The Markets
Market opening: THe FTSE-100 is expected to open fairly flat this morning. At 7:30 am FTSE-100 Futures were trading 5.9 points.
New York: Wall Street ended in the red after a volatile trading session yesterday. Fed’s decision to maintain the interest rates unchanged hurt market sentiment. The S&P 500 slipped 0.3%, dragged down by the financial sector.
Asia: Equities are trading mixed. The Nikkei 225 fell 2.0%, as strengthening yen against the dollar exerted pressure on export-oriented stocks. The Hang Seng was trading 0.4% up at 7:00am, taking positive cues from the Fed’s decision to maintain the interest rates at a record low.
Continental Europe: Markets ended broadly flat, as investors remained concerned about the Fed’s decision on interest rate. France’s CAC 40 improved 0.2%, while Germany’s DAX ended flat.
Crude Oil: Yesterday, Brent and WTI oil prices decreased 1.3% and 0.5%, respectively. The spread between the two varieties stood at US$2.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.34% higher yesterday at 740.73.
Today’s news
Retail sales in UK improve after three months
As per the Office for National Statistics, UK’s retail sales, including automotive fuel, advanced 0.2% m-o-m in August, following a flat reading in July. This is the first rise in the past three months. For the quarter ended August, sales improved 0.4% compared with the previous quarter.
Company News
Herencia Resources (LON:HER) – Speculative Buy
Herencia Resources, the Chile focused mineral exploration and development company announced yesterday results from recent geological mapping coupled with the comprehensive surface XRF sampling program (previously announced on 26 August 2015) at its Picachos copper project in central Chile. The company has now identified four separate zones of mineralisation with a combined strike length of approximately four kilometres. The four parallel zones have been separated into the following: 1) 40M Shaft Zone extending over 1.2km, 2) Central Zone extending over 1.2km, 3) Santa Rosa Zone extending over 1.4km, and 4) Eastern Zone, which is a new mineralised zone that extend over 0.5km. All four zones occur within the central-southern area of Picachos tenement and do not take into account areas further to the north including the high-grade Leonito area or La Dura.
Our view: We are encouraged with the results from geological mapping combined with the recent surface XRF sampling program. Whilst more detailed work is required in order to prove up any additional resources, preliminary results suggest that there is potential for multiple open pits within the south-central Picachos tenement. These results bode well for the company as it considers options for processing the Picachos ore through potential JV partnerships or through potential toll milling agreements. In view of the above results, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Herencia Resources plc
MySQUAR Limited (LON:MYSQ) – Speculative Buy
MySQUAR, the Myanmar-language social media and entertainment platform whose principal activity is to design, develop and commercialise Myanmar-focused internet-based mobile applications, yesterday announced that it has repaid in full the amount outstanding under the loan facility provided by Rising Dragon Singapore Pte Ltd. The Company’s cash balances in the last few months (July and August) were significantly higher than the projected balances because the per-user cost of user acquisition and the cash used for operating expenses were lower than had been anticipated. The Company’s independent directors, having already approved the repayment of US$670,000 to Rising Dragon Singapore as described in the Company’s Admission Document dated 29th June 2015, considered it is in the best interests of the Company and its shareholders to utilise available cash resources to repay the US$256,688 balance with a view to saving unnecessary interest expense.
Our view: Yesterday’s announcement was a further reflection of the Group’s strong corporate governance, but much more importantly it is also telling investors that MyCHAT is genuinely becoming Myanmar’s ‘go-to’ Burmese-language social media venue. Back in July, management detailed that its unique site had gathered so much momentum that user numbers have already passed the 1m milestone which currently represents as much as 9% penetration in a country which is only now rolling out its own national 3G/4G-ready network. Indeed, Myanmar (with a population of some 60m people) is most certainly the world’s last major telecom frontier! Now emerging from the military stranglehold of the past 50 years, its people are both educated and desperately hungry to join the real world. Being unencumbered by decades of legacy equipment and hard wiring, and with Chinese-made smartphones now being sold on the streets at just US$30 a piece, Myanmar is set to leapfrog into the technological world along with all the economic benefits that will bring. While social media is clearly set for very rapid adoption throughout Myanmar, with 5% or less of the population actually able to speak/write English, the normal US international platforms will be bypassed in favour of a local language (and locally relevant) site – in this case, MySQUAR’s MyCHAT! Quite clearly, ourpre-IPO estimates for MySQUAR’s national user penetration numbers now stand to be considerably exceeded. The value now being created is quite extraordinary and is probably best put into context by reflecting by the take-out prices paid by the US-based social media giants to acquire massed users in international regions they have not yet managed to secure. MySQUAR remains a Speculative Buy.
