The Markets
Market opening: UK markets are expected to start the session positively this morning. At 7:22am FTSE-100 Futures were trading 62-points higher.
New York: Wall Street ended marginally higher, as investors remained concerned about the slowdown in the global economy. Consumer confidence in the US, reaching its highest level since January, lifted investor sentiment. The S&P 500 moved 0.1% up, led by the healthcare sector.
Asia: Equities are trading higher, taking positive cues from the Wall Street. The Nikkei 225 added 2.7%, as a weaker yen supported the export-driven stocks. The Hang Seng was trading 1.5% up at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended in the red amid growing uncertainty in the Chinese economy and a downslide in commodity prices. Investors largely ignored positive data on Eurozone economic confidence. Germany’s DAX and France’s CAC 40 shed 0.4% and 0.3%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices increased 1.9% and 1.8%, respectively. The spread between the two varieties stood at US$3.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.86% lower yesterday at 720.44.
Today’s news
UK consumer confidence falls in September
As per a GfK survey, the UK’s consumer confidence index slipped to +3 in September from +7 in August. The drop was mainly due to a slowdown in the Chinese economy, migrant crisis and economic stress across the Eurozone.
UK retail sales surge in September:CBI
As per a distributive trade survey by the Confederation of British Industry (CBI), retail sales balance increased to +49 in September, the highest since May 2015, from + 24 in August. The progress was primarily due to low inflation and improvement in wage growth.
Company News
Alecto Minerals (LON:ALO) – Speculative Buy
Alecto Minerals, the exploration company focused on West and East Africa, yesterday announced an update regarding the co-operation agreement signed with Desert Gold Ventures (announced on 9 March 2015) to assess the potential for jointly developing its respective neighbouring gold deposits in Mali. The companies have now completed an internal scoping study highlighting the robust economics associated with developing a potential 400,000tpa low-cost heap leach operation combining Alecto’s Kossanto East gold project and Desert Gold’s Farabantourou gold project. The salient features of the scoping study include: an estimated cash cost of US$582/oz, initial capex of US$14.3m and an NPV10% of US$27.4m with an IRR of 107% assuming a gold price of US$1,200/oz. On aggregate, Farabantourou and Kossanto East represent a total estimated resource of over 365,000oz (at a cut-off of 0.5g/t) and both projects fall within a 10km radius from a central location. The proposed project is subject to completion of a mining joint venture agreement between the two parties.
Our view: We are encourage with the results from the internal scoping study supporting a shared mining fleet and mobile crusher unit with a central gold recovery plant. Whilst the proposed co-operation still requires more detailed studies and completion of a JV agreement, we see significant cost savings through joint development of the two projects. We look forward to further updates to the co-operation agreement. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Alecto Minerals plc
Xtract Resources (LON:XTR) – Speculative Buy
Xtract Resources, the gold and copper mining and development company with projects in South America and South Africa, announced yesterday its interim results for the period ending 30 June 2015 as well as an update on its operations and projects. The Company reported a net loss of £0.8m which narrowed from £1m during H1 2014 and has strengthened its balance sheet with no debt and a cash balance of £2.96m as at 30 June 2015 (FY 2014 was £0.2m). Operationally, underground haulage at Chepica has experienced major stress due to the 8.3 magnitude earthquake on 17 September 2015. As a result, management has decided that the haulage was unsafe and now plans to re-develop a new haulage to access the ore body from a different position. Xtract expects the re-development will take three months to access the areas that are ready for stoping. Despite the setback, the Chepica mine will remain cash flow positive through on reef development and commencement of stoping one month earlier than planned at the Colin prospect and is expected to generate a profit of US$150k during Q3 2015 (previous forecast was US$1.2m) and a profit of US$650k for Q4 2015 (previously US$1.2m).
