The Markets
Market opening: UK markets are expected to start the week higher. FTSE 100 Futures were trading 20 points higher at 7:29 am.
New York: Wall Street had a volatile trading session on Friday ahead of the Federal Reserve Policy meeting to be held this week. The S&P 500 rose 0.5%, led by gains in the utilities sector. For the week, the markets increased 2.1%.
Asia: Equities are trading lower, primarily due to weak economic data released by China. The Nikkei 225 fell 1.6%, while the Hang Seng was trading broadly flat at 7:00 am.
Continental Europe: Markets ended in the red amid concerns of economic slowdown in China. In addition, investors await the Fed’s decision on the interest rate hike. France’s CAC 40 and Germany’s DAX shed 1.0% and 0.9%, respectively.
Crude Oil: On Friday, WTI and Brent oil prices decreased 2.8% and 1.5%, respectively. The spread between the two varieties stood at US$3.5 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.05% lower on Friday at 733.80.
Today’s news
IMF says French economic reforms on track
According to the International Monetary Fund (IMF)’s Managing Director, Christine Lagarde, France’s economy is moving in the right direction, driven by reform measures undertaken by the government; however, she insists that the country still needs more active measures. Furthermore, she stated that the agency may revise France’s growth forecast to 1-2% for 2015 in its report scheduled to be released later this month.
Company News
Wishbone Gold (LON:WSBN) – Speculative Buy
As had been previously outlined within its 2014 full year results statement, Wishbone Gold, the exploration and acquisition company focused on identifying and developing precious metal related acquisitions, on Friday formally announced that it has issued shares to settle outstanding debts of fees, expenses and loans. The Debt Settlement involves allotment of shares in the capital of the Company at a price of 0.25p per ordinary share. The release went on to detail the monies owed to the named individual and companies and their respective allocations of shares at the Allotment Price along with their subsequent holdings of the enlarged issued share capital. The Total number of new shares allotted amounted to 396,849,229, following which the Company’s Total issued share capital will consist of 759,900,464 Ordinary shares. Management noted that the proceeds of the Placing will reduce running costs and preserve cash available for general working capital purposes. Application has been made for the Debt Settlement Shares to be admitted to trading on AIM which is expected to occur on 17th September 2015. The Chairman commented “this completes the restructuring of Wishbone to leave it debt free and with cash to fund the continuing exploration of its portfolio of Australian properties”.
Our view: Wishbone’s management brings with it exceptional experience, contacts and knowledge in the world of mining exploration and development. This had already been recognized by Global Resources Investment Trust plc’s (‘GRIT’) founding managers who were keen to incorporate such skills in the process of screening potential candidates. Friday’s announcement also details a convenient reduction in running costs for the Company, while underscoring the continuing support it receives from its Board and close contacts. Now finding itself free of debt and out of its closed period, however, it could even herald a period of change for Wishbone. The bear phase in precious metals has undoubtedly opened multitude of opportunities for business creation and acquisitions whose profitability, in the right hands, might be transformed when the pricing cycle reverses once again, as it inevitably will. Right now, Wishbone is a management story. Beaufort retains it Speculative Buy recommendation in anticipation of more interesting times ahead.
Beaufort Securities act as corporate broker to Wishbone Gold.
Beaufort Sceurities acts as corporate broker to Wishbone Gold plc
Great Western Mining Corporation (LON:GWMO) – Speculative Buy
On Friday, Great Western Mining Corporation (GWMC) released an update on its M5 prospect located in Nevada, USA. GWMC assembled and compared assay results from five rock chip samples and 17 soil samples. The results showed that the region contains epithermal or Carlin-style disseminated gold. This is in line with the findings reported earlier in September 2014. The company stated that the estimated size and scale of the M5 alteration and mineralisation below the post-mineral volcanics is prevalent and nearing 10 sq km. The M5 prospect can create one or more useful targets with proper mapping and geochemistry.
Our view: GWMC’s hard work and long-term wait turns fruitful as it identifies huge Carlin-style gold resources in the M5 prospect. The aforementioned update is in line with company’s plan to identify new resources and utilize them to their best ability with the help of its strong infrastructure and robust technology. Further, as per the latest findings in Northern Section of M2 across the Bass Mountain have shown favourable geologic environment for IOCG mineralization with gold (Au) present in sub-ppm with copper (Cu) at a ratio of 1Au/50,000 Cu. This suggests that the M2 open pit copper resource contains 16,000oz (ounces) of Au. The company plans to carry out further study in the region to leverage on the availing resources in the area. In view of the overall optimism surrounding GWMC, we maintain a Speculative Buy rating on the stock.
Rosslyn Data Technologies (LON:RDT) – Speculative Buy
Rosslyn Data Technologies, the leading global data technology group, announced on Friday that wholly-owned Rosslyn Analytics Ltd had won a significant new contract with one of the world’s largest mining companies. This multi-year contract has a value of £400,000 to the company over the contract term. The client currently has data stored in multiple platforms with inconsistent quality and completeness. This is further complicated by the vast volume of data, the speed at which it is being added and the fact that the client’s large and mobile workforce requires access to secure and timely information around the world. The Directors believe that the client chose Rosslyn’s RAPid platform, over alternative products, owing to its speed of deployment, scalability and unique data-transformation capabilities. The Directors also believe that Rosslyn’s product will not only solve the client’s data challenges but, with the effective distribution of the data, RAPid will also assist the client to achieve a number of strategic objectives including cost reduction, the improvement of operational efficiencies and supply chain risk management.
