The Markets
Market opening: The FTSE-100 is expected to open around 10-points lower this morning.
New York: Wall Street ended higher after a volatile trading session on Friday. Mixed economic data released in the US dampened the possibility of an interest rate hike by the Fed. Furthermore, better-than-expected corporate earnings boosted investor sentiment. The S&P 500 advanced 0.5%, with healthcare sector gaining the most. For the week, the market closed 0.9% higher.
Asia: Equities are trading lower amid mixed economic data from China. Moreover, easing oil prices hurt investor confidence. The Nikkei fell 0.9%, while the Hang Seng was trading 0.5% down at 7:00 am.
Continental Europe: Markets ended in the green amid positive corporate earnings. Additionally, low probability of an interest rate hike by the Fed this year created optimism in the market. France’s CAC 40 and Germany’s DAX rose 0.6% and 0.4%, respectively.
Crude Oil: On Friday, Brent and WTI oil prices increased 3.6% and 1.9%, respectively. The spread between the two varieties stood at US$3.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.64% higher on Friday at 741.05. To read our latest research click here.
Today’s breakfast menu:
– Beaufort Securities on DekelOil Public – Buy; MySQUAR – Speculative Buy; Motif Bio – Speculative Buy; Vodafone Group – Buy; Provident Financial – Hold; and Rio Tinto – Buy
– Eurozone CPI, US industrial production, US University of Michigan sentiment
Today’s news
UK asking house prices improve in September: Rightmove
As per property tracking website Rightmove, the asking price per home in the UK rose 0.6% to £296,549 in October 2015, following a 0.9% increase in September. On y-o-y basis, house prices rose 5.6%, after jumping 6.4% in the previous month.
China reports better-than-expected GDP
As per the National Bureau of Statistics, China’s GDP grew 6.9% y-o-y in Q3 2015, beating the market expectation of 6.8%. However, this is the lowest quarterly expansion since Q1 2009. Strong growth in services and robust consumption helped balance the weakness in manufacturing and exports.
Company News
DekelOil Public (LON:DKL) – Buy
DekelOil announced today that the Kernel Crushing Plant (KCP) at the project is in the wet testing phase and pilot production has commenced.
The KCP has been built in line with the Company’s strategy to increase sales and profitability via the sale of Palm Kernel Oil and Palm Kernel Cake. The KCP is on course to commence commercial operations in the next few weeks. Additionally, the Company has entered arrangements with local refineries and suppliers and will see this entire value added product sold at the factory gate.
DekelOil Executive Director Lincoln Moore said, “The KCP will significantly enhance the economics of our Ayenouan project where we recently announced a more than doubling of CPO production from our state of the art mill for the nine months to 30 September to 29,137 tonnes, compared to the whole of 2014. With the testing phase now underway, it is clear that we will deliver this asset on time, and we look forward to entering 2016 with an additional revenue stream ahead of peak production season.”
Grant of Options & Issue of Equity
The Company also announces that share options over a total of 18,000,000 ordinary shares of €0.00003367 each (“Ordinary Shares”) have been issued to members of the operations management team.
The Options vest immediately on their grant and half of the Options granted are exercisable at a price of 1.25 pence per Ordinary Share while the remainder are exercisable at a price of 2 pence per share.
Our view: The Company has delivered yet again on its promise with the announcement of the testing phase of the Kernal Crushing Plant. The further announcement of deals with both local refineries and suppliers ensures 100% of the value added product sold at the factory gate. Further, the announcement of options to the operations management team at premiums to the closing price last Friday of 1p – with half at a 25% premium and half at 100% premium. We believe that those premiums are achievable and in the near term. We upgrade from a Speculative Buy to a Buy.
Beaufort Securities acts as corporate broker to DekelOil Public plc
MySQUAR (LON:MYSQ) – Speculative Buy
MySQUAR, the Myanmar-language social media and entertainment platform whose principal activity is to design, develop and commercialise Myanmar-focused internet-based mobile applications, this morning announced that it has today entered into a service agreement with MyPAY Limited, (‘MyPAY’), a provider of mobile payment transaction services. The agreement with MyPAY is for the integration of MyPAY’s mobile payment services as a feature of MyCHAT, MySQUAR’s free to use, mobile messaging and social networking application. Under the 5-year agreement with MyPAY, MySQUAR will receive US$500,000 in software platform integration fees from MyPAY and then an ongoing 50 percent share of net fees collected from MyCHAT users who make transactions through the mobile payment features integrated in MyCHAT. The service agreement entered into by MySQUAR with MyPAY constitutes a related party transaction under the AIM Rules as Eric Schaer, Chief Executive Officer of MySQUAR, holds an indirect controlling interest in MyPAY. Furtherto this, the Group announced that total user accounts as at 14 October 2015 surpassed 1,500,000, this represents an increase of approximately 50 percent in total user accounts since 30 June, as announced on 22 July 2015.
