for the redemption, we maintain our Sell rating on the stock, despite the latest progress towards production at its RHA tungsten mine.
On Friday, Bellway provided a trading update for the year ended 31st July 2015. The company reported an 18% y-o-y increase in its revenues to £1.7bn owing to a 5% y-o-y rise in the number of homes sold and the average selling price. In addition, the company also recorded a 4.7% rise of in book orders amounting to £1,087.9m, a 17.7% increase vis-a-vis last year. The operating margin is likely to rise 3% y-o-y, excluding the £6.9m one-off profit arising due to the sale of shared equity assets for £32.5m in cash consideration. Moreover, the company’s investment in land purchases was 35% higher from the previous year to acquire 88 land sites. Despite this, the debt levels remained modest with a gearing ratio less than 3%.
Our view: Bellway reported an encouraging trading update having recorded significant increase in the number of homes sold as demand witnesses a steady growth in view of the widely available and increasingly competitive mortgage finance. The company also indulged in greater investments as it plans to expand further, having opened a new division in Kent. Though of late, there has been some cooling in the growth rate of the house prices, but the overall macroeconomic scenario aided by the rise in the real wages of the citizens and the low inflation is likely to keep the housing sector in the forefront. We believe that a strong order book and disciplined investment strategy warrant further volume and profit growth in the current financial year. The company remains fundamentally strong to create value for its shareholders and therefore we reiterate a Buy rating on the stock.
Economic News
Germany Industrial Production
Industrial production in Germany fell 1.4% m-o-m on a seasonally adjusted basis in June, after a revised gain of 0.2% in the previous month, the Federal Ministry of Economics and Technology said on Friday. Economists, on the contrary, had expected production to grow 0.3% for the month. On y-o-y basis, industrial production increased 0.6% in June, lagging the market expectation of a 2.2% rise.
US change in nonfarm payrolls
US non-farm payrolls stood at a seasonally adjusted 215,000 jobs in July, the US Labor Department said on Friday. Markets had expected payrolls to increase to 225,000. June payrolls’ increase was revised upwards to 231,000 versus 223,000 reported initially.
US unemployment rate
The unemployment rate for July stood at 5.3%, in line with the market expectations and the previous month’s reading.