The Markets
Market opening: The FTSE-100 is expected to open around 22-points higher this morning.
New York: Last night in New York markets were unchanged, with the S&P 500 ending a four-day losing streak, as investors braced for an interest rate hike by the Federal Reserve next month.
The Dow Jones rose 28 points to 17,758. The S&P 500 rose 0.2% to 2,082 whilst the Nasdaq traded 0.2% lower as declines of more than 1.2% in Apple and Microsoft impacted heavily.
Asia: Share markets slide lower in early morning trading as concerned grew ahead of a number of key Chinese economic data. Japan’s Nikkei was little changedt, while Hong Kong’s Hang Seng was up 0.1%. China’s Shanghai Composite slipped 0.1% while the tech-focused Shenzhen Composite added 0.7%.
Continental Europe: Euro markets were anticipated to more marginally higher today, continuing to recover from this week’s earlier falls, as traders tackled the latest batch of eceonomic data from China.
UK small caps: The FTSE AIM All-Share index closed 0.06% lower yesterday at 743.70.
Today’s news
TalkTalk hack to cost up to £35m
The recent cyber attack on telecoms operator TalkTalk could cost in the region of £35m in one-off costs, the company has confirmed.
Following the security breach, which divulged some customers’ personal details, all customers will be offered a free upgrade.
Chief executive Dido Harding said that despite the hack TalkTalk was “well positioned to deliver strong and sustainable long term growth”.
The firm has announced that it expects FY-results to be in line with market expectations.
Company News
Jubilee Platinum (LON:JLP) – Speculative Buy
Jubilee Platinum, the Mine-to-Metals specialist, focused on platinum mining and recovery, today released its audited results for the year ended 30 June 2015. The salient features for the period include the disposal of the Middleburg Operations and Power Plant (“Disposal Group”) for a cash sum of ZAR110.5m (£5.3m). Revenue from the Disposal Group was up 29% to £5.2m compared with 2014. Operating expenses from the Disposal Group fell by 10% to £3.4m, whereas operating expenses from continuing operations fell 33% to £2.2m compared with 2014. Loss per share for the Disposal Group was reduced by 78% to 0.10p and loss for continuing operations was reduced by 45% to 0.45p compared with 2014. The company also announced its Annual General Meeting will be held in London on 2 December 2015.
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 recently announced commencement of construction of the ASA 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. We also note Jubilee’s world class Tjate platinum project located in the eastern Bushveld Complex, the company has submitted its EIA and EMP and is awaiting approval of its mining right application. As such, we reiterate our Speculative Buy on Jubilee Platinum.
Beaufort Securities acts as corporate broker to Jubilee Platinum plc
Rockhopper Exploration (LON:RKH) – Speculative Buy
Yesterday, Rockhopper Exploration released an update regarding the completion of Side track well GU2-Dir at its Guendalina gas field, offshore Italy. Rockhopper Exploration has 20% interest in Guendalina gas field, which is operated by ENI. The well has successfully reached its target depth of 3,276m, and was completed on time and in budget. The rig which moved off location on 4th November 2015 has started production. Out of gross production of 440,000scm per day from the well, Rockhopper’s net share is 88,000scm (around 580 barrels of oil equivalent). This represents 190.0% jump from previously reported production capacity of 200 barrels of oil equivalent per day. The company expects revenues of approximately US$7.0 mn from Guendalina gas field in 2016.
