The Markets
Market opening: The FTSE-100 is expected to open around 22-points higher this morning.
New York: Wall Street ended in the red, taking negative cues from weak Chinese trade data released yesterday. Furthermore, subdued corporate earnings hurt investor sentiment. The S&P 500 fell 1.0%, with the energy sector declining the most.
Asia: Equities are trading mixed, tracking the global markets. Furthermore, persistently lower commodity prices weighed on investor sentiment. The Nikkei 225 gained 0.1% after the release of current account data, which indicated a surplus from the 15th straight month. The Hang Seng was trading 1.4% down at 7:00 am.
Continental Europe: Markets ended in the red amid concerns over a possible interest rate hike in the US and weak Chinese trade data. Moreover, volatility in oil prices exerted pressure on energy stocks. Germany’s DAX and France’s CAC 40 dropped 1.6% and 1.5%, respectively.
Crude Oil: Yesterday, WTI prices decreased 0.9%, while Brent oil prices fell 0.5%. The spread between the two varieties stood at US$3.3 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.30% lower yesterday at 744.12.
Today’s news
Retail sales growth in UK slows in October: BRC
As per a survey conducted by the British Retail Consortium (BRC), retail sales increased 0.9% y-o-y during 4-31 October 2015, significantly lower than the 3.9% growth in September. This could be partially ascribed to the upcoming ‘Black Friday’ sale in November. Spending on like-for-like basis declined 0.2% y-o-y in October vis-à-vis a 2.6% y-o-y rise in September.
Company News
Jubilee Platinum (LON:JLP) – Speculative Buy
Jubilee Platinum, the Mine-to-Metals specialist, focused on platinum mining and recovery, announced yesterday that it has commenced with construction of the first processing facility (ASA Chromite and PGM recovery project) of its platinum processing projects. Jubilee is being incentivised to accelerate the construction and commissioning of the new processing facility, which includes the classification and chrome beneficiation section by 31 January 2016. The Company has successfully ran an extensive production scale beneficiation trial of 4000t of platinum bearing surface material which confirmed the design basis of the targeted platinum processing project. On the back of the successful trial Jubilee has concluded to place firm orders for the manufacturing and delivery of the processing equipment. Management expects commissioning of the initial processing step as early as January 2016 and targets processing 30,000t per month of platinum bearing surface material. The total projected capital of the platinum processing project is £4.9m (ZAR105m) of which £1.1m (ZAR23.6m) has been committed towards construction and commissioning of the initial processing step.
Our view: Jubilee Platinum continues with its strategy of fast tracking both of its surface platinum processing projects with a combined processing target of 80,000t per month of tailings and an estimated production of 42,000oz of PGMs per annum in concentrate. We view the commencement of construction of the processing facility as an important milestone for the Company and look forward to the commissioning of the front end of the new facility in January 2016. Despite the downward pressure on platinum prices, we believe Jubilee has the technical expertise and facilities to become a significant low cost PGM producer in the near term. As such, we reiterate our Speculative Buy on Jubilee Platinum.
Beaufort Securities acts as a corporate broker to Jubilee Platinum plc
Karelian Diamond Resources (LON:KDR) – Speculative Buy
Karelian Diamond Resources, the diamond exploration company focused on Finland, announced yesterday that high category rating diamondiferous kimberlite indicator minerals have been identified in the Rihiivaara area of the Kuhmo region of Finland. The samples were collected by Karelian, within 100m from the kimberlite body discovered by Karelian in the Rihiivaara area and were analysed by Rio Tinto Mining and Exploration at its Melbourne laboratories using a scanning electron microscope (SEM). Major element analyses has identified 7 hazburgitic G10 garnets, of which, 4 were classified as G10(D), 43 Lherzolite G9 garnets were also identifiec along with 24 ecologic grains. Of note, is the presence of the G10(D) garnets, which are low calcium chrome-bearing pyrope garnets that form within the diamond stability field of the Earth’s upper mantle. Karelian has previously signed a Confidentiality Agreement (with Back in Rights) with Rio Tinto.
