The Markets
Market opening: THe FTSE-100 is expected to open around 7 points higher this morning.
New York: Wall Street extended gains for the second consecutive day, boosted by a jump in oil prices yesterday. Investors await Fed’s decision on interest rate today. The S&P 500 advanced 0.9%, led by energy stocks.
Asia: Equities are trading higher, pairing gains from global markets. Additionally, the increase in commodity prices fuelled buying. The Nikkei 225 added 1.4%, while the Hang Seng was trading 0.9% higher at 7:00 am.
Continental Europe: Markets ended in the green amid improvement in the Chinese stock market. Continuous upside in oil prices further lifted investor sentiment. France’s CAC 40 and Germany’s DAX rose 1.7% and 0.4%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices increased 6.7% and 5.7%, respectively. The spread between the two varieties stood at US$2.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.20% higher yesterday at 738.18.
Today’s news
UK wage growth highest in six years
According to the Office for National Statistics, wages in the UK grew 2.9% y-o-y in the May to July period, highest growth since the three months ending January 2009. Wages of private sector workers increased 3.4% y-o-y, while that for public sector workers rose 1.3% y-o-y.
Company News
Hummingbird Resources (LON:HUM) – Speculative Buy
Yesterday, Hummingbird Resources (Hummingbird) released a preliminary assessment report on the proposed hydro-electric power (HEP) plant located in south-east Liberia, approximately 10km from Hummingbird’s 4.2Moz Dugbe gold project. The study was carried out by Knight Piesold (KP) Consulting, which has extensive experience with large and small hydroelectric projects. The assessment considered four run-of-river (ROR) options between 15MW to 30MW with varying intakes. The Pre-Feasibility Assessment (PFA) is expected to be finalised by Q2 2016, pending additional hydrological and topographic mapping studies. The cost for the study is estimated to be US$265,000 funded by IFC InfraVentures as part of the Collaboration Agreement signed in April 2015. The positive preliminary results demonstrate that a range of hydropower options would be highly beneficial in the development of a sustainable and low-cost source of power for the Dugbe gold project as well as the south-east Liberia region.
Our view: The preliminary results are encouraging for Hummingbird. The availability of the low-cost hydropower would aid in the operation of the proposed Dugbe gold project, estimated to have 4.2Moz grading 1.4g/t. Development of HEP could result in significant operating cost savings for the project. We look forward to further developments on HEP and note that the PFS is fully funded by IFC InfraVentures thereby mitigating risk and capital exposure to Hummingbird. Earlier this month, the company extended its bridge facility with Taurus Funds Management by US$5m to a total of US$15m. These additional funds would enable Hummingbird to keep the Yanfolila gold project on schedule. Going forward, the company plans to develop a ROR facility to support the mining operations at Dugbe. We believe the company will continue its growth momentum owing to its substantial resource and capital position. We maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Hummingbird Resources plc
Horizon Discovery Group (LON:HZD) – Speculative Buy
Yesterday, Horizon Discovery Group (Horizon) informed that its Bioproduction business reached an agreement with Lake Pharma, a leading contract research organization. As per the deal, Horizon has given Lake Pharma a licence covering the commercial use of genetically engineered Chinese Hamster Ovary (CHO) cell line, developed by Horizon.
Our view: The aforementioned contract with Lake Pharma highlights Horizon’s quality to enter into value deals which would be well supported by its robust technology and resources. The company works on a flexible licensing model with simple terms, providing the small and medium sized biotechs and Contract Manufacturing Organizations an easy access to the Bioproduction cell lines. Last week, the company entered into license and supply agreement with Abcam. As per this contract, Horizon’s cell lines are to be used in antibodies, reflecting the range of products it could be utilized. The partnership with Abcam would help the company generate long-term earnings in the form of licensing and royalty payments. Recently, the company also announced an investment up to £10m in its leveraged R&D business for a span of two years, to identify the next generation of molecular cancer therapeutics. These investments would further broaden its product portfolio and offerings to the customers. Going forward, Horizon would look out for partnerships for its programmes with therapeutic-focused companies to minimize its risk and widen the revenue stream. In view of the overall optimism surrounding Horizon, we reiterate a Speculative Buy rating on the stock.
