The Markets
Market opening: Markets are likely to open flat today. FTSE 100 futures were trading 0.20 points down at 7:00 am.
New York: Upbeat housing data helped Wall Street extend gains. However, the continuous slump in commodity prices impacted companies in related sectors. The S&P 500 improved 0.5%, with the healthcare sector topping the list.
Asia: Equities are trading lower amid disappointing economic data and weak commodity prices. The bomb blast in Bangkok further weakened the yuan to create a negative sentiment. The Nikkei 225 fell 0.3%, and the Hang Seng was trading 0.6% down at 7:00 am, tracking the market in China.
Continental Europe: Markets ended mixed on reports that the International Monetary Fund (IMF) may or may not take part in Greece’s third bailout. Meanwhile, the downslide in oil prices continued to hurt investor confidence. France’s CAC 40 rose 0.6%, while Germany’s DAX dropped 0.4%.
Crude Oil: Yesterday, the prices of WTI and Brent oil slipped 1.5% and 0.6%, respectively. The spread between the two varieties stood at US$6.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.13% higher yesterday at 750.83.
Today’s news
Eurozone trade surplus reaches six-month high in June
Eurozone’s trade surplus rose 2.8% m-o-m to €21.9bn, the highest since December 2014. Exports improved 1.4% m-o-m, while imports advanced 1.2% from the last month. The surplus was attributed to a weak euro that helped exports surpass imports during this period.
US home-builder confidence reaches decade-high reading
As per the National Association of Home Builders (NAHB), the builder confidence index in the US reached a seasonally adjusted level of 61 in August from 60 in July. This is the highest reading since November 2005.
Company News
Condor Gold (LON:CNR) – Speculative Buy
Yesterday, Condor Gold provided an update on its 100% owned La India Project in Mexico. The company announced that the first phase of its soil sampling programme has been completed across an area of 55 sq km identified as prospective for deep-seated gold mineralization. A total of 5,767 B-horizon soil samples have been collected on a 200m by 50m grid spacing and up to 100m by 50m in areas of interest. The area was analysed for 53 elements to ultra-trace detection limits using a standard ICP-MS package provided by Acme Labs. The results have enhanced the district-scale geological and epithermal gold mineralisation model and have identified several target zones within linear features that warrant further exploration for hidden deep-seated gold deposits. One of the targets is southeast strike continuation of Andrea Vein from 2km long to 4 to 7km long corridor. The soil programme is now being extended to the Northwest of the El Tanque area. Further, the drilling at Real de La Cruz concession is delayed for approval of permits.
Our view: The identification of exploration targets through the soil sampling programme showcases the potential for additional mineralization at the La India Project in Nicargua, Mexico. Condor has also found gold anomalies on the Cacao-Central Breccia trend, El Tanque area, Tatascame area, Santa Barbara Hill and Real de La Cruz area. The company plans to follow up these regions with an aim to enhance its existing resources. On the back of this, Condor has planned a drilling programme at the Real de La Cruz Concession to test for low-grade and high-grade mineralization and is awaiting approval. In addition, the geological setting from Tierra Blanca remains highly prospective and we expect the company to witness growth through the extension of high-grade gold mineralization. In view of the above developments, we remain optimistic about the company’s future prospects and therefore maintain a Speculative Buy rating on the stock.
Costain Group (LON:COST) – Buy
Yesterday, Costain announced that it has completed the acquisition of Rhead Group (Rhead), for a cash consideration of £36m. Rhead is a consulting firm that provides solutions for the lifecycle of infrastructure, construction and asset management programmes. The acquired entity would be a part of Costain’s power sector, with earnings expected to commence from 2016 onwards. As per the terms, Rhead’s senior management along with CEO Nigel Curry would remain in the business.
Our view: The acquisition of Rhead Group (annual revenues of over £60m) not only broadens Costain’s product portfolio but also improves its programme management and advisory capabilities across all verticals. Further, the combining of all nuclear activities into a single unit would enable Costain to focus on the huge opportunities in the sector. Separately, Costain has been swiftly winning some large contracts. The company recently won the contract for development of M4 corridor around Newport for the Welsh Government (the underground link between the Crossrail and Bakerloo Line platforms at Paddington station). Given the above and continuous addition of significant long-term contracts, we believe the company would be able to maintain its growing momentum, going forward. We maintain a Buy rating on the stock.
Bovis Homes (LON:BVS) – Buy
Yesterday, Bovis Homes released results for the half year ended 30th June 2015. Total revenue rose 9% to £350.7m from £322.1m in H1 2015, thanks to better sales price for homes. In H1 2015, the average sales price of homes legally completed increased by 6% to £222,300 (H1 2014: £210,000). A record 1,525 legal completions were reported in H1 2015, a 3% increase over the same period last year. Social homes category performed well and comprised 23% of total legal completions (345 homes), compared to 18% (274 homes) in H1 2014. The company reported a net profit of £56m for H1 2015 versus £51.3m in the same period last year. Bovis Homes has a consented land bank of 19,081 plots as of 30th June 2015. The Board recommended an interim dividend of 13.7p for 2015.
Our view: Bovis Homes delivered a strong first half performance in 2015 with a record number of legal completions. The company’s strategy of making land investments in high quality locations continued to pay-off and supported growth in active sales outlets leading to increased volumes. Among the external factors, the rising consumer confidence and the higher number of active housing sites bodes well for the company’s business. Moreover, the UK economic scenario remains conducive for the housing industry with better employment opportunities, rising real wages and access to cost-effective mortgage finance. Given the positive market conditions prevailing, we believe that the company is on track to deliver expected volume of new homes for the year. We maintain a Buy.
Yesterday, Carillion announced that PSBP Midlands Limited (a Carillion Joint Venture) has achieved financial closure on the Midlands Priority School Building Programme, a 25-year private finance concession contract using the UK Government’s PF2 model. The Midlands Priority School Building Programme consists of improving education facilities at eight schools by replacing existing substandard buildings over a two-year period. As per the terms, Carillion would be investing £5.5m of equity in the project and also build the schools at a capital cost of £138m.
Our view: Carillion, which has delivered some 150 schools over recent years through Public Private Partnership projects, has further cemented its position through the financial close of Midlands Priority School Building Programme. The company plans to take full advantage of this opportunity to provide the students with world class facilities and a healthy learning environment. Recently, Carillion was selected by the UK Government for new Facilities Management Services Agreement to replace the current framework for facilities management contracts. Further, company’s half yearly trading update suggested that the company had shown significant resilience in its performance despite challenging market situations. Going ahead, we expect the company to achieve its target for the year owing to rise in the number of orders, an increase in pipeline contracts and an expected improvement in market conditions. In view of the above argument, we reiterate a Buy rating on the stock.
Economic News
US empire manufacturing
The US Empire State manufacturing index for general business conditions fell to -14.92 in August from a reading of +3.86 in July, the manufacturing survey by the Federal Reserve Bank of New York revealed yesterday. Economists had expected the reading to improve to 4.50.