The Markets
Market opening: UK markets are expected to start the session marginally lower this morning. FTSE 100 Futures were trading 7.8 points lower at 7:22 am.
New York: Wall Street ended in the red, taking negative cues from the overseas market. Furthermore, growing concern over a slowdown in China impacted the market sentiment. The S&P 500 slipped 0.4%, dragged down by the materials sector.
Asia: Equities are trading mixed. The Nikkei 225 added 0.3%, boosted by Bank of Japan’s decision to maintain its expansionary monetary policy at ¥80tr per annum. The Hang Seng was trading 0.4% down at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended mixed, as investors await Fed’s decision on interest rate later this week. The downslide in oil prices dented investor confidence. France’s CAC 40 shed 0.7%, while Germany’s DAX moved 0.1% up.
Crude Oil: Yesterday, Brent and WTI oil prices decreased 3.7% and 1.4%, respectively. The spread between the two varieties stood at US$3.5 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.24% lower yesterday at 732.06.
Today’s news
Eurozone industrial production improves in July
Industrial production in the Eurozone rose 0.6% m-o-m in July, beating market expectations of a 0.3% increase. Industrial production had slipped 0.3% in June. On y-o-y basis, industrial production grew 1.9% compared with an expected increase of 0.6%. The improvement was ascribed to a larger volume of energy, capital and durable consumer goods.
Company News
DekelOil Public Limited (LON:DKL) – Speculative Buy
Yesterday, DekelOil Public Limited (DekelOil) declared its interim results for the half year ended 30th June 2015. Revenues soared to €12.9m in H1 2015 from €4.5m a year ago mainly led by strong production numbers. The company reported record half yearly production with 21,836 tonnes of crude palm oil (CPO) (H1 2014: 7,932 tonnes) and 3,733 tonnes of kernel (H1 2014: 1,311 tonnes). DekelOil sold 19,184 tonnes of CPO and 3,760 tonnes of kernel (H1 2014: 5,599 tonnes and 1,253 tonnes, respectively). EBITDA jumped nearly eight times to €2.3m (H1 2014: €300,000) and the pre-tax loss narrowed to €86,000 from €761,000 in H1 2014. On the operational front, the company took a lot of steps to improve the operations in the Kernel Crushing Plant (KCP) located at Ayenouan and expects to start the production in Q4 2015. DekelOil is moving in the right direction to become the first Round Table for Sustainable Palm Oil (RSPO) certified, fully functioning producer of CPO in Côte d’Ivoire.
Our view: DekelOil delivered solid first half results despite difficult CPO pricing environment. The company’s strong production figures translated in higher revenue and margins. DekelOil benefitted from an upgrade of logistics ensuring timely supply of feedstock, thereby enhancing overall efficiency. The company is progressing well on the construction of KCP and is optimistic to start production by the end of 2015. Furthermore, DekelOil is expected to be awarded with RSPO certification soon, giving it an edge over its peers. Going ahead, DekelOil plans to continue planting programme in the Ayenouan region and start operations at its second project at Guitry. Additionally, West Africa seems to be a promising destination for palm oil developers and continues to attract those who are seeking future expansion. We believe the company is well placed to accelerate earnings growth given its substantial resources and prospective plans. We maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to DekelOil Public Limited
DDD Group (LON:DDD) – Speculative Buy
DDD Group, the advanced imaging and 3D solutions company, yesterday announces its half yearly results for the six months ended 30 June 2015. Revenue for the period was reported as US$437,000 (H1 2014 restated: US$1,179,000), while cash and receivables as at 30 June 2015 amounted to US$1,285,000 (H1 2014: US$1,428,000). Free cash flow (pre-financing activities) improved 43% to an outflow of US$1,034,000 (H1: 2014: outflow US$1,829,000) due to continued careful management of operating expenses. Highlights of the period included (i) the launch of TriDef SmartCam webcam background removal PC software for use with popular gamecasting and video conferencing applications; (ii) the signing of affiliate agreements with SplitmediaLabs for TriDef SmartCam integration into XSplit Gamecaster and XSplit Broadcaster; (iii) the signing of a license agreement for distribution of TriDef SmartCam by SplitmediaLabs to OEM PC manufacturers and (iv) promising progress on the patent licensing program. Subsequent to the period end, DDD filed a patent infringement lawsuit in Los Angeles, USA against LG Electronics on 23 July 2015 (with Quinn Emanuel Urquhart & Sullivan LLP as lead counsel) and also extended its Samsung 3D TV license agreement until December 2016.
