The Markets
New York: Wall Street extended gains for the second consecutive day, driven by a sharp gain in oil prices and positive data on US GDP. The S&P 500 advanced 2.4%, led by the energy sector stocks.
Asia: Equities are trading higher, tracking the global markets. In addition, recovery in China’s markets boosted buying. The Nikkei 225 added 3.0%, while the Hang Seng was trading 0.3% up at 7:00 am.
Continental Europe: Markets ended in the green amid the release of positive economic data in the US, which increased the prospects for global growth. Furthermore, an improvement in oil prices lifted investor confidence. France’s CAC 40 and Germany’s DAX rose 3.5% and 3.2%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices jumped 10.3% and 10.2%, respectively. The spread between the two varieties stood at US$5.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 1.41% higher yesterday at 726.64.
Today’s news
Consumer confidence in UK reaches 15-year high in August
According to GfK, the UK’s consumer confidence index surged to +7 in August from +4 in July, its highest reading in 15 years. The increase is ascribed to house price inflation, improving employment growth prospects, declining oil prices and low interest rate environment.
Company News
Wishbone Gold (LON:WSBN) – Speculative Buy
Yesterday, Wishbone Gold (Wishbone) informed that it raised £250,000 through the issue of 100 million new shares of 0.1p at 0.25p per share. The placing was facilitated by Beaufort Securities. The company made an application for the new ordinary shares to be traded on AIM, and expects an admission on 11th September 2015. Post the issue, Wishbone’s Total share capital would increase to 363.1 million ordinary shares. In future, the company plans to issue more shares in order to change some director and shareholder loans into equity.
Our view: Wishbone is an exploration and acquisition company focused on identifying and developing precious metal assets. The company plans to use money through the issue of shares for its working capital purposes. Furthermore, the conversion of loans into equity would help it to preserve cash for carrying out future projects. As per the recently announced results, Wishbone had a net cash of US$303,790 as of 31st December 2014, more than double the level seen in 31st December 2013. On the operational front, Wishbone continued exploration on the White Mountains in Queensland and has identified significant prospects on the North Queensland Charters Towers Gold Province. Going ahead, the company plans to look for potential acquisitions to enhance its asset base and resources. In view of the overall developments, we reiterate a Speculative Buy rating on the stock.
Beaufort Securities act as corporate broker to Wishbone Gold plc
Motif Bio (LON:MTFB) – Speculative Buy
Half year results released yesterday were largely academic, detailing Total loss for the period of US$1.86m (US$0.55m), while cash and cash equivalents as at 30th June 2015 of US$2.8m (31st December 2014: nil). By comparison, operational highlights for the period were anything but, with the US Food and Drug Administration (FDA) agreed to Phase III trials of iclaprim, while partnering with a global leading CRO for Phase III clinical trials. Since the period end, it has also been granted QIDP designation by the FDA in ABSSSI and HABP, while independent tests by JMI Laboratories demonstrated iclaprim to be effective in vitro against a range of Gram-positive bacteria and 16 times more potent than trimethoprim. A successful placing on 22nd July 2015 raising £22m at 50 pence/share also left the group cash rich ahead of commencing the Phase III trials.
Our view: While the interim results told shareholders little that they did not already know, they do serve as a reminder of exactly why Beaufort is such a supporter of Motif shares. They present shareholders with a genuine ‘bonanza’ opportunity. Management is building exceptional value while making significant progress in preparation for commencing the Phase III trials. Iclaprim is being designed to be administered in hospitals as an intravenous infusion. A most urgent need for novel antibiotics effective against multi-drug resistant bacteria is in the hospital setting where patients often succumb to serious, life-threatening infections that require immediate treatment with the best available antibiotic has clearly been established. In the case of HABP, for example, mortality rates for infected patients are currently between 20% and 50% and, in response, Motif seeks to accelerate its speed to market by targeting commercialisation as a hospital product rather than through the wider medical community. Indeed, given the opportunity already identified in HABP and ABSSSI along 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 dollars. 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.
Stratex International (LON:STI) – Speculative Buy
Yesterday, Stratex International declared its unaudited interim results for the half year ended 30th June 2015. During the period, operating loss narrowed to £1,182,009 from £1,257,803 in H1 2014. Likewise, pre-tax loss reduced to £1,388,082 against £1,414,518 in the same period last year. The results for the two periods cannot be related as the results in 2014 included the East African operations, which were sold-off to Thani Stratex joint venture in October 2014. The cash balance at the end of the first half stood at £2.5m. On the operational front, the company made significant progress in the Altintepe mine in Turkey and expects to commence production by the end of September. Further, Stratex’s partners at Muratdere have finished a feasibility test on the copper-gold porphyry project.
Our view: The first half of 2015 has been fruitful for Stratex with improved cash position along with production set to commence from the Altintepe gold project. The production from the mine would mark company’s progress to a producer from explorer and project generator. The project is expected to fetch more than 30,000 ounces of gold once the production begins. Further, the company has a diverse range of projects including the Dalafin project in Senegal, the Muratdere project in Turkey, and the Homase/Akrokrere project in Ghana. All these projects have shown exciting exploration opportunities. In addition, Stratex is involved in exploration of gold assets and other high-value base metals across Turkey, East Africa and West Africa that offer scope for an upside potential. In view of the above argument, we maintain a Speculative Buy rating on the stock.
