The Markets
Market opening: The FTSE-100 is expected to start this morning’s session around 39 points lower.
New York: Wall Street ended in the red amid continuous decline in oil prices. Additionally, weak economic data releases hurt investor sentiment. The S&P 500 fell 1.1%, dragged by the consumer discretionary sector. The market declined 3.6% during the week.
Asia: Equities are trading lower, taking negative cues from the terrorist attacks in Paris. The Nikkei 225 dropped 1.0%, as Japan’s economy contracted in the third quarter. The Hang Seng was trading 1.6% down at 7:00 am.
Continental Europe: Markets fell amid disappointing corporate earnings reported on Friday. Furthermore, declining commodity prices and weak economic data releases dented investor confidence. France’s CAC 40 and Germany’s DAX dropped 1.0% and 0.7%, respectively.
Crude Oil: On Friday, WTI and Brent oil prices decreased 2.4% and 1.0%, respectively. The spread between the two varieties stood at US$2.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.62% lower on Friday at 732.42.
Today’s news
House prices in UK fall in November
As per Rightmove, the house price index in the UK declined 1.3% m-o-m in November after a 0.6% increase in October. On a y-o-y basis, house prices rose 6.2% in November vis-à-vis a 5.6% gain in October.
Japan’s economy contracts in third quarter
As per data from the government, Japan’s GDP declined at an annualised rate of 0.8% in the third quarter ended September 2015 after a 0.7% drop in the second quarter. On a q-o-q basis, the economy contracted 0.2% in Q3 2015.
Company News
NU-Oil and Gas (LON:NUOG) – Speculative Buy
The Company has raised £435,000 before expenses through the issue of 124,285,714 new Ordinary Shares to institutional investors at a price of 0.35p per Placing Share. The net proceeds of the Placing will be used primarily to implement the Company’s stranded and marginal field strategy and to facilitate the acquisition of projects. The Company is in discussions, which it is hoped will lead to one or more projects being secured in the short term. The Enlarged Issued Share Capital will be 314,078,062 Ordinary Shares. Nigel Burton, CEO of NU-Oil, commented: “The Directors are pleased that, despite difficult market conditions, the Company has raised sufficient funds to enable it to continue implementation of the business plan, with the particular aim of securing its first development project using the low cost solutions devised and delivered by ABT Oil and Gas and the MFD Consortium. Achieving this goal will create significant value and transform the prospects for the Company”.
Our view: We are encouraged by the strategy of NU-Oil and Gas in pursuing stranded and marginal field assets and impressed with the company building its strategic members of the Marginal Field Development Consortium. The members are investing significant time and services at risk in order to develop the initiative, taking the form of technical services, marketing and business development to secure projects. We look forward to the announcement of the initial project in due course. We recommend a Speculative Buy rating.
Beaufort Securities acts as corporate broker to NU-Oil and Gas Plc.
Minco (LON:MIO) – Speculative Buy
Minco has announced that it has been granted three new Prospecting Licences in Ireland by the Minister of Communications, Energy and Natural Resources. The new licences, at Moate in County Westmeath, Ireland, are centred on a specific geological target identified by Minco, with potential for zinc-lead mineralization of Tynagh Mine type. Each licence is valid for a period of six years from 3 November 2015. The potential for reef hosted zinc-lead mineralization of “Tynagh-type” at Moate has never been explored. Minco’s new Moate licences are located along the north-western margin of the Irish Midland Orefield on the “Tynagh-Ballinalack Trend”. All but one of the major Irish zinc-lead deposits of the Irish Midland Orefield lie along the margins of the Orefield. The Tynagh Mine operated successfully from 1965 to 1981 producing 9 million tonnes of ore, from both open pit and underground, at average grades of approximately 7% lead, 5.5% zinc, 0.5% copper and 2.6 ounces of silver per tonne. According to the Company, The Tynagh Mine and the Ballinalack deposit lie along a major, northeast striking basement trend, the “Tynagh-Ballinalack Trend”, comparable to the Lisheen Trend, which underlies the Lisheen and Galmoy Mines in Tipperary and Kilkenny, and comparable to the Pallas Green Trend which hosts the Pallas Green deposits discovered by Minco in 2007.