Our view: Aforementioned news is very encouraging for Rockhopper Explorations, with a long term prospect of adding value to shareholders and investors. Successful completion and resumption of production activities at the Guendalina gas field shows strong technical and executional capabilities of the company. Rockhopper Exploration remains on track to start the gas production from Civita onshore gas field in Q4 2015. However, recent news of pre-emption from the proposed acquisition of Beach Energy was disappointing for Rockhopper. Going forward, Rockhopper plans to invest in the Greater Mediterranean and North Africa region, which would further enhance the company’s resources. We believe the company has long-term growth potential and would pay-off handsomely when the oil sector stabilizes. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Adept Telecom (LON:ADT) – Buy
Adept, one of the UK’s leading independent communications integrator and managed service providers, announced its results for the 6 months ended 30 September 2015. Revenue grew 22.8% to £13.9m, EBITDA rose 24.8% to £2.9m and EBITDA margin also grew to 21.8% (2014, 20.8%). EPS grew 23.1% to 10.32p. The Interim dividend rise by 33p to 3p per share. The revenue increase being a reflection of the 5 month revenue contribution from Centrix Limited, following the completion of the acquisition on 1 May 2015. Centrix is a UK based specialist provider of complex unified communications, Avaya IP telephony, hosted IP solutions and managed services. With over 300 Avaya solutions in the UK and across the world Centrix has one of the largest customer bases backed by specialist knowledge of the Avaya Aura solution in particular, which has extended the Group’s ability to provide a complete unified communications solution. AdEPT has had continued success in the public sector and healthcare space during the period winning a number of new contracts with councils and other public sector bodies. Over the last 24 months AdEPT has been successful in gaining new contracts with public sector and healthcare organisations as a result of its various framework agreements. This has seen an increase to 28 councils from 18 in the comparative period. The acquisition of Centrix provided a complementary customer focus both in terms of size and sector. The continued targeting of larger contracts has seen the Premier Customer division now accounting for just over 70% of Total revenue at 30 September 2015 (2014: 55%). The public and healthcare sector customer base has been extended and now accounts for 24.3% of Total revenue at 30 September 2015 (2014: 13.3%). AdEPT continues to successfully make the transition from a traditional fixed line service provider to a complete communications integrator offering best of breed products from all major UK networks. Revenue from managed services, including data connectivity, hardware and cloud-based contact centre solutions, increased by 88.7% now accounting for 41.2% of Total revenue for the six months ended 30 September 2015 (September 2014: 26.8%). The demand for faster data connectivity speeds continues, and this is being met through a wider data connectivity service offering, including up to 10Gb Optical Spectrum Services (OSA) data connectivity being provided to customers solutions under the Ja.Net framework for universities and colleges.
Our view: With cash generation equating to 99.2% of EBITDA and the Company committed to a progressive dividend policy it is encouraging to see a 33% increase in the interim dividend. The acquisition of Centrx has extended the Group’s ability to provide a complete unified communications solution and we expect a continued targeting of larger contracts. This has been an excellent 6 months with improved results in all key areas and an extremely positive contribution from the Centrix acquisition. The company has adequate debt facilities in place to enable to Board to continue to identify earnings-enhancing acquisitions whilst retaining scope for a progressive dividend policy. Despite the shares doubling since we first recommended them in November 2014, holders may consider top slicing, however we are backing management and continue with a Buy.
National Grid (LON:NG.) – Buy
Yesterday, National Grid released its result update for six month ended 30th September 2015. Revenues increased 7.7% y-o-y to £6,854m and the operating profit improved 13.0% y-o-y to £1,849m. Pre-tax profit rose 15.0% to £1,348m due to a reduction in the finance expense. Additionally, earnings per share increased 16.0% y-o-y to 27.8p owing to the impact of the other activities. On an adjusted basis, the operating profit improved 14.0% to £1,836m and the earnings per share climbed 22.0% to 28.4p. On the operational front, the US regulated business increased investments to US$1.4bn and filed full rate case for Massachusetts Electric. Additionally, capital investments across businesses were £1,919m, a y-o-y increase of 17.0%. National Grid proposed a change in its business portfolio and started a process for the possible sale of its majority stake in UK Gas Distribution business. The Board has approved an interim dividend of 15.0p per ordinary share, in line with its dividend policy. The company is positive about achieving its year-end financial guidance.
Our view: The current financial year is proving to be a positive year for the National Grid as it improved its overall performance in the UK and is on track towards investment decisions in a number of US transmission opportunities. The company made significant progress on enhancing operational efficiency through implementation of modernized procurement process. Additionally, National Grid is continuously working to strengthen its balance sheet by low cost debt issuance and hedging activities. National Grid acknowledged the local needs and expanded its reach in localised service offering. We remain confident that the National Grid would continue to deliver sustainable financial performance keeping in mind the improved operational environment. We, therefore, retain our Buy rating on the stock.