Our view: Whilst the ground conditions at Chepica Main will be a minor setback for Xtract we note that the Colin prospect was undamaged during the earthquake and will be able keep the plant operational during re-development at Chepica Main. We also note that the recent Manica gold project acquisition in Mozambique, acquired for c US$6.25 per in-situ ounce, has increased Xtract’s resources more than 30 fold to over 980koz. Assuming Manica achieves production by 2017, Xtract could see its gold production increase from 8koz to 65koz. In the meantime, we maintain our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Xtract Resources plc
Stratmin Global Resources (LON:STGR) – Speculative Buy
Stratmin Global Resources, the graphite production and exploration company with assets in Madagascar, announced yesterday its unaudited interim results for the period ended 30 June 2015. The Group had revenues of £0.2m after generating no revenue in the prior comparable period and reported a loss before tax of £1.7m (or 1.3p per share) compared with £1.4m (or 1.6p per share) over the same period last year. Of note is the non-cash exceptional item of £0.7m. As at 30 June 2015, the Group had a cash balance of £0.04m compared with £0.4m (as at 30 June 2014). Post-balance sheet events include gross proceeds of £0.6m through a placing at 4p per share, and a £2m farm in deal announced with ASX listed Base metals to fund expansion of operations.
Our view: The Company’s efforts are finally delivering tangible results through the optimisation and expansion of its operations at the Loharano plant. We are encouraged with the operations achieving production grades of 94%+ flake graphite concentrate as well as increased volumes to its off-take partner. We look forward to sustained profitability on the back of continued performance at the Loharano plant. In the meantime, we maintain our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Stratmin Global Resources plc
Cyan Holdings (LON:CYAN) – Speculative Buy
Yesterday, Cyan Holdings (Cyan) announced its interim results for the six months ended 30th June 2015. Revenues advanced to £157,328 in H1 2015 from £65,510 a year ago. Operating loss widened to £2.3m from £1.3m in H1 2014 mainly due to investment costs incurred to build the Cyan team along with investment of £1.5m (H1 2014: £833,218) in Research & Development activities. Consequently, pre-tax loss expanded to £2.3m from £1.3m leading to a loss per share of 0.05p against 0.03p in H1 2014. Cash and cash equivalents at the end of period stood at £628,069 (H1 2014: £716,786). On the operational front, Cyan won £1m smart metering order from Enzen Global Solutions and a Letter of Intent from El Sewedy Electrometer Group that may amount to US$3m on conversion to a purchase order. The company successfully installed more than 4,000 smart meters for Tata Power Mumbai. Cyan entered into strategic partnerships in South Africa with Adenco and XLink. The company also established its Indian subsidiary and started trading. Post the first half, the company raised £4.6m (gross) via two equity placings.
Our view: Cyan’s first half performance was commendable as it won some promising contracts and witnessed a substantial rise in revenues. Recent orders of start metering and lighting solutions strengthen Cyan’s novel technology and capability to provide comprehensive solutions to the customers. The company received a Letter of Intent from the EI Sewedy to provide mesh based solution for the latter’s customers in Ghana. This follows the successful meter tests conducted in Brazil, India and parts of Africa. These developments are in line with Cyan’s plan to expand into these markets that offer huge demand growth potential for advanced meters which provide an accurate measurement of energy consumption and higher energy security at reduced costs. Recently raised £4.6m would help the company to expand customer base across new geographies and improve existing commercial relationships. In view of the overall developments surrounding Cyan, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Cyan Holdings plc
Motif Bio (LON:MTFB) – Speculative Buy
Motif Bio plc, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, yesterday announced that data from two iclaprim clinical studies have been accepted for presentation at the Infectious Disease Week 2015 conference in San Diego, California which runs from the 7th to the 11th of October 2015. Iclaprim is a novel antibiotic, targeting the bacterial dihydrofolate reductase enzyme, currently beginning two Phase III studies to treat acute bacterial skin and skin structure infections (ABSSSI). The two posters are : (1) Cessation of Spread of Lesion and Absence of Fever at 72 hours in Complicated Skin and Skin Structure Infection (cSSSI): Reanalysis of the Combined ASSIST Phase III Studies Comparing Iclaprim (ICL) and Linezolid (LZD) and (2) Randomized, Double-Blind, Multicenter Phase II Study to Evaluate Efficacy and Safety of Intravenous Iclaprim (ICL) versus Vancomycin in the Treatment of Hospital-Acquired, Ventilator-Associated, or Health-Care-Associated Pneumonia Suspected or Confirmed Caused by Gram-positive Pathogens. The posters will be presented on 9 October 2015 at 12:30 PM – 2:00 PM at the San Diego Convention Center Poster Hall.
