The Markets
Market opening: The FTSE-100 is expected to open marginally lower this morning. At 7:25 am FTSE-100 Futures were trading down 8.7 points.
New York: Wall Street ended in the green as the jump in oil prices instilled a sense of optimism in the market. Investors largely ignored the uncertain outlook regarding an interest rate hike. The S&P 500 advanced 0.5%, led by the financial sector.
Asia: Equities are trading higher, taking cues from the global markets. Furthermore, a rise in commodity prices lifted investor sentiment. The Nikkei 225 was closed due to a national holiday in Japan, while the Hang Seng was trading 1.1% up at 7:00am.
Continental Europe: Markets ended higher, led by an improvement in banking and chemical sector stocks. Additionally, Alexis Tsipras’ victory in the Greek elections raised investor sentiment. France’s CAC 40 and Germany’s DAX improved 1.1% and 0.3%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices increased 4.5% and 3.1%, respectively. The spread between the two varieties stood at US$2.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.31% lower yesterday at 739.82.
Today’s news
Alexis Tsipras sworn in as Greek Prime Minister
Alexis Tsipras was sworn in as the Greek Prime Minister for the second consecutive term after he led the Syriza party to victory in the general elections. Tsipras has been actively involved in Greece’s bailout and introduced a number of austerity measures in the country to stabilize the economy.
Company News
Xtract Resources (LON:XTR) – Speculative Buy
Xtract Resources, the diversified mineral exploration, development and production company, announced today that it has completed Phase 1 of its drilling and sampling programme on the Carolusberg and O’Kiep sulphide copper tailings dams in the northern Cape province of South Africa. Phase 1 of the project was undertaken to confirm grades, volume and viability of the copper tailings project. The work was completed 3 weeks ahead schedule given that only 342m of the proposed 2,500m drilling programme was required to establish the commercial viability of the project. The project comprises the Carolusberg and O’Kiep tailing dams which contain a total historical estimate of 33.8Mt of copper sulphide material which was mined by O’Kiep Copper Company between 1980 and 2010. The Carolusberg tailings dam contains 28Mt grading 0.19% Cu while the O’Kiep tailings dam contains 5.8Mt grading 0.23% Cu. A detailed survey was completed on both tailings dams with the O’Kiep tailings representing 4.9m3 and the Carolusberg tailings comprising 19.6m3 of material. On aggregate this represents 24.5m3 which equates to 36.7Mt of material assuming a specific gravity of 1.5. A total of 381 samples have been sent to an accredited laboratory where the samples will be analysed for base and precious metals as well as determining the specific gravity of the material. Detailed mineralogical and metallurgical testwork will also be done on the samples.
Our view: We are encouraged with the initial estimate on the combined volume of the Carolusberg and O’Kiep tailings dams, based on a specific gravity of 1.5, which is 9% higher than historical estimates and we look forward to confirmation of the specific gravity as well as assay results from the material. In the meantime, we maintain our Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Xtract Resources plc
Advanced Oncotherapy (LON:AVO) – Speculative Buy
Advanced Oncotherapy, the developer of next-generation proton therapy systems for cancer treatment, yesterday confirmed that it has received its first milestone payment for a LIGHT Proton Therapy System. The payment was made by Sinophi Healthcare Limited in accordance with the purchase agreement for the Company’s LIGHT proton therapy system announced for the oncology hospital project in Huai’an City, Jiangsu province in East China on 25 March 2015. In addition to this commercial milestone, the Company has completed work at its Geneva testing facility on the installation of essential services required to complete the testing phase, including electrical supplies, installation of cooling systems and safety systems. This also includes the installation and site acceptance of the RF power units, the first accelerating structures, as well as associated sensors, meters and control systems.
Our view: AVO is delivering exactly as promised. Development of its ground-breaking LIGHT Proton Therapy System remains on track and an important milestone – receipt of its first phased payment – has been passed. Commercial sensitivity means that the actual cash amount has not been disclosed, but clearly the exacting requirements demanded by its task-masters means that the technology is ‘doing exactly what it says on the tin’. Significantly, this has come from people (namely Sinophi’s scientists and surgeons) who genuinely have the ability to understand the science behind LIGHT and to determine whether-or-not AVO can actually create a device within the price, specification and time schedule suggested. Indeed, one might now even anticipate the recent agreement with Jilin University to be the next framework agreement that is formally converted into a purchase order. CEO, Sanjeev Pandya expresses his own confidence here by stating “….of the huge potential that China and Southeast Asia offers. We are very encouraged by the commercial interest that Sinophi is generating for us in the region”. Indeed, the scale of the Chinese opportunity alone is huge; the size of the cancer treatment challenge there is illustrated by data from the World Health Organisation’s ‘World Cancer Report’. In 2012, China had 3.07 million newly diagnosed cancer cases, 21.8% of the world total; China also had 2.2 million or 26.9% of the world’s total cancer deaths. The report states China registered the most new cancer cases and deaths from four types of malignant cancer: liver, oesophagus, stomach and lung. In summary, the reality is that by delivering exactly what it promises, the operational and cost advantages LIGHT offers will effectively render first generation proton therapy devices all but obsolete. Its principal limitation would then become simply its capacity to deliver to a global opportunity that will grow dramatically beyond its current US$2.5bn size. Given such an outcome, of course, major international competitors wishing to remain in the game will almost certainly be willing to pay a handsome price, one way or another, to get their hands on AVO’s proprietary technologies. Advanced Oncotherapy plc is one of Beaufort’s key investment picks for 2015.
