The Markets
Market opening: The FTSE-100 is expected to open around 15-points higher this morning.
New York: Wall Street ended in the red after a volatile trading session yesterday as mixed quarterly corporate earnings weighed heavily on investors’ sentiment. The S&P 500 slipped 0.1%, dragged by the healthcare sector.
Asia: Equities are trading higher. The Nikkei added 1.9%, led by financial and export-oriented stocks. The markets largely ignored the weak economic data from Japan. The Hang Seng remained closed due to a holiday.
Continental Europe: Markets ended lower as low oil prices exerted pressure on energy stocks. Furthermore, lower-than-expected corporate earnings and renewed concerns over a slowdown in China dented investor confidence. France’s CAC 40 and Germany’s DAX shed 0.6% and 0.2%, respectively.
Crude Oil: Yesterday, Brent prices increased 0.2%, whereas WTI prices decreased 0.7%. The spread between the two varieties stood at US$3.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.21% higher yesterday at 745.00.
Today’s news
Lending conditions for businesses improve in Q3 2015: ECB
According to a survey conducted by the European Central Bank (ECB), lending conditions for businesses eased in Q3 2015, whereas those for house purchases tightened. Furthermore, credit conditions on consumer credit and other lending to households improved.
Japan records slowest export growth since August 2014
As per data from the Ministry of Finance, Japanese exports rose 0.6% y-o-y in September, the slowest since August 2014, following a 3.1% increase in August. Meanwhile, imports fell 11.1% y-o-y after a 3.1% drop in August. Consequently, this resulted in a trade deficit of ¥114.5bn, compared with the expectation of a trade surplus of ¥87bn.
Company News
Advanced Oncotherapy (LON:AVO) – Speculative Buy
At a signing event due to be held at Lancaster House today, Sinophi Healthcare CEO Dr Hanif Kanji and Professor Zhao GuoQing, President of the China-Japan Union Hospital of Jilin University will confirm a contract to build a Sinophi Proton Centre at the hospital and announced a purchase order with Advanced Oncotherapy plc for a LIGHT proton therapy machine for the facility. The China-Japan Union Hospital is located in Changchun, Jilin Province and with 3,328 beds it is one of the largest hospitals in NE China. This represents the second purchase order from China and follows the first that was signed in March 2015, when Sinophi Healthcare and Advanced Oncotherapy plc announced that Sinophi Healthcare agreed a purchase agreement for one LIGHT proton therapy system to be installed in Huai’an. As a result of today’s announcement, an oncology hospital with a proton centre and a maternity hospital will be built in partnership with the Huai’an First People’s Hospital (3,000 beds) and with Huai Yin Hospital (1,000 beds). Sinophi China Hospital Holdings Limited, a company invested by Sinophi Healthcare, Morgan Stanley Private Equity Asia, Sihuan Pharmaceutical and Euromax will invest in the two hospitals. Sinophi China Hospitals Holdings has already invested in Huai Yin Hospital. The purchase order itself is large, being worth between $75-80m (subject to final configuration of the treatment rooms) and relates to a single LIGHT system to be installed at the heart of a five treatment room facility.
Our view: A huge endorsement! The second LIGHT purchase order from China, along with the prospect of construction of a further four Proton Centres in the country (with an overall costing of some £800m) that will also use AVO technology. This is quite clearly a massive testament to AVO’s successful partnership with Sinophi. It is perhaps even more important to recognise that this has come from the hardest of task-masters (namely Sinophi’s scientists and Chinese hospitals specialists) who genuinely have the ability to understand the science behind LIGHT and to determine whether-or-not AVO can actually deliver a working device within the price, specification and time schedule suggested. Together with the various Letters of Intent from other interested parties and the CEO, Sanjeev Pandya’s own confidence that “this deal is the first of many commercial opportunities for our LIGHT system around the world”, AVO looks set to take the medical instruments world by storm. Indeed, the scale of the Chinese opportunity alone could be huge; the size of the cancer treatment challenge there is illustrated by data from the World Health Organisation’s ‘World Cancer Report’. In 2012, China had 3.07 million newly diagnosed cancer cases, 21.8% of the world Total; China also had 2.2 million or 26.9% of the world’s Total cancer deaths. The report states China registered the most new cancer cases and deaths from four types of malignant cancer: liver, oesophagus, stomach and lung. In summary, the reality is that by delivering exactly ‘what it says on the tin’, the operational and cost advantages LIGHT offers will effectively render first generation proton therapy devices all but obsolete. Its principal limitation would then become simply its capacity to deliver to a global opportunity that will grow dramatically beyond its current US$2.5bn size. Given such an outcome, of course, major international competitors wishing to remain in the game will almost certainly be willing to pay a handsome price, one way or another, to get their hands on AVO’s proprietary technologies. Advanced Oncotherapy plc is one of Beaufort’s key investment picks for 2015.
