Market opening: The UK market is likely to open up this morning. FTSE 100 futures were trading 41 points higher at 7:22 am.
New York: Wall Street ended in the red following the release of mixed economic data on Friday. Uncertainty surrounding an interest rate hike dented market sentiment. The S&P 500 slipped 1.5%, dragged by the materials sector. The index fell 3.4% during the week.
Asia: Equities are trading mixed.The possibility of an interest rate hike by the Fed concerned the investors. The Nikkei 225 added 0.3%, while the Hang Seng was trading 0.6% down at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended in the red amid fears of an interest rate increase by the Fed. Further, decline in German manufacturing orders and oil prices hurt investor confidence. France’s CAC 40 and Germany’s DAX shed 2.8% and 2.7%, respectively.
Crude Oil: On Friday, prices of Brent and WTI oil decreased 2.1% and 1.5%, respectively. The spread between the two varieties stood at US$3.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.24% lower on Friday at 733.01.
Today’s news
Downward revision in Chinese 2014 GDP
China’s National Bureau of Statistics revised its gross domestic product (GDP) growth to 7.3% for 2014 from 7.4% reported earlier. The decrease is ascribed to the services sector, which expanded 7.8% in 2014 against the expectation of 8.1%. Separately, Chinese central bank governor Zhou Xiaochuan informed that the Chinese yuan is steadying against the dollar, implying stability in financial markets.
Company News
KEFI Minerals (LON:KEFI) – Speculative Buy
KEFI Minerals, the gold exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, announced today an increase in its planned production to an average 100,000oz per annum over a 10 year period at its 1Moz Tulu Kapi gold project in Ethiopia. This compares with a previous average estimate of 75,000ozpa over a 13 year period. The planned increase in gold production is due to an expanded plant capacity design from 1.2Mtpa to 1.5Mtpa. Based on bids from construction contractors the expanded plant capacity does not increase KEFI’s assumed level of funding requirement to develop Tulu Kapi. In addition, the increased production is not expected to have any effect on the open pit mine plan as recently stated in the Definitive Feasibility Study (DFS). KEFI also announced that a preferred mining contractor has been selected from a short list of five candidates. The winning bidder as well as the nearest under bidders have been invited to bid for an expanded scope of work including pre-mining earth works and the full 10 years of mining of the proposed open pit.
Our view: We are encouraged in the rapid pace of development as well as the improved economics of the Tulu Kapi project based on the planned increase in plant capacity. The after-tax Net Present Value (NPV) at the start of construct increases from US$125m to US$147m, based on unleveraged cash flows, a gold price of US$1,250/oz and a discount rate of 8%. The increase in planned production should have a significant impact on the unit costs of production. We look forward to further announcements regarding the selection of financing options and preferred construction contractors. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to KEFI Minerals plc
Northcote Energy (LON:NCT) – Speculative Buy
On Friday, Northcote Energy (Northcote) announced that it has been granted permission to access the data administered by the National Hydrocarbons Commission (CNH) to evaluate the potential opportunities. The company would participate in Round 1 of Phase III of CNH’s tender process. As per the Phase III, 26 land contract areas in the states of Chiapas, Nuevo Leon, Tabasco, Tamaulipas and Veracruz would be granted to companies meeting the requirements and winning the tender process. Northcote is preparing for the prequalification package and expects concessions to be awarded in December 2015.
Our view: Northcote takes another step forward to avail the huge opportunities in the Mexican energy sector. The aforementioned update gives the company access to crucial data that could help it focus on potential areas for future growth. Northcote is confident to win contracts from the tender process that would further enhance its resources. Last week, the company informed that Lutcher More 20 well in Louisiana substantially exceeded the company’s pre-drill expectations in multiple areas including thickness of pay-zone, oil cut and daily rates achieved during testing. Recently, Northcote has also set up a remediation facility in Tabasco, Mexico that increased the diversity of services being offered by it. Going forward, the company expects to increase its activities in the Mexican region and also expand operations to Indonesia to extend the company’s international presence. In view of the continuous progress made by Northcote in the fast growing Mexican energy sector, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Northcote Energy plc
AstraZeneca (LON:AZN) – Hold
On Friday, AstraZeneca informed that the US Food and Drug Administration (FDA) has approved the usage of BRILINTA tablets at a new 60mg dose on patients with a history of heart attack beyond the first year of treatment. Following the current approval, BRILINTA would reduce the rate of cardiovascular death, myocardial infarction (heart attack) and stroke in patients with acute coronary syndrome (ACS). BRILINTA is an oral antiplatelet treatment that works by inhibiting platelet activation and was first approved by the FDA in July 2011. It is used to prevent blood clots that can cause heart attacks, strokes and deaths and had previously been approved at a higher dose for use during the first year after a heart attack. The recommended maintenance dose of BRILINTA is 90mg twice daily during the first year after the ACS event. Post one year, patients with a history of heart attack could now be treated with 60mg twice daily. The drug is expected to be available in pharmacies by the end of September 2015.
Our view: The aforementioned approval by the US FDA is an encouraging development for AstraZeneca. BRILINTA, which generated sales of US$476m in 2014, is approved in more than 100 countries and included in 12 major ACS treatment guidelines. The drug could now be used for patients, both in the acute setting and long-term. The upgraded approval could substantially improve the sales of heart drug as patients can use it for a longer duration. Further, the company has started trial programs to expand the use of drug in stroke, peripheral arterial disease and diabetes. However, the recent termination of the co-development contract with the Amgen and the negative revelations regarding the behavioural impacts of Brodalumab, have raised questions over the company. On the other hand, AstraZeneca has been facing some growth related concerns as some of its key medicines face patent expiry the coming years and may be substituted by cheaper generics. In view of the mixed developments surrounding the company, we maintain a Hold rating on the stock.
Economic News
Germany factory orders
German factory orders dipped a seasonally adjusted 1.4% m-o-m in July, after a revised increase of 1.8% in June, said the Federal Ministry of Economy and Technology. Economists had forecasted orders to decrease by 0.6% during the month.
US change in nonfarm payrolls
US non-farm payrolls stood at a seasonally adjusted 173,000 jobs in August, the US Labor Department said on Friday. Markets had expected payrolls to increase to 217,000. July payrolls were upwardly revised to 245,000 versus 215,000 reported initially.
US unemployment rate
The US unemployment rate stood at 5.1 percent in August, a seven-year low, after a reading of 5.3 per cent in July, the US Bureau of Labor Statistics said on Friday.