The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 19.60 points up at 7:00 am.
New York: Wall Street ended in the green amid improvement in commodity prices. However, investors were cautious of the economic slowdown in China, especially after the country devalued its currency for the second time. The S&P 500 rose 0.1%, led by the energy sector.
Asia: Equities are trading higher, recovering from the decline caused by growing concern over China’s economic health. The Nikkei 225 added 1.0%, while the Hang Seng was trading 0.2% up at 7:00 am.
Continental Europe: Markets ended lower. The devaluation of yuan for a second consecutive day created negative sentiment among exporters. France’s CAC 40 and Germany’s DAX fell 3.4% and 3.3%, respectively.
Crude Oil: Yesterday, Brent and WTI crude oil prices improved 1.0% and 0.5%, respectively. The spread between the two varieties stood at US$6.4 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.75% lower yesterday at 748.62. To read our latest research click here.
Today’s news
UK house prices rise in July: RICS
According to the Royal Institution of Chartered Surveyors (RICS), monthly house price balance in the UK rose to +44 in July, highest since July 2014. Reading for June 2015 was +40. The increase in monthly house price balance was caused by a drop in the number of properties coming on to the market, RICS mentioned.
China devalues yuan for third consecutive day
The People’s Bank of China devalued the yuan for a third consecutive day by 1.1% following 1.6% devaluation on Wednesday. The yuan stood at 6.4019 to the US dollar compared with 6.3306 yesterday.
Company News
Kibo Mining (LON:KIBO) – Speculative Buy
Kibo Mining, the exploration and development company focused on mineral and energy projects in Tanzania, announced yesterday the findings from its Phase 2 Stage 1 Mining Pre-Feasibility Study (MPFS) concerning the mining element of the Mbeya Coal to Power Project (MCPP). The salient features of the report findings are: 1) NPV (5.5%) between US$211m and US$244m and IRR between 33.6% and 53.9%, respectively with the range based on four different mining options (surface miner/free dig, contractor/owner and crushing/no crushing) over a mine life of 28 years. 2) An all-in cost margin of between 49% and 62% reflecting the low operating costs. 3) Capital investment between US$38m and US$73m with the former being the current preferred option and a payback period between 2.65 years and 3.65 years, respectively. Minxcon was commissioned by Kibo to compile a Definitive Mining Feasibility Study on the MCPP.
Our view: We are encouraged with the robust economics from the MPFS across all mining options and the progress being made on the definitive feasibility study. The mining component of the MCPP continues to be technically de-risked with the continuous surface miner proving a viable option and eliminating the need for washing of the coal, while the free digging option of the overburden removes the need for blasting. Taken together, these options significantly reduce the operating costs as well as the environmental liabilities. In view of results to date, we maintain a speculative buy on the stock.
Beaufort Securities acts as corporate broker to Kibo Mining plc
DekelOil Public (LON:DKL) – Speculative Buy
Yesterday, DekelOil provided an update on the construction of its Kernel Crushing Plant (KCP) that remains on track to start production of Palm Kernel Oil (PKO) and animal feed in Q4 2015. The required material and equipment have arrived at the site in Ayenouan and construction is progressing well by the team from Modipalm Engineering SDN BHD. After the KCP becomes operational, it would operate at 60t/day (tonnes per day) with an installed capacity of 80t/day. Currently, the kernels are being collected to start operations in Q4 2015 along with talks with local groups to purchase kernels, to add to company’s input into the plant. In addition, the company has already started discussions for the sale of its products and received positive response reflecting the substantial demand of the products. DekelOil would release further updates once the testing phase of the plant begins.
Our view: The aforementioned update takes DekelOil a step closer to commence production at Ayenouan palm oil project in Côte d’Ivoire. The region has been a promising destination for palm oil developers and still has a lot of potential for future expansion. The company is well-placed to commence production by the year end owing, to the advancement in operations supported by a strong local response. In addition, DekelOil produced 21,836 tonnes of crude palm oil (CPO) in the first half of 2015, up 53% over previous year’s overall production of 14,242 tonnes as per the recent trading update, thereby showcasing its strong logistics network and solid regional demand. Going ahead, we expect improvement in the company’s profitability due to combined production from the existing plants and the new KCP. In view of the above optimism, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to DekelOil Public plc
Tullow Oil (LON:TLW) – Buy
Yesterday, Tullow Oil provided an update across its operations in Ghana, Uganda, Kenya, Suriname and Norway. The company’s gas exports from its Jubilee field in Ghana, resumed on 3rd August 2015, ahead of the mid-August forecast. Gas exports have increased to around 100 mmscfd and the oil production regained its previous levels. Meanwhile, the company’s East African operations made substantial progress with the governments of Uganda and Kenya agreeing on the use of the Northern Route for the regional crude oil export pipeline. In Suriname, Tullow plugged and abandoned the Spari-1 well in offshore Block 31 as no significant hydrocarbon shows were encountered. In Norway, the company plans to plug and abandon the Salander well in offshore PL 650 as despite finding sandstones with good reservoir properties, no hydrocarbons were found.