Our view: DDD is in a period of transition, moving from stereo 3D products to 2D solutions. First half revenues from the 3D TV market were also impacted by TriDef 3D conversion technology being re-focussed from HDTVs to UHD/4K TVs from the end of the first quarter. Management expects, however, these to recover somewhat in the near term in expectation of continued growth in sales of UHD TVs along with the successful extension of its license agreement with Samsung. Looking beyond this, however, DDD will focus on securing 2D technology agreements with sizeable video conferencing & gamecasting partners, in order to expand the daily downloads for TriDef SmartCam towards its 1,300 paid downloads/day break-even goal. Before the year end, the Group is also expected to launch its innovative social photography App in Google Play store in Q4. This will allow a broadening of the target customer base from PC to mobile phones and tablets and also to augment the consumer and OEM revenue derived from SmartCam technology. Here the focus will be on securing license agreements with photo manipulation software app developers (Instagram) and also phone handset makers. Meanwhile, there remains potential for a bonanza pay-off for the Group as it moves toward concluding licensing negotiations with patent licensees prior to year end. Ahead of such an event, however, cash burn will continue to place some strain on the balance sheet as it rolls out 2D applications, appoints licensees and undertakes end-use marketing. But given the market size for gamecasting/video conferencing that is forecast to deliver growth from hundreds of millions of existing end-users, potential shareholder rewards remain very large indeed. Beaufort retains its Speculative Buy recommendation on DDD Group.
Beaufort Securities acts as corporate broker to DDD Group plc
Motive Television (LON:MTV) – Speculative Buy
Motive Television yesterday announced its intention to make TabletTV available on the recently announced new Apple TV platform in the United States, United Kingdom, and throughout the world. This will mean that Apple TV users will be able to receive, watch, schedule recordings, and enjoy all live digital terrestrial Over-the -Air (‘OTA’) broadcast channels, internet channels Over-the-TOP (‘OTT’) as well as video-on-demand (‘VOD’) services through TabletTV on their main televisions. Already a registered Apple developer, by making TabletTV available to Apple TV users, Motive will become one of the earliest developers for the Apple TV platform.
Our view: Motive is positioned to become a leading developer for Apple’s new platform. Recognising that Apps will increasingly becoming the preferred means for watching television, Apple has developed a new operating system called tvOS. It offers an innovative route by which to connect to a big (television) screen along with interactive use of Siri in order to access desired content. The vision is to make television as personal as an individual’s iPhone or iPad. Motive’s experience in developing the TabletTV Apps for Apple products and other devices over the past two years, ideally positions it to make an important contribution to the development of this new platform. Indeed, with such a long list of obvious consumer ‘likes’, the potential for Motive to multiply future revenues is undoubtedly there. Having said that, however, the more immediate 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 free OTA 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 contracts 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.
Beaufort Securities acts as corporate broker to MOtive Television plc
Strat Aero (LON:AERO) – Hold
Strat Aero, the international aerospace company focused on the rapidly emerging Unmanned Aerial Vehicle (‘UAV’) sector, yesterday announced the appointment of Mr. Gerard Dempsey to the Board as Chief Financial Officer with immediate effect. Mr Dempsey is a Chartered Accountant with over 30 years of experience in Senior finance roles across a range of global industries. Mr Dempsey’s appointment is in line with the Company’s more expansive strategy focussed on building a vertically integrated UAV offering, covering all aspects of the value chain, including the provision of innovative software platforms, hardware and pilot training services, both military and commercial. Bob Salluzzo, the outgoing Chief Financial Officer, will remain on the Board as a non-executive Director. Mr Dempsey has held some key roles in both multi-national corporations and start-up environments. Most recently he was Vice President Logistics Services and Finance Director of Sandvik Mining & Construction Ireland Ltd, a global engineering firm. Prior to this he was Chief Financial Officer of Airvod, a media technology start up targeting the aviation sector. Notable other roles Mr Dempsey has held include Finance Director at Microsoft Ireland, Head of Finance at Guinness, Head of Corporate Treasury and Structured Financing at Diageo, and Senior Corporate Treasurer at Pfizer. He also worked in investment banking and risk management at Schroders Australia.
