The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 17.80 points down at 7:00 am.
New York: Wall Street ended in the red amid growing concerns over China’s economic health. The uncertainty over an interest rate hike impacted investor sentiment. The S&P 500 fell 2.1%, dragged by the consumer discretionary sector.
Asia: Equities are trading lower, taking cues from the global markets. China’s manufacturing PMI slipped to a six-year low, adding to the downside. The Nikkei 225 tumbled 2.9%, while the Hang Seng was trading 2.3% down at 7:00 am.
Continental Europe: Markets ended lower on the slump in Chinese equities. The uncertainty in Greece following Tsipras’ resignation hurt investor confidence. Germany’s DAX and France’s CAC 40 shed 2.3% and 2.1%, respectively.
Crude Oil: Yesterday, WTI prices improved 0.8%, while Brent oil prices slipped 1.1%. The spread between the two varieties stood at US$5.5 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.58% lower yesterday at 743.55.
Today’s news
Alexis Tsipras resigns as Prime Minister of Greece
Yesterday, Greece’s Prime Minister Alexis Tsipras submitted his resignation to the President, urging for election as early as 20th September. Tsipras has been actively involved in Greece’s bailout programme over the past six months.
China’s manufacturing PMI falls to six-year low
As per data from Markit and Caixin, China’s preliminary manufacturing PMI slipped to a six-year low of 47.1 in August from 47.8 in July. Factory output dropped to a four-year low, while domestic and export orders decreased at a faster rate than July. Besides, companies were seen abandoning more workers.
Company News
Advanced Oncotherapy (LON:AVO) – Speculative Buy
Advanced Oncotherapy (‘AVO’), the developer of next-generation proton therapy systems for cancer treatment, yesterday announced that Sinophi Healthcare Limited, its partner and marketing agent for the Chinese market, has signed a framework agreement with China-Japan Union Hospital of Jilin University for a proton centre at the China-Japan Union Hospital. China-Japan Union Hospital specialises in surgical system, cardiovascular and cerebrovascular disease, minimal invasive therapy and tumour radiotherapy. It follows confirmation from AVO last March of its first purchase agreement for a LIGHT system from Sinophi to be installed in an unnamed hospital in China. Although the framework agreement with China-Japan Union Hospital does not yet constitute a purchase order for a LIGHT machine, the announcement detailed on Sinophi’s website very much suggested this is the anticipated outcome. AVO has already detailed its collection of a number of Letters of Intent for the prospective purchase of the LIGHT system from other international healthcare providers, which are expected to also be turned into firm purchase orders as confidence in the Group’s ability to deliver gains momentum.
Our view: The signing of the framework agreement between Sinophi and China-Japan Union Hospital once again confirms a high level of confidence in Advanced Oncotherapy’s ability to commercially deliver LIGHT on specification and on schedule. It also highlights the fact that China could potentially become the largest individual sales territory for LIGHT. Located in Changchun City, Jilin University is one of China’s leading universities and one of the largest, with over 60,000 students. Jilin University has established ties with 130 universities, colleges and research institutes in 40 countries. In addition to the China-Japan Union Hospital, the Changchun No 1 and No 2 Hospitals are also part of Jilin University. Given the extensive diligence Chinese hospitals/universities undertake before making such commitments, there must now be a fair chance that the China-Japan Union Hospital delivers AVO’s second firm purchase order before the end of this year. Commenting on the agreement, Professor Zhao Guo Qing, President of China-Japan Union Hospital of Jilin University, said: “Our hospital’s cooperation with Sinophi Healthcare to build a proton therapy center will enable us to lead in developing the next generation of proton therapy in China. It will give our physicians new tools to treat cancer patients and to contribute to improving the healthcare of the citizens we serve in Changchun City, in Jilin Province and throughout northeast China.” Indeed, the scale of the Chinese opportunity alone is huge; the size of the cancer treatment challenge there is illustrated by data from the World Health Organisation’s ‘World Cancer Report’. In 2012, China had 3.07 million newly diagnosed cancer cases, 21.8% of the world Total; China also had 2.2 million or 26.9% of the world’s Total cancer deaths. The report states China registered the most new cancer cases and deaths from four types of malignant cancer: liver, oesophagus, stomach and lung. In summary, the reality is that by delivering exactly ‘what it says on the tin’, the operational and cost advantages LIGHT offers will effectively render first generation proton therapy devices all but obsolete. Its principal limitation would then become simply its capacity to deliver to a global opportunity that will grow dramatically beyond its current US$2.5bn size. Given such an outcome, of course, major international competitors wishing to remain in the game will almost certainly be willing to pay a handsome price, one way or another, to get their hands on AVO’s proprietary technologies. Advanced Oncotherapy plc is one of Beaufort’s key investment picks for 2015.
Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc
FinnAust Mining (LON:FAM) – Speculative Buy
FinnAust Mining, the diversified exploration and development company with a multi-project copper, zinc and nickel portfolio in Finland and Austria, announced yesterday its final results for the year ended 30 June 2015. The Group reported a loss before tax of £561,381 for the period compared with a loss of £2,394,934 in FY 2014. The Group’s cash position was £795,368 as at 30 June 2015 versus £1,706,137 over same period last year. FinnAust continues to focus on its three high grade copper, zinc, and nickel projects in Finland: Hammaslahti, Kelkka and Outokumpu. Management is currently finalising the next phase of exploration with initial activity to begin on Outokumpu consisting of mapping, sampling and reinterpretation of new geophysical data either on its own or with a potential JV partner. Moreover, the Group continues to further its understanding of the resource potential over all three Finish projects. FinnAust also holds an 80% interest in the past producing Mitterberg copper project in Austria, which the Group is also currently evaluating how best to realise value from the project.
Our view: Whilst the annual results were fairly academic we note that Western Areas Limited, a major Australian listed nickel producer, remains the major shareholder with circa 60% of FinnAust shares and continues to provide funding, senior management and technical support to ensure a high probability of future exploration success. Given Western Areas expertise in nickel exploration and development we expect the high impact exploration strategy to continue on the highly prospective projects, which are located in close proximity to major historic and current deposits. In the meantime, we maintain a Speculative Buy on the stock.
CityFibre Infrastructure (LON:CFHL) – Speculative Buy
Yesterday, CityFibre informed that it has entered into a new contract with wireless broadband provider Connexin for a period of 10 years. The Total contract value (TCV) was £0.6m. As per the deal, the company would extend its fibre infrastructure in Kingston-Upon-Hull to 19 Connexin wireless hub sites. The above contract along with the contract with Pure Broadband takes the TCV of the Hull network anchor to around 40%.
Our view: The aforementioned contract reflects CityFibre’s strength to add substantial amount of high return business on network assets, while it is still in the construction phase. The company has already added about 40% TCV depicting its high demand and strong hold in the market. Recently, CityFibre also signed contracts covering 70 new connections, spanning a diverse range of sites with a TCV of £527,000. The company is well placed with some impressive contracts and national level partners, and joint ventures with UK’s leading broadband service providers to cover a large customer base. In addition, CityFibre has deployed around 20% of fibre network in Kirklees where the company aims to bring the gigabit connectivity by September 2015. We believe CityFibre’s strong asset base would facilitate its growth and boost earnings. We maintain a Speculative Buy rating on the stock.
Tekcapital (LON:TEK) – Speculative Buy
Yesterday, Tekcapital announced its unaudited half year results for the period ended 31st May 2015. During the period, revenues soared 462% to US$0.29m. The company benefited from clients’ usage of its intellectual property services, and from full six month revenues pertaining to InventionEvaluator, acquired in mid-2014. Tekcapital’s losses narrowed to US$0.66m from US$0.95m in H1 2014 leading to a reduction in loss per share to US$0.03 versus US$0.06 in H1 2014. Total cash and cash equivalents stood at US$3.79m (2014: US$1.37m) and net assets rose to US$4.31m from US$1.44m in H1 2014. On the operational front, the company continued to expand its services with developments in InventionEvaluator. A Total of 18 licenses were received from US universities across different areas of technology and applications. The company increased its Science Advisory Board from 29 to 40 physicians, scientists and engineers across different industries. During the period, Tekcapital also raised US$3.12m in equity financing to invest in acquisition and expand its sales team.
Our view: Tekcapital started the year on a positive note led by growth in revenues, acquisition of licenses and commercial launch of its technology acquisition. The company kept its expenses and fixed overheads at minimal levels to reduce losses. The acquisition of InventionEvaluator, last year, proved to be quite fruitful as it enabled the company to provide low-cost evaluations and additional services to clients. The pro-business move facilitates an economical low-cost, rapid penetration in universities and companies involved in technology transfer. Overall, Tekcapital seems well placed with good cash position and assets to maintain its growth momentum for the entire year. Therefore, we reiterate a Speculative Buy rating on the stock.
