The Markets
Market opening: The FTSE-100 is expected to open around 55-points lower this morning.
New York: Wall Street ended in the red amid continuing fall in oil prices and growing concerns over economic slowdown in China. The S&P 500 slipped 0.7%, with the healthcare sector declining the most.
Asia: Equities are trading lower, as lower-than-expected consumer price index (CPI) data in China increased concerns over deflationary pressure in the country. The Nikkei dropped 1.9%, as export-oriented stocks declined on the strengthening of yen. The Hang Seng was trading 0.7% down at 7:00 am.
Continental Europe: Markets ended lower, as poor Chinese import data renewed concerns over the country’s economic health. Furthermore, weak economic data from Germany dented investor sentiment. France’s CAC 40 and Germany’s DAX shed 1.0% and 0.9%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices decreased 1.2% 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 0.04% lower yesterday at 734.44.
Today’s news
Inflation in the UK falls below zero in September
As per the Office for National Statistics, the UK’s CPI declined 0.1% m-o-m in September, dropping below zero for the second time this year after April, following a 0.2% rise in August. On a y-o-y basis, the prices fell 0.1% after a flat reading in the previous month. The inflation ended in the negative territory due to low fuel and clothing prices.
KEFI Minerals (LON:KEFI) – Speculative Buy
KEFI Minerals, the gold exploration and development company with projects in the Federal Democratic Republic of Ethiopia and the Kingdom of Saudi Arabia, announced today an update on the Tulu Kapi gold project in Ethiopia. KEFI has appointed African Mining Services (AMS) a wholly-owned subsidiary of Ausdrill Limited as its preferred contractor for mine establishment and operation for its Tula Kapi gold project. The principle terms and consequences are as follows: scope of work covers certain pre-mining earthworks as well as life-of-mine (open pit) operation, contractual payment rate will be based on cubic metre delivered, direct purchases such as explosives and fuel will be made by KEFI. As such, the next step is for KEFI and AMS to jointly optimise the detailed operating plan for the benefit of the project and to prepare matching detailed documentation.
Our view: We are encouraged in the rapid pace of development and the selection of a preferred mining contractor with a strong presence in Africa and a successful track record. We are also encouraged with the re-affirmed estimated all-in sustaining costs of c US$760/oz. We look forward to further announcements regarding the detailed mine operating plan and finalisation of financing options for the peak funding requirement which remains at US$120m, to be source via a combination of debt and gold streaming of c US$100m, along with project level equity. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to KEFI Minerals plc
Motif Bio (LON:MTFB) – Speculative Buy
Yesterday, Motif Bio informed that the results from two iclaprim clinical studies were presented at the Infectious Disease Week 2015 conference in San Diego, California, on 9th October 2015. Iclaprim is currently undertaking two phase III clinical trials for the treatment of acute bacterial skin and skin structure infections (ABSSSI).
Our view: Motif Bio, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, continues to make progress in the development of iclaprim as it presents the clinical studies in a conference. The company’s presentations reflect growing scientific and academic interest and credibility of this development. Iclaprim is a potential novel antibiotic, designed to be effective against bacteria that have developed resistance to other antibiotics. The data from the studies validate the fact that iclaprim can perform well in the abovementioned two phase III trials related to ABSSSI. Furthermore, the company received positive results from the phase II data in nosocomial pneumonia, which strengthens the possibility of use of iclaprim in the treatment of hospital-acquired and ventilator-associated bacterial pneumonia. We believe the market for this novel antibiotic is huge, considering the opportunities in hospital acquired bacteria pneumonia (HAPB) and ABSSSI along with other potential indications. In view of the continuous developments surrounding the drug and the company’s bright prospects, we retain a Speculative Buy rating on the stock.
Yesterday, Bellway declared its preliminary results for the year ended 31st July 2015. Revenues advanced 18.9% y-o-y to £1.8bn, mainly due to a record 7,752 homes sold in 2015 (2014: 6,851), and the 5% rise in average selling prices to £223,821 (2014:£213,182). Operating profit jumped 41.0% to £360.4m in 2015 (2014: £255.6m). Consequently, pre-tax profit improved to £354.2m from £246.0m, resulting in an EPS of 231.5p against 157.0p in 2014. Return on capital employed (ROCE) improved 430 basis points to 23.9%, while the net asset value per ordinary share rose 15% to 1,286p (2014: 1,118p). The company’s owned and controlled land bank increased to 36,211 plots (2014: 35,434 plots). On the operational front, Bellway opened a new South West division, located in Bristol, in February 2015. It also commenced an operating division at Kings Hill (Kent) in August 2015. Bellway announced total dividend of 77.0p, 48.1% higher than last year. Since 1st August 2015, the company’s total reservations per week rose 16% to 149, as compared to 128 a year ago. The value of order book as of 4th October stood at £1.0bn (28th September 2014: £975.4m).
Our view: Bellway delivered solid performance in 2015 both financially as well as operationally. Bellway’s strategy to invest in prime locations translated in higher average selling prices. Capitalizing on the favourable housing environment in the region, the company reported strong improvement in homes sold and profit margins. Though property price growth has seen some dip in recent past, rise in the real wages of the citizens and the low inflation is likely to keep the housing sector in the forefront. Additionally, the government has announced the extension of the ‘Help to Buy’ scheme in England till 2020, which confirms that mortgages for new homes remain affordable in the near future. We believe that a strong order book and disciplined investment strategy warrant further volume and profit growth in the current financial year. The company continued to enhance shareholder value as its improved earnings paved way for higher dividend payments. Bellway remains fundamentally strong to create value for its shareholders and therefore we maintain a Buy rating on the stock.
Economic News
Germany CPI
As per the estimates published by the Federal Statistics Office yesterday, the consumer price index (CPI) in Germany decreased 0.2% m-o-m in September, mirroring a similar decline in August. This was in line with the market expectations. On a y-o-y basis, prices remained flat in September, following a similar trend like August.
UK PPI
The UK producer price index (PPI) output fell 0.1% m-o-m in September, after a revised decrease of 0.5% in August, the Office for National Statistics said yesterday. This was in line with the market expectations. On a y-o-y basis, output prices were 1.8% down in September, after a 1.9% dip in August. This was in line with the market expectations.
Germany ZEW survey
The Centre for European Economic Research/ZEW reported that the German economic sentiment slipped to 1.9 in October from 12.1 in September. Meanwhile, the gauge of current situation fell to 55.2 in October from 67.5 in the previous month. The markets expected a reading of 64.0.