The Markets
Market opening: The FTSE-100 is expected to open around 17-points higher this morning.
New York: Wall Street extended gains for the fifth consecutive day as an improvement in oil prices boosted energy stocks. Furthermore, weak jobs data curbed the possibility of an interest rate hike, which lifted investor sentiment. The S&P 500 advanced 1.8%, with industrial stocks gaining the most.
Asia: Equities are trading mixed. The US, Japan and 10 other Pacific Rim countries signed the Trans-Pacific Partnership (TPP), which boosted investor confidence. The Nikkei 225 added 1.0%, whereas the Hang Seng was trading 0.5% down at 7:00 am.
Continental Europe: Markets ended in the green amid a rally in commodity prices, which led to gains for resource companies. Furthermore, the weak possibility of the Fed hiking the interest rate created a sense of optimism in the market. France’s CAC 40 and Germany’s DAX soared 3.5% and 2.7%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices increased 2.3% and 1.6%, respectively. The spread between the two varieties stood at US$3.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.65% higher yesterday at 733.70.
Today’s news
UK’s services PMI falls lowest in two and a half years
According to survey results from Markit, the UK’s services PMI slipped for the third consecutive month to 53.3 in September from 55.6 in August, its lowest in two and a half years. Furthermore, the all-sector PMI fell to 53.9 in September from 55.4 in August, recording its lowest since April 2013.
Countries sign Trans-Pacific Partnership (TPP) for easy trade
The US, Japan and 10 other Pacific Rim countries have entered into the TPP agreement. The objective of this partnership is to reduce tariffs and import duty, making trading among these economies cheaper. It is also likely to provide American firms entry into the Asia-Pacific markets.
Company News
Legendary Investments (LON:LEG) – Speculative Buy
Yesterday, Legendary Investments (Legendary) announced that the Founder of Moonpig.com, Nick Jenkins, has taken a ‘small stake’ in Virtualstock Holdings (one of Legendary’s investment portfolio) at a valuation of £58m from two founders. The two founders and their families still each own in excess of 25% in Virtualstock. This more than doubles the April 2014 valuation of £25m. Virtualstock is a disruptive British software company at the forefront of today’s technology revolution. With a decade of cloud expertise, Virtualstock delivers radical solutions, enabling organisations to plan, grow and achieve their most ambitious missions. Virtualstock’s game changing approach challenges the costly and time-consuming process of traditional systems integration. Utilising agile, open source technology, the Virtualstock team has developed a unique way for information to flow between any set of fragmented systems, without disruption to any existing IT landscape. Data is seamlessly collated, enriched, mapped and validated, allowing only trusted, reliable information to be deployed across the enterprise. Commenting, Nick Jenkins, Angel Investor, said “I am delighted to be a shareholder in Virtualstock and in particular, I am extremely excited about the enormous cost saving potential this ground-breaking technology will bring to the NHS”.
Our view: The market capitalisation of Legendary is £2.7m and at £58m valuation for Virtualstock values Legendry’s holding at over £4m. Having Nick Jenkins as a shareholder gives further validation of the progress Virtualstock has progressed. Other businesses in Legendary include Bosques Energeticos S.A. de C.V. and in its recent results commented it has a substantial minority stake of 40% in Bosques which it holds on its balance sheet at £83,000, the amount it initially invested. Value crystallisation might be expected in the medium term. Legendary also has a stake in Amedeo Resources (AMED.L). To date Amedeo has made two investments: one in an new offshore vessel construction joint venture, Jiangsu Yangzijiang Offshore Engineering Co. Ltd (“YZJ Offshore”) with multi-billion dollar Singaporean listed shipbuilder, Yangzijiang Shipbuilding (Holdings) Ltd; and the other in a ferrous metal and ferrous ore trader, MGR Resources Pte Ltd. Other investments include Manas Minerals, Medgold Resources, Sula Iron and Gold and Oracle Coalfields. We continue to support Legendary and believe it to be undervalued and confirm it as a Speculative Buy.
Beaufort Securities acts as corporate broker to Legendary Investments plc
KEFI Minerals (LON:KEFI) – Speculative Buy
Yesterday, KEFI Minerals released an update on its Jibal Qutman gold project located in Saudi Arabia. The company stated that it has completed around 75% of the infill drilling program totalling 5,415 metres. Metallurgical testing has finished on the oxide ore from four potential open cut areas for heap-leach (HL) processing. As per the results of this test, gold recoveries were 70% to 75% with a weighted average of 73%. KEFI’s consultant partners AMC, completed a mine scoping study on a HL operation, identifying the potential to mine 201,600oz of gold from a series of shallow pits. Further, a HL recovery factor of 70% was utilised during the optimisation and evaluation process. The company plans to shift its exploration focus to the Hawiah, a large gold and base metal target.
