The Markets
Market opening: Markets are likely to open lower today. FTSE 100 futures were trading 87 points down at 7:30 am.
New York: Wall Street ended in the red amid growing concerns over economic turmoil in China. In addition, the statement from Stanley Fischer, a Federal Reserve official, highlighting the possibility of an interest rate hike in September dampened investor sentiment. The S&P 500 fell 0.8%, dragged down by the healthcare sector.
Asia: Equities are trading lower, tracking the global indices. Weak manufacturing data in China further raised concerns over the country’s economic health. The Nikkei 225 slipped 3.7%, while the Hang Seng was trading 0.7% down at 7:00 am.
Continental Europe: Markets ended lower on concerns over slowdown in China’s economy. Moreover, the uncertainty over an interest rate hike in the US impacted investor confidence. France’s CAC 40 and Germany’s DAX fell 0.5% and 0.4%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices jumped 8.8% and 8.2%, respectively. The spread between the two varieties stood at US$5.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 1.13% higher on Friday at 734.85.
Today’s news
China manufacturing PMI falls to a six-year low
The final Caixin/Markit manufacturing purchasing managers’ index (PMI) fell to 47.3 in August from 47.8 in July, the lowest reading since March 2009. Separately, China’s official PMI also slipped to 49.7 in August from 50 in July, lowest in three years. The disappointing data releases further dampened the economic outlook for China.
Company News
Hummingbird Resources (LON:HUM) – Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced today that it has extended its bridge facility with Taurus Funds Management by US$5m to a total of US$15m. The additional funding will be used for commencement of initial pit dewatering, land acquisition around the mine site and finalisation of due diligence in preparation of full draw down as Hummingbird continues to develop its 1.8Moz Yanfolila gold project in Mali. The company also announced that pre-production earthworks, which comprised excavation, landscaping and compaction of over 80,000 cubic meters of earth have now been completed ahead of commencing full-scale construction with first gold pour expected in 2016. Hummingbird is currently finalising the documentation with Taurus for the US$75m facility in order to begin full construction now that the earthworks have been completed.
Our view: The additional funds will allow Hummingbird to maintain its schedule as it continues to develop Yanfolila. We are encouraged with Taurus’ continued commitment to the project and we look forward to completion of the technical and financial due diligence required for the draw down on the main debt facility of US$75m. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Hummingbird Resources plc
Beowulf Mining (LON:BEM) – Speculative Buy
Beowulf Mining, the mineral exploration and development company focused on the Kallak iron ore project in northern Sweden and its Swedish portfolio of exploration projects announced last Friday its unaudited interim results for the period ended 30 June 2015. The Group reported a net loss after taxes attributable to the owners of the parent of £0.33m (or 0.09p per share) compared with a loss of £1.32m (or 0.47p per share) over the same period in 2014. As at 30 June 2015 the Group had a cash balance of £0.17m. In addition, post period results indicate that the steps taken by the Country Administrative Board (CAB) in reponse to the Swedish Government’s request for comments on the national economic assessment of the Kallak North iron ore project indicate that mining is economically relevant to the area, that the project generates economic benefits to local, regional, and national levels and that the concession area creates no conflicts where national interests are concerned as well as being Area of National Interest (ANI) for minerals.
Our view: Whilst the interim results were academic we are encouraged with the comments (post balanced sheet) from the CAB in regards to the potential economic benefits from the Kallak North concession company. Despite the current downward pressure on iron ore prices, we note that the Kallak North iron ore project has the potential to produce high grade magnetite concentrate as well as high grade hematite iron ore both of which should demand a premium to current benchmark iron ore prices. Given the progress to date, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Beowulf Mining plc
Motive Television (LON:MTV) – Speculative Buy
On Friday Motive, the digital television technology, software and services provider, announced its interim results for the six months ended-June 2015. Revenue from continuing operations up 17% to £673,410 (H1 2014: £577,740). Gross profit from continuing operations up 6% to £292,757 (H1 2014: £276,409), while loss attributable to continuing activities and developing new business before interest decreased by 12% to £955,283 (H1 2014: £1,086,616 loss). Cash reserves at period end were £223,291. During the six month, the Group completed the product development of TabletTV US and TabletTV UK with Apps for iOS and Android devices; Prepared for Beta testing during summer of PVR functionality and OTT channels for TabletTV in preparation for autumn launch of new services; and Developed new product BYOD TV and launched services on 14 ships with two ferry companies operating in Greece.