Beaufort Securities acts as a corporate broker to MySQUAR plc
Rosslyn Data Technologies (LON:RDT) – Speculative Buy
Rosslyn, the provider of a leading cloud-based enterprise data analytics platform yesterday announced its audited results for the year ended-April 2015. Financial highlights included (i) Group revenues of £2.8M in line with projections and up 37 per cent from 2014 (£2.1M); (ii) Loss before tax of £3.5M (2014 £3.1M); (iii) Cash used in operations of £4.1M (£2.7M) and (iv) Net cash as at 30th April 2015 stands at £4.7M (2014 £8.8M). Operational highlights included (i) Over 100% customer base growth as the combination of the direct sales team and partnership strategy has gathered momentum; (ii) Contract wins with respected global companies; (iii) Revenues generated from existing clients accelerated as the ‘land and expand’ strategy bears fruit and (iv) Client renewal rates remaining high with a churn rate of below 5 per cent. Charles Clark, CEO of Rosslyn noted “We have a broad pipeline of new business and we are excited about the year ahead.”
Our view: Rosslyn’s technology appears to offer something unique in the world of Big Data! Coming hard on the heels of last month’s ground-breaking Genpact contract, earlier this week the Group secured work from ‘one of the world’s largest mining companies’. Given the options open to such giants, it is becoming 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 Beaufort expecting revenues 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.
Audioboom Group (LON:BOOM) – Speculative Buy
Yesterday, Audioboom Group (Audioboom) released an update on its key performance indicators for the third financial quarter ended August 2015. A total of 766 contents were added during the period, taking the total content channels to more than 6,000. The company added a number of content partners across the globe including Associated Press, NBA Podcasts, US Open Tennis, Yahoo! Sports, News International, Virgin EMI, New Castle United etc. The active content partners during the period stood at 2,500. Audioboom reported 300,000 new users signing up in the quarter taking the total to over 4.3 million at the end of August. The company recorded more than 870,000 mobile app (Android and iOS) installed during the quarter. The total number of listens for the quarter peaked at more than 85 million. With this, the total lifetime listens for Audioboom content exceeded 600 million. Further, the company reached an agreement with Cumulus Media, an American based radio station. As per the deal, Audioboom would provide Cumulus Media its platform for broadcasting and advertising.
Our view: The update highlights Audioboom’s continuous efforts to improve and expand its range of services. The company has performed well on all the key metrics and registered record number of listens during the period. Addition of quality content partners to its platform is set to further increase number of listens, which is an important growth driver for advertising revenue. Furthermore, expanding user base and active downloads strengthen the company’s future growth prospects. We expect the company to benefit from the deal with Cumulus Media owing to an increase in monthly listens and registered users apart from the steady flow of advertising revenues as per the agreement. Going forward, Audioboom plans to develop a Hispanic version of their app to expand into the South and North American markets. In view of the overall developments and long term potential surrounding Audioboom, we believe the company would achieve its profitability target in 2017. Therefore, we maintain a Speculative Buy rating on the stock.
Savannah Resources (LON:SAV) – Speculative Buy
Yesterday, Savannah Resources informed that it has found additional high grade mineralization at the Salahi 1 prospect at Block 4 copper-gold project, located in Oman. The company has 65% interest in the Omani company, Al Thuraya LLC, the owner of the Block 4 licence project. The resource was identified between the Salahi Main Gossan and Salahi North Prospects with individual grab samples of up to 13.9g/t gold. The company has also found anomalous gold at strike length of over 1km with widths up to 26m, while the north and south remain unexplored.
