The Markets
Market opening: Markets are likely to open higher today. FTSE 100 futures were trading 97.20 points up at 7:00 am.
New York: Wall Street ended in the red amid growing concerns over economic slowdown in China and a sharp fall in oil prices yesterday. The S&P 500 shed 3.9%, with energy stocks declining the most.
Asia: Equities are trading lower, tracking losses in the global markets. Moreover, the rout in China’s markets impacted investor sentiment. The Nikkei 225 fell 4.0%, and the Hang Seng was trading 1.3% down at 7:00 am.
Continental Europe: Markets ended lower as the sell-off in China’s markets spread to other global markets. Furthermore, the continued decline in oil prices hurt investor sentiment. France’s CAC 40 and Germany’s DAX plunged 5.4% and 4.7%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices decreased 6.1% and 5.5%, respectively. The spread between the two varieties stood at US$4.5 per barrel.
UK small caps: The FTSE AIM All-Share index closed 4.10% lower yesterday at 702.40.
Today’s news
IMF official says China not yet in crisis
According to Carlo Cottarelli, Executive Director with the International Monetary Fund (IMF), China is currently not in a crisis, but is reacting to overall problems in the global economy. He further stated that the country’s monetary policies have been expansive in the past few years; thus, it is a necessary adjustment for the economy.
Company News
Advanced Oncotherapy (LON:AVO) – Speculative Buy
Advanced Oncotherapy, the developer of next-generation proton therapy systems for cancer treatment, yesterday announced that the two Coupled Cavity Linac (‘CCL’) modules that form part of its proprietary proton accelerator called Linac Image Guided Hadron Technology (or ‘LIGHT’) are now ready for high-power testing at the Company’s facility in Geneva. These two modules will be tested at high power by using the Radio Frequency (‘RF’) Power Units provided by ScandiNova and Toshiba and it is the first time two CCL modules will be tested together. The finished LIGHT system will incorporate ten CCL units (15 CCL modules) in total and combined in a series will accelerate protons to the high energies required to treat radiosensitive tumours in a clinical setting. Ensuring that the CCL units were ready for high-power testing was a key milestone in the Company’s timetable provided to shareholders in November 2014, and this marks another successful stage in the process of delivering the first working LIGHT system.
Our view: High-power testing of LIGHT’s individual components and modules at this stage is a crucial demonstration of their ability to perform to specifications. Initial low power testing has shown that they perform to expectations and it is realistic to expect that the successful conclusion of these tests to build confidence that the CCL modules can work under the required conditions to deliver the high energy protons required to treat patients effectively. Results from this work should be expected during Q4’15, before moving onto to running the modules in series as a bank of accelerators. Once demonstrated, the most significant technological hurdle will have been successfully negotiated, leaving only a number of less challenging barriers ahead. While Beaufort considers that the FDA could potentially hinder product approval for rather longer than might presently be anticipated, the extent of interest from other non-dependent territories (in particular that presently being shown from China) suggests the Group is likely to be overwhelmed by demand for LIGHT as soon as commercial units become available. The enormity of this opportunity and the market potential it presents has already been significantly detailed in Beaufort initiation research of September 2014 and subsequent updates. In simple terms, if AVO delivers 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, as it will also become the natural replacement for the more antiquated X-ray radiation machines that are installed in huge numbers around the globe. 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 remains one of Beaufort’s key investment picks for 2015.
Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc
Ortac Resources (LON:OTC) – Speculative Buy
Ortac Resources, the exploration and mine development company, announced today that it has exercised its call option agreement (detailed 30 March 2015) with the private company Zamsort Limited, registered in Zambia and holds prospective Cu-Co mining and exploration licences in the Zambian Copper Belt. On 30 March, Ortac entered into the option after subscribing for secured convertible loan notes, convertible into a 10.71% stake in Zamsort. The exercise of the Option by way of a further US$600,000 secured convertible loan note (the No.2 Loan Notes), takes the total invested by Ortac in Zamsort to US$1.2 million and, upon conversion, Ortac’s potential shareholding in Zamsort would be 19.35% of the issued share capital of Zamsort. In the meantime, Zamsort’s small scale mining licence over a 4km sq area (Kalaba Cu-Co deposit) has been renewed for a period of 10 years commencing 1 July 2015. Moreover, a significant amount of work has been including metallurgical testwork, mine site survey, review of mining and drilling contracts and a preliminary design for the demonstration processing plant which could begin construction in Q3 2015 pending results from the metallurgical testwork.
Our view: We are encouraged in the rapid pace of development since Ortac’s investment in Zamsort and the aim to establish a demonstration processing plant at Kalaba by year end. Ortac is providing technical support as Zamsort continues to progress the Kalaba project. Representative samples with an average grade of 1.83% Cu and 0.23% Co are currently undergoing metallurgical testwork. A drill programme comprising reverse circulation combined with diamond drilling is currently being planned in order to define a mineral resource at Kalaba. We look forward to updates on the potential plant design as well as continued exploration results within the highly prospective Zambian Copper Belt. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Ortac Resources plc
Motif Bio (LON:MTFB) – Speculative Buy
Motif, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday announced the topline results of an independent report from microbiology specialists, JMI Laboratories. The report shows that iclaprim is effective in vitro against a range of Gram-positive bacteria, including Staphylococcus aureus, one of the key causes of acute bacterial skin and skin structure infection (‘ABSSSI’) and hospital-acquired bacterial pneumonia (‘HABP’). The recently completed laboratory study tested iclaprim against more than 2,000 bacterial strains, including 1,178 strains of Staphylococcus aureus collected in 2014 from patients in the U.S.A., Europe, Asia Pacific, and Latin America. Iclaprim was found to be 16-fold more potent than trimethoprim, the only other antibacterial dihydrofolate reductase inhibitor (DHFRi) administered alone in today’s market. The tests were conducted according to Clinical and Laboratory Standards Institute (CLSI) methods. CLSI develops clinical laboratory testing standards based on input from and consensus among industry, government, and health care professionals around the world.