Our view: The outcome of the drilling programme at Buchans project throws some light on the potential of the new high-grade massive sulphide. With the high grade and extensive character of the Ore Clast horizon mineralisation, the Company is well placed to encounter more new orebodies composed of transported ores. The Company has begun relogging historic drill holes in order to determine potential for new high-grade discoveries. The project represents one of several of Minco’s advanced volcanogenic massive sulphide base metal projects in the Newfoundland. Recently, the results from the first quarter reflected the Company’s advancement in the development of its assets. Its principal exploration assets include the Lucky Strike mine in the Buchans area of Newfoundland which resumed drilling in April following favourable results in 2014. The Group’s wholly-owned Woodstock Manganese Project completed a Preliminary Economic Assessment in July 2014 and its goal now is to seek a development partner to advance the Woodstock project through to the pre-feasibility and final feasibility development stages during this period of transformation within the Chinese and global EMM industry. Minco’s exploration drilling in the northern Pennines also continued until January 2015. Accordingly, we believe that the company remains significantly undervalued based on its number of high-value opportunities and therefore maintain our Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Minco plc
Galliford Try (LON:GFRD) – Buy
Galliford Try (Galliford) informed on Friday that it has held Annual General Meeting on 13 November 2015. At the meeting, its Executive Chairman, Greg Fitzgerald confirmed that “the Group continues to see good market conditions in all of its businesses”. Linden Homes, one of the Group’s brand for housebuilding business, has strengthen its rate of sale to 0.60 units per outlet per week from an average of 75 outlets since the beginning of this financial year compared to 0.48 for the same period last year. Although the challenges of cost and availability of labour and materials are continuing, the Group is confident that its performance will be in line with its expectations.
Our view: Galliford remain confident to achieve its expectations for the current financial year and delivering their strategy to 2018. The Group recently announced that it has been appointed as a supply chain partner, under the ProCure21+ framework, won one of the biggest contract worth £150m to renovate Luton and Dunstable University Hospital expected to complete in 2019, enhancing Galliford’s prospects in the healthcare market. The deal provides the company an opportunity to prove its mettle in delivering quality work in complex public sector healthcare projects. The Company’s well-thought-out strategy for long-term collaboration and the recent surge in the house building and the construction business, driven by the government’s ‘Help to Buy’ scheme, led to a significant top-line growth. We expect its strong order book and solid landbank will help Galliford maintain its growth momentum for the entire year. Therefore, we retain a Buy rating on the stock.
Premier Oil (LON:PMO) – Speculative Buy
Premier Oil (‘Premier’) released its trading update for the period 1 January to 31 October 2015 on 12 November 2015. During the period, the Group’s average production stood at 57.5 thousand barrels of oil equivalent per day (‘kboepd’) against 64.0 kboepd the same period last year, ahead of full year guidance of 55 kboepd. Premier also reaffirmed its full year operating costs of c.US$16 per barrels of oil equivalent (‘boe’), a reduction of over US$100m year-on-year through significant cost saving. On top of this, further 5-10% operating cost savings is estimated for 2016. On the operational front, Premier operated Chim Sáo field in Vietnam outperformed with high uptime and better than predicted reservoir performance. In line with previous guidance, Premier expect first oil from Solan project before the year end and the Catcher project remains on schedule and budget successfully completed subsea installation work. Additionally, Phase 1a and pre-FEED work on Sea Lion in the Falkland Islands is now also completed.
Our view: Premier reported strong average production for the period ahead of full year guidance. Through significant cost savings, it has delivered over 25% saving for 2015 and further reduction were estimated for 2016. The Group made excellent progress across its projects notably Solan project ready for the first oil by the end of 2015 which would further enhance its production level. Despite the challenging environment, the company possesses some world class assets and remains well-placed to generate long term cash flows to fund both its committed developments as well as manage its balance sheet. Premier retains significant liquidity with cash and undrawn bank facilities of US$1.2bn as of 31 October 2015 and its covenant headroom is estimated to exceed US$700m at year end due to successful renegotiation. The recent plunge in the share prices should be seen as an opportunity for investment. Beaufort retain its Speculative Buy rating on the stock.
Economic News
Germany GDP
German GDP growth expanded 0.3% q-o-q in Q3 2015, from 0.4% in Q2 2015, as per the preliminary estimates published by the Federal Statistics Office on Friday. On y-o-y basis, GDP grew 1.7%, from previous quarter’s growth of 1.6%.
Eurozone GDP
Eurozone GDP expanded 0.3% q-o-q in Q3 2015, following a 0.4% growth in Q2 2015, European Union’s statistic office revealed on Friday. On y-o-y basis, the economy grew 1.6% from 1.5% in the previous quarter.
US retail sales advance
US advance retail sales increased 0.1% m-o-m in October after a revised flat reading in September, the Commerce Department said on Friday. Excluding the sales of motor vehicle and parts, retail sales were 0.2% up in October, from previous month’s decline of 0.4%.
US PPI final demand
The US producer price index (PPI) for final demand fell 0.4% m-o-m in October, after a decrease of 0.5% in September, the Bureau of Labor Statistics stated on Friday. The reading was below market expectations of a 0.2% increase. Core producer prices, excluding food and energy, fell 0.3% in October. On y-o-y basis, PPI demand narrowed 1.6% in October following a 1.1% drop in September.
US University of Michigan sentiment
The US University of Michigan’s consumer sentiment index for November rose to 93.1 from 90.0 in October, data indicated on Friday. Economists expected a reading of 91.5. The consumer expectations index, which closely forecasts the direction of consumer spending, increased to 85.6 from 82.1, while the current economic conditions index improved to 104.8 from 102.3.