The Markets
Market opening: The UK market is likely to open fairly flat this morning. FTSE 100 futures were trading just 2 points higher at 7:20 am.
New York: Wall Street ended in the green following the Federal Reserve’s Beige Book report of an expansion in the US economy. Moreover, investors digested mixed economic data released yesterday. The S&P 500 advanced 1.8%, led by the information technology sector.
Asia: Equities are trading higher. The improvement in oil prices lifted investor confidence. Furthermore, the closing of China’s equity markets for the next two days provided some relief. The Nikkei 225 improved 0.5%.
Continental Europe: Markets ended marginally higher after a volatile trading session. Investors were concerned about slowdown in China and possibility of an interest rate hike by the Fed. Germany’s DAX and France’s CAC 40 rose 0.3% each.
Crude Oil: Yesterday, WTI and Brent oil prices increased 1.9% and 1.8%, respectively. The spread between the two varieties stood at US$4.3 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.03% lower yesterday at 730.46.
Today’s news
Slowdown in China and other risks likely to impact global growth
According to the International Monetary Fund (IMF), slowdown in China’s economy and other downside risks, including weak growth in other parts of the world and a strengthening US dollar, could hurt the global economy. The agency stated that a combined policy action would help in improving growth and mitigating risks.
Company News
Ariana Resources (LON:AAU) – Speculative Buy
Yesterday, Ariana Resources (Ariana) informed that it has started mine construction at the Kiziltepe Sector of the Red Rabbit Gold Project in western Turkey. The project is being carried out in partnership with Proccea Construction and is expected to deliver first gold pour in H2 2016. The company has received all clearances from the Forest Department in the permitted areas and finished the freehold land acquisitions. The final discussions on major components for the plant at the site are complete and the long lead orders have been placed. Ariana has assigned a mining contractor and expects to begin site work from October. Further, the company has begun the installation of the perimeter security fence with four prefabricated buildings already completed.
Our view: Ariana continues to make progress in the Red Rabbit Gold Project, which holds a JORC compliant resource of 475,000oz (ounces) gold equivalent. Kepez West and Karakavak are high priority resource development areas located close to Kiziltepe, expected to have various important drilling targets. The aforementioned update marks the commencement of construction phase of the project. The company is progressing nicely, well supported by its partners and is on track to start production in the second half of 2016. Going forward, Ariana plans to carry out the drilling programmes in the prospects to enhance its resource potential. In view of the above developments related to the Kiziltepe sector and production expected next year, we maintain a Speculative Buy rating on the stock.
Ryanair Holdings (LON:RYA) – Buy
Yesterday Ryanair Holdings (Ryanair) released traffic statistics for the month of August 2015. During the month, the traffic rose 10% to 10.4 million customers compared to 9.4 million customers in the same month last year. The load factor improved 2% to 95%. The rolling factor grew 15% to 96.3 million customers in August.
Our view: Thanks to Ryanair’s low air fares and stronger forward bookings, the company witnessed a steep rise in customer traffic and seat load factor in August. The company continues to build on the success of its ’Always Getting Better’(ATB) customer experience improvement programme, that sets apart the carrier as more than just a low cost airline. In addition, Ryanair has introduced new routes and increased frequencies, with additional services for business passengers .Going forward, the company plans to improve its ATB service to further enhance consumer experience. The new enhancements for the year 2015 include the launch of a new website, new app, new cabin interiors, new crew uniforms, and better in-flight menus. In view of the constant improvement in services and value rendered to the customers, we retain a Buy on the stock.
Ashtead Group (LON:AHT) – Buy
Yesterday, Ashtead Group announced its unaudited results for the first quarter ended 31st July 2015. On a statutory basis, total revenues advanced 35% to £618.6m versus £457.9m in Q1 2014. On an underlying basis, rental revenue soared 20% to £539.6m (Q1 2014: £417.7m). Both the segments within rental performed well with Sunbelt and A-Plant witnessing a 23% and 10% growth in rental revenue, respectively. EBITDA rose 25% to £282.7m and operating profit increased to £180.2m from £133.5m in Q1 2014. Pre-tax profit jumped 23% to £160.7m resulting in an EPS of 21p against 15.3p in the same period last year. The net debt stood at £1.8bn and the ratio of net debt to EBITDA reduced to 1.8 times (2014: 1.9 times) on a constant currency basis. On the operational front, the company invested £349m as it opened 19 Greenfield locations and made one small bolt-on acquisition.
Our view: Ashtead Group, an equipment rental company, delivered solid first quarter results with robust performances from both its business segments. With a major increase in fleet on rent, and some improvements in yield, the company’s rental revenues were on an upswing. The company is progressing well on its plan to diversify the market reach and the results are a proof of its efficient execution. The high level of capital investment undertaken by the company during the period would go a long way towards ensuring sturdy returns and business growth. Going forward, the company expects to invest in the ongoing Greenfield programme and make investments worth £1bn in 2015. We believe Ashtead would continue its growth momentum and achieve results for the full year in line with expectations. The solid same-store sales growth and continuous steps to expand would aid the growth. We maintain a Buy rating on the stock.
Yesterday, ASOS informed that its founder Nick Robertson has stepped down as the CEO and would remain as a non-executive director. Nick Beighton would replace Mr Robertson as the CEO from immediate effect. Mr Beighton joined ASOS in 2009 as Chief Financial Officer (CFO) and was appointed as Chief Operating Officer in October last year to broaden his responsibilities. Helen Ashton shall take over from Beighton as the CFO.
Our view: The aforementioned update marks the resignation of Mr Robertson as the CEO and the taking over of the position by Mr Beighton, who has been with the company for more than six years. Mr Beighton’s experience working in various domains within the company would help him better execute his duties. However, his success as the CEO is yet to be seen. As per the recent trading update, ASOS witnessed strong growth in revenues with its price investments and introduction of differential pricing for different territories. However, these results were favoured by the seasonal fare and we would wait to assess if the growth is a long-term trend. Furthermore, ASOS is currently facing stiff competition from growing online competitors. In view of the above uncertainties, we retain a Hold rating on the stock.
Economic News
US MBA mortgage applications
US mortgage applications surged 11.3% in the week ended 28th August after rising 0.2% in the prior week, the Mortgage Bankers’ Association said yesterday. Refinance index jumped 16.8%, and the gauge of loan requests for home purchases rose 4.1% over the week.
US ADP employment change
Jobs in the US private sector expanded 190,000 in August, after a downwardly revised 177,000 in July, ADP reported yesterday. The markets expected the jobs to increase by 200,000.
US factory orders
US factory orders increased at a slower pace of 0.4% m-o-m in July after rising 2.2% in June, the US Department of Commerce said yesterday. The reading fell short of the economists’ forecast of 0.9% increase. Excluding orders for transportation equipment, factory orders fell 0.6% in July, after a gain of 0.6% in June.