Our view: The pharmaceutical industry is starting to recognise the potential significance of iclaprim. Data from Motif’s flagship novel antibiotic’s clinical studies have been accepted for presentation at the Infectious Disease Week 2015 conference in October in San Diego, California. Such ‘Poster’ presentations signal growing scientific and academic interest in and credibility of this important drug development. Posters are accepted as an industry professional ‘bulletin board’ and as a means of raising public awareness. Indeed, given the opportunity already identified in HABP and ABSSSI along with a number of other potential indications, the prospective market value for this novel antibiotic is very large indeed, potentially running in billions of US$. The much publicised global need for such new drugs means that iclaprim must already be under review by Big Pharma, with a view to farming-in to Motif’s opportunity in exchange for financing late stage development and subsequent commercialisation. Realistically, such an outcome might be expected before end-2016. The value this will accrue to Motif should then be quite considerable. Beaufort repeats its Speculative Buy rating for Motif Bio and confirms a price target of 110p/share.
Boohoo.com (LON:BOO) – Buy
Yesterday, Boohoo.com declared its interim results for the six months ended 31st August 2015. Revenues jumped 35% y-o-y to £90.8m in H1 2015 mainly due to the 32% rise in active customers to 3.5 million and the 43% increase in the number of orders to 3.8 million. Region wise, sales in the Rest of world jumped 65%, followed by UK (up 30%) and Rest of Europe (up 19%). EBITDA (adjusted) advanced to £7.6m from £6.8m in H1 2014. Consequently, pre-tax profit improved 39% to £6.3m (H1 2014: £4.5m) resulting in an EPS of 0.45p against 0.29p in H1 2014. Cash at the end of period stood at £60.4m, 8% higher than the same period last year. On the operational front, the company launched app for the UK along with introduction of multi-device responsive websites for European sites. Boohoo initiated a summer marketing campaign “#WeAreUs” allowing customers to share images, music, and health and lifestyle tips. Following the summer campaign, the company is now building on the winter 2015 campaign “#WeAreNow” with the introduction of new season ranges, well backed by a new TV ad, celebrities and influencers. Further, Boohoo.completed its warehouse extension in August 2015, with extra 270,000 square feet of storage space available from three mezzanine floors.
Our view: Boohoo delivered solid first half performance led by steep rise in the number of orders and customers. During this period, the company undertook attractive pricing, promotional and marketing initiatives to expand its customer base. The company’s website traffic witnessed a 27% jump y-o-y with 182 million sessions recorded in the year. Boohoo continued to make its services more accessible and the mobile and tablet usage now account for around 65% of sessions. Boohoo’s extension of warehouse takes the total capacity to 525,000 square feet, which would cater future growth plans of the company. Going forward, the company plans to improve its wholesale business, extend the number of partners and enhance customer experience by offering the best products at affordable prices. In view of Boohoo’s bright prospects, we upgrade the rating to Buy.
Bushveld Minerals (LON:BMN) – Speculative Buy
Yesterday, Bushveld Minerals (Bushveld) informed that it has completed the acquisition of Lemur Resources Limited (Lemur), an Australian based coal exploration company. The company would transfer the funds in exchange of shares of Lemur to a Trust Account set up in Lemur’s name. As per the deal, the company has secured A$12m in cash, a large development thermal coal deposit in Madagascar, the Zaaiplaats Tailings project, and the Brits Vanadium project. Bushveld would fully integrate Lemur into its operations including prioritising the Bushveld Vanadium platform.
