The Markets
Market opening: The FTSE-100 is expected to open around 51-points higher this morning.
New York: Wall Street ended in the green, as an improvement in oil prices boosted the shares of energy companies. Moreover, the minutes of the Fed’s meeting indicating caution over an interest rate hike lifted investor sentiment. The S&P 500 advanced 0.9%, with the energy sector gaining the most.
Asia: Equities are trading higher, taking positive cues from Wall Street, as the Fed remained silent over the possibility of a rate hike. Furthermore, rising oil prices led to optimism among investors. The Nikkei 225 added 1.6%, while the Hang Seng was trading 1.3% up at 7:00 am.
Continental Europe: Markets ended higher, as increasing oil prices offset weak economic data from Germany and dovish comments from the Bank of England (BoE) and European Central Bank. Germany’s DAX and France’s CAC 40 rose 0.2% each.
Crude Oil: Yesterday, Brent and WTI oil prices increased 3.4% each. The spread between the two varieties stood at US$3.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.07% lower yesterday at 732.89.
Today’s news
BoE maintains interest rate
The Monetary Policy Committee of BoE retained its benchmark interest rate at 0.5%, voting 8-1 in favour of maintaining the rates. The rates have remained unchanged since March 2009 and matched market expectations.
Germany’s exports fall largest in six years
As per the data released by the Federal Statistics Office, Germany’s seasonally adjusted exports declined 5.2% m-o-m to €97.7bn in August, the largest drop since 2009. However, imports fell 3.1% m-o-m to €78.2bn in August.
Company News
Xtract Resources (LON:XTR) – Speculative Buy
Xtract Resources, the gold and copper mining and development company with projects in South America, South Africa and Mozambique, announced yesterday copper assay results from its O’Kiep and Carolusberg copper sulphide tailings projects in South Africa. The Carolusberg tailings returned an average in situ copper content of 0.21% compared with the previously assumed content of 0.19% Cu. Whereas the O’Kiep tailings reported an average in situ grade of 0.14% Cu compared with an assumed in situ value of 0.23% Cu. Based on an assumed specific gravity of 1.5, the Carolusberg tailings contains some 29.35Mt of material representing a contained copper content of c 136Mlb and the O’Kiep tailings contains some 7.3Mt of material representing a contained copper content of 22Mlb.
Our view: Whilst the updated in-situ copper content, on aggregate, is significant at c 158Mlb compared with the previous estimate of c 147Mlb, mineralogical and recovery test work are still required to determine if the copper tailings project moves forward towards the DFS stage. Although the O’Kiep average in-situ grade is significantly less than was previously assumed (0.14% Cu vs 0.23% Cu), we note that this represents only 20% of the total tailings material. On a combined basis, the tailings dams contain some 36.65Mt of material with a weighted average in-situ grade of 0.196% Cu, representing 158Mlb of contained copper. We look forward to the results from the mineralogical and recovery test work. In the meantime, we reiterate a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Xtract Resources plc
Asiamet Resources (LON:ARS) – Speculative Buy
Asiamet Resources, the junior mineral exploration and development company focused on its copper and gold projects in Kalimantan and Sumatra Indonesia, reported yesterday additional drilling results from its Beruang Kana Main (BKM) copper deposit. Assay results were received for an additional five drill holes which will increase confidence and expand the BKM resource. Drill hole BKM32250-03 returned 51.9m grading 1.36% Cu from 50m depth. Assay results from BKM32500-01, located 250m north of BKM32250-03, intersected 44m grading 0.91% Cu from 25m depth and BKM32500-02 intersected 76m grading 0.81% Cu from 3m depth. Drilling at BKM has now been completed and assay results have been received from 66 of 71 holes drilled. An updated resource estimated will be completed upon receipt of the final assay results.
Our view: We are encouraged with the latest high-grade drill results which confirms the continuity of the high-grade and shallow BKM copper deposit. We look forward to the updated resource estimate and the Preliminary Economic Assessment. In the meantime, we reiterate a Speculative Buy rating on the stock.
Sierra Rutile (LON:SRX) – Speculative Buy
Yesterday, Sierra Rutile (Sierra) released an operational update for the third quarter of 2015. Rutile production increased 13% q-o-q and 45% y-o-y to 33,960 tonnes in Q3 2015. Ilmenite production jumped to 10,229 tonnes from 4,117 tonnes in Q2 2015. Zircon Concentrate production improved 34% q-o-q to 446 tonnes in Q3 2015. Furthermore, the company had 2,000 tonnes of HMC stockpile at the end of quarter, comprising of around 700 tonnes of rutile, which would be processed in Q4 2015. Direct operating cash cost rose to US$560/tonne from US$527/tonne in Q2 2015, while the total operating cash cost increased to US$647/tonne from US$636/tonne. Sierra continued construction at the Gangama Dry Mine and remains on track to complete by October 2015.
Our view: Sierra delivered solid results in the third quarter of 2015 recording second highest quarter of rutile production ever. The ilmenite and zircon concentrate also witnessed a sharp improvement in production. The company benefited from the stable operating conditions last quarter and the maintenance shutdowns conducted during the first half of 2015. In addition, Sierra expects the full year rutile production to be in the middle to upper range of the previously announced levels of 120,000-130,000 tonnes. The company has already planned rutile sales for 2015 at prices similar to the average prices in 2014. Furthermore, the company is progressing well on the construction of Gangama Dry Mine and is on track to commence production in Q2 2016. Moreover, the project cost is well within set budget. Capitalizing on its quality assets and resources, we believe Sierra will benefit from the improving pigment and titanium metal markets. In view of the company’s bright prospects, we upgrade the rating to Speculative Buy.
