The Markets
New York: Wall Street declined following a slump in commodity prices and concerns over global economic slowdown. Furthermore, Asian Development Bank lowered China’s growth forecast, hampering investor sentiment. The S&P 500 slipped 1.2%, with the material sector losing the most.
Asia: Equities are trading lower. China’s preliminary PMI fell to a six-and-a-half-year low, raising concerns over the country’s economic health. The Nikkei 225 was closed due to a national holiday in Japan, while the Hang Seng was trading 3.0% down at 7:00am.
Continental Europe: Markets ended in the red, pulled down by automakers and mining companies. In addition, a fall in commodity prices hurt investor confidence. Germany’s DAX and France’s CAC 40 shed 3.8% and 3.4%, respectively.
Crude Oil: Yesterday, WTI prices decreased 1.8%, whereas Brent oil prices rose 0.3%. The spread between the two varieties stood at US$3.3 per barrel.
Today’s news
UK’s budget deficit highest in three years
As per the Office for National Statistics, the UK’s budget deficit rose to £12.1bn in August from £10.7bn a year earlier, the highest since 2012. The deficit widened largely due to a decline in tax payments from individuals and companies.
China’s flash PMI falls in September
The preliminary Caixin China manufacturing Purchasing Managers’ Index (PMI) dropped to 47.0 in September, a six-and-a-half year low, from a final reading of 47.3 in August. The decrease was primarily ascribed to lower orders from the domestic as well as export markets.
Company News
Advanced Oncotherapy (LON:AVO) – Speculative Buy
Advanced Oncotherapy, the developer of a next generation proton therapy system for cancer treatment, yesterday announced its unaudited results for the six months ended 30 June 2015. Much in line with expectations, these detailed Group revenues of £42,050 (H1 2014: £50,884) and an operating loss of £4.50m (H1 2014: £2.64m loss), along with a loss before tax of £4.60m (H1 2014: £3.68m), after taking into account £498,033 of share based payments. More significantly it also listed operating highlights for the period, including its continued technical development of first LIGHT system in line with plans, its oversubscribed equity placing raising some £21 million and its first commercial sale of the LIGHT system in China to Sinophi Healthcare Limited and an associated distribution programme. Management also detailed post period events, which included the lease agreement extension on AVO’s Harley Street site to provide larger facility, the commencement of initial SCDTL testing and delivery of a further two CCL units, a framework agreement between China-Japan Union Hospital of Jilin University and Sinophi plus the first milestone payment from Sinophi received.
Our view: The half-year figures themselves are, of course, academic. The real AVO investment story is about development of its LIGHT system; about continued technical progress along with a projected timetable for prototyping and commercialisation of this truly ground-breaking technology in the world of proton beam therapy. And here the message is clear – management remains committed to completing the technical development of the first LIGHT system so that it is ready for patient treatment in 2017. While there remains a number of complex development hurdles still to negotiate possibly the major technological challenge, that of high power testing CCL modules, appears to be proceeding in line with best expectations. While Beaufort considers that the FDA could potentially hinder product approval for rather longer than might presently be anticipated, the extent of interest from other non-dependent territories (in particular that presently being shown from China) suggests the Group is likely to be overwhelmed by demand for LIGHT as soon as commercial units become available. The enormity of LIGHT’s global opportunity and the market potential it presents has already been significantly detailed in Beaufort initiation research of September 2014 and subsequent updates. In simple terms, if AVO delivers exactly ‘what it says on the tin’, 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, as it will also become the natural replacement for the more antiquated X-ray radiation machines that are installed in huge numbers around the globe. 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 remains one of Beaufort’s key investment picks for 2015.
Horizon Discovery Group (LON:HZD) – Speculative Buy
Yesterday, Horizon Discovery Group declared its interim results for the half year ended 30th June 2015. During the period, the company’s revenues soared £8.6m from £4.1m in H1 2014. The services segment was the leading contributor with revenues of £5.4m (H1 2014: £1.8m). The company’s increased number of contracts and launch of new genetic screening services boosted the revenues in this division. The products business segment had revenues of £3.0m (H1 2014: £1.7m) led by an increase in the cell line and diagnostic reagent product inventory. Operating expenditure stood at £10.6m (H1 2014: £5.2m) including acquisitions and investments. Consequently, pre-tax loss widened to £6.8m from £3.0m leading to loss per share of 7.9p against 5.3p in H1 2014. On the operational front, Horizon improved its sales channel for cell line products by entering into an agreement with Thermo Fisher Scientific. The company also expanded its sales channel for diagnostic reagent products by Original Equipment Manufacturing (OEM) partnerships with ArcherDX, CareDx and Transgenomic. Horizon made significant investments to improve its R&D and expects to receive potential future R&D milestones of up to £158m in addition to future product royalties. In addition, the company raised £25m through private placement of shares. Post the first half, Horizon entered into an agreement with Redx Pharma on treatments for colorectal cancer. The company also reached into license and supply agreement with Abcam, a global player in the supply of research antibodies.