Our view: The first half of 2015 saw Motive making substantial progress in completing development and testing of new products, identifying distribution partners, and preparing them for widespread marketing in the autumn. At the same time, it reduced its cost structure and is positioned itself to start reaping the benefits of its investment in technology and strategic positioning. Indeed, with so many ‘irons in the fire’ and a list of obvious consumer ‘likes’, the potential to multiply revenues is undoubtedly there. Having said that, however, the key to success for Tablet TV appears to remain its ability to ensnare the right distribution/enfranchisement with hardware manufacturers and/or broadcasters. Mass international uptake may demand at least one mainstream tablet producer to start the ‘ball rolling’ by committing to incorporate the tuner into its device and, presumably, embed the App into its system after having licensed it or formed some other usage agreement with Motive. This would, of course, require the tablet designer to accept that analogue reception can comfortably co-exist alongside ‘paid for’ digital streaming. In so doing, this should also speed transition of the Group’s business proposal from one dependent on one-off unit sales, to a significantly more profitable subscription or advertising-based model. Elsewhere, with product development now largely paid for, a giant maritime opportunity can be identified for the Group’s BYOD TV, while its Content Express also finds itself positioned to penetrate important new territories. Both of these could accrue new streams of revenue and longer-term contacts within the current year, whereas TabletTV possibly remains hindered by a 2-year or more tablet production cycle before being able to gain significant momentum. Motive’s lowly valuation presently wholly discounts a further round of equity funding in order to support continuing development losses. Beyond this, however, it is possible to perceive quite considerable value within Motive’s IP that is capable of being monetised either through outright sale/licensing of one or more of its different technologies or expansion of product revenues. We maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Motive Television Plc
Restaurant Group (LON:RTN) – Buy
On Friday, Restaurant Group announced its interim results for the 26 weeks ended 28th June 2015. During the period, revenues jumped to £333.8m from £307.9m in H1 2014 with like-for-like (LKL) sales rising 2.5%. The company’s EBITDA advanced 8% to £57.4m (H1 2014: £53.2m). Pre-tax profit improved 10% to £36.9m from £33.7m, resulting in an EPS of 14.3p, 11.7% higher than H1 2014. Restaurant Group’s operating cash flow stood at £60.0m (H1 2014: £55.9m). On the operational front, the company opened 12 new sites in the first half; and additional 9 sites so far in the second half. The company declared an interim dividend of 6.8p, up 11.5% against H1 2014, to be paid on 8th October 2015.
Our view: Restaurant Group, which operates over 480 restaurants and pub restaurants across the UK, delivered solid first half results led by strong LFL sales and income from the newly established restaurants. The company weathered the economic downturn quite well and has shown steady top-line growth with healthy margins. Operating margins increased by 10 basis points to 11.4%, in the first half. The pipeline for the year looks good and the company’s balance sheet remains strong as a result of good cash generation from operations. Restaurant Group plans to add a total of 43-48 sites in 2015, which would enhance its future growth. An improving UK economy coupled with rising real wages further props up the company’s outlook. We believe Restaurant Group has long-term growth potential and expect it to deliver results in line with the guidance provided by the management. We retain a Buy rating on the stock.
Collagen Solutions (LON:COS) – Speculative Buy
On Friday, Collagen Solutions issued a press release stating it has been selected to participate in a new research project aimed at developing novel new treatments for the Parkinson’s disease. The project is titled ‘Development of Biomaterial-based Delivery Systems for Parkinson’s disease – an Integrated Pan-European Approach’, being carried with the alliance of world class researchers and industry partners. The focus of the plan is to develop a therapy that slows the progress of illness, instead of just treating the symptoms. The project is being headed by the Centre for Research in Medical Devices (CÚRAM) based in the National University of Ireland, in Galway. CÚRAM has secured €4m in funding through the European Horizon 2020 grant programme. The company being a key member of the group would receive grants to develop various types of medical grade collagens for the investigation.