Quadrise Fuels International (LON:QFI) – Speculative Buy
Quadrise, the emerging supplier of MSAR, a low cost alternative to heavy fuel oil in the shipping, oil refining and power generation markets, yesterday provided a half-year update on its principal active programmes. It detailed contracts executed with Maersk Line A/S and Compania Espanola De Petroleos S.A.U. for the Operational Trial Programme in order to provide the basis for the issue of Letters of No Objection by participating marine engine manufacturers. The operational Trial will include the supply, installation and commissioning of a Quadrise MSAR Manufacturing Unit at the CEPSA San Roque refinery near Gibraltar. Quadrise also outlined a pilot/demonstration project spanning production, transportation and combustion of Quadrise MSAR fuel within Saudi Arabia. Here the timetable remains broadly as advised in the QFI 2015 Interim report with production capacity targeted to be installed in late 2015, to ensure fuel availability for an extended combustion demonstration during H1 2016. Once all relevant aspects and budgets have been confirmed and authorised by the respective management teams, it is expected that the contracts recording the terms on which Quadrise will supply its technology and services will be executed. Also,as previously advised, the Company is evaluating selective opportunities for substituting MSAR for conventional heavy fuels where used for steam and power generation within refineries.
Our view: Encouraging progress! While some investors might be getting impatient for Quadrise to deliver a much anticipated ‘knockout’ news announcement, they need to be reminded of the significance and potential of the trials presently being undertaken. What yesterday’s update told us was that the principle projects are steadily moving forward. The Operational Trial Programme is the final stage before the commercial roll out of the Marine MSAR product into one of the world’s largest fuel markets. MSAR provides potentially huge economic and environmental advantages for end users over conventional heavy fuel oil. The economic case for MSAR remains solid despite the decrease in oil prices, while the cost of complying with ever more stringent environmental regulations remains at the forefront of the industry. In this respect, the signing of the Tripartite, Collaboration and Margin Sharing Agreements represents an important milestone in both the development of the marine product and for Quadrise as a whole. Importantly, the economic argument on MSAR remains solid, with the spread between HFO and GasOil remaining wide, while prices of feedstock have actually fallen back. With all planned activities fully funded and the Group’s cash position remaining comfortable, a lack of visibility regarding possible legal structure for the prospective Marine and Power contracts is possibly becoming shareholders principal concern. Whatever, Quadrise’s experienced management and highly protected IP should ensure it retains negotiating advantage. These facts are not adequately reflected in its share price. Speculative Buy.
Avanti Communications Group (LON:AVN) – Buy
Yesterday, Avanti Communications Group (Avanti) declared its results for the year ended 30th June 2015. Revenues advanced to US$85.2m from US$65.6m in 2014, with a 50.4% y-o-y growth on constant currency basis. The improvement was mainly due to rise in fleet utilization between 20% to 25% band (2014: 10% to 15%) and the 53.7% y-o-y revenue growth in the Top-20 customer bandwidth. EBITDA (before share based payment charges) rose to US$16.0m from US$1.7m in 2014. Pre-tax losses attributable to shareholders narrowed to US$73.1m from US$87.2m. This includes a net interest expense of US$40.5m (2014: US$39.0m). Consequently, loss per share fell to 61.5 cents (2014: loss per share of 81.2 cents). Net cash balance and net debt at the end of period stood at US$122.2m and US$406.2m, respectively. On the operational front, the company won a number of contracts including SENTECH, Tanzania Telecoms Company and Orange Telkom. Post the financial year end, Avanti raised US$126.3m to complete the funding for the HYLAS 4 satellite comprising of debt issuance of US$115.0m and an equity issuance of US$11.3m.
Our view: The financial year 2015 was remarkable for Avanti with significant growth in revenues and addition of contracts. The company won several distribution partners and improved existing relationships to access the huge latent demand for connectivity in high growth markets. Avanti is progressing nicely in the HYLAS 4 satellite and remains on track to launch it by early 2017, with HYLAS 3 also scheduled for a launch in 2017. The company’s investments in its main markets paved off as it registered a record revenue from its top 20 customers. Going forward, Avanti plans to invest in the sales and marketing activities to cater to the markets covered by HYLAS 4. Given its strong position and incremental opportunities in the pipeline, we expect the company to maintain its on-going momentum in the near future. Therefore, we maintain a Buy rating on the stock.