John Laing Group (LON:JLG) – Buy
Yesterday, John Laing Group declared its unaudited results for the half year ended 30th June 2015. During the period, the Net asset value (NAV) advanced 6.6% to £821.7m from £771.1m at end-December 2014, resulting in NAV per share to rise to 224p against 210p. However, pre-tax profit fell to £32.6m from £101.1m in H1 2014 due to reduction in primary investment portfolio and negative foreign exchange movements. John Laing made £54.1m from the sale of investments in project companies. The company’s Total Assets under Management (AuM) increased to £2.1bn from £1.9bn in H1 2014. On the investment front, John Laing has committed overall investments worth £72.1m in infrastructure projects in Australia and Europe. The company also invested in two wind farm investment commitments in the Q2 2015 for £31m in renewable energy with an estimated installed capacity of around 55MW, in Ireland and Sweden. On the operational front, John Laing made steady progress with both the phases of the Manchester Waste investment now operational. The company also reached an agreement with the Victorian Government on 15th June 2015 regarding the cancellation of the East West Link project, resulting in the return of the company’s investment commitment. John Laing declared its first interim dividend of 1.6p per share, to be paid on 30th October 2015.
Our view: John Laing Group is an infrastructure fund that primarily invests in government backed infrastructure projects such as the UK Department for Transport’s Intercity Express Programme, the Manchester Waste projects, New Royal Adelaide Hospital and Denver Eagle P3. The company delivered strong half year results with improved NAV and enhanced investment portfolio. John Laing’s primary portfolio has 13 PPP and five renewable energy projects valued at £357.2m; and 17 PPP projects and three renewable energy projects in the secondary portfolio valued at £339.2m. John Laing is on track to achieve its full-year targets as the market demand remains strong for secondary infrastructure investments. The company’s key projects under construction are advancing as per schedule and the operational projects continue to perform in line with the company guidance. Post its return to the stock market after eight years in February 2015, John Laing is on its way to give its first dividend this October. The company is well placed with substantial financial resources to drive its growth in the UK and other international markets and take advantage of the many opportunities in both the PPP and Renewable Energy sectors. In view of the overall optimism, we maintain a Buy rating on the stock.
Petropavlovsk (LON:POG) – Hold
Yesterday, Petropavlovsk released its interim results for the period ended 30th June 2015. Group revenues fell 34% to US$297.3m driven by reduced gold prices and decline in sales volume. Unsurprisingly, EBITDA also dropped by 35% y-o-y to US$90m resulting in a pre-tax loss of US$26m compared with a pre-tax profit of US$8.3m in H1 2014. Consequently, basic EPS loss from continuing operations was USc0.02 per share, (H1 2014 EPS loss of USc0.10 per share) mostly due to the increased number of shares as part of the refinancing in March 2015. Total cash costs for H1 2015 was US$767/oz 9.4% lower than the same period last year, in part due to the 66% depreciation of the rouble against the US dollar. All-is sustaining costs were US$983/oz down 5% from H1 2014. During H1 2015, gold sales slipped 26% to 230koz with 79% of the group’s production coming from its Pioneer and Albyn mines. Production for H2 2015 is expected to be slightly higher with FY 2015 guidance maintained. Reduction in net debt of US$234m as at 30th June 2015 to US$696m with the Group reiterating its guidance of US$600m by year end.
Our view: During H1 2015, Petropavlovsk experienced a significant decline in revenue that severely limited the company’s ability to generate higher profits on the back of depressed gold prices that marred the company’s bottom line. On the other hand, the company has made significant steps to improve its operational efficiency through stringent cost and capital controls that will enhance profitability in the future. We are particularly encouraged with 25% decrease in Total cash costs to US$598/oz from the Group’s Pioneer mine, despite the average head grade being 1.1g/t. Notwithstanding the poor financial performance for the period on the back of lower gold prices, the Group continues to develop quality assets that underpin its long term growth potential. However, with continued weak gold prices for the near term, we maintain a Hold on the stock for now.
Economic News
UK House Prices
As per Nationwide’s latest report, house prices in the UK increased 0.3% m-o-m in August, following a 0.4% rise in the previous month. The reading missed the market expected growth of 0.4%. On y-o-y basis, the growth rate stood at 3.2% in August, after an increase of 3.5% in July. The reading came better than the market expected increase of 3.1%.
Eurozone M3 money supply
Eurozone’s M3 money supply expanded at an annual pace of 5.3% in July after growing 4.9% in the previous month, beating the market forecast of an improvement to 4.9%, the European Central Bank said yesterday. On a three-monthly average from May to July, growth in money supply stood at 5.1% y-o-y.
US GDP annualised
US GDP grew at an annualised rate of 3.7% q-o-q in Q2 2015, after rising 2.3% in the preceding quarter, the Commerce Department stated yesterday. The second reading beat the market expectations of a 3.2% rise.
US initial jobless claims
The number of Americans filing their first initial claims for unemployment benefits decreased by 6,000 to a seasonally adjusted 271,000 in the week ended 22nd August, the Labor Department stated yesterday. Economists had forecasted a reading of 274,000. Last week’s reading was unrevised at 277,000.