The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 4.90 points up at 7:00 am.
New York: Wall Street ended in the red due to a sharp fall in commodity prices. Meanwhile, Fed’s meeting minutes indicated a delay in the interest rate hike expected this September. The S&P 500 fell 0.8%, dragged by the energy sector.
Asia: Equities are trading lower, tracking the losses in offshore markets. Instability in the Chinese economy also impacted investor confidence. The Nikkei 225 dropped 0.9%, and the Hang Seng was trading 1.6% down at 7:00 am.
Continental Europe: Markets ended lower following a sharp decline in oil prices and amid concern over the US Fed hiking the interest rate. Germany’s DAX and France’s CAC 40 fell 2.1% and 1.8%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices dropped 4.3% and 3.4%, respectively. The spread between the two varieties stood at US$6.4 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.44% lower yesterday at 747.88.
Today’s news
Germany approves third bailout for Greece
German lawmakers have approved Greece’s third bailout for a package of €86bn, to be supplied over the next three years. A total of 454 voted for the bailout and 113 against it, while there were 18 absentees. The bailout was negotiated between Greece and international creditors.
US Fed may delay the September rate hike
The Federal Reserve’s meeting minutes for the last session hinted at an interest rate hike once wages improved and the inflation target of 2% was met. However, the Fed ignored the possibility of an increase in the September meeting.
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
Inspired Energy (LON:INSE) – Speculative Buy
Yesterday, Inspired Energy declared its unaudited half yearly results for the period ended 30th June 2015. During the period, revenues jumped 32% to £6.5m from £4.9m in H1 2014 as both the corporate division and the SME division, delivered strong performances. Pre-tax profit advanced 50% to £1.8m resulting in an EPS of 0.45p versus 0.35p in H1 2014. The cash flow from operations soared 111% to £1.9m and the net debt reduced to £2.3m from £3.1m in H1 2014. Corporate order book expanded by 21.6% y-o-y to £15.2m; £20m considering the acquisition of Wholesale Power UK Limited (WPUK). On the operational front, Inspired Energy worked to improve its corporate team by adding employees with good knowledge of the market and the sector. Inspired Energy also declared an interim dividend of 0.10p up 43%, to be paid on 6th November 2015.
Our view: Inspired Energy delivered solid first half results led by continuous growth across the divisions and due to the rising order book. The company improved its cash position as it took several measures to improve operational efficiency. Further, Inspired Energy’s acquisition of WPUK complements its plan of making strategic purchases to expand its range of services. Following the acquisition, the company is expected to improve its offerings to the core corporate customers by delivering them the best possible advice to reduce their energy costs and generate substantial savings. The acquisition also provides Inspired Energy an easy entry into new industry segments including leisure and logistics. Going ahead, we expect the company to maintain its earnings growth owing to its strong fundamentals and plans to seek attractive acquisition targets. In view of the above developments, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Inspired Energy Holdings plc
Legendary Investments (LON:LEG) – Speculative Buy
Yesterday, Legendary Investments announced its results for the year ended 31st March 2015. During the period, the company incurred a loss of £470,000 against a pre-tax profit of £901,000 in 2014. The decline was mainly due to a net loss of £235,000 on investments in Amedeo, Sula, Oracle and Medgold, compared with a gain of £1.1m the previous year. Legendary’s net cash for the period jumped to £196,000 from £63,000 in 2014. The total asset value during the period rose 15% to £2.0m from £1.7m in 2014. On the operational front, Virtualstock, an investee company, entered into a contract with a leading NHS Teaching Hospital Trust. Virtualstock also entered into an agreement with Maplin to supply Virtualstock Edge solutions, a cloud based platform that facilitates seamless flow of information between any set of fragmented systems.
Our view: Legendary put up a fairly decent performance despite difficult trading conditions in the market, especially for investee companies engaged in gold and coal. Legendary continued its strategy to enter into agreements with companies in different sectors. The company’s future looks bright, as investee companies namely, Bosques and Amedeo Resources seem on track for creating value for the firm. Amedeo’s offshore vessel yard has now become fully operational, and Bosques has moved a step closer to commercialisation with pongamia seeds producing saplings, ahead of schedule. Thus in view of the progressive developments, and the company’s ability to pick value stocks across sectors including technology, energy and natural resources, we maintain a Speculative Buy.
Beaufort Securities acts as corporate broker to Legendary Investments plc
Sirius Minerals (LON:SXX) – Speculative Buy
Yesterday, Sirius Minerals informed that it has renewed its take-or-pay supply contract with one of its prevailing agri-business customer, a Fortune 500 company. The original deal was for a period of five years for the supply of 500,000 tonnes per annum of polyhalite from the York Potash Project, with an option to take extra 500,000 tonnes per annum. As per the new agreement, the amount of polyhalite to be supplied stands increased by three times to 1.5 million tonnes per annum, with an option to extend for two extra five-year periods. The value of deal remained undisclosed.
