The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 48.40 points down at 7:00 am.
New York: Wall Street ended in the red amid China’s decision to devalue its currency a record 1.9%. The move dragged the commodity prices and further dampened investor sentiment. The S&P 500 slipped 1.0%, with the material sector losing the most.
Asia: Equities are trading lower, pairing the losses in the global markets, due to fear of economic turmoil in China. The Nikkei 225 fell 1.5%, while the Hang Seng was trading 2.0% down at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended lower following an unexpected devaluation of the yuan by People’s Bank of China. Germany’s DAX and France’s CAC 40 shed 2.7% and 1.9%, respectively.
Crude Oil: Yesterday, WTI and Brent Crude Oil prices decreased 4.2% and 2.4%, respectively. The spread between the two varieties stood at US$6.1 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.10% higher yesterday at 754.26. To read our latest research click here.
Today’s news
UK’s leading economic index falls for second straight month
As per the Conference Board, the UK’s leading economic index that measures future economic activity fell 0.2% in June, following a 0.4% dip in May. The decline was ascribed to shrinking order book volumes, expected output volumes, stock prices and consumer confidence. The Conference Board’s leading economic index includes seven components. For the six months to June, the index rose 0.7%, compared with a 0.7% fall in the previous six months.
Greece finalises deal with creditors for third bailout
Greece has agreed to a €85bn bailout agreement with international lenders. Greek Prime Minister Alexis Tsipras has called for an emergency session on Thursday to vote for the deal’s approval in Parliament.
Northcote Energy (LON:NCT) – Speculative Buy
Yesterday, Northcote informed that its joint venture, Mayan Drilling Fluids (MDF), has entered into an agreement to provide remediation services at four different locations spanning across 7.4 hectares. The services are to be completed over the next 3 to 4 months and would be performed using existing resources available to the joint venture. The agreement is expected to have a total potential value of US$887,500 for all the four locations. The company expects to use the positive cash flow generated from the contract for the construction of the recently announced remediation facility. Northcote had formed this joint venture to carry out the development of a remediation facility in Comalcalco, Mexico.
Our view: The aforementioned agreement marks Northcote’s first revenue generative business in Mexico, since it commenced its operations in the region. The contract also highlights the company’s ability to successfully scout locations for business and validates its belief in the immense opportunity in the new market. The cash flows from the agreement would facilitate the construction of the remediation plant and also help the company to use its existing resources without any additional stress. Further, the agreement complements the company’s plans to invest heavily in the Mexican energy sector. 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 Northcote’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
Eurasia Mining (LON:EUA) – Speculative Buy
Yesterday, Eurasia Mining announced the commencement of drilling at its Monchetundra PGM licence area. The drilling programme would cover an area of 4,000 metres to augment and detail the reserves and resources at the West Nittis PGM deposit. In addition, drilling on the other PGM deposit at Loipishnune is also under consideration. This work is a part of the plan to lodge a Mining Licence application, similar to the process followed for the Mining Licence covering its platinum project at West Kytlim in the Urals.
Our view: With the commencement of the drilling campaign at the Monchetundra license, Eurasia anticipates to add to its reserves and resources. Moreover, the receipt of a Discovery Certificate and mining license 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 to successfully transform into a major asset. Thus, in view of the progress at Eurasia’s two projects with material significance, we retain our Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Eurasia Mining plc
PCG Entertainment (LON:PCGE) – Speculative Buy
Yesterday, PCG Entertainment informed that it has readmitted its shares for trading on AIM. In addition, the company has also entered into a conditional agreement to acquire the issued share capital of Center Point Development Corporation (CPDC). The company would seek approval from its shareholders for the acquisition during its annual general meeting on 26th August 2015 in Gibralter.
Our view: We believe that the above deal should prove beneficial to the company as the acquisition of the gaming software and ancillary services distributor complements the existing interests of PCG Entertainment. CPDC has witnessed rapid growth since it generated its first income in 2013. Through the positive cash flow from the new acquisition, PCG Entertainment plans to seek further interesting opportunities that would help improve its market presence. Also, the company would leverage on CPDC’s gaming experience, local knowledge and strong relationships. Thus, in view of the overall benefits of the acquisition and the re-admission of shares for trading, we assign a Speculative Buy rating to the stock.
Beaufort Securities acts as corporate broker to PCG Entertainment plc
Yesterday, Carillion informed that it has been chosen as the preferred bidder by the Sandwell and West Birmingham Hospitals NHS Trust to deliver the new Midland Metropolitan Hospital. The hospital would be built as a Public Private Partnership under a 30-year concession contract using the UK Government’s PF2 model. The hospital is expected to have nearly 670 beds along with 15 operating theatre suites. Carillion is likely to invest around £16m of equity in the project and would also deliver hard facilities management and life-cycle maintenance services, expected to generate around £140m over the life of the concession contract. Financial close is expected around the end of 2015 while the construction may commence by early 2016. The hospital is expected to open in late 2018.
Our view: The above contract is the second good news from the company’s camp in as many days. The contract would add significantly to Carillion’s purse with over £430m of revenues from construction and support services along with an equity investment of £16 m. Recently, the company also won a Facilities Management Services agreement from the UK government. Moreover, the company’s half yearly trading update suggested considerable resilience in its performance despite challenging market situations. Later this month, the company expects to release revenue, margins and healthy cash flows in line with the expectations despite the slowdown in contract awards due to the UK General Election. Going ahead, the expected improvement in market conditions, rise in the number of orders and an increase in pipeline contracts would likely help the company achieve its target and remain competitive. Accordingly, we reiterate our Buy rating on the stock.
Economic News
Germany ZEW survey
The Centre for European Economic Research/ZEW reported that the German economic sentiment slipped to 25.0 in August from 29.7 in July, as against the market expectations of a rise to 31.9. Meanwhile, the gauge of current situation increased to 65.7 in August from 63.9 in the previous month, exceeding the market expectations of an index reading of 64.2.
US wholesale inventories
US wholesale inventories grew 0.9% m-o-m in June after a revised rise of 0.6% in May, data from the Commerce Department revealed yesterday. Markets had expected inventories to rise 0.4% during the month. The addition in inventories was led by motor vehicle and motor vehicle parts and supplies, with a rise of 2% in June. Furthermore, the department reported that wholesale sales increased 0.1% in June after an increase of 0.2% in the previous month.