The Markets
Market opening: The FTSE-100 is expected to open around 20-points higher this morning.
New York: Wall Street ended in the red amid disappointing earnings results from blue-chip companies. Furthermore, lower-than-expected US economic data hurt investor sentiment. The S&P 500 fell 0.5%, dragged by the consumer staples sector.
Asia: Equities are trading higher, as weak economic data released in the US reduced the near-term possibility of an interest rate hike by the Fed. The Nikkei added 1.2%, while the Hang Seng was trading 2.0% up at 7:00 am.
Continental Europe: Markets ended lower, as lower-than anticipated consumer price index (CPI) data in China renewed concerns over the country’s economic health. Moreover, weak economic data from the Eurozone dented investor confidence. Germany’s DAX and France’s CAC 40 declined 1.2% and 0.7%, respectively.
Crude Oil: Yesterday, Brent oil prices decreased 0.2%, while WTI prices remained flat. The spread between the two varieties stood at US$2.5 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.33% lower yesterday at 732.03
Today’s news
Unemployment rate in UK reaches seven-year low
As per the Office for National Statistics, the unemployment rate in the UK fell to 5.4% in the three months ended August 2015, the lowest since Q2 2008, from 5.5% in the three months ended July 2015. Furthermore, the number of employed people increased 140,000, resulting in the employment rate rising to 73.6%, the highest since 1971.
Eurozone’s industrial production declines in August
As per data from Eurostat, industrial production in the Eurozone fell 0.5% m-o-m in August vis-à-vis a 0.8% rise in July. The decline was primarily due to slowdown in China’s economy and lower demand for Western cars and tools in Asia.
Equiniti Group Share Offer – Now Open!
Equiniti Group, a leading provider of technology and solutions for complex and regulated administration serving corporate and public bodies, has announced its intention to proceed with an IPO on the London Stock Exchange and Beaufort have been appointed as an intermediary for private investors. The Share Offer is now open, but closes at 12:00pm, Friday 23rd October 2015 so you need to act fast to make your subscription. Click here for more information.
Company News
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 yesterday 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 estimate of 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
Ferrum Crescent (LON:FCR) – Speculative Buy
Yesterday, Ferrum Crescent (Ferrum) informed that the company’s subsidiary Ferrum Iron Ore (FIO) and its parent intermediate holding company, Ferrum South Africa (FSA), have signed a farm-in and joint venture (JV) agreement with Business Venture Investments (BVI). The main aim of the JV is to complete the bankable feasibility study (BFS) on the Moonlight Iron Project, located in South Africa. The company ended its previously declared Memorandum of Understanding with Principle Monarchy Investments (PMI). BVI would fund all developments related to BFS, in return of up to 43% equity stake in the Project’s holding firm, FIO.
Our view: The aforementioned update is an encouraging one for Ferrum, as it entered into a binding agreement with BVI for finishing the Project’s BFS. The Moonlight is a magnetite deposit, located in Limpopo Province, with an estimated Mineral Resource of 307.7 million tonnes (Mt) at 26.9% Fe, with the inferred category estimated to contain 172.1Mt at 25.3% Fe. The company aims to complete the BFS in two phases. During the Phase 1, BVI would be allotted 12 months to complete 25% study on a model based on technical, financial and domestic offtake aspects. Post the completion of Phase 1, BVI would be granted 14% equity in FIO. In the Phase 2, BVI would be given 24 months to finish 15% study on the model defined in Phase 1. This phase shall also include all matters concerning international project and equity financiers. On successful conclusion of Phase 2, BVI is entitled to receive a further 29% equity stake in FIO. Additionally, as per the recently announced results, Ferrum showed resilient performance with reduced losses and improved cash position. Going forward, Ferrum plans to use the latest drilling data to enhance the model for the mine along with the direct reduction (DR) pellet centre at Thabazimbi. Furthermore, the company’s marketing team has identified potential South African off takers of products developed from the project. In light of the overall optimism surrounding Ferrum, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Ferrum Crescent plc
Savannah Resources (LON:SAV) – Speculative Buy
Yesterday, Savannah Resources (Savannah) informed that it has started a 10 hole, 965m reverse circulation drilling at the selected VTEM targets including the Aarja and Gaddamah prospects at the Block 4, located in Oman. The company has 65% interest in the Omani company, Al Thuraya LLC, the owner of the Block 4 licence project.
Our view: Savannah’s efforts finally turn fruitful as it commenced with drilling in the Block 4 region. The Block 4 is prospective for both gold and copper. Recently, Savannah identified a new high grade copper mineralization at the Aarja prospect and additional grades of up to 13.9g/t gold at the Salahi 1 prospect. Additionally, the company had found many potential targets, located close to the previously producing copper mines, with production of more than 190,000 tonnes of copper. In view of the findings in the Block 4, we believe the commencement of drilling would probably enhance the company’s resource base and improve its long-term prospects. We are also encouraged with the potential of the recently signed JV agreement with Rio Tinto. Under terms of the agreement, Savannah will be the operator and can earn up to 51% of the combined Mutamba-Jangamo heavy mineral sands project. Therefore, in view of the constant developments in Savannah’s major projects, we retain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Savannah Resources plc
Anglo Asian Mining (LON:AAZ) – Speculative Buy
Yesterday, Anglo Asian Mining (Anglo) released a production update for the third quarter ended 30th September 2015. Gold production for Q3 2015 stood at 18,165 ounces (oz) (Q2 2015: 18,745oz) with contributions of 11,795oz, 6,363oz and 7oz from the agitation leach plant, heap leach operations and SART processing, respectively. Copper production fell to 216 tonnes from 236 tonnes in Q2 2015, while the silver production totalled to 4,439oz (Q2 2015: 4,527oz). For the nine months ended 30th September 2015, the gold, silver and copper production stood at 54,103oz, 10,916oz and 634 tonnes, respectively. During the period, the company sold 14,871oz of gold at an average price of US$1,123 per ounce. The total copper concentrate shipments sold stood at 460 dry metric tonnes in Q3 2015. Net debt at the end of period stood at US$51m (30th June 2015: US$48.9m). Anglo has started the construction of a small floatation plant at Gedabek to improve its gold and copper production.