Beaufort Securities acts as corporate broker to Advanced Oncotherapy plc
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 an operational update for its Chepica mine in Chile for the three month period ended 30 September. Revenue for the period was US$0.45m (up 153% from Q2 2015) while costs decreased by 15% to US$0.3m. Gross profit for the period was US$0.15m compared with a loss of US$0.17m in Q2 2015. Total development at Chepica was 431m, up 66% from management’s plan of 260m. Due to the 8.3 magnitude earthquake stoping tons were down 82% to 3,061t from Q2 2015, although this was mitigated by a slight improvement in development meters and higher stoping grades. A new access portal is being developed and stoping at Chepica is expected to re-commence in Q1 2016 with stoping operations at the Colin prospect to commence in Q4 2015. Total milled tons for the period increased by 469% to 10,515t from 1,847t during Q2 2015. Mill gold and copper grades increased by 20% and 25% respectively to 1.8g/t Au and 1.0% Cu. Xtract also announced a JV agreement with Mineral Technology International (MTI) to mine alluvial gold on the Manica gold project in Mozambique. Under the terms of the agreement MTI will construct and fund the US$1.2m processing plant with Xtract appointed as operator and responsible for operating costs estimated at US$203/oz. The project is expected to produce some 32,000oz per annum and will be split 50:50 between the two parties. Production is expected to commence during Q3 2016.
Our view: Despite the recent setback in stoping tons due to the earthquake, we are encouraged with the pace of development and the increased mine flexibility at Chepica. The new access area in more competent rock will provide more stability while accessing the higher grade areas on levels six, seven and eight. We note the increased mine flexibility with the Colin prospect beginning stoping operations Q4 2015 which should help profitability of the company moving forward. We are also encouraged with the JV agreement signed with MTI for the processing of alluvial gold and production beginning in Q3 2016. We look forward to results from the metallurgical tests on the copper dumps at Carolusburg and O’Kiep as well as completion of the Definitive Feasibility Study (DFS) on the Manica. In the meantime, we reiterate a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Xtract Resources plc
Enegi Oil (LON:ENEG) – Speculative Buy
Yesterday, Enegi Oil (Enegi) informed that it has appointed Dr Nigel Burton as the Chief Executive Officer (CEO) and Director with immediate effect. Dr Nigel has more than 25 years of experience in the energy and utilities industries. He would be replacing Dr Burton, who will remain on the Board of Enegi as an Executive Chairman.
Our view: The appointment of Dr Nigel as the CEO bodes well with Enegi’s plan to develop a portfolio of field and royalty interests in oil and gas projects. Nigel’s vast experience in operational and financial management, debt and equity financing, acquisition and integration of businesses, would help the company deliver on its long-term strategy. Additionally, Enegi has recently created Marginal Field Delivery (MFD) Consortium and is comfortably placed to take advantage of the opportunities in this field. The consortium members have identified a number of marginal field prospects which meet the development criteria and provide a clear vision to transform these projects and deliver them on time and within budget. Going forward, Enegi plans to include further specialists to the Consortium, who can invest time and resources into securing future opportunities for the advancement of the Marginal Field Consortium. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Enegi Oil plc
Stratex International (LON:STI) – Speculative Buy
Yesterday, Stratex International (Stratex) released an update on the Altintepe Gold Project (45% owned), located in Turkey. The company informed that it has completed the loading of the first lift on to the heap leach pad, containing 30,000 tonnes of crushed material. Stratex expects first gold pour to be achieved within two to three weeks.
Our view: The aforementioned update takes Stratex a step closer to commence production from the project. The production from the mine would mark the company’s progress to a producer from explorer and project developer. Stratex recently reported solid first half performance with reduced pre-tax loss and improved cash position. The company has a diverse range of projects including the Dalafin project in Senegal, the Muratdere project in Turkey, and the Homase/Akrokrere project in Ghana. All these projects have shown exciting exploration opportunities. In addition, Stratex is involved in exploration of gold assets and other high-value base metals across Turkey, East Africa and West Africa that offer scope for an upside potential. Going forward, the company plans to acquire projects that are at the drill-ready stage or have potential resources. In light of the overall optimism surrounding Stratex, we retain a Speculative Buy rating on the stock.