Our view: Savannah continues to progress in the Salahi 1 prospect with identification of high grades of up to 13.9g/t gold. The major area has good strike length and width, and remains open along strike to the north and south. The company plans to carry out geological mapping in the project area to locate potential targets for drilling. The Block 4 is prospective for both gold and copper, and the company has been working on them simultaneously. Last week, the company found many potential targets, located close to the previously producing copper mines, with production of more than 190,000 tonnes of copper. Drilling is expected to commence shortly that would further improve the mine’s resource potential. Further, the company’s Jangamo project in Mozambique encountered several high grade HMS mineralization zones. Therefore, in view of Savannah’s recent successes and on-going efforts to improve its prospects, we maintain a Speculative Buy rating on the stock.
Stratex International (LON:STI) – Speculative Buy
Yesterday, Stratex International (Stratex) released an update on mine construction at the Altintepe Gold Project (45% interest), located in Turkey. Cold commissioning at the site is complete but poor weather conditions have led to a delay in the completion of the heap leach pad. The company expects to start the production in October 2015.
Our view: The update takes Stratex a step closer to commence production from the project. The production from the mine would mark the company’s progress to a producer from explorer and project developer. Stratex recently reported solid first half performance with reduced pre-tax loss and improved cash position. The company has a diverse range of projects including the Dalafin project in Senegal, the Muratdere project in Turkey, and the Homase/Akrokrere project in Ghana. All these projects have shown exciting exploration opportunities. In addition, Stratex is involved in exploration of gold assets and other high-value base metals across Turkey, East Africa and West Africa that offer scope for an upside potential. Going forward, the company plans to acquire projects that are at the drill-ready stage or have potential resources. In light of the overall optimism, we maintain a Speculative Buy rating on the stock.
Merlin Entertainments (LON:MERL) – Buy
Yesterday, Merlin Entertainments (Merlin) released its trading update for the 36 weeks ended 5th September 2015. Revenues increased 3.8% y-o-y (constant currency), while the like-for-like (LFL) sales advanced 0.3%. Growth was primarily led by rise in LFL revenues in the LEGOLAND Parks and Midway Attractions Group by 6.7% and 2.6%, respectively. However, the trading in Resort Theme Parks Group was impacted primarily by the accident of Alton Towers Resort in June, with the LFL revenues for the segment declining by 11.4%. On the operational front, the company opened seven new midway attractions and a new hotel at LEGOLAND Florida in 2015.
Our view: Merlin reported improved revenues owing to strong performances from LEGOLAND Parks and Midway Attractions Group. A significant reduction in net debt helped to offset the impact of the recent accident in Alton Towers Resort. In addition, the company has committed support to the injured and plans to implement extra safety norms to improve its services. Going forward, the company aims to expand its global presence by opening attractions and parks in the US, China, Italy and Dubai. Overall, Merlin seems to have a long term growth potential in view of its new attractive theme based parks complemented by the rising number of visitors. We believe the impact of the incident at Alton Towers Resort would be short-lived and the company’s earnings would rebound as it remains the largest European entertainment company. Therefore, we maintain a Buy rating on the stock.
Economic News
US housing starts
US housing starts fell 3.0% m-o-m to a seasonally adjusted annual rate of 1.13 million units in August, the Commerce department said yesterday. July’s starts were downwardly revised to 1.16 million from the previously reported 1.21 million.
US initial jobless claims
Number of Americans filing their initial claims for unemployment benefits dropped by 11,000 to a seasonally adjusted 264,000 in the week ended 12th September, from last week’s reading of 275,000, the Labor Department said yesterday. Economists had expected claims to increase to 275,000.
US FOMC meeting
The US Federal Reserve Open Market Committee (FOMC) maintained the benchmark interest rate at a record low of 0-0.25% at the conclusion of its two day meeting yesterday. This was in line with the market expectations.