Our view: KEFI continues to develop its Jibal Qutman gold project. The results from the study have been encouraging with a potential of 201,600oz of gold and better than expected gold recoveries compared to the previously estimated 69%. Currently, the company is drilling at the 4K Hill, 3K Hill, Pyrite Hill, and West and South Zone prospects and has identified additional gold mineralisation. Going forward, the company plans to commence drilling at the Hawiah Project and target a 6km long gold mineralised gossan and the underlying copper-gold-zinc massive sulphide. Further, the company continues to advance the Tulu Kapi Gold Project in Ethiopia and its planned development funding of US$120m through a combination of debt, gold streaming and equity funding at the project level. A key component is the intended participation by the Government of Ethiopia by funding up to US$20m of infrastructure in exchange for an increase share of project equity. We look forward to further announcements regarding finalisation of financing options and preferred construction contractors and operators as well as the terms of the Government of Ethiopia’s planned infrastructure funding. In view of the above developments, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to KEFI Minerals plc
San Leon Energy (LON:SLE) – Speculative Buy
Yesterday, San Leon Energy informed that the Rawicz-15 development well in Poland would be drilled in November 2015. The well is funded and operated by Palomar Natural Resources and is expected to take 35 days to reach a depth of around 1,600 meters, and would be followed by completion and a full well testing programme. Furthermore, the well would yield additional data on the Permian Rotliegendes sandstone reservoir in the southwestern end of the Rawicz prospect.
Our view: The aforementioned update is encouraging for San Leon as it plans to spud the Rawicz-15 well in November. The Rawicz well is estimated to have more than 50 Bcf (Billions of standard cubic feet) of 2P reserves and is expected to be the largest gas development in Poland for 20 years. Recently, the company has initiated asset optimization and cost reduction strategy resulting in relinquishing certain non-core Polish licences. San Leon’s move supports its long-term strategy to focus on development and production. The company is likely to save on the annual license fees on the relinquished Polish license while remaining committed to the remaining acreage in Poland including the Baltic Basin shale licence and the Rawicz field. Further, the company remains fully funded for development of projects as it raised £29m through issue of new shares. We believe the company is moving in the right direction and is comfortably placed to face the difficult trading conditions. Therefore, we maintain a Speculative Buy rating on the stock.
AFC Energy (LON:AFC) – Speculative Buy
Yesterday, AFC Energy (AFC) informed that it has delivered first power to the German power grid from its fuel cell facility located in Stade, Germany. The power supplied was part of the final stage of the power electronics tests, completed in collaboration with Siemens AG.
Our view: AFC continues to make progress in its first fuel cell system and remains on track to commence production by the end 2015. The company’s developments are made with minimal resources ahead of its stipulated time reflecting its operational efficiency and technological advancement. Once the fuel system is fully operational, it would be world’s largest alkaline fuel cell system, functioning at an industrial facility selling power to national electricity grid. Furthermore, AFC has recently signed a Power Purchase Agreement (PPA) with Stadtwerke Stade which would help it commercialize the energy generated from the system. The electricity sales from the systems would be the first commercial revenue earned by AFC. Going forward, the company expects to complete the Milestones 10 and 11 of its POWER-UP strategy. In view of the overall developments surrounding the Project, we maintain a Speculative Buy rating on the stock.
Ryanair Holdings (LON:RYA) – Buy
Yesterday, Ryanair Holdings (Ryanair) released traffic statistics for the month of September 2015. During the month, the traffic rose 12% to 9.55 million customers compared to 8.49 million customers in the same month last year. The load factor improved 4% to 94%. The rolling factor grew 16% to 97.3 million customers in September.
Our view: Ryanair continues to witness steep rise in customer traffic and seat load factor owing to its low fares and strong forward bookings. The company continues to build on the success of its ‘Always Getting Better’ (ATB) customer experience improvement programme that sets apart the carrier as more than just a low cost airline. Ryanair is taking advantage of the lower oil prices as it introduced new routes and increased frequencies, with additional services for business passengers. In its recently published trading update, the company raised its net profit estimate for the fiscal year by 25% and expects it to be in the range of €1.175bn-€1.225bn higher than €940m-€970m estimated earlier. This improvement in guidance was mainly due to the 13% traffic growth in H1 2015 as compared to previously guided 10%, and the 2% rise in fares in the first half. Going forward, the company plans to improve its ATB service to further enhance consumer experience. The new enhancements include the launch of a new website, new app, new cabin interiors, new car hire service, new crew uniforms, and better in-flight menus. In view of the constant improvement in services and value rendered to its customers, we maintain a Buy rating on the stock.