Genel Energy (LON:GENL) – Speculative Buy
Yesterday, Genel Energy (Genel) released a trading and operations update for the third quarter of 2015. Revenues for Q3 2015 stood at US$77m, while revenues for the first nine months of 2015 Totalled to US$276m. Net working interest production and sales for Q3 2015 averaged 86,100 barrels of oil per day (bopd), 23% higher than Q3 2014. The company received cash proceeds of US$45m in Q3 2015, including domestic Kurdistan Region of Iraq (KRI) sales proceeds and the September 2015 export payment of US$24.5m. Cash balance and net debt on 30th September 2015 stood at US$481m and US$211m, respectively. The capital expenditure in Q3 2015 stood at US$23m, while for the nine months ending September Totalled to US$116m. The company completed the acquisition of OMV’s 36% operated stake in the Bina Bawi field. Genel has revised its 2015 production guidance to 85,000-90,000bopd (from 90,000-1,00,000bopd) and revenue guidance to US$350-375m (from US4350-400m). Separately, Genel informed that the Taq Taq field partners received a gross payment of US$30m from the Kurdistan Regional Government for oil exported through the Kurdistan Region of Iraq-Turkey pipeline.
Our view: Genel delivered decent performance in the third quarter of 2015 despite difficult trading conditions. The continuous downslide in oil prices has forced the company to reduce its production and revenue guidance for 2015. However, Genel continued to undertake measures to reduce costs and achieve operational efficiency. The company remains on track to complete the second central processing facility at Taq Taq by the end of 2015, which has a planned capacity of 90,000bopd. Genel has received substantial payments in the quarter, which would help it to make investments to increase production. Furthermore, the company is all set to commence drilling at the prospective CI-508 licence (Genel 24% working interest) offshore Côte d’Ivoire on the Aigle prospect. In light of the above and the company’s capability to withstand a challenging commodity pricing environment, we maintain a Speculative Buy rating on the stock.
Yesterday, Whitbread declared its results for the six months ended 27th August 2015. Revenues advanced 11.3% to £1.4bn in H1 2015, and like-for-like (LFL) sales rose 3.6% as all the business segments performed well. The Costa segment saw a 16.2% rise in the sales with the UK LFL sales increasing 4.4%. In the Premier Inn segment, the Total sales increased 12.6% and 5.0% on LFL basis. EBITDA improved 13.6% to £389.8m. Consequently, underlying pre-tax profit rose 13.8% to £291.3m resulting in an EPS of 127.30p against 111.69p in H1 2015. Net debt at the end of period stood at £725.9m (26th February 2015: £583.2m). The company’s plans for the current year include opening 5,500 new Premier Inn UK rooms, add around 220 new Costa stores worldwide and install 700-800 new Costa express machines. Whitbread’s committed UK hotel pipeline has grown to 14,308 rooms. The company declared an interim dividend of 28.50p, 13.1% higher than H1 2014.
Our view: Whitbread delivered solid performance in the first half of 2015 led by its major brands Costa and Premier Inn, reporting improved results over the previous year. Growing number of stores amid strong demand helped the company to improve profits in H1 2015. Whitbread’s investments to improve online experience turned fruitful, as it reported record 84% online bookings for the Premier Inn segment. The company’s enhanced cash position enabled it to increase the dividend payable substantially. Furthermore, Whitbread is ready to respond to government’s new national living wage as it plans to increase the prices marginally and reduce costs by enhancing productivity. The company has set growth milestones for 2020 including an increase in the Premier Inn UK rooms to around 85,000 and global system sales of nearly £2.5bn for Costa. The attainment of these milestones is expected to create more than 15,000 new jobs in the UK over the next five years. Going forward, Whitbread plans to make investments to drive its organic growth and improve customer experience. Given, the strong growth potential of the various segments and the future expansion plans of the company, we maintain a Buy rating on the stock.
Economic News
US housing starts
US housing starts increased 6.5% to a seasonally adjusted annual rate of 1.206 million units in September, after a revised 1.7% slip in August, the Commerce department said yesterday. This was better than the market expected reading of 1.142 million units.Housing starts were reported at a revised 1.132 million units in August.