The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 10.30 points down at 7:00 am.
New York: Wall Street ended marginally lower amid mixed economic data released yesterday and due to a slump in commodity prices. The S&P 500 slipped 0.1%, with energy stocks losing the most.
Asia: Equities are trading lower as the People’s Bank of China decided to keep a midpoint rate for the yuan at 6.3975, lower than the previous day’s close. The drop in commodity prices also hurt investor sentiment. The Nikkei 225 fell 0.4%, while the Hang Seng was trading 0.1% down at 7:00 am.
Continental Europe: Markets ended high on hopes that the Greek Parliament would approve the third bailout deal. Meanwhile, Greece reported a GDP growth of 0.8% in the second quarter. France’s CAC 40 and Germany’s DAX rose 1.3% and 0.8%, respectively.
Crude Oil: Yesterday, WTI and Brent Crude Oil prices declined 2.5% and 0.9%, respectively. The spread between the two varieties stood at US$7.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.29% higher yesterday at 750.77. To read our latest research click here.
Today’s news
IMF urges Europe to assist with Greece’s debt relief
The International Monetary Fund (IMF) has asked Europe to aid Greece with its debt relief. The group stated that it would take a decision on financing the country further only if appropriate measures were taken to support the debt burden.
Beaufort Investor Evening, Thursday 10th September 2015 (London)
Book your ticket to attend our next investor evening at the exclusive City of London Club on Thursday, 10th September 2015 now! This event will feature presentations from FOUR exciting companies, all with interesting stories to tell.
Company News
Caledonia Mining Corporation (LON:CMCL) – Hold
Yesterday, Caledonia Mining released its operational and financial results for Q2 2015 and H1 2015. During the six months the company’s gold production declined to 20,361oz from 21,464oz whereas the on-mine cash cost increased 12% to US$699/oz from US$622/oz. Gold sales for the period also dropped to 21,174oz from 23,433oz with the average realised gold price of US$1,187/oz down 6% from H1 2014. Consequently, the gross profit fell to CAD8.6m from CAD11.7m over the same period. For Q2 2015, gross profit stood at CAD4.0m compared with CAD5.6m in Q2 2014. Adjusted earnings per share for the quarter were down 38% and 33% for H1 2015 compared with the same periods last year. Payments to the community and Zimbabwe government for the half year declined to CAD3.6m from CAD6.6m a year ago due to the reduced royalty rate and the lower income tax payable on reduced profits and increased capital investment.
Our view: 2015 is a pivotal year for Caledonia Mining as the company continues to implement its Revised Investment Plan in a bid to achieve increased production from Q1 2016. Steps have been taken to emphasize on the core operations and streamlining the company’s corporate structure. However, the company’s goals and plans have been marred by reduced gold prices that continued to fall during the second quarter. There was little management could do to repair the damage as it achieved the grade and tonnage production guidance for the period. Though the Blanket mine continues to operate profitably, we are concerned about the current quarterly dividend of CAD0.015 being maintained. As a result, we downgrade the stock to a Hold on the back of uncertainty attached to current global gold prices.
Anglo Pacific Group (LON:APF) – Speculative Buy
Yesterday, Anglo Pacific released an update on its production guidance at the Narrabri coal mine for the fiscal year 2016. Whitehaven Coal Ltd, the operator of the mine expects the production to be between 6.6-6.8Mt (million tonnes) of high quality thermal coal.
Our view: The aforementioned production range exceeds Anglo’s initial estimates owing to its highly efficient and productive partner Whitehaven. The company’s move to acquire an interest in Narrabri royalty is turning fruitful as it expects to commence production very soon. In addition, Anglo witnessed major improvements at the Kestrel mine with production of 1.12Mt in Q2 2015 from 0.72Mt in Q2 2014 and 2.25Mt in H1 2015 against 1.59Mt in H1 2014. Further, we expect the company’s production from its royalty area to rise substantially in the second half of 2015, thereby increasing value for the shareholder through enhanced dividend payments. We believe the company could witness improved earnings owing to the significant progress in its recent acquisitions of Narrabri and Maracas. In view of the above developments, we reiterate a Speculative Buy rating on the stock.