Our view: Based on the results to date, the Riihivaara Kimberlite has the potential to be diamondiferous. We are encouraged with identification of G9 and G10 garnets within the samples given that these indicator minerals are associated with diamonds. Moreover, the presence of G10(D) garnets is very encouraging given their strong compositional and pressure-temperature association with diamonds and are thought to be produced within the diamond stability field. As such, we reiterate a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Karelian Diamond Resources Plc
Kibo Mining (LON:KIBO) – Speculative Buy
Kibo Mining, the exploration and development company focused on mineral and energy projects in Tanzania, announced yesterday it has engaged Tractebel Engineering to conduct the definitive feasibility study for the Mbeya Coal to Power Project (MCPP) power component. Tractebel is a subsidiary of Engie (formerly GDF Suez) and is an international company with more than 125 years of expertise in providing consultancy and engineering in water, energy and infrastructure projects to national and international institutions and customers in public or private markets. The Definitive Power Feasibility Study (DPFS) is to commence immediately and 55% of the cost associated with the DPFS will only be payable after completion of the Feasibility Study.
Our view: We are encouraged with the continued developments with MCPP and the appointment of a reputable engineering firm. We see the engagement of Tractebel as a strategic move as this completes the process of providing Kibo with technical capacity to develop, construct and commission the MCPP. With MinXcon to complete the mining feasibility work, Tractebel to complete the power feasibility work, SEPC III as preferred EPC contractor and Standard Bank acting as financial advisor we believe that Kibo now has all the pieces in place to complete both the mining and power components of the DFS while maintaining 100% equity in the project. In addition, we view Tractebel as an independent engineering entity that will give credibility to the MCPP once the DFS is completed, which we consider critical from a financing point of view. In view of the appointment of Tractebel for the power component of the MCPP feasibility study, we maintain a speculative buy on the stock.
Beaufort Securities acts as a corporate broker to Kibo Mining plc
Strat Aero (LON:AERO) – Speculative Buy
Strat Aero plc, the AIM listed international aerospace company focused on the rapidly emerging Unmanned Aerial Vehicle (‘UAV’) sector, yesterday announced it has become an affiliate member of the consortium of companies in the Autonomous and Unmanned Systems Cluster (‘AUSC’) of south-eastern New Mexico. Through this consortium, Strat Aero and its partners can match the full user needs of large Unmanned Aircraft System programmes globally, such as those required by large institutions, including the Military, Homeland Security, Agriculture, Oil & Gas entities and other infrastructure intensive organisations. Strat Aero will provide key unmanned system software, services, and training capabilities as part of its fully integrated UAV service offering. The AUSC was founded by Cliff Hudson in partnership with the Otero County Economic Development Council and with the support of the City of Alamogordo, New Mexico as part of Emerging Technology Ventures, Inc. (‘ETV’) public-private business model. ETV specialises in bringing together and developing integrated technology solutions for both Military & Civilian Unmanned System market sectors. The ETV partners have collectively already applied for significant military contracts worth a combined US$10m through the U.S. Navy’s SeaPort-e procurement programme. In addition, ETV is collaborating with both government agencies and academic institutions to leverage and commercialise research into market solutions.
Our view: Strat Aero and ETV share a vision of providing full solutions in the new emerging UAV/UAS industry, with a view to adding real long term value to present and future clients of the industry. With an extensive background in military procurement, ETV’s founders have a valuable skill set which Strat management is confident will significantly benefit the Group in its pursuit of US military contracts as part of AUSC. Furthermore, its vision to unite all the required elements to fulfil large contracts though a coalition of different businesses, each bringing their own unique abilities, is a perfect solution to enable Strat Aero to successfully compete for the large military, homeland security and other institutionalised (government and utility) contracts that are and will increasingly be available. The strategic partnership is intended to provide unparalleled access for AUSC’s small business members to the rapidly expanding worldwide unmanned systems markets including precision agriculture, defence, critical infrastructure protection, inspection, and public safety. In particular, Strat Aero’s unique agility and expertise in software, training, operations, and support services enables the team to deliver a total life cycle unmanned solution to the customer from concept to fielding. Such a breadth of capability and facilities is normally found only within the largest and most highly established system integrators who, historically have been the lead contractor capable of opening the door to major, long-term military, infrastructural and government contacts. Of course, actually converting identified interest and enquiries into firm, near-term profitable contracts is, as Strat’s previous management found out to their pain, the trickiest part. In such a new and rapidly emerging area, which remains dominated by a myriad of small players offering complementary skills, however, it represent an important step toward breaking down such barriers. As part of Strat’s newly adopted, deliverable approach, which might initially at least need to focus on smaller, piecemeal commercial applications, it should help build much greater, long-term visibility of earnings. While shareholders still need to be realistic about the immediate future and expect the Group to deliver losses, not just for the current year but possibly even for 2016E, the franchise now being build should guarantee it a long-term role in this giant looming opportunity. Beaufort retains its Speculative buy recommendation on Strat Aero.