Our view: Back in July, MySQUAR confirmed that user numbers – the principal basis of valuation for any social media operator – were surging dramatically beyond expectations, with account breaching the 1.0m marker for the first time. This morning, the Group confirmed that by 14th October this figure had surpassed 1.5m, meaning total unique users had risen by 50% in less than three months. Quite clearly, the compounding effect experienced by the most successful social media operators, as their sites start to gain national recognition and the branding wins ‘go-to’ status, appears to be being achieved. Indeed, this now makes Beaufort’s already substantially raised year-end 2015 target of 1.9m now appear quite prudent (see detailed projections detailed overleaf) and, realistically, suggests that the 4.0m figure (the level at which acquisitive US sector giants usually express an interest in international virgin territories), could well be surpassed early in 2017. Having now also added the mobile payment services, MyPay, to MyCHAT’s portfolio of features – a very natural ‘next step’ – the platform is increasingly able to satisfy all user requirements. Being integrated on a rev-share basis, as a trusted operator MySQUAR is capturing a potentially significant and growing, long-term monetisation opportunity. As Myanmar’s unique, local language social media operator, MySQUAR appears to be more than delivering on its promises. This is something that is unlikely to have been missed by the numerous global operators determined to rapidly ensnare local players that have successfully participated in an online user ‘landgrab’. In this respect, MySQUAR now appears quite dramatically undervalued; Beaufort sets a price target of 21.0p/share and repeats its Speculative Buy recommendations.
Beaufort Securities acts as corporate broker to MySQUAR plc
Motif Bio (LON:MTFB) - Speculative Buy
On Friday, Motif Bio (Motif) informed that it signed a clinical trial deal with Covance, a leading global Contract Research Organisation (CRO). The trials would be carried for iclaprim, a potential novel antibiotic, designed to be effective against bacteria that have developed resistance to other antibiotics. Covance would run two Phase III studies on the drug, to evaluate its performance against the existing vancomycin in the treatment of acute bacterial skin and skin structure infections (ABSSSI).
Our view: Motif, the clinical stage biopharmaceutical company specialising in developing novel antibiotics, continues to advance in the development of iclaprim as it enters into an agreement with Covance for the final stage clinical trials. The company would benefit from their partners Covance, who have substantial amount of experience in running antibiotic trials. Furthermore, the agreement also confirms timely start of the Phase III programme. Last month, the US Food and Drug Administration (‘FDA’) has granted Fast Track designation for iclaprim, ensuring greater support and more frequent interactions with the FDA during clinical development. Additionally, 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 maintain a Speculative Buy rating on the stock.
Vodafone Group (LON:VOD) – Buy
On Friday, Vodafone Group (Vodafone) informed that it has extended its partnership with MTS Ukraine. As per the agreement, the companies would roll out 3G and develop new services in the market using the Vodafone brand in Ukraine. Furthermore, MTS has received access to a range of products, services and devices developed by Vodafone for both consumer and corporate markets.
Our view: The aforementioned update opens up a lot of exciting opportunities for Vodafone. The expansion of partnership provides the company an easy access to more than 20 million existing customers of MTS. Vodafone has been associated with MTS for the past seven years, and this extension further boosts the relationship between them. The company plans to introduce a number of services in the Ukrainian market, which have been highly successful in Europe. The deal is a win-win situation for both the parties, as the Ukrainian customers would benefit from Vodafone’s extensive 3G network. Additionally, the pair would continue to share marketing and technical expertise with each other. Furthermore, as per the recently released trading update for the first quarter ended 30th June 2015, Vodafone reported improvement in service revenues and upsurge in the customer base. The company’s Project Spring is in full swing as it modernized 80,000 mobile sites, added 36,000 2G, 47,000 3G and 41,000 4G sites, and upgraded 71,000 sites to high capacity since its inception. Going forward, Vodafone plans further expansions in this project to enable the customers enjoy greater network coverage and better quality. In view of the overall optimism surrounding Vodafone, we continue to recommend a Buy rating on the stock.
