The Markets
New York: Wall Street ended in the red amid weak economic data from China, raising concern regarding a slowdown in the Chinese economy. Furthermore, a downslide in oil prices dented investor sentiment. The S&P 500 slipped 2.6%, dragged by the healthcare sector.
Asia: Equities are trading lower, taking cues from the global markets. Additionally, a drop in commodity prices and the fear of an economic slowdown in China hurt investor confidence. The Nikkei 225 fell 4.1%, while the Hang Seng was trading 3.3% down at 7:00 am.
Continental Europe: Markets declined due to automakers recording losses. China’s industrial profits falling to their lowest in four years weighed on investors. France’s CAC 40 and Germany’s DAX shed 2.8% and 2.1%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices decreased 2.8% and 2.6%, respectively. The spread between the two varieties stood at US$2.9 per barrel.
Today’s news
IMF cautions commodity exporters about weak economic growth
According to a study conducted by the International Monetary Fund (IMF), a continuous decrease in commodity prices may result in weak economic growth for commodity exporters during 2015–17. As per the study, the commodity exporters could record one percentage point decrease in growth annually during 2015-17 as against 2012–14.
Company News
Amedeo Resources (LONN:AMED) – Speculative Buy
Yesterday, Amedeo Resources announced its interim results for the six months ended 30th June 2015. During the period, the company’s revenues advanced to US$65,000 from US$36,000 in H1 2014 mainly due to the contract with MGR for business development and marketing services. Amedeo holds a 49% stake in MGR. The company’s administrative costs were reduced to US$338,000 from US$453,000 in H12014. Pre-tax loss narrowed to US$683,000 from US$815,000 leading to loss per share of US$2.09c against US$2.65c in H1 2014. Cash at the end of period stood at US$3.3m (H1 2014: US$1.7m). On the operational front, the company continued to progress at the Jiangsu Yangzijiang (YZJ) Offshore Engineering and remains on track to complete the first order, Explorer 1 by the end of this year.
Our view: Amedeo delivered solid first half performance despite difficult trading conditions. The company made significant progress in the YZJ offshore and is all set to finish Explorer 1 by the end of 2015. Amedeo has a 19.0% stake in YZJ Offshore which it holds through 47.5% stake in the joint venture company, YZJ Offshore Engineering. The company’s YZJ offshore has the potential to build innovative and specialized rigs for shallow and mid waters and also develop a variety of vessels including semi submersibles and accommodation units. Going forward, Amedeo plans to look for purchasers to place new orders. Given the steady progress of various assets across global network covering East, South East Asia and the Middle East and Amedeo’s strong cash position, we believe the company would continue its growth momentum throughout the year. Therefore, we maintain a Speculative Buy rating on the stock.
CityFibre Infrastructure Holdings (LON:CFHL) – Speculative Buy
Yesterday, CityFibre declared its unaudited results for the half year ended 30th June 2015. During the period, the company’s revenues jumped 115% to £2.7m (H1 2014: £1.3m) owing to rise in the total contract value to £8.1m in H1 2015 versus £11.1m for full financial year 2014. The adjusted EBITDA loss reduced 8% to £1.8m from £2.0m loss in H1 2014. Pre-tax loss narrowed to £2.8m from £3.6m in H1 2014 leading to loss per share of £0.03 against £0.07. Cash and cash equivalents at the end of period stood at £26.2m. On the operational front, the company won contracts in Newport and Edinburgh. The total core metro network route fibre kilometres rose to 618 km, 14% higher than 31st December 2014; with total customer connections up 15% to 1,017. CityFibre continued to progress in its JV partnership with FTTH as phase 1 of York FTTH remains on track. The company completed more than 35km of network infrastructure in the UK’s first dark FTTT deployment. Post the first half, CityFibre extended its Gigabit City project in Edinburgh to 294 additional council-owned sites. The company also entered into a new contract with wireless broadband provider Connexin for a period of 10 years to extend its fibre infrastructure in Kingston-Upon-Hull to 19 Connexin wireless hub sites.
Our view: CityFibre has started the first half of 2015 on a positive note with record TCV and enhanced revenues. The company continued to improve its TCV throughout the year and has a TCV of £25.5m till date. CityFibre’s extension of its Gigabit City project in Edinburgh strengthens Gigabit City model as the cities are set to adapt to a new generation of infrastructure. The project would not only help the community areas but would also benefit more than 17,000 businesses in Edinburgh, making it one of the best connected cities in the world. In addition, CityFibre would extend its fibre infrastructure in Kingston-Upon-Hull to 19 Connexin wireless hub sites. The company is well placed with some impressive contracts and national level partners, and joint ventures with UK’s leading broadband service providers to cover a large customer base. We believe CityFibre’s strong asset base would facilitate its growth and earnings for the entire year. Therefore, we maintain a Speculative Buy rating on the stock.
Rockhopper Exploration (LON:RKH) – Speculative Buy
Yesterday, Rockhopper Exploration released an update regarding the proposed acquisition of production and exploration assets in Egypt. The sale of Beach Energy to Rockhopper would not proceed as one of the partners in the Abu Sennan joint venture parties exercised its right of pre-emption, the company informed. Separately, the Guendalina gas field (Eni Operator, Rockhopper 20% Working Interest) has successfully reached its target depth of 3,276m, and was completed on time and in budget.
