The Markets
Market opening: UK markets are expected to open marginally better-off this morning. At 7:26am FTSE-100 Futures were trading 8.5-points higher.
New York: Wall Street ended in the green, as an improvement in oil prices boosted the energy and materials companies. Investors largely ignored weak economic data released on Friday. The S&P 500 advanced 1.4%, led by the energy sector. For the week, the markets increased 1.0%.
Asia: Equities are trading higher, as weak US employment report dampened the possibility of an immediate interest rate hike by the Fed. In addition, an increase in commodity prices lifted investor sentiment. The Nikkei 225 added 1.6%, while the Hang Seng was trading 1.3% up at 7:00 am.
Continental Europe: Markets ended higher, taking positive cues from weak jobs data released in the US, which weakens the prospects of an interest rate hike by the Fed. France’s CAC 40 and Germany’s DAX improved 0.7% and 0.5%, respectively.
Crude Oil: On Friday, WTI and Brent oil prices increased 1.8% and 0.9%, respectively. The spread between the two varieties stood at US$2.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.32% higher on Friday at 728.96.
Today’s news
World Bank lowers Asia’s growth forecast
The World Bank trimmed its 2015, 2016 and 2017 growth forecast for East Asia-Pacific to 6.5%, 6.4% and 6.3%, respectively. This is below the previously estimated growth of 6.7% in 2015 and 2016 and 6.6% in 2017. The agency informed that slower growth in China, falling commodity prices and uncertainty over interest rate hike by the Fed are some key reasons for the downgradation.
Company News
FirstGroup (LON:FGP) – Hold
On Friday, FirstGroup released a trading update for the six months ended 30th September 2015. The company’s overall performance was in line with management’s expectations in H1 2015. The First Student division completed the second year of its portfolio pricing strategy with increase in the average price and also progressed with its cost efficiency plans. The First Transit segment’s revenues are expected to decrease 5% due to lesser demand for shuttle services in the Canadian oil sands region. The company’s Greyhound segment also undertook various initiatives to mitigate the impact of lower demand. The like-for-like (LFL) revenues in this division are expected to decline 6.2% in H1 2015. The UK Bus division expects a 1.3% growth in LFL revenues. FirstGroup’s UK Rail segment witnessed strong passenger volume growth in the first half and expects LFL passenger revenue growth of around 7%. Further, credit rating agency Fitch confirmed its ‘BBB’ corporate rating and stable outlook on the company. Standard & Poor upgraded its outlook to stable and confirmed its ‘BBB-/A-3′ corporate credit ratings.
Our view: FirstGroup reported mixed performance in the first half of the year as its segments showcased varying results. However, the company was successfully implemented its pricing strategy for the second consecutive year in the First Student division and expects more than 8% margins for the fiscal year. The UK Bus segment undertook various steps to enhance cost efficiency including improved driver productivity, greater fuel efficiency and reduced maintenance expenses. Further, the UK Rail segment continued to witness passenger volume growth and expects a jump in revenues. However, ongoing volatility in oil prices is exerting pressure on the performance of the Greyhound and First Transit Businesses. Both these segments are facing a difficult time with reduced demand and expect a fall in revenues during the first half. Therefore, in view of the uncertainty surrounding FirstGroup, we retain a Hold for now.
Forte Energy (LON:FTE) – Hold
On Friday, Forte Energy (Forte) released an update on its operational activities. The company has terminated its Joint Venture (JV) agreement with European Uranium Resources Ltd owing to a number of legal issues surrounding the projects. Forte Energy has withdrawn participation from the Kuriskova and Novoveska Huta uranium projects in Slovakia. The company has no financial obligations under the JV. Separately, Forte plans to review uranium exploration operations in West Africa. The company has also found a drilling target in Olympic Domain Project in South Australia. Further, Forte informed that its directors have agreed to convert their outstanding fees of more than A$350,000, accrued over the past 2 years, into options, subject to shareholders approval. The options would be granted with a three year expiry at an exercise price of 0.05p per share.
Our view: The termination of partnership with its partners is disappointing considering the huge investments already incurred by Forte. However, Forte has identified a potential target in the Olympic Copper Project at a depth of 235 metres. The company plans to carry out a low cost gravity survey followed by a single vertical core drill hole to test the gravity target at the depth. Further, Forte plans to carry exploration in West Africa which holds a number of potential uranium exploration licences with substantial JORC-compliant uranium resources in the Republics of Mauritania and Guinea. However, Forte has been witnessing a lull in the uranium market for quite some time especially in view of the overall challenging market conditions for the commodities. Moreover, Forte is yet to prove its mettle through further milestones at its existing (the Mauritanian and Guinean) as well as newly acquired low cost exploratory projects. Therefore, we retain our Hold rating on the stock.
Economic News
US change in nonfarm payrolls
US non-farm payrolls stood at a seasonally adjusted 142,000 jobs in September, the US Labor Department said on Friday. Markets had expected payrolls to increase to 201,000. August payrolls were downwardly revised to 136,000 versus 173,000 reported initially.
US unemployment rate
The unemployment rate stood at 5.1% in September, in line with the market expectations and the previous month’s reading.
US factory orders
US factory orders fell 1.7% m-o-m in August after rising 0.2% in July, the US Department of Commerce said on Friday. The markets expected a 1.2% drop in orders. Excluding orders for transportation equipment, factory orders fell 0.8% in August, following a 0.7% decrease in July.