Our view: The news of Collagen Solutions joining such a valued consortium validates its brand name for developing and supplying high quality products. The company’s strong Research and Development potential, global outreach and world class manufacturing facilities would help in the growth of the project. Recently, Collagen Solutions declared its first half results and reported substantial progress, along with a crucial acquisition of Southern Lights Ventures 2002 Limited. The acquired company has a strong customer base that would help in generating recurring revenues. Further, the company is paving the way for strong and long standing partnerships with its customers, including Globus Medical and Novabone, by entering into several strategic arrangements at an early stage. Meanwhile, the company continues to invest in people and facilities as it expands the sales pipeline. In view of the above argument, we maintain a Speculative Buy rating on the stock.
WPP (LON:WPP) – Buy
On Friday, WPP announced that MediaCom, part of its leading global media investment management arm GroupM, has acquired a minority stake in Rapid Media Services Pty Ltd (‘Rapid Media Services’), an Australia-based media communications agency with offices in Melbourne, Brisbane and the Gold Coast. The acquired firm has been associated with MediaCom since 2001 and would continue to operate independently headed by its Managing Director Vaughan O’Connor. This acquisition marks a further step towards WPP’s declared goal of developing its networks in fast-growth markets and sectors. In 2014, WPP companies (including associates) in Australia and New Zealand has generated revenues of US$1.2 billion and employ 4,000 people, whereas in the Asia Pacific region, it generated revenues of US$5 billion and employ 50,000 people.
Our view: WPP, the world’s largest advertising company and owner of renowned brands like JWT, Grey, Ogilvy & Mather and others, seems to be actively scouting for acquisition targets. In the past week, WPP has acquired two companies to aid its long-term plan to enter into the fast-growing geographies and functional markets. Apart from acquiring a minority stake in Rapid Media Services Pty Ltd, the company’s subsidiary JWT also acquired a majority stake in Webling Interactive, an independent digital agency in Sydney. Further, as per the recently announced interim results for the first half of 2015, WPP delivered solid performance witnessing strong growth across geographies and business sectors. On the operational front, the company completed a total of 25 transactions; with 6 acquisitions and investments in new markets and the remaining 19 in quantitative and digital business areas. In view of the overall optimism surrounding WPP, we retain a Buy rating on the stock.
Economic News
UK GDP
According to the Office for National Statistics, UK’s GDP growth for Q2 2015 stood at 2.6% y-o-y, the same as expected previously. On q-o-q basis, the GDP growth stood at 0.7%.
Eurozone consumer confidence
The gauge of Eurozone consumer confidence slipped to -6.9 in August compared with a reading of -6.8 in July, the European Commission said on Friday. The economic confidence index rose to 104.2 in August from 104.0 in July, and the measure of industry confidence declined to -3.7 from -2.9.
Germany CPI
Consumer price index (CPI) in Germany remained flat in August after rising 0.2% m-o-m in July, as per the estimates published by the Federal Statistics Office on Friday. The reading came better than market expected decrease of 0.1%. On y-o-y basis, prices increased 0.2% in August following a similar reading in July. The market expected a 0.1% rise.
US personal income and spending
US personal income advanced 0.4% m-o-m in July, following a similar reading in June, the US Commerce Department said on Friday. The data was in line with the market expectations. Personal spending increased 0.3% m-o-m in July, following an upwardly revised 0.3% rise in June. The reading missed the market expected increase of 0.4%.
US University of Michigan sentiment
US University of Michigan Consumer Sentiment Index dropped to 91.9 in August from 92.9 in July, data showed on Friday. Economists were expecting a reading of 93.0. The Consumer Expectations Index, which closely forecasts the direction of consumer spending, slipped to 83.4 from 83.8, and the Current Economic Conditions Index decreased to 105.1 from 107.1.