Our view: The above operational update suggests that Tullow Oil continued to make good progress in 2015 with increased focus on cost management, operational efficiency and capital expenditure. With resolution of the compressor issue at its flagship project in Jubilee and the return to normal production rates, the company is well placed to meet its full year guidance. Plans are underway to deleverage the business with greater emphasis on major developments and phase out the non-core assets. Moreover, the encouraging agreement between the governments of Uganda and Kenya with regard to the pipeline route bode well for the company’s new project in the country. Thus in view of the above positive developments, we reiterate a Buy on the stock.
Zoopla Property provided a trading update for the period from 1st April 2015 to 31st July 2015. During the period, the company’s UK Agency membership increased by 213 branches taking total UK Agency membership to 12,556. Overall, the Group had 2,672 new home development members, 684 overseas members and 219 commercial members taking the total number of members at the end of the period to 16,131. In addition, the listings inventory improved 7% to 882,000 from 828,000 properties. On 1st June 2015, the company completed the acquisition of uSwitch comparison Services business. Subsequently, the company updated its key performance indicators to incorporate the successful acquisition of the uSwitch. The company expects to deliver its final results in line with the initial guidance. Alex Chesterman, Founder & CEO, would continue leading the company and the final results would be declared on 2nd December 2015.
Our view: : Zoopla traded well for the above mentioned four months with substantial increase in the membership numbers. The positive trading update reflects how Zoopla has made the most of the mobile platform to capture an important mind space among its customers. Of late the company has adjusted well to the competition from newly launched commercial real estate platform OntheMarket by Agents’ Mutual. With continued enhancements in the tools and services to help consumers in the property market, the company looks to deliver on its growth strategy. Furthermore, the UK Agency churn seems to be returning towards more normal historic levels and the number of member enquiries has also gone up. Thus in view of the overall optimism, we upgrade the stock to a Buy for now.
Vmoto (LON:VMT) – Speculative Buy
Yesterday, Vmoto released its trading update for the six months ended 30th June 2015, based on its unaudited financial results. During the period, the company’s revenues jumped 57% to US$24.9m as its total units sale went up 13% to 41,503 while the units sold to international customers soared 68% to 7,211. EBITDA rose 264% to US$2.1m and the statutory NPAT was up 379% to US$1.0m. Consequently, underlying NPAT increased 122% to US$1.6m. The company upheld its initial guidance for the year 2015 and plans to release its reviewed results on or before 31st August 2015.
Our view: During the half year, Vmoto generated strong growth in revenue, and even stronger growth in earnings while performing well on all business counts. Vmoto has remained focussed on enhancing its production and distribution capabilities to support this growth over next few years while seeking potential new customers across the globe. The increased share from the international sales marks the shift in the company’s sales mix to the higher margin sales. 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. Since the second half of the year is historically stronger than the first, we expect the company to build on its growth momentum. Thus in view of the above developments and the company’s improving brand image, we maintain our Speculative Buy rating on the stock.
Pearson yesterday announced that it has agreed to sell its 50% stake in The Economist Group for £469 million, payable in cash. Within this, EXOR S.p.A. has agreed to purchase 27.8% of The Economist Group’s Ordinary shares for consideration of £227.5 million and all of the B special shares for consideration of £59.5 million from Pearson. Pearson’s remaining Ordinary shares will be repurchased by The Economist Group for a total consideration of £182 million. The transaction is subject to a number of regulatory approvals and to approval by both a 75% majority of The Economist Group shareholders and the group’s independent trustees. The provisions of the City Code on Takeovers and Mergers do not apply to The Economist Newspaper Limited. The transaction is expected to close during the fourth quarter of 2015.
Our view: The disposal of The Economist Group follows Pearson’s recent sale of the Financial Times newspaper to Nikkei Inc of Japan. The move remains in line with the Company’s long term goal to concentrate on global education by improving the access to quality education worldwide. Pearson plans to move towards digital services with advanced technologies to cater to the rising demand in this segment. As such, it expects to invest in courseware, developing new products and building a single infrastructure to manage the resources and content. We believe Pearson’s opportunity to secure an increasing share of such online enhanced services should become better appreciated by the market, as it gains simplified access to an enlarged portfolio of products across a wider range of age groups. Furthermore, an improvement in curriculum change is expected to stabilize the UK and US college enrolments. In view of the above argument, we reiterate a Buy rating on the stock
Economic News
UK claimant count rate
The number of people claiming unemployment benefits declined by 4,900 in July following a rise of 200 in June, the Office for National Statistics said yesterday. Markets had expected the claims to increase by 1,000. The claimant-count rate rose to 2.3% in July, in line with the market expectations and previous month’s rise.
UK ILO unemployment rate
UK unemployment rate stood at 5.6% for the quarter ended June 2015, unchanged from the previous quarter, the International Labour Organisation stated yesterday. The reading came in line with the market expectations.
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, rose 0.1% in the week ended 7th August, following a 4.7% increase in the preceding week, the Mortgage Bankers Association said yesterday. The refinance index improved 3.1% from last week while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 3.5%.