Caza Oil & Gas (LON:CAZA) – Speculative Buy
Yesterday, Caza Oil & Gas provided its unaudited financial results for the three-months ended 30th June 2015. During the period, the company’s revenues from oil and natural gas declined 13% q-o-q and 53% y-o-y to US$2.9m, primarily due to the decline in the oil prices. However the company’s adjusted EBITDA increased 35% q-o-q and 14% y-o-y to US$3.7m. On the production front, the company’s oil production declined 20% q-o-q and 11% y-o-y to 58,847 barrels of oil (bbls) while the oil and NGL production increased to 87% of the company’s combined oil and natural gas production in Q2 2015. Caza’s natural gas production decreased less than 1% q-o-q and 52% y-o-y to 53,060 Mcf. Despite declining 46% on an annual basis, the company’s average oil price received improved 24% q-o-q to US$50.36 per bbl while the average natural gas price received by Caza decreased 2.6% to US$2.99 per Mcf. The average combined price received by Caza in Q2 2015 increased 6.5% to US$43.46 per Boe (Barrel of oil equivalent) compared to US$40.60 per Boe in Q1 2015. Recent drilling activity in close proximity to Caza’s lease blocks confirmed the presence of at least three of four potentially viable horizontal Wolfcamp targets in addition to the traditional Bone Spring targets. Subject to the availability of appropriate financing and dependent upon drilling costs, the Company plans to eventually accelerate and expand its drilling program in the Bone Spring play.
Our view: Caza posted a resilient performance in view of declining commodity prices. The company’s revenues took a hit but the management offset much of the damage through efficient cost control measures. A positive growth in the EBITDA should be taken as a positive sign. Moreover, the company boasts of an outstanding asset base with majority of its leases either held-by-production or with sufficient term remaining until expiration to allow Caza take the advantage of realigning the operational costs to the underlying commodity pricing. The company stands to benefit from the lower drilling and service costs following the downward trend in the commodity prices, as the company’s Bone Spring drilling program demonstrates the ability to deliver acceptable economic returns even at current price levels. Thus in view of the above, we reiterate a Speculative Buy on the stock.
Ilika (LON:IKA) – Speculative Buy
Yesterday, Ilika informed that the European Patent Office (EPO) upheld its opposition to a fuel cell catalyst patent from Brookhaven Science Associates (BSA). Ilika had earlier objected to certain claims of a granted European patent from Brookhaven Science Associates as they might have hampered Ilika’s own freedom to operate its own European patent. Henceforth, Ilika filed an Opposition against the BSA patent in February 2013, and oral proceedings took place before the Opposition Division on 17th March 2015 at the EPO in Netherlands. Consequently, the BSA European patent was revoked. The EPO issued a notice on 8th August 2015 that the opposition proceedings were now terminated with revocation of the patent.
Our view: Ilika possesses several valuable patents that underpin the company’s product development work. The Carbon Trust invested in Ilika through its Polymer Fuel Cells Challenge programme to support the commercialization of Ilika’s high performing electro-catalysts for use in fuel cell vehicles. In December 2013, Ilika announced it had submitted positive cell performance data along with material samples for evaluation to three global OEM’s. Though the adoption rate of fuel cell technology has been historically difficult to predict, the limited number of cars available from the first production Toyota Mirai models have already been sold out in Britain. The launch of this vehicle signals an increased focus by OEM’s on cost-reduction of fuel cell technology with a view to enabling the mass market. Thus eyeing the great potential Ilika’s fuel cells may offer, we maintain our Speculative Buy on the stock.
Venn Life Sciences (LON:VENN) – Speculative Buy
Yesterday, Venn Life Sciences announced its trading update for half year ended 30th June 2015. The company reported revenues greater than €4m in H1 2015 compared to €1.5m in H1 2014, owing to contract wins totalling €9m during the period. Venn would announce its interim results for the first half on 22nd September 2015.
Our view: Venn delivered solid first half results owing to strong organic growth and increase in the number of contracts. The company is progressing well with its latest product Labskin, a 3D skin equivalent alternative to animal testing for dermatological purposes and has won its first customer as a major pharmaceutical company. Further, Venn is looking for acquisition opportunities in Central and Eastern Europe in wake of the huge opportunities in the region at minimal costs. Overall, the company is well placed with a strong balance sheet and enhanced contract base to maintain its growing momentum for the entire year. In view of the above optimism, we maintain a Speculative Buy rating on the stock.
Economic News
Germany CPI
Consumer price inflation (CPI) in Germany stood at 0.2% m-o-m in July following a similar reading in June, as per the estimates published by Destatis yesterday. The reading was in-line with economists’ projections. On a y-o-y basis, consumer prices rose 0.2%, following a similar increase last month.
US retail sales advance
US advance retail sales increased 0.6% m-o-m in July after a revised flat reading in June, the Commerce Department said yesterday. The reading was in line with the market expectations. Excluding the sales of motor vehicle and parts, retail sales were 0.4% up in July, in line with the market expectations.
US initial jobless claims
Number of Americans filing their first initial claims for unemployment benefits rose by 5,000 to a seasonally adjusted 274,000 in the week ended 8th August, from last week’s downwardly revised figure of 269,000, the Labor Department said yesterday. Economists had expected claims to increase to 270,000.