Our view: The news on pre-emption from the proposed acquisition of Beach Energy is disappointing for Rockhopper. Nonetheless, the company continues to progress from other fields as the Guendalina gas field reached its target depth as per schedule. Last week, Rockhopper along with Premier Oil has entered into an agreement with Falkland Oil & Gas to drill another well on the Isobel/Elaine complex. The Isobel Deep exploration well is estimated to have more than 400 million barrel (mmbbls) of oil. Additionally, the Zebedee oil field in the North Falkland Basin is expected to have around 50 mmbbls of oil. Recently, Rockhopper received Environment Impact Assessment (EIA) approval for Ombrina Mare project in Italy, providing the company an access to a prospect with around 26.5 mmbbls of oil. The company remains on track to start the gas production from Civita onshore gas field in Q4 2015. Going forward, Rockhopper plans to invest in the Greater Mediterranean and North Africa region, which would further enhance the company’s resources. We believe Rockhopper is well placed with strong assets and resources to keep its growth momentum for the entire year. In view of the overall optimism surrounding the company, we maintain a Speculative Buy rating on the stock.
Angle (LON:AGL) – Speculative Buy
Yesterday, Angle informed that the Medical University of Vienna, one of its Key Opinion Leaders, has published its results verifying the use of company’s Parsortix system in the detection of ovarian cancer. As per the study, a 65 patient sample demonstrated the detection of ovarian cancer at 78/80% sensitivity with 100% specificity, showing the potential for effective detection of ovarian cancer as compared to the traditional techniques. The company believes that the sales of Parsortix system for use in ovarian cancer would be more than £300m per year in the Europe and the United States.
Our view: The aforementioned update further validates the use of Angle’s Parsortix system in the detection of ovarian cancer. Recently, the company has collaborated with a lot of top research institutes to explore and confirm the use of its Parsortix system in various types of cancers. Just last week, Barts Cancer Institute (BCI) published its work in prostate cancer patients using ANGLE’s Parsortix system in the PLOS ONE Journal. The results showed that, researchers were able to successfully harvest cancer cells from 100% of the patients for analysis, using the Parsortix system. The work strengthens the evidence of the system’s performance as a liquid biopsy in a range of cancers including ovarian, prostate and breast cancers. Furthermore, Angle is in the process of seeking FDA (Food and Drug Administration) approval in the US to harvest cancer cells from patient blood. Going forward, Angle plans to launch Parsortix as a diagnostic tool to help the clinics select the best treatment and improve patient outcomes. We expect the company to improve its share in the cancer diagnostic market owing to the rapid progress in the Parsortix system. In light of the above developments, we maintain a Speculative Buy rating on the stock.
Vodafone Group (LON:VOD) – Buy
Yesterday, Vodafone Group informed that it has terminated its discussions with Liberty Global. Earlier this year, the company had initiated talks with Liberty Global about a possible swap of assets between the two firms.
Our view: Vodafone terminated talks with Liberty Global as the companies failed to reach a common ground. However, as per the recently released trading update for the first quarter ended 30th June 2015, Vodafone reported improvement in service revenues and upsurge in the customer base. The company’s emerging market segment boosted the results while the European markets were slowly gaining momentum with an increase in customer demand for 4G services. Vodafone’s Project Spring is in full swing as it modernized 80,000 mobile sites, added 36,000 2G, 47,000 3G and 41,000 4G sites, and upgraded 71,000 sites to high capacity since its inception. The company plans further expansions in this project to enable the customers enjoy greater network coverage and better quality. Furthermore, Vodafone’s key strategic units’ unified communications and enterprise continued to deliver strong performance justifying the huge investments made on them. We believe the company would strengthen its market position owing to improving economic conditions in the Europe, backed by Vodafone’s vast network. Therefore, we maintain a Buy rating on the stock.
Royal Dutch Shell (LON:RDSB) – Buy
Yesterday, Royal Dutch Shell released an update on the Burger J exploration well, located in Alaska’s Chukchi Sea. The company completed the drilling up to a depth of 6800ft and found minor indications of oil and gas in the region. However, these findings were not substantial enough to carry further exploration in the prospect. Therefore, Royal has decided to terminate future exploration activity in the region. The company’s balance sheet has around US$3.0bn related to Shell’s Alaska position along with US$1.1bn future obligations.
Our view: The lower than expected results at the Burger J exploration well forced Royal to discontinue exploration at the prospect. This is a good move considering the disappointing outcome and huge costs incurred in the project. However, the company has continued to take steps to cope with the unfavourable trading environment. As per the recently announced results for H1 2015, Royal expects to reduce its operating costs by cutting 6,500 jobs and also decrease its capital investments to US$7bn in 2015, 20% lower than the last year. Additionally, the company’s acquisition of BG Group, the British oil and gas producer is progressing well with timely regulatory filings and integration. Post the completion of transaction, we expect the company to cut spending in exploration, re-structure its capital allocation and achieve better economies of scale owing to a good asset base. We believe Royal would deliver good results in the long-term owing to its fundamentally strong position and measures to counter the challenging conditions. Therefore, we maintain a Speculative Buy rating on the stock.
Economic News
US personal income and spending
US personal income advanced 0.3% m-o-m in August, after an upwardly revised increase of 0.5% in July, the US Commerce Department said yesterday. The markets expected an increase of 0.4%. Personal spending increased 0.4% m-o-m in August, following a similar rise in July. This was better than the market expected increase of 0.3%.