Our view: More evidence that Rosslyn’s technology offers something unique in the world of Big Data! Coming hard on the heels of last month’s ground-breaking Genpact contract, to have now secured work from ‘one of the world’s largest mining companies’ starts to makes it clear that Rosslyn’s RAPid platform offers something that its peers simply cannot match. Who knows, this could even be just the first of a series of such engagements, as other ‘data-heavy’ mining giants agree to accept it as their industry’s standard manipulation tool. So what is so special about Rosslyn’s platform? The fact is that many giant corporations have already attempted to create of their own bespoke data handling systems, only to find that their end product becomes too inflexible or rigid to be considered as a potential long-term solution within their perpetually changing environments. By comparison, Rosslyn’s RAPid platform combines four key technologies: data extraction, cleansing, enrichment and visualisation, to perpetually learn and update through single cloud operation. It enables users to question and access detailed data on ‘moving targets’ in order to take informed decisions. This is what is different about Rosslyn’s offer and what competitors have found difficult to emulate. RAPid’s success could result in its eventual implementation and embedding across entire organisations, whereupon it would effectively achieve the status of ‘strategic operational asset’. The current year to end-April 2016 should provide evidence of such progress, with revenues expected to more than double that achieved in fiscal 2014/15. Despite recent outperformance, Rosslyn’s lowly valuation still fails to recognise this, although its technology is clearly being eyed enviously by the likes of PWC et al., who understand the likely cost and time required to create a comparable, and much needed, product in-house. Beaufort reiterates its Speculative Buy recommendation.
Galliford Try (LON:GFRD) – Buy
On Friday, Galliford Try informed that it has reached an agreement with the University of Leeds to undertake two new contracts worth £37.8m. The first contract, valued at £22.5m, involves revamping the Engineering Building at the University’s main Woodhouse campus. This includes renovating levels three, four and five of the 1960s building along with finishing the maintenance backlog on the remaining part of the building. The second contract is valued at £15.3m, related to refurbishment of the Grade II listed Edward Boyle Library. The deal covers all the six floors of the 1970s building, including revamp of the study areas and changing the engineering systems and roof.
Our view: Galliford Try continues to build strong relationship with its clients as it adds two contracts to its books. The company has been strengthening its order book with major additions since the beginning of the year 2015. Last month, Galliford Try was appointed by developer ACDL to deliver the first phase of the new Arena Central scheme in the Central Birmingham, valued at £66m. The company had also signed contract with Birmingham City University to build the £46m Conservatoire in Central Birmingham. Galliford Try’s infrastructure business is also progressing well as it was recently appointed as a delivery partner by Highways England for its Smart Motorways programme worth £1.55bn. Additionally, as per the recent trading update the company’s contracting order book in Galliford Try Partnerships improved to £825m in 2015 from £500m in 2014. Strengthening order book is set to boost the company’s earnings in 2015. We maintain a Buy rating on the stock.
J D Wetherspoon (LON:JDW) – Hold
On Friday, J D Wetherspoon announced its preliminary results for the year ending 26th July 2015. During the period, the revenues advanced 7.4% y-o-y to £1.5bn with the like-for-like (LFL) sales improving by 3.3%. The LFL bar and food sales were up 1.2% and 7.3%, respectively, while the slot/fruit machine dropped 2.8%. Operating profit before exceptional items declined 3.8% to £112.5m (2014: £117.0m) owing to gross margin contraction and higher expenses related to staff costs, utilities and depreciation. Pre-tax profit after exceptional items narrowed to £58.7m from £78.4m in 2014. However, EPS rose to 36.7p from 32.8p a year ago. Excluding the impact of exceptional items, EPS was flat y-o-y at 47.0p. During the period, the company invested £173.3m (2014: £177.5m) which includes £106.3m in new pubs and extensions to existing pubs. J D Wetherspoon also bought back over 1.6 million shares for a Total cost of £12.5m. Total debt at the end of period stood at £601.1m, an increase of £44.5m. Further, the company declared DPS of 12p in line with last year.
Our view: J D Wetherspoon continues to deliver improved sales numbers and free cash flow per share. However, the LFL sales growth has slowed when compared with the last year. Weaker gross margins and operating expenses are also exerting pressure on the company’s operating profit before exceptional items. Recent new living wage introduced by the government is weighing heavily on to the pub industry amid increasing competition from the cheaper supermarkets. Cost pressures from the increased capital investment including IT, personnel training and improvement of existing pubs as well as the continuing tax disparity between supermarkets and pubs remains concerning. With a mixed to slightly positive indication over the company’s prospects, we maintain our Hold rating on the stock.
Economic News
Germany CPI
According to the estimates published by the Federal Statistics Office on Friday, consumer price index (CPI) in Germany remained flat in August, for the second month in a row. This is in line with the market expectations. On y-o-y basis, prices increased 0.2% in August, in line with the reading in July.
US PPI final demand
The US producer price index (PPI) for final demand remained flat in August, after a 0.2% rise in July, the Bureau of Labor Statistics stated on Friday. This is better than the market expectations of 0.1% decline. Core producer prices, excluding food and energy, edged up 0.3% in August. On y-o-y basis, PPI demand fell 0.8% in August in line with the performance in July.
US University of Michigan sentiment
The US University of Michigan Consumer Sentiment Index dropped to 85.7 in September from 91.9 in August, according to the data released on Friday. Economists were expecting a reading of 91.1. The Consumer Expectations Index, which closely forecasts the direction of consumer spending, slipped to 76.4 from 83.4, and the Current Economic Conditions Index fell to 100.3 from 105.1.