The Markets
Market opening: Markets are likely to open flat today. FTSE 100 futures were trading 0.60 points down at 7:00 am.
New York: Wall Street ended in the green amid positive economic data released on Friday. Meanwhile, investors were focused on developments in Greece’s third bailout program. The S&P 500 advanced 0.4%, led by the utilities sector. For the week, the markets rose 0.7%.
Asia: Equities are trading mixed following the People’s Bank of China (PBC)’s decision to fix the yuan at a mid-point to stabilise the market. The Nikkei 225 gained 0.5%, while the Hang Seng was trading 0.8% down at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended lower amid mixed economic data pertaining to the Eurozone. Fear of economic turmoil in China also affected investor sentiment. France’s CAC 40 and Germany’s DAX dropped 0.6% and 0.3%, respectively.
Crude Oil: On Friday, WTI prices improved 0.6%, while Brent oil prices slipped 0.4%. The spread between the two varieties stood at US$6.5per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.12%lower on Friday at 749.87.
Today’s news
UK house prices drop in August
According to Rightmove, the average asking price for a house in the UK slipped 0.8% to £292,284 in August after a 0.1% increase in July. However, house prices rose 6.4% on a y-o-y basis following a 5.1% rise last month.
Japan’s economy slows in second quarter
Japan’s economic growth decelerated 0.4% in the second quarter, compared with the first quarter of 2015. The decline was ascribed to a lag in exports and low consumer spending. On a y-o-y basis, the country’s economy contracted 1.6% after a revised expansion of 4.5% in the previous quarter.
Company News
Armadale Capital (LON:ACP) – Speculative Buy
Armadale Capital, the investment company focused on natural resource projects in Africa, announced Friday a conditional placing of 20,000,000 new ordinary shares at a placing price of 3.5p per share for gross proceeds of £700,000. The proceeds will be used to continue the development of Armadale’s 80% owned Mpokoto gold project in the Democratic Republic of Congo. The company is now funded to complete ground works in conjunction with the recently announced drill programme as well as the Definitive Feasibility Study (DFS) on Mpokoto which is expected in Q3 2015. The current combined JORC compliant resource is 678,000oz of Au grading 1.45g/t and the project is on target to commence production in H1 2016 with an estimated 25,000oz per annum over a nine year life of mine. Armadale has recently initiated a drill programme aimed at expanding its current mineral resource estimate. The placing is subject, amongst other things, to admission to trading on AIM and is expected to occur on 20 August 2015.
Our view: Armadale now has the cash to complete the DFS as well as its current drill program aimed at expanding its resources at Mpokoto. We are encouraged with the pace of development at Mpokoto which is on track to commence production in H1 2016. With funding potentially secured through the definitive agreements signed with African Mining Contracting Services (A-MCS) group and a Mining Licence already in place we look forward to the completion of the DFS and confirmation of the low start-up capital, currently estimated at US$20m. Thus in view of the progress to date, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Armadale Capital PLC
Kefi Minerals (LON:KEFI) – Speculative Buy
Kefi Minerals, the gold exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, announced today an update on the contracting and financing schedule for its planned 1Moz Tulu Kapi gold project in Ethiopia. Independent Technical Consultants (ITC) to the short-listed senior financiers have reviewed the recently overhauled Definitive Feasibility Study (DFS). Short-listed candidates for the Mining Contractor and Plant Construction Engineering, Procurement and Construction Management (EPCM) have submitted their bids and is currently being reviewed by Kefi’s management team. Kefi is now focused on finalising contractor terms and opportunities to further reduce capital requirements, currently estimated at US$130m. Based on the 2015 DFS cash flow projections indicate an All-in sustaining cost of US$779/oz, which is the lowest quartile of gold producers.
Our view: We are encouraged in the rapid pace of development as well as the robust economics of the Tulu Kapi project and look forward to further announcements regarding the selection of financing options and preferred contractors. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Kefi Minerals plc
Rosslyn Data Technologies (LON:RDT) – Speculative Buy
On Friday Rosslyn, the leading global big data technology company, announced it had agreed a partnership with Genpact (NYSE: G), the New York headquartered multinational business process outsourcing and information technology services company. The partnership enhances Genpact’s source to pay transformation capabilities, based on its patented Smart Enterprise ProcessesSM framework, core IT solutions, and Systems of EngagementTM, with Rosslyn Analytics’ big data cloud analytics platform, RAPid. It allows Genpact clients to adopt spend analytics-as-a-service, enabling fast and flexible deployment that helps maximize ROI. At the same time, the design-thinking approach that the partnership powers will ensure deep adoption of the tools throughout the client organization. As a result, the partnership will more easily access and turn complex data into meaningful information to achieve intelligent procurement operations that sense, act, and learn efficiently and effectively.
Our view: Genpact is a major US technology enterprise with a US$4.9bn market capitalisation and a global client base. In selecting Rosslyn as its partner to provide its big data cloud analytics platform, RAPid, it is creating a solution capable of providing procurement teams with user-friendly tools to re-imagine their S2P functions, make more informed decisions, and ensure robust reporting while reducing the burden on the IT organization. This is very significant news. For Genpact, it strengthens a strategic area of its portfolio and provides a new business thrust for the group in the form of data-to-insight-as-a-service to help clients transform their procurement operations. For Rosslyn, it underlines the fact that its award winning technologies offer a unique solution that is difficult to emulate, while seeing its technology embedded into a suite of products already adopted by a huge Fortune Global 500 customer base. The fact that Rosslyn’s technology also happens to be used by a good number of Genpact’s sector leading peers, suggests that it could even eventually become a cornerstone of their prospective product and customer development. That said, it would of course be unrealistic to expect such industry giants to agree to ‘share’ such a technology or, indeed, to be willing to indefinitely expose themselves to a minor UK data analytics firm. The time and effort required by them to successfully re-create RAPid, however, means they are more likely to seek exclusivity or direct control of the platform for themselves. The ramifications of such a suggestion are, of course, very large but any resulting ‘tussle’ to achieve this, one way or another, would likely be very good news for Rosslyn shareholders. Therefore, we retain our Speculative Buy on the stock.