Beaufort Securities acts as a corporate broker to Advanced Oncotherapy plc
Red Leopard (LON:RLH) – Speculative Buy
Yesterday, Red leopard released its interim results for the six months ended 30th June 2015. During the period, the company’s operating losses expanded to £113,739 from £80,591 a year ago and the basic loss per share widened to £0.04 from £0.03. On the operational front, the company informed that rock falls hindered the sampling process at the Idora Tunnel in January 2015 and also forced the company to exceed its original budget. In addition the company raised a total of £175,000 before expenses through the placement of 175,000,000 ordinary shares with new investors in August 2015 to progress with clearing up the tunnel. The company has remained proactive in exploring and considering other complimentary resource assets and opportunities.
Our view: Red Leopard Holdings is a natural resources sector focussed company with special emphasis on precious mining assets and interests. Of late, the company’s shares have taken quite a beating as the progress of its flagship Idora Tunnel faced several issues that increased the costs by as much as 50%. The company needed additional funding to carry out the necessary work in the winter conditions. However, with the successful fundraising, the company is in a comfortable position to steer the project ahead. Moreover, the strategy is line with its plans to capitalise on value adding investments acquisitions that are likely to benefit shareholders. The placement shall enable the company to advance further in its expeditious efforts. Therefore, we maintain our Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Red Leopard plc
Avation (LON:AVAP) – Speculative Buy
Yesterday, Avation informed that the company has completed the purchase of an Airbus A320-200 on lease to Air France in line with an initial announcement on 7th August 2015. The four-year old aircraft has been acquired from another aircraft leasing company and the purchase is subject to the usual commercial conditions. This A320-200 delivery brings the number of A320 aircrafts owned by the Avation to six.
Our view: Avation’s completion of Airbus A320-200 acquisition on lease to Air France marks an important step forward for the company and comes at an opportune time. The company is diligently building its portfolio along with diversifying the airline customer base. In addition, the company is also planning to purchase aircraft from other aircraft lessors, manufacturers as well as airlines in sale and lease back transactions. Thus in view of the above deal and the company’s overall progressive plans, we recommend a Speculative Buy on the stock.
Providence Resources (LON:PVR) – Speculative Buy
Yesterday, Providence Resources informed that it has signed a strategic and incentivised exploration collaboration agreement with Schlumberger for the southern Porcupine and Goban Spur Basins. As per the deal, Schlumberger would provide support to the company’s technical team to assess the burial and hydrocarbon expulsion history of these basins. The joint study is aimed towards further de-risking the Dunquin South, Drombeg, Druid and Newgrange exploration prospects. In addition, Schlumberger would support Providence in facilitating farm-out data-room processes for the Drombeg, Druid and Newgrange prospects.
Our view: Since the company’s entry into the southern Porcupine and Goban Spur Basins in 2004, it has witnessed a significant increase in interest in these basins. Fortunately, the company possesses some materially prospective acreage in these basins and has also acquired high quality 2D and 3D seismic data over its primary prospects. Further, the association with Schlumberger would provide the company with the best-in-class multi-disciplinary technologies for deep-water operations. Going ahead, the company plans for further work in the site to identify the exploration potential of the ridge which will likely improve the prospects from the region. Further, the company has recently recognised several shallow buried Cretaceous four-way dip closures at the Newgrange prospect and also improved its capital position by raising US$28m through a combination of open and institutional offer. In view of the above optimism, we maintain our Speculative Buy rating on the stock.
RSA Insurance Group (LON:RSA) – Hold
Yesterday, RSA Insurance Group informed that Zurich Insurance Group has terminated a possible takeover offer of the former owing to the recent deterioration in the trading performance of Zurich. Due diligence by Zurich confirmed that RSA’s performance was in line with the expectations. Meanwhile, RSA has continued to trade well in July and August and also sold its Latin America business, as part of its strategic refocus programme. The company plans to release its Q3 interim management statement on 5th November 2015.
Our view: The termination of the US$8.7bn acquisition proposal of RSA by Zurich Insurance comes as a blow to the company that was already reeling under the impact of a series of profit warnings and an accounting scandal. The combination may have provided RSA with better growth avenues as the new owner, Zurich Insurance was Europe’s fourth-largest insurer by market value. In addition, the insurance sector has of late suffered due to tougher regulations and high competition especially from non-traditional providers. However, on the flip side, the company has traded well in the past two month and also swung to pre-tax profit in the last fiscal. Thus in view of the progress on its section plans and the upbeat half yearly results, we maintain our Hold rating on the stock.
Economic News
US existing home sales
Existing home sales in the US dropped 4.8% to a seasonally adjusted annual rate of 5.31 million units in August from revised 5.58 million units in July, the National Association of Realtors announced yesterday. This was behind the market expectations of 5.50 million units.