Tullow Oil (LON:TLW) – Buy
Yesterday, Tullow Oil (Tullow) informed that it has entered into an agreement with the Government of Gabon for its licences in the Onal Complex Fields (Fields). As per the deal, the company reclaimed its 7.5% stake in the Fields and the Ezanga block in Gabon. Furthermore, Tullow has been granted licence extension in the Fields till 2034 along with access to two small oil discoveries in the Ezanga block.
Our view: The aforementioned deal strengthens Tullow’s long-term prospects in Gabon. The company has been working in the country for more than 10 years and expects to increase its investments going forward. Post the deal, Tullow remains confident to achieve its full year production target of 66,000-70,000 barrels of oil per day from the West African region. Recently, the company also completed the regular Reserve Based Lend (RBL) redetermination process with the available debt capacity remaining unchanged at US$3.7bn. This amount would suffice Tullow’s current demands along with development of the prospective TEN (Tweneboa-Enyenra-Ntomme) Project. Furthermore, as per the recently reported first half results of 2015, Tullow’s cash position is expected to strengthen further as the planned restructuring program will yield cost savings of US$500m over the next three years. Additionally, an operational update showed that the gas exports have increased to around 100 Million standard cubic feet per day (mmscfd) and the oil production has regained previous levels. Going forward, the company plans to deleverage the business with greater emphasis on major developments and phase out the non-core assets. In light of the above argument, we maintain a Buy rating on the stock.
Galliford Try (LON:GFRD) – Buy
Yesterday, Galliford Try (Galliford) informed that it has been appointed as a supply chain partner as per the ProCure21+ framework for the £150m project to renovate Luton and Dunstable University Hospital, which is to be completed in 2019. The company would immediately start the work on building the new £6m office block, which is necessary to enable the delivery of the main work programme. The main programme consists of a new £80m ‘Hot Block’ for critical care, surgery and other complex care processes, changing several wards and the site’s energy centre and revamping the Emergency Department.
Our view: The aforementioned contract win is one of the biggest under the ProCure21+ framework, enhancing Galliford’s prospects in the healthcare market. The deal provides the company an opportunity to prove its mettle in delivering quality work in complex public sector healthcare projects. Recently, Galliford delivered solid results for the year ended 30th June 2015, with improved margins and enhanced landbank. The company’s well-thought-out strategy for long-term collaboration and the recent surge in the house building and the construction business, driven by the government’s ‘Help to Buy’ scheme, led to a significant top-line growth. Furthermore, successful integration of the Miller construction business turned fruitful as it added £400m to the revenues. The company continued to enhance shareholder value as it raised the dividend amount substantially. In September, the company entered into an agreement with the University of Leeds to undertake two new contracts worth £37.8m. We expect the company’s strong order book and solid landbank to help Galliford maintain its growth momentum for the entire year. Therefore, we retain a Buy rating on the stock.
DFS Furniture (LON:DFS) – Buy
Yesterday, DFS Furniture (DFS) declared its preliminary results for the year ended 1st August 2015. Gross sales increased 7.0% y-o-y to £913.1m, while revenues advanced to £706.1m from £656.8m in 2014. Adjusted EBITDA rose 8.4% y-o-y to £89.2m (2014: £82.3m). Consequently, pre-tax improved to £10.7m from £3.6m in 2014 resulting in an adjusted underlying EPS of 18.5p. During the period, the company successfully completed its IPO and its shares started trading on the main market of the London Stock Exchange on 11th March 2015. Cash and net debt at the end of period stood at £40.7m and £162.2m, respectively. On the operational front, DFS opened five new stores of around 10,000-15,000 sq ft in the UK and ROI (Republic of Ireland). The company registered a 17% growth in online sales. DFS’ six customer distribution centres are now fully operational, providing around 70,000 sq ft of additional selling space. Furthermore, the company partnered with Team GB for Rio 2015 Olympics. DFS declared an interim dividend of 3.1p and final dividend of 6.2p, subject to approval at the Annual General Meeting on 4th December 2015.
Our view: DFS, a UK-based upholstered furniture retailer, enjoys a strong market share of 25.7%. For the year ended 1st August 2015, the company reported robust revenue growth with higher contributions from Dwell and Sofa Workshop. DFS focused initiatives towards enhancing online experience resulted in higher web sales. The company’s efforts to effectively engage with the customers were fruitful as its post-purchase NPS (Net Promoter Score) surged over 80%. DFS plans to reward its shareholders by distributing interim and final dividends. Recent IPO has improved the company’s capital structure which would facilitate its grand expansion plans in the UK and abroad. Furthermore, the key drivers for the furniture business such as housing sales, consumer confidence and credit availability, look favourable in the UK, thereby setting up a perfect platform for the company. We believe DFS is well placed to deliver long-term sales growth and improve its market position. Therefore, we continue to recommend a Buy rating on the stock.
Economic News
US initial jobless claims
The number of Americans that filed their first initial claims for unemployment benefits decreased by 13,000 to a seasonally adjusted 263,000 in the week ended 3rd October, the Labor Department stated yesterday. Economists had forecasted a reading of 274,000. Last week’s figure was downwardly revised to 276,000 from 277,000 reported earlier. The four-week moving average of jobless claims fell to 267,500 from 270,500 in the previous week.