Horizonte Minerals (LON:HZM) – Speculative Buy
On Friday, Horizonte Minerals declared its unaudited financial results for the half year ended 30th June 2015. The company’ losses widened to £1.16m from of £304,054 in H1 2014 resulting in a negative EPS of 0.235p (H1 2014: (0.076p)). However, Horizonte improved its cash position to £2.4m. On the operational front, the company made substantial progress in its fully owned Araguaia Nickel Project in Para State, Brazil. The initial results from the Rotary Kiln Electric Furnace (RKEF) Pilot Plant were promising and the next stage testing to produce ferro-nickel for commercial purpose is expected to commence soon. The drilling on Pequizeiro deposit resulted in 11.30 meters grading 2.95% Ni, 9.21 meters grading 2.50% Ni, and 11.82 meters grading 2.39% Ni. Horizonte also completed a 10,255 metre infill resource drill programme to convert the initial 7-8 years of the 25 year modelled mine life to Measured Resource category.
Our view: Horizonte delivered resilient half yearly results despite difficult trading conditions and falling commodity prices. The company is progressing nicely on its Araguaia Nickel Project, with successful high-grade drill results from its Phase 4 infill resource drilling programme. The positive outcome at the recent Public Hearing regarding the Social and Environmental Impact Assessment for Aragua, have added to the attractiveness of the prospect. The company has already completed the pre-feasibility study that underpins the robust economics of developing the mine. In addition, the company remains on track for completing the feasibility Study while progressing towards nickel production in Brazil. Thus in view of the above developments, we retain our Speculative Buy on the stock.
On Friday, IP Group informed that its portfolio company, First Light Fusion Limited raised funds worth £22.7m. The funding would be completed in two tranches, subject to attainment of certain milestones. First Light, a spin-out from the University of Oxford, would raise £14.0m in first tranche of the fundraising. It recently discovered a new implosion processes that can achieve the high temperatures and compression necessary for fusion reactions and other valuable applications. This approach has led to substantial reduction in time and cost for achieving affordable fusion energy. With the recent fundraising, First Light intends to further develop its modelling tools and experimental capability. In addition, the company informed about setting a Scientific Advisory Board to provide technical input and governance for its ongoing development programme.
Our view: The successful fundraising by First Light Fusion Limited is testimony to the excellent progress made by the company towards the development of the fusion energy technology and its eventual commercial application. Moreover, the appointment of top class talent to the advisory board reflects the company’s ability to attract best talent in the industry. IP has an undiluted beneficial interest of 34.9% in First Light that is valued at £13.9m. Recently, IP Group declared its half yearly results where several of its companies made significant advances. The company has till date backed nearly 20 spin-out companies from the University Of Oxford and enjoys an impressive track record in innovation and entrepreneurship. 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 and the overall progress made by IP Group through its portfolio companies, we reiterate a Buy on the stock.
Economic News
Germany GDP
Germany’s GDP grew 0.4% q-o-q on a seasonally adjusted basis in Q2 2015, following a 0.3% expansion in the previous quarter, Destatis said on Friday. The growth was ahead of the market expected 0.3% rise. On y-o-y basis, GDP was up 1.6% in Q2 2015, in line with the market expectations.
Eurozone GDP
The Eurozone GDP expanded 0.3% q-o-q in Q2 2015 after growing 0.4% in the last quarter, the Eurostat revealed on Friday. The reading missed the market forecast of a 0.4% expansion. On a y-o-y basis, Eurozone GDP grew 1.2%, behind the market expected rise of 1.3%.
Eurozone CPI estimate
Consumer price inflation (CPI) in the Eurozone remained steady at 0.2% y-o-y in July, following a similar reading in June, as per the estimates published by Eurostat on Friday. The reading matched the market expectations. Core prices, excluding those of energy, food, and tobacco, increased 1.0% y-o-y, in line with the market expectations.
US PPI final demand
The US producer price index (PPI) for final demand improved 0.2% m-o-m in July, after increasing 0.4% in June, the Bureau of Labor Statistics stated on Friday. The reading was above market expectations of a 0.1% increase. Core producer prices, excluding food and energy, edged up 0.3% in July. On a y-o-y basis, PPI demand fell 0.8% in July following a 0.7% drop in June.
US Industrial Production
Industrial production in the US rose 0.6% m-o-m in July, following a downwardly revised increase of 0.1% in June, the Federal Reserve announced on Friday. Markets were expecting output to increase to 0.3%. Manufacturing output, the key component of industrial production, improved 0.8% on a monthly basis following 0.3% drop in June. The capacity utilization improved to 78.0% compared to a revised 77.7% in June.
US University of Michigan sentiment
US University of Michigan Consumer Sentiment Index dropped to 92.9 in August from 93.1 in July, data showed on Friday. Economists were expecting a reading of 93.5. The Consumer Expectations Index, which closely forecasts the direction of consumer spending, slipped to 83.8 from 84.1, and the Current Economic Conditions Index decreased to 107.1 from 107.2.