Yesterday, JD Sports declared its interim results for the half year (26 weeks) ended 1st August 2015. Revenues soared to £809.9m in H1 2015 from £670.3m in H1 2014 with like-for-like (LFL) sales of more than 10% across the group. Operating profit (before exceptional items) jumped 80% to £47.6m (H1 2014: £26.5m). Pre-tax profit advanced to £44.7m from £23.7m in the same period last year, resulting in an EPS of 17.62p versus 9.38p in H1 2014. Net cash at the end of period stood at £100.3m (H1 2014: £11.2m). On the operational front, the company opened 27 new stores across Europe. JD Sports announced an interim dividend of 1.20p (H1 2014: 1.15p), to be paid on 8th January 2016.
Our view: JD Sports has started the first half on a positive note aided by improving economic conditions and favourable business environment. The company delivered solid performance with improving revenues and higher margins which was primarily driven by exclusive premium brand offerings that continue to attract customers and suppliers alike. Furthermore, JD Sports’ high standards of visual merchandising provided a robust platform for profitable growth, at home and international markets. Going forward, the company plans to expand in the Netherlands, Spain, France and Germany to improve its presence in these prospective markets. We believe that the improving macroeconomic scenario and rising real wages in the UK would help JD Sports maintain its earnings for the rest of the year. Therefore, we maintain a Buy rating on the stock.
Galliford Try (LON:GFRD) – Buy
Yesterday, Galliford Try announced its results for the year ended 30th June 2015. Revenues advanced to £2.3bn from £1.8bn in 2014, and revenues including joint ventures jumped to £2.4bn, 31% higher than 2014. Pre-tax profit surged to £114.0m from £95.2m, leading to an EPS of 112.8p against 94.6p in 2014. Net debt at the end of period stood at £17.3m (2014: £5.1m). Galliford Try’s landbank increased to 15,750 plots (2014: 14,000 plots). The company’s contracting order book in Galliford Try Partnerships improved to £850m from £610m in 2014. The order book for the construction segment stood at £3.8bn (2014: £3.0bn). On the operational front, the company acquired Shepherd Homes for £31m to improve growth prospects in the North. Galliford Try declared a total dividend of 68p (up 28% y-o-y) mainly due to inclusion of an interim dividend of 22p.
Our view: The year ended June 2015, proved to be another great one for Galliford Try as the company maintained its growth momentum aided by encouraging market conditions. The company’s well-thought-out strategy for long-term collaboration and the recent surge in the house building and the construction business, driven by the government’s ‘Help to Buy’ scheme, led to a significant top-line growth. Galliford Try made significant additions to its impressive line of contracts despite the General Elections in May. Furthermore, successful integration of the Miller construction business turned fruitful as it added £400m to the revenues. The company continues to enhance shareholder value as it raised the dividend amount substantially. Earlier this week, the company also entered into an agreement with the University of Leeds to undertake two new contracts worth £37.8m. We expect the company’s strong order book and solid landbank to uphold the company’s prospects. Therefore, we maintain a Buy rating on the stock.
Economic News
UK claimant count rate
The claimant-count rate rose 2.3% in August,in line with the market expectations and previous month’s rise.
UK jobless claims change
UK jobless claims rose 1,200 in August, after an upwardly revised decline of 6,800 in July, the Office for National Statistics said yesterday. Markets had expected claims to drop by 5,000.
UK ILO unemployment rate
UK unemployment rate rose 5.5% in the three months ended July, from a 5.6% rise in the three months ended June, the International Labour Organisation (ILO) stated yesterday. The markets expected an increase of 5.6%. The number of people in work rose by 42,000 to 31.1 million in the quarter, after a drop of 63,000 in the previous quarter.
Eurozone CPI
Consumer price inflation (CPI) in the Eurozone remained flat m-o-m in August, after a drop of 0.6% in July, as per the estimates published yesterday by Eurostat. On y-o-y basis, CPI improved 0.1% in August, following a 0.2% increase in July. Core prices, excluding energy, food, and tobacco, grew 0.9% y-o-y in August.
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, fell 7.0% in the week ended 11th September, following a 6.2% decrease in the preceding week, the Mortgage Bankers Association said yesterday. The refinance index slipped 9.1% from last week, while the gauge of loan requests for home purchases, a leading indicator of home sales, fell 4.2%.
US CPI
US consumer price index (CPI) fell 0.1% m-o-m in August, after a 0.1% rise in July, the US Bureau of Labour Statistics stated yesterday. This was in line with the market expectations. Core consumer prices, excluding food and energy, rose 0.1% m-o-m in August, following a similar increase in July.