Costain Group (LON:COST) – Buy
Yesterday, Costain declared its results for the half year ended 30th June 2015. During the period, revenues increased to £621.1m from £529.1m in H1 2014 led by order book of £3.7bn, 16% higher than H1 2014. Pre-tax profit rose 25% to £11.4m resulting in an EPS of 9.6p against 9.2p in H1 2014. On the operational front, the company completed the acquisition of Rhead Group for a cash consideration of £36m. Costain also combined all its nuclear activities across the Group into a single unit, reporting to the Infrastructure division. The company announced an interim dividend of 3.75p, up 15% from H1 2014, to be paid on 23rd October 2015.
Our view: Costain delivered strong half yearly results and thereby increased its dividend to shareholders. The company has successfully built its image as a creative service provider which helps it to obtain large and long-term contracts to cater to UK’s needs across water, energy and transportation. Further, the addition of Rhead Group not only broadens Costain’s product portfolio but also improves its programme management and advisory capabilities across all verticals. The company has also 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 continuous addition of contracts, firm order book and strong financials, we believe the company would maintain its position in the market. We maintain a Buy rating on the stock.
Premier Oil (LON:PMO) – Speculative Buy
Yesterday, Premier Oil announced its results for the half year ended 30th June 2015. During the period, revenues slipped to US$605.6m from US$899.8m in H1 2014 with UK and Vietnam leading the decline. The company witnessed a pre-tax loss of US$375.2m against a profit of US$172.7m in the previous year. Premier Oil’s net debt reduced to US$2.0bn from US$2.1bn with cash resources of US$372.4m. The company’s operating cash flow stood at US$513m, compared to US$499.4m in H1 2014, owing to a hedging programme that helped it achieve higher prices for oil. The company’s production averaged 60.4 kilo barrel oil equivalent per day (kboepd) versus 64.9 kboepd. Premier Oil kept the full year capex guidance unchanged at US$900m for development and US$240m for exploration. On the operational front, the company made substantial progress in the Solan project with production expected in Q4 2015. Likewise, the Catcher project is expected to commence production in 2017. The company witnessed exploration successes at Zebedee and Isobel Deep which have shown the potential for high value resources.
Our view: Premier Oil seems to be coping well with the difficult conditions in energy market. Further, the company’s strategy of hedging its liquid volumes and cutting operating costs along with G&A expenses seems to well placed. For H2 2015, Premier Oil has liquid volumes hedged at US$92 per barrel. The company expects to kick-start production from its Solan and Catcher project which would further enhance its production level. Recently, the company received grants in Blocks 2 and 7 in Mexico’s Round 1 auction, providing an easy and cost-effective entry to a region known for its abundant oil and gas resources. Going forward, the company plans to seek for acquisition to enhance its asset base and also dispose of non-core assets where it can generate value. In view of the above developments and company’s strong balance sheet we maintain a Speculative Buy rating on the stock.
Economic News
UK retail sales
UK retail sales increased 0.1% m-o-m in July after a 0.1% dip in June, the data from Office for National Statistics revealed yesterday. The economists had expected a rise of 0.4%. Excluding auto fuel, retail sales rose 0.4% m-o-m in July after a 0.3% fall in June. On a y-o-y basis, overall retail volume advanced 4.2% for the month, maintaining the rate from the previous month while excluding auto fuel, the sales growth improved to 4.3% from 4.1%.
US initial jobless claims
Number of Americans filing their first initial claims for unemployment benefits rose by 4,000 to a seasonally adjusted 277,000 in the week ended 15th August, from last week’s downwardly revised figure of 273,000, the Labor Department said yesterday. Economists had expected claims to decrease to 271,000.
US existing home sales
Existing home sales in the US climbed 2.0% to a seasonally adjusted annual rate of 5.59 million units in July from revised 5.48 million units in June, the National Association of Realtors announced yesterday. The reading was above the market expectation of 5.43 million units.
US leading index
The Leading Economic Index for the US fell 0.2% m-o-m in July, after a 0.6% increase in June, the Conference Board said yesterday. Markets had expected a rise of 0.2% in July.