Our view: Horizon delivered strong half yearly performance in line with its plan to generate sustainable core revenue growth, expand the range of activities and enter into agreements to improve operations. The company’s recent launch of commercially available engineered mammalian cell line has already generated fruitful results and is expected to be a future growth driver. Additionally, the launch of new genetic screening services, including Horizon’s CRISPR-Cas9 sgRNA technology platform is likely to increase the number of contracts and boost the earnings. Horizon also expects to make investments to link its commercial and operational infrastructure by development of new Enterprise Resource Planning (ERP) system, e-commerce platform and website. Separately, the partnership with Abcam would help the company generate long-term earnings in the form of licensing and royalty payments. We expect the company to achieve its revenue target for the year owing to the strength of the forward pipeline and the robust demand for its products and services across the business. In view of the above developments, we maintain a Speculative Buy rating on the stock.
Anglo Asian Mining (LON:AAZ) – Speculative Buy
Yesterday, Anglo Asian Mining (Anglo) declared its interim results for the half year ended 30th June 2015. Revenues advanced to US$41.8m in H1 2015 from US$32.7m in H1 2014 mainly due to rise in precious metal sales. The company’s gold production for the period jumped to 35,938 ounces(oz) (H1 2014: 27,054oz) with contributions of 23,436oz, 12,488oz and 14oz from the agitation leach plant, heap leach operations and SART processing, respectively. The copper production improved to 689 dry metric tonnes (dmt) (H1 2014: 646dmt) and the silver production for H1 2015 stood at 6,477oz (H1 2014: 21,924oz). Pre-tax loss narrowed to US$4.1m from US$7.5m a year ago resulting in loss per share of US$3.02p versus US$6.17p in H1 2014. Cash at the end of period stood at US$1.8m (31st December 2014: US$0.3m) and the net debt reduced to US$48.7m (31st December 2014: US$52.4m). Cash generated from operations surged to US$10.7m from US$2.1m in H1 2014. On the operational front, Anglo started construction of a small floatation plant at Gedabek to improve its gold and copper production. The plant is expected to complete by Q3 2015 and is likely to add around 5,000oz of gold and 1,200oz of copper for the year.
Our view: The first half of 2015 has been a significant one for Anglo Asian with record gold production, top line expansion and enhanced cash position. The company has been able to sustain the difficult trading conditions as it laid its focus to improve the operational efficiency by increasing production and reducing operational costs. The company has historically seen better production levels in the second half owing to favourable weather conditions. In view of the same, we expect it to easily meet its production target between 70,000 to 75,000 ounces of gold for this fiscal. Going forward, the company plans to make necessary modifications to their small scale floatation plant and expects it to be fully operational in Q3 2015. Meanwhile, Anglo is also working to enhance production from the Gadir mine, with 2,116 tonnes already mined in H1 2015. We believe the company is moving in the right direction to become a mid-tier gold and copper metal production company. Therefore, we retain a Speculative Buy rating on the stock.
Savannah Resources (LON:SAV) – Speculative Buy
Yesterday, Savannah Resources (Savannah) informed that it has identified a new high grade copper mineralization at the Aarja prospect at Block 4, located in Oman. The company has 65% interest in the Omani company, Al Thuraya LLC, the owner of the Block 4 licence project. The company produced a new mineralization model for the Aarja Main, Dogs Bone and Aarja South Zones. The results identified high grade of copper at different depths in these zones. Savannah would drill a series of holes to verify the results before calculating the JORC (Joint Ore Reserves Committee) for the site, expected to complete in Q4 2015.
Our view: The aforementioned update is a promising one for Savannah with high possibility of copper mineralization at the Aarja prospect. The results further strengthen Oman’s position as a suitable destination for copper-gold exploration with good infrastructure and low costs. The Block 4 is prospective for both gold and copper, and the company has been working on them simultaneously. Last week, the company found additional high grades of up to 13.9g/t gold at the Salahi 1 prospect at Block 4 copper-gold project, and plans to carry out geological mapping in the project area to locate potential targets for drilling. Earlier this month, Savannah 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 continuous efforts to improve its prospects, we maintain a Speculative Buy rating on the stock.
Economic News
Eurozone consumer confidence
The gauge of Eurozone consumer confidence dropped to -7.1 in September, after a revised -6.9 in August, the European Commission said yesterday. The markets had expected a reading of -7.0.