Provident Financial (LON:PFG) – Hold
On Friday, Provident Financial (Provident) released an interim management statement for the period between 1st July 2015 and 15th October 2015. The company’s Vanquis Bank delivered strong growth and margins in Q3 2015, registering a y-o-y customer growth of 12% and average receivable growth of around 21%. Provident’s Consumer Credit Division (CCD) continued to progress on its plan to develop a broader based lending business. The number of customers in this division decreased 15% y-o-y to around 1 million, while the receivables book witnessed a 14% y-o-y drop in September. The company’s Moneybarn segment registered improvement in business volumes in Q3 2015, with new business volumes 89% higher than Q3 2014. Customers at the end of September stood at 29,000 (June 2015: 26,000), while the receivables increased to around £209m (June 2015: £186.5m). Separately, Provident informed that Michael Lenora, Managing Director of Vanquis Bank, has decided to retire in 2016. The Board has appointed Chris Sweeney as the next Managing Director, who will assume office on 1st January 2016, subject to regulatory approval.
Our view: Provident delivered good performance in the third quarter of 2015 led by the Vanquis Bank. The bank’s customer acquisition programme turned fruitful as it recorded a jump in the customer growth. Additionally, the division also saw a rise in receivables owing to the credit line increase programme initiated by it. Furthermore, Moneybarn attracted new businesses, which resulted in improved volumes, higher customers and increases receivables. However, the company’s CCD arm showed poor performance reporting a sharp drop in customers and receivables book. Provident has recently completed the repositioning of CCD and is yet to prove its mettle in the revised role. Furthermore, the demand and customer confidence in the home credit business showed minor improvement in the quarter. In view of the mixed outlook surrounding Provident, we downgrade the rating to Hold for now.
On Friday, Rio Tinto released production results for the third quarter of 2015. Global iron ore production increased 12% y-o-y to 86.1 million tonnes (Mt), while Global iron ore shipments advanced to 91.3Mt, 17% higher than Q3 2014. Bauxite production improved 4% to 11,287 kilo tonnes (kt) and the aluminium production moved 1% up to 830kt. However, mined copper production in Q3 2015 fell 24% to 115kt against the same period a year ago. The company completed a major expansion of its Pilbara infrastructure. Rio also agreed to sell its interest in the Bengalla thermal coal Joint Venture (JV) for US$606m.
Our view: Rio delivered solid performance in the third quarter despite challenging market conditions. The company undertook various measures to reduce costs and achieve operational efficiency. These efforts turned fruitful as Rio reported a jump in iron production and remains on track to deliver shipments for the full year as per the guidance. The company maintained its strong performance in bauxite, with record production at Weipa. Rio selling interest in the JV is in line with its plan to have a balanced portfolio of assets. Furthermore, improvement in Pilbara would help to generate maximum output from the integrated system. Going forward, the company plans to decrease its capital spending over the next two years. We believe Rio is well placed with adequate resources and assets to face the tough situations ahead and maintain its market position. In light of the above argument, we maintain a Buy on the stock.
Econimic News
Eurozone CPI
Consumer price inflation (CPI) in the Eurozone rose 0.2% m-o-m in September, after a flat reading in August, as per the estimates published by Eurostat on Friday. This was in line with the market expectations. On y-o-y basis, CPI fell 0.1% in September, following a similar decline in August. Core prices, excluding energy, food, and tobacco, grew 0.9% y-o-y in September.
US industrial production
Industrial production in the US fell 0.2% m-o-m in September, after a revised decrease of 0.1% in August, the Federal Reserve announced on Friday. This was in line with the market expectations. The capacity utilization slipped to 77.5% in September compared to 77.8% in August.
US University of Michigan sentiment
US University of Michigan Consumer Sentiment Index improved to 92.1 in October from 87.2 in September, data showed on Friday. Economists were expecting a reading of 89.0. The Consumer Expectations Index, which closely forecasts the direction of consumer spending, rose to 82.7 from 78.2, and the Current Economic Conditions Index increased to 106.7 from 101.2.