Our view: These in-vitro results are genuinely impressive and develop confidence in iclaprim’s ability to successfully treat life threatening infections where currently available treatments are not fully effective due to resistance or side-effects. Reported minimum inhibitory concentrations (‘MICs’) demonstrate that iclaprim is active against Staphylococcus aureus at very low concentrations. The MIC50%, the minimum concentration of iclaprim required to kill 50% of tested bacteria, was 0.06 mcg/ml and the MIC90%, the minimum concentration of iclaprim required to kill 90% of tested bacteria, was 0.12 mcg/ml. Comparing this to data for other antibiotics against the same 1,178 strains of Staphylococcus aureus, 1 mcg/ml of vancomycin and 1 mcg/ml of linezolid was required to meet the MIC50% and MIC90% levels. Against methicillin-resistant Staphylococcus aureus (MRSA), iclaprim was also highly active: the MIC50% was 0.06 mcg/ml and the MIC90% was 0.5 mcg/ml. Given the opportunity already identified in HABP and ABSSSI together with a number of other potential indications, the prospective market value for this novel antibiotic is very large indeed, potentially running in billions of US$. The much publicised global need for such new drugs means that iclaprim must already be under review by Big Pharma, with a view to farming-in to Motif’s opportunity in exchange for financing late stage development and subsequent commercialisation. Realistically, such an outcome might be expected before end-2016. The value this will accrue to Motif should then be quite considerable. Beaufort repeats its Speculative Buy rating for Motif Bio and confirms a price target of 110p/share.
Yesterday, Costain, along with its joint venture partners VINCI Construction Grands Projets and Bachy Soletanche, announced that it has won a £605m contract for the East works package of the Thames Tideway Tunnel in London. Costain, which has a 40% share in the joint venture, is expected to complete its part of the project in 2023. The Thames Tideway Tunnel is a major new sewer that will help prevent the discharge of 20 million tonnes of sewage into the River Thames each year.
Our view: The Thames Tideway Tunnel contract is a significant win for Costain and reflects its technical expertise. Just last week, the company declared its results for the half year ended 30th June 2015, with pre-tax profits rising 25% y-o-y to £11.4m resulting in an EPS of 9.6p. It also mentioned of an order book worth £3.7bn, 16% higher than H1 2014. Given the continuous addition of contracts, firm order book and strong financials; we believe the company would maintain its superior position in the market. We maintain a Buy rating on the stock.
Yesterday, Bunzl declared its results for the half year ended 30th June 2015. During the period, the revenues jumped to £3.1bn from £2.9bn in H1 2014. Pre-tax profit rose 11% to £147.1m leading to a rise in EPS to 32.1p from 27.5p. On the operational front, the company completed several acquisitions to enhance its portfolio. The purchase of Tillman was agreed upon in December followed by Quirumed, a Spanish health-care company during January. Further, the company added three more companies to its list in March, including, Janssen Packaging, a firm involved in the distribution of expert packaging materials for the e-commerce, fashion and fulfilment sectors, Emballages Maska, involved in sale of cleaning and hygiene supplies to distributors and Prescott, engaged in distribution of clean and hygienic products to consumers in construction, property management and healthcare sectors. The company also acquired certain small companies towards the end of half year to further strengthen its position. Separately, the company informed about the acquisition of four new companies yesterday. In addition, Bunzl declared an interim dividend of 11.75p, up 7% to be paid on 4th January 2016.
Our view: Bunzl delivered strong half yearly results led by organic growth, improved operational efficiencies and acquisition of firms. The company continued on its plan to buy value accretive businesses in different sectors to enhance its portfolio and expand its global operations. In line with its long-term plan, Bunzl yesterday informed about the acquisition from four different industries in the US, Colombia, Canada and France. The company seems to have good potential that is well supported by its acquired firms and strong cash position. Bunzl is well placed with strong pipeline of opportunities and ongoing discussions to acquire extra firms during the year. Thus, in view of the above developments, we reiterate a Buy rating on the stock.
Meggitt (LON:MGGT) – Buy
Yesterday, Meggitt informed that Meggitt Training Systems has been awarded a three-year, US$25m contract from Public Works Government Services Canada on behalf of the Department of National Defence. The contract entails providing in-service support to the Canadian Armed Forces for the company’s Small Arms Trainer (SAT) and Indirect Fire Trainer (IFT). The contract also includes operator and maintenance support for related training activities.
Our view: The contract win is a major boost for Meggit and comes on the back of the recent acquisition of Cobham’s businesses by the company’s MPC division. In January, Meggitt had purchased aerospace engineering company Precision Engine Controls Corporation for US$44.2m to widen its industrial valve capability. Meggit has an impressive track record of supplying weapon simulation to the Canadian Armed Forces. Now it will provide SAT simulator system to support individual and group training across the spectrum of security operations whereas its IFTs would be used to train soldiers in forward observer, fire direction centre and mortar crew skills proficiency. Thus in view of these acquisitions and the recent contract wins by the company; we retain our Buy on the stock.