Yesterday, Vodafone released its result update for six month ended 30th September 2015. Reported group revenues for the period declined 2.3% y-o-y to £20.3bn, while the reported EBITDA fell 1.7% y-o-y to £5.8bn. Whereas, Group organic revenue rose 2.8% and EBITDA rose 1.9% y-o-y for the period. Operating profits were up 1.7% y-o-y to £933.0m. Additionally, company reported free cash outflow of £0.5bn and declared interim dividend of 3.68p, representing growth of 2.2%. The company maintained it’s focused on enhancing efficiency and margins across geographies. Emerging market business showed strong commercial growth, while European business is on recovery path. The company added 2.7 million new mobile contracts and 0.5 million new broadband customers during the period. On the operational front, Vodafone is rapidly expanding its data coverage in Africa, Middle East and Asia Pacific region under its project spring. From the next financial year, the group will change its reporting currency from Sterling to Euro.
Our view: Though the result update was not very encouraging, we believe that company has made significant progress towards geographical consolidation and achieving operating efficiency. With a proven track record of customer satisfaction, we expect Vodafone to continue its growth momentum. Financial performance has started reflecting the positive impact of improved economic environment and better execution. Additionally, the group has made impressive growth in data segments across geographies. Vodafone is focused on developing leading enterprise products and continue to invest in other brand building exercises. Furthermore, preparation of IPO in India is proceeding as expected which will help the company in monetizing its long-term investments. We believe the company would strengthen its market position owing to improving economic conditions in the Europe, backed by Vodafone’s vast network. Therefore, we maintain a Buy rating on the stock.
Experian (LON:EXPN) – Buy
Experian issued its half-yearly financial report for the six months ended 30th September 2015. Total revenues came in at US$2.2bn, lower than US$2.4bn a year ago. Revenues from continuing businesses declined 6% to US$2.2bn (but were 4% up on a constant currency basis) mainly due to unfavourable foreign exchange rates. On constant currency basis, revenues grew in all geographies – Latin America (up 6%), UK and Ireland (up 6%), EMEA/Asia Pacific (up 6%) and North America (up 1%). EBIT from continuing activities contracted 8% on actual currency basis to US$570m, but was up 3% on constant currency basis. Profit before tax stood at US$458m, lower than US$534m last year. Consequently, benchmark earnings per share came in at 42.0 cents compared to 45.1 cents a year ago. Experian’s operating cash flow conversion stood at 95%, while net debt to EBITDA ratio was 2.1 times as net debt increased by US$138m due to share repurchases. The company announced to pay first half dividend of 12.5 cents (up 2%) and has also extended its share buy-back programme by another US$200m from earlier announcement of US$600m. The company expects unfavourable currency exchange rate to continue to exert pressure on the full year performance, while the organic revenue growth (at constant currency rate) is likely to be in the mid-single digit range though at the lower end of the range. This in turn will deliver stable margins and improvement in benchmark earnings per share. The company mentioned that unfavourable currency rate movements have contracted EBIT margins by 60 basis points to 25.7%. In light of prevailing currency exchange rates, the company expects foreign exchange headwind on EBIT to be in the range of 10%–11% for the year ending 31 March 2016 and between 2%–3% for the year ending 31 March 2017.
Our view: Experian profits dropped in the first half mainly due to low revenues which were pressurized by adverse currency exchange rates. Though the trend is expected to continue in the full year performance as well, sustained improvement in performance on the constant currency exchange rates is encouraging. Organic revenue growth on constant currency basis and stable margins are likely to further support the company’s full year earnings. Moreover, Experian has maintained focus on its strategic priorities and is undertaking various initiatives to focus on the portfolio. Performance of key businesses such as Credit Services and Decision Analytics are also strengthening. Furthermore, increasing dividends and extension in the share repurchase program are also encouraging. In view of the above positives, we expect the company to continue to create shareholders’ value and recommend a Buy.