Our view: Importantly, Gerald Dempsey’s appointment could herald a higher level of shareholder understanding and visibility for the next couple of years. As Beaufort has stated on a number of occasions, there can be no doubt that Strat’s global market opportunity is absolutely giant. The Group’s obvious ‘first mover’ advantage also means that it is now collecting a very long pipeline of enquiries and prospective business from governments, civilian institutions and the military. The US administration, for example, is presently taking steps toward an opening of US airspace for Unmanned Aerial Vehicles (‘UAV’), from which the Federal Aviation Administration suggests a new market worth as much as US$100bn could eventually be created in its territory alone. Strat’s shares, however, were severely punished back at the end of June, when it became apparent that its Board was finding it difficult to accurately predict the pace of development of its marketplace and exact timing of firm incoming orders. While this had been alluded to already in the previous month’s trading update, and cannot be considered particularly unusual in a new and developing market place (where the customer finds it hard to keep pace with product evolution with the regulator is persistently ‘behind the curve’), investors still appeared somewhat shocked. In the event, the Board confirmed first half of 2015 had developed slower than expected with revenues for the period to date being ‘considerably lower than management expectations’. Although it is clear that enquiries/proposals currently in hand do exceed Beaufort’s 2015E revenue forecast of US$4.0m which, in turn, implies Strat will now report losses of some US$0.5m for the period, with little management guidance beyond this the outlook still remain highly opaque. Recognising the booming opportunity faced by Strat and its recent investment in infrastructure and facilities, Beaufort’s forecasts for 2016E and 2017E presently remain unchanged, although tangible reassurance in the form new and longer term military/civilians contracts need to be forthcoming before the current period end in order to sustain this confidence. Beaufort retains its ‘Hold’ recommendation on Strat Aero while awaiting improved visibility for next year.
Beaufort Securities acts as corporate broker to Strat Aero plc
Horizonte Minerals (LON:HZM) – Speculative Buy
Horizonte Minerals, the nickel development company focused in Brazil announced yesterday that it has been awarded a new 1,610 hectare concession area adjacent to Glencore’s advanced Vale dos Sonhos and Serra do Tapa nickel laterite deposits. The new concession is located approximately 60km north of Horizonte’s 100% owned high-grade Araguaia nickel project in Para State, north central Brazil which the company is developing towards production. Horizonte has also applied for five additional concessions south of Glencore’s nickel projects and two new concessions southwest of Horizonte’s Araguaia properties have been filed with the Mines Department. The combined area under application is 25,997 hectares.
Our view: We are encouraged with Horizonte’s strategy of expanding its land position within a highly prospective area and note the strategic position given the proximity to advanced nickel laterite deposits. The new area shows prospective geology similar to Araguaia and could potentially host additional nickel mineralisation. Moreover, the new concession is adjacent to Glencore’s advanced nickel projects that have resources similar to Araguaia. Despite the current malaise in the resource sector we are encouraged with Horizonte’s strategy of expanding its land position and continued development on its Araguaia nickel laterite project.
Collagen Solutions (LON:COS) – Speculative Buy
Yesterday, Collagen Solutions (Collagen) informed that it has acquired all the assets and intellectual property rights of ChondroMimetic from Orthomimetics Limited (OL) and Cambridge Enterprise Limited (CEL). The company would issue 869,900 ordinary shares to fund this acquisition. Collagen has already issued half of the shares, with the remaining payable on completion. Further, Collagen mentioned that it would pay certain royalty on sales of the product to OL and CEL. The new products received from the contract would be transferred to a wholly owned subsidiary which will take care of the in-house manufacturing and registrations of products. ChondroMimetic is a collagen based implant for treating small osteochondral, chondral and subchondral defects, with total estimated target market size of over US$500m.
Our view: The aforementioned update is in line with Collagen’s plan to expand its market in collagen related products. The deal will also provide Collagen access to a number of patents related to collagen-based bioactive materials held by OL and CEL. Newly acquired products help in structural repair of bones and joints along with delivering biological and therapeutic agents, which in turn may substantially reduce the cost of joint replacement. Earlier this month, Collagen’s long-term client NovaBone Products received approval for a novel device by the US Food & Drug Administration (FDA), which would be used in delivery of its collagen bone graft product MacroForm. Collagen is also set to benefit from this. Furthermore, Collagen has been selected to participate in a new research project aimed at developing novel new treatments for the Parkinson’s disease, headed by the Centre for Research in Medical Devices (CÚRAM). The company joining such a valued consortium validated its brand name for developing and supplying high quality products. In view of company’s increasing market penetration and continuous efforts to expand its portfolio of services, we maintain a Speculative Buy rating on the stock.