Our view: Anglo recorded decent production in Q3 2015 across all its resources offsetting the difficult trading conditions. The company laid its focus to improve the operational efficiency by increasing production and reducing operational costs. Historically, the last quarter of the year has seen better production levels for Anglo owing to favourable weather conditions. In view of the same, we expect it to easily meet its production target between 70,000 to 75,000 ounces of gold for this fiscal. Furthermore, the company starting the floatation plant at Gedabek is expected to add around 5,000oz of gold and 1,200oz of copper for the year. Meanwhile, Anglo is also working to enhance production from the Gadir mine, with 2,116 tonnes already mined in H1 2015. We believe the company is moving in the right direction to become a mid-tier gold and copper metal production company. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Imperial Innovations Group (LON:IVO) – Buy
Yesterday, Imperial Innovations Group (Imperial) declared its results for the year ended 31st July 2015. Revenues advanced to £5.1m from £3.6m in 2014, mainly due to increased royalty and licencing income. Imperial invested £60.8m (2014: £32.8m) across 30 portfolio firms, with the companies inside its portfolio raising a total of £479.9m. Net portfolio value improved to £327.2m from £252.0m in 2014. Pre-tax profit fell to £15.1m from £27.4m primarily due to lower fair value gains on investments. Cash at the end of period stood at £128.1m (2014: £176.5m), while value of net assets increased to £420.1m from £404.8m. Imperial successfully transformed Circassia into a FTSE 250 specialty biopharmaceutical company, following its completion of two acquisitions and £275.0m placing.
Our view: The year 2015 has been commendable for Imperial as it worked on its strategy to substantially increase investments. Imperial almost doubled its investments across 30 companies from various sectors. Imperial had a portfolio of 98 companies at the end of period, with 39 of them in the accelerated growth category contributing around 98% to the portfolio by value. The company’s six largest unlisted portfolio companies have an average age of 8.2 years. Imperial boasts of generating £1.3bn from the portfolio companies, since its IPO in 2006. The company’s net portfolio value has seen a sharp increase in 2015, providing a platform for future growth opportunities. Furthermore, Imperial has a strong balance sheet with solid assets and improved cash position. Going forward, Imperial plans to improve its portfolio, add more companies to the public markets and enhance its asset base. In view of the above argument, we maintain a Buy rating on the stock.
Domino’s Pizza Group (LON:DOM) – Buy
Yesterday, Domino’s Pizza Group (Domino’s) released a trading update for the third quarter ended 27th September 2015. The company’s system sales rose 19.4% y-o-y to £214.5m (Q3 2014: £179.6m). Domino’s UK division led the growth with a 20.7% rise in system sales to £200.0m, with like-for-like (LFL) sales growth of 14.9%. The company’s Republic of Ireland (ROI) and Switzerland division reported 13.6% and 19.3% increase in revenues to €13.8m and CHF4.1m, respectively. The company opened 12 new stores in the UK to take the total to 33 and remains on track to open more than 50 stores in the UK in 2015.
Our view: Domino’s reported excellent performance in the third quarter, showcasing the success of the company’s strategic and marketing initiatives. The company witnessed a boost in revenues from digital channels, as 75% of sales in the year to date have been online, with over half of these through Domino’s mobile app. The company’ UK business continued to outperform as it recorded eighth consecutive quarter of double digit LFL sales growth. Domino’s continued to expand through the opening of 12 new stores that are likely to provide a platform for future growth. Furthermore, the company took a lot of measures to improve service and store level performance in Germany and Switzerland. Going forward, Domino’s plans to come up with the feature of saved favourite baskets to reduce order taking time. Overall, Domino’s has good prospects as it takes continuous steps to improve customer usage and plans to come up with new stores this year. Therefore, we maintain a Buy rating on the stock.
Economic News
UK claimant count rate
The claimant-count rate in the UK rose 2.3% in September, in line with the market expectations and previous month’s rise.
UK jobless claims change
UK jobless claims rose 4,600 in September, after an increase of 1,200 in August, the Office for National Statistics said yesterday. Markets had expected claims to drop by 2,200.
US MBA mortgage applications
US mortgage applications dropped 27.6% in the week ended 9th October after rising 25.5% in the prior week, the Mortgage Bankers’ Association said yesterday. Refinance index fell 23.0%, while the gauge of loan requests for home purchases slipped 34.0% over the week.
US retail sales advance
US retail sales advance increased 0.1% m-o-m in September after a revised flat reading in August, the Commerce Department said yesterday. This was behind the market expected increase of 0.2%. Excluding the sales of motor vehicle and parts, retail sales fell 0.3% in September, following a 0.1% dip in August.
US PPI final demand
The US producer price index (PPI) for final demand fell 0.5% in September, after a flat reading in August, the Bureau of Labor Statistics stated yesterday. The markets expected a 0.2% decline. Core producer prices, excluding food and energy, slipped 0.3% in September, after a 0.3% rise in the previous month. On y-o-y basis, PPI demand fell 1.1% in September, following a 0.8% drop in August.