The Markets
Market opening: The FTSE-100 is expected to open around 12 points lower this morning..
New York: Wall Street declined after a volatile trading session yesterday. The market pared early gains, as decreasing oil prices outweighed the impact of positive corporate earnings results of retailers. The S&P 500 fell 0.1%, with the utilities sector losing the most.
Asia: Equities are trading mixed. The Nikkei 225 added 0.1%, as the yen appreciated against the dollar amid the Bank of Japan’s two-day policy meeting starting today. The Hang Seng was trading 0.2% down at 7:00 am.
Continental Europe: Markets closed higher amid better-than-expected economic data released yesterday. Additionally, strong corporate earnings reports lifted investor sentiment. France’s CAC 40 and Germany’s DAX rose 2.8% and 2.4%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices decreased 2.6% and 2.2%, respectively. The spread between the two varieties stood at US$2.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.09% higher yesterday at 728.24.
Today’s news
House prices in UK rise in September
As per the Office for National Statistics (ONS), house prices in the UK increased 6.1% y-o-y in September 2015 compared with a 5.5% gain in August. Currently, the average house price is £286,000. The agency stated the pace of growth in house prices is significantly lower than the previous year.
Company News
Ariana Rescources (LON:AAU) – Speculative Buy
Ariana Resources, the gold exploration and development company focused on Turkey, announced today that it has received a mining permit for its Kizilcukur project, located c 22km NE of its Kiziltepe mine. The Kizilcukur project lies outside of the current Red Rabbit joint venture agreement with Proccea Construction and is 100% owned by Ariana. The mining permit covers 51ha allowing for silver and gold extraction and expires on 24th September 2022, with the possibility of extension. The Kizilcukur project comprises a series of sub-parallel quartz veins that exhibit typical low-sulphidation epithermal features with the main vein having a maximum true thickness of 8m and strike length of 800m. Current JORC-compliant Inferred resource is estimated at 162,000t grading 2.39g/t Au and 48.5g/t silver. Ariana has completed a recent drill program comprising 1,598m of RC drilling which tested the near-surface resource potential along strike. Channel sampling of other veins in the area is ongoing.
Our view: The approval of the mining permit will enable Ariana to complete trail mining on the project and achieves its strategy of identifying potential satellite deposits to feed its Kiziltepe mine. Mine construction continues at the Kiziltepe mine with the first gold pour anticipated in H216. We look forward to construction updates at Kiziltepe as well as assay results from the Kizilcukur drilling and sampling programme. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as a corporate broker to Ariana Resources plc
Rosslyn Data Technologies (LON:RDT) – Speculative Buy
Yesterday, Rosslyn Data Technologies (Rosslyn) released a trading update for the six months ended 31st October 2015. The company acquired two FTSE 100 and two FTSE 250 clients. Rosslyn informed that one of its previous client has returned and entered into contract of three times the original value. The company laid its focus on assisting industry leading consultancies with the RAPid platform. Recently, Rosslyn was appointed as a key provider by Genpact for the ‘Genpact’s Incubation Program’. Rosslyn’s another partner has used the platform to pull data from 11 clients and study transactions of more than US$50bn. The company is progressing well and remains on track to achieve cash flow breakeven.
Our view: The aforementioned trading update is encouraging for Rosslyn with advancements across all key parameters. The company reported an increase in client acquisition rate, lower average cost for new client acquisition and rise in average lifetime contract value. Additionally, client renewal rate remained high with a churn rate of below 5 per cent. The company’s RAPid platform is well received in the market, as the platform was adopted by many reputed global firms including Genpact. Rosslyn’s RAPid platform combines four key technologies: data extraction, cleansing, enrichment and visualisation, to perpetually learn and update through single cloud operation. It enables users to question and access detailed data on ‘moving targets’ in order to take informed decisions. This is what is different about Rosslyn’s offer and what competitors have found difficult to match. Furthermore, the company has recently won a significant new contract with one of the world’s largest mining companies. This multi-year contract has a value of £400,000 to Rosslyn over the contract term. We believe the company is well-placed with a broad pipeline of businesses and contracts to deliver long-term growth. Therefore, we maintain a Speculative Buy rating on the stock.
EasyJet (LON:EZJ.) – Buy
Yesterday, EasyJet declared its results for the year ended 30th September 2015. Revenues advanced 3.5% to £4.7bn in 2015. Pre-tax profit rose 18.1% to £686m, resulting in an EPS of 139.1p against 114.5p in 2014. Return on capital employed stood at 22.2% (2014: 20.5%). Total passengers increased by 6% to 68.6 million, with a record load factor of 94.4% in August. While, load factor for the full year grew by 0.9% to 91.5%. Cash and cash equivalents at the end of period stood at £650m (30th September 2014: £424m). EasyJet announced a dividend of 55.2p amounting to £219m, 21.6% higher than last year, to be paid on 18th March 2016 subject to shareholders approval.
Our view: EasyJet delivered solid performance in the fiscal year 2015 both operationally as well as financially. The company recorded improvement in revenues and higher margins. Revenue per seat increased by 1.5% on a yearly basis, while the Total capacity improved by 5% to 75 million seats. Lower fuel prices and favourable currency movements resulted in cost per seat reduction of 3.4% and savings of £46m. EasyJet delivered on its plan of easy and affordable travel as is evident from the strong passenger numbers growth. The company’s strong cash flow generation has paved the way for increase in dividend payable to the shareholders. EasyJet plans to expand its services by increasing its flight offerings. Recently, several strategic routes were launched including Vienna and Basel that are expected to carry 78,000 passengers annually. Furthermore, the company has bought 36 aircrafts as a part of agreement with Airbus. The aircrafts are expected to be delivered between 2018 and 2021, which would enable EasyJet to retire smaller A319 planes faster and cut £27m in costs by 2021. In view of the above argument, we maintain a Buy rating on the stock.
Inspired Energy (LON:INSE) – Speculative Buy