Our view: Sirius Minerals is a potash development company focused on the York Potash Project in the UK. The Project has a JORC compliant Probable Mineral Reserve of 250 million tonnes of 87.8% polyhalite. The aforementioned renewal of contract takes company’s offtake agreements to a total of 3.1 million tonnes per annum and an extra 4.8 million tonnes per annum from other deals. It also reinforces the fact that the quality of polyhalite supplied by Sirius Minerals is of a high grade. Recently, the company had conducted trials on soybeans and corn, successfully resulting in enhanced yields for both the crops through the use of polyhalite. Considering the high demand, Sirius Minerals is now planning to expand its annual production of polyhalite from 6.5 million tonnes to 10 million tonnes. In view of the overall optimism, we maintain a Speculative Buy rating on the stock.
Imperial Tobacco (LON:IMT) – Buy
Yesterday, Imperial Tobacco (“Imperial”) released its interim management statement for the nine months ended 30th June 2015. During the period, revenues fell 4% to £4.44bn, but were up 2% on a constant currency basis. The company’s Growth brands volume jumped 15% to 105.4 billion SE from 91.7 billion SE in the same period last year. The Growth and Specialist brands contributed 59% to the net revenue, 5.8% higher than last year. This enabled the company to grow its market share by another 1%. Meanwhile, the company is focused on reducing its debt and managing working capital. Imperial expects a cash conversion of 90% for the entire year. On the operational front, Imperial worked on its cost optimization programme and expects to make savings of £85m in 2015. The company also entered into a purchase agreement to acquire certain US cigarette and e-cigarette brands and assets, owned by Reynolds and Lorillard, for a consideration of £4.6bn. The Management plans a 10% dividend hike this year.
Our view: Imperial’s growth momentum in its Growth and Specialist brands helps them offset challenging market conditions due to rising health awareness, higher taxes and tighter regulation. The company’s continuous focus on cash management would not only help in operational efficiency but also achieve savings in the long run. Further, Imperial’s deal with Reynolds American has helped the company make inroads into the US cigarette market. Post the deal, Imperial’s market share in the US rose to 10% from 3%. In addition, the company continues to expand the availability of its e-cigarette, Puritan, in the UK and also launched an e-vapour brand JAI in France and Italy. We expect Imperial to deliver results in line with the guidance and maintain a Buy rating on the stock.
Admiral Group (LON:ADM) – Buy
Yesterday, Admiral Group reported results for the half year ended 30th June 2015. During the period, turnover advanced 2% to £1.1bn led by higher growth in both the UK and International Car Insurance businesses. The UK Car insurance profit jumped 4% while the International Car Insurance cut its losses to £11.2m from £15.5m in H1 2014. The Group’s customer base expanded 6% y-o-y to 4.19 million. Pre-tax profit rose to £186.1m from £184.9m in H1 2014 leading to an EPS of 54.8p, up 4%. Admiral’s loss ratio was 60.8% versus 67.1% in H1 2014, and the expense ratio moved to 21.9% from 18.0%. The company proposed an interim dividend of 51.0p, 3% higher than H1 2014, to be paid on 9th October 2015. In a separate announcement, Admiral informed that Mr Manfred Aldag, a non-independent non-executive, would retire from the Board with effect from 31st August. Post the regulatory approvals, Mr Owen Clarke, would join the Board to replace Mr Manfred.
Our view: Admiral starts the year on a positive note with improved margins, enhanced customer base and better ratios. The company’s combined ratio, a measure of profitability, stood at 82.7% (H1 2014: 85.1%), among the best in the UK motor insurance market. Further, improvements across key operational ratios, amid adverse market conditions, display the strength of Admiral’s business. With strong fundamentals and the strength of its international business, we expect Admiral to comfortably tread over the on-going short-term performance glitches and generate solid earnings and return for its shareholders. Furthermore, the company expects to benefit from Mr Clarke’s knowledge of the finance business. His previous experience with Equistone, an investment firm would help the company in making strategic investments. In view of the above argument, we maintain a Buy rating on the stock.
Economic News
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, rose 3.6% in the week ended 14th August, following a 0.1% rise in the preceding week, the Mortgage Bankers Association said yesterday. The refinance index rose 7.2% from last week while the gauge of loan requests for home purchases, a leading indicator of home sales, dropped 1.1%.
US CPI
US consumer price index (CPI) grew steadily at a seasonally adjusted 0.1% m-o-m in July, after a 0.3% increase in June, the US Bureau of Labour Statistics stated yesterday. The reading missed the market expected increase of 0.2%. Core consumer prices, excluding food and energy, rose 0.1% in July, following a 0.2% increase in the preceding month. The reading came lower than the market expected rise of 0.2%. On y-o-y basis, CPI stood at 0.2% for the month following a 0.1% increase in June, while the core prices remained steady at 1.8%.