Beaufort Securities acts as corporate broker to Strat Aero plc
Yesterday, Dignity announced its trading update for Q3 2015. Revenues increased 15.6% y-o-y to £227.0m and the underlying profit jumped 22.0% y-o-y to £78.1m for the first nine month of 2015. The number of deaths for the nine month period increased 9.0% y-o-y to 446,000. However, the number of deaths for the third quarter was unchanged y-o-y to 129,000. Overhead costs were well under control, thus providing scope for growth in volumes. Laurel’s business integration is going well and the company expects to release its operational figures in its 2015 Annual report. Furthermore, the company acquired 12 more funeral locations through an investment of around £10.9m, taking total investments during the year to £49.2m. The company expects to beat market expectations for the year owing to significant jump in number of deaths. However, the revenue guidance from year 2016 and beyond remained unchanged.
Our view: Continuing its stellar performance in 2015, Dignity posted strong Q3 numbers. The company performed well demonstrating its strong customer focus and commitment towards the clients. Moreover, acquisition of strategic independent units is yielding positive results and is in line with its long-term growth strategy. The acquisitions would expand its geographical presence and cater to a wider segment of the market. Additionally, Dignity continues to undertake initiatives to control its operating costs and nurture its balance sheet to maximise shareholder returns. We are encouraged with Dignity’s future business prospects, given its strong market position and steady demand environment for its services. Given the above positives and series of acquisitions in its kitty, we feel that the company remains in a strong position to create long term wealth for the shareholders and therefore reiterate a Buy on the stock.
Aggreko released its third quarter trading update for the period from 1 July 2015 to 8 November 2015. Reported revenues for the third quarter declined 6% y-o-y, while the underlying revenues fell 7% y-o-y. Decline in underlying revenues was attributed to lower revenues in Power Solutions (down 11% y-o-y) as well as Rental Solutions (down 1% y-o-y). Though Industrial revenues in Power Solutions were up 12% y-o-y on successful execution of European Games, Utility revenues in Power Solutions declined 21% y-o-y due to lower pricing in a contract extension in Bangladesh and the off-hiring of a contract in Panama. Excluding these impacts, Utility revenues in Power Solutions were down 12% y-o-y. Rental Solutions business unit’s performance was broadly flat as the sustained growth in petrochemical and refining sectors were mitigated by continued weakness in oil and gas as well as mining sectors. On the other hand, the company’s order intake was 561MW year to date and has also extended the 260MW of gas contracts in Mozambique until the end of this year. Closing order book is equivalent to covering 14 months of forward revenues. Furthermore, Aggreko announced appointment of Nicolas Fournier as the Managing Director of Power Solutions business unit. The company maintained that it is moving on track regarding the implementation of business priorities highlighted in August 2015. Considering prevailing trading environment, the company lowered current year’s capital spending plan to around £250m on fleet from £270m but higher than £226m in 2014. However, the company maintained its guidance for the profit before tax to be in the range of £250m and £270m for the full year 2015. Aggreko projects underlying revenue trend in the second half of the year to be similar to that in the first half.
Our view: The performance of the company in the first nine months was impacted by difficult trading conditions in its key end markets (especially Bangladesh) and continued weakness in oil and gas as well as mining sectors. To mitigate the impact of these adverse conditions, Aggreko is proactively taking efforts to cut cost and improve operational efficiencies. We believe these initiatives will provide some support to the company’s performance in prevailing adverse market conditions. However, we would like to wait and watch for the impact of the structural changes on the company’s bottom line in coming quarters. We, therefore, maintain our Hold rating on the stock.