Our view: The aforementioned acquisition opens up a plethora of opportunities for Bushveld as this deal provides an easy access to the key projects operated by Lemur. The Imaloto Coal Project in Madagascar is estimated to have a gross in situ JORC (Joint Ore Reserve Committee) compliant resource of 136 million tonnes of which 91% is indicated and measured. Additionally, the Zaaiplaats Tailings project would provide Bushveld with tin tailings project in Limpopo. Further, as per the recently released annual report, the company has successfully upgraded the Vanadium Project mineral resource to 285 million tonnes and a scoping study showing a US$24m NPV and 24% IRR based on initial capex of US$262m. Bushveld also received positive metallurgical test results on main magnetite layer ore and concentrate. Going forward, the company plans to look for strategic partners for its projects and improve its resource potential. Therefore, we maintain a Speculative Buy rating on the stock.
Yesterday, Wolseley announced the results for the year ended 31st July 2015. Revenues for the ongoing businesses soared 10.1% (constant exchange rate) to £13.3bn from £12.0bn in 2014, with like-for-like (LFL) sales growth of 7.1%. The company’s LFL revenue grew 9.6% in the United States, 3.6% in the UK and 5.5% in Nordic countries. Trading profit for the ongoing businesses advanced to £857m from £752m in 2014. However, the pre-tax profit reduced to £508m (2014: £676m) mainly due to impairment and exceptional finance charges. EPS rose to 230.2p compared to 195.0p in 2014. Net debt at the end of period stood at £805m (2014: £711m). On the operational front, the company sold its Wood Solutions business in France and is in the process of selling its remaining business and property assets in France. The company completed 18 bolt-on acquisitions with annualized revenue of £220m. Wolseley declared a final dividend of 60.5p (2014: 55.0p), taking the total dividend for the year to 90.75p, 10% higher than last year. The company also announced a share buyback programme worth £300m to be completed in the next 12 months.
Our view: Wolseley reported strong top-line growth in 2015, mainly driven by LFL sales growth, acquisitions, and an exchange rate boost. The company reported LFL sales growth in all geographies led by the US market which posted record high growth. Wolseley continued to improve its online service as the e-commerce platform contributed around 13% to revenues. The company’s £300m share buyback programme clearly showcases its solid financial position and confidence in the business. Wolseley disposed non-performing assets and continued to build its business as it acquired 18 firms during the period. These acquisitions would reap fruit once they are integrated with the company’s existing business units. We believe the company is well placed with solid assets and cash position to continue its growth momentum for the next year. Therefore, we maintain a Buy rating on the stock.
Economic News
UK mortgage approvals
UK Mortgages approvals for house purchases rose to 71,030 in August from 69,010 in July, the Bank of England informed yesterday. The analysts were expecting loans to rise to 69,800. Net mortgage lending stood at £3.4bn in August, the highest number since May 2008.
Eurozone consumer confidence
The gauge of Eurozone consumer confidence remained unchanged at -7.1 in September, the European Commission said yesterday. This was in line with the market expectations. The economic confidence index rose to 105.6 in September from 104.1 in August, and the measure of industry confidence improved to -2.2 from -3.7.
Germany CPI
The preliminary Consumer price index (CPI) in Germany decreased 0.2% m-o-m in September after a flat reading in August, as per the estimates published by the Federal Statistics Office yesterday. The markets expected the prices to drop by 0.1%. On y-o-y basis, prices remained flat in September, after a 0.2% rise in the previous month. The markets expected a 0.1% increase in prices.
US consumer confidence index
As per the Conference Board, US consumer confidence index rose to 103.0 in September, from a downwardly revised 101.3 in August. This was better than the economists’ estimates of 96.8.