The Markets
Market opening: The FTSE-100 is expected to open around 14-points lower this morning.
New York: Wall Street ended in the red, as a fall in oil prices resulted in losses for energy stocks. Meanwhile, investors await the Fed’s two-day policy meeting starting today. The S&P 500 shed 0.2%, with the energy sector losing the most.
Asia: Equities are trading lower, taking negative cues from the Wall Street. Furthermore, weak commodity prices and negative economic data from China hurt investor sentiment. The Nikkei 225 lost 0.9%, while the Hang Seng was trading 0.4% down at 7:00 am.
Continental Europe: Markets closed mixed. Germany’s DAX rose 0.1%, following better-than-expected data on the IFO business sentiment survey. France’s CAC 40 slipped 0.5%, as investors remained cautious ahead of the Federal Reserve and the Bank of Japan’s policy meeting this week.
Crude Oil: Yesterday, WTI and Brent oil prices decreased 1.4% and 0.9%, respectively. The spread between the two varieties stood at US$3.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.12% higher on Monday at 748.38.
Today’s news
UK industrial order book balance at three-year low
According to the Confederation of British Industry, the industrial order book balance in the UK declined to -8 in the three months to October, the lowest since October 2012, from +9 in the previous quarter. Additionally, the export orders balance for the past three months dropped to -17, the weakest since October 2012.
Mortgage approvals in UK reach four-month low
As per the British Bankers’ Association (BBA), the number of mortgage approvals for house purchases decreased to 44,489 in September from 46,567 in August, the lowest since May 2015. However, house loan approvals were up 14% y-o-y.
Company News
Rambler Metals & Mining (LON:RMM) – Speculative Buy
Yesterday, Rambler Metals & Mining (Rambler) declared its results for the year ended 31st July 2015. Revenues fell to C$40.9m from C$62.1m in 2014. However, the production costs reduced to C$28.4m from C$29.7m. Pre-tax loss stood at C$16.6m against a pre-tax profit of C$13.5m in 2014. During the period, the company invoiced a total of 17,662 dry metric tonnes (dmt) (2014: 25,806dmt) of concentrate containing 4,622 tonnes (2014: 6,968 tonnes) of accountable copper metal, 4,926 tonnes (2014: 6,043 tonnes) of accountable silver and 23,744 ounces (2014: 28,887 ounces) of accountable gold. Cash and cash equivalents at the end of period stood at C$4.4m (2014: C$9.5m). On the operational front, Rambler completed a pre-feasibility study to integrate the Lower Footwall Zone (LFZ) mineral resource into the life of mine (LOM) plan for the Ming Copper-Gold Mine. Post the period, the company has entered into a purchase agreement with Transamine Trading S.A., wherein Rambler has extended its off-take agreement with Transamine with regard to concentrate from the Ming Copper-Gold Mine until 31st December 2021. Rambler has signed a nonbinding Letter of Intent with Thundermin Resources, according to which Thundermin would merge with a wholly-owned subsidiary of Rambler.
Our view: Weak global commodity prices have hurt Rambler’s performance in the year 2015. However, the company was able to reach most of its operational guidance barring metal tonnes produced. Rambler’s introduction of the revised mine plan in January 2015 led to substantial decrease in the production costs. Meanwhile, the results from the pre-feasibility study have been encouraging with strong internal rate of return (IRR) and significant cash flows under practical commodity price assumptions. Additionally, the mine line is extended from 6 to 21 years. The company plans to double the output from the LFZ over the next three years. Furthermore, extension of agreement with Transamine would allow key construction and development projects to proceed ahead of the main financing. In addition, the merger with Thundermin would help the company to grow as a regional producer and also provide a broader shareholder base in North America. Going forward, Rambler plans to continue on its exploration work to enhance available resources and reserves. In light of the above argument, we continue to recommend a Speculative Buy rating on the stock.
AstraZeneca (LON:AZN) – Hold
Yesterday, AstraZeneca informed that the US Food and Drug Administration’s (FDA) Arthritis Advisory Committee (AAC) voted 10-4 to recommend the approval of the company’s lesinurad 200mg tablets for the treatment of hyperuricemia associated with gout, in combination with a xanthine oxidase inhibitor (XOI).
Our view: The aforementioned update is encouraging for AstraZeneca as it receives recommendation for the use of lesinurad from AAC. Gout, a chronic and debilitating form of inflammatory arthritis, affects more than 8.3 million patients in the US. This clearly reflects the huge opportunity for the drug, if it gets the final approval from the FDA. Furthermore, the recent approval of AstraZeneca’s BRILINTA tablets by the FDA is a positive development for the company. However, the recent termination of the co-development contract with the Amgen and the negative revelations regarding the behavioural impacts of Brodalumab, have raised questions over AstraZeneca. On the other hand, AstraZeneca has been facing some growth related concerns as some of its key medicines face patent expiry in the coming years and may be substituted by cheaper generics. In view of the mixed outlook surrounding the company, we retain a Hold rating on the stock.
WPP (LON:WPP) – Buy
Yesterday, WPP released a trading update for the third quarter and the first nine months of 2015. Revenues advanced 5.9% y-o-y in Q3 2015 to £2.9bn, with like-for-like (LFL) revenue up 4.6%. The North African region reported revenues of £1.1bn in Q3 2015, 15.4% higher than last year. The UK area witnessed a 7.6% jump in revenues to £435m. Revenues for the first nine months of 2015 moved 6.5% up to £8.8bn. While, net sales rose 4.2% to £2.5bn in Q3 2015, with LFL sales growth of 3.3%. Net sales for the first nine months stood at £7.6bn, 4.9% higher than the same period last year. In the 12 months to 30th September 2015, the company’s free cash flow stood at £1.5bn and WPP’s capital expenditure, acquisitions, share repurchases and dividends totalled to £2.0bn. Net debt at the end of period stood at £4.1bn (2014: £3.4bn). On the operational front, the company completed 38 transactions across various segments in the first nine months of 2015.
Our view: WPP, the world’s largest advertising company and owner of renowned brands like JWT, Grey, Ogilvy & Mather and others, delivered solid performance in the first nine months of 2015. The company performed well in most of its segments led by the Advertising and Media Investment Management division, which reported a 9.6% jump in revenues for the first nine months. Additionally, WPP recorded improved results across various regions in which it operates. The company worked on its long-term plan to enter into the fast-growing geographies and functional markets as it completed 38 transactions during the period. Furthermore, WPP continued to enhance shareholder value as it increased the interim dividend by almost 37% y-o-y in H1 2015. We believe the company’s strong cash flow generation would help it achieve the targeted pay-out ratio of 50% by the end of 2016. In the forthcoming quarter, WPP plans to focus on increasing revenues and sales faster than the industry average, backed by its strong position in different markets. In view of the overall optimism surrounding WPP, we maintain a Buy rating on the stock.
Economic News
Germany IFO
The business climate index for Germany fell to 108.2 in October from 108.5 in the previous month, the survey results from IFO institute revealed yesterday. This was better than market expectation of 107.8. Executives’ expectation index improved to 103.8 from 103.3 in the previous month, ahead of the market expected reading of 102.4. The current assessment index slipped to 112.6 from 114.0.
US new home sales
New home sales in the US fell 11.5% to a seasonally adjusted annual rate of 468,000 units in September, the Commerce Department said yesterday. The annualised sales figure for August was revised down to 529,000 from the previously reported 552,000. Economists had expected new home sales to decrease at a slower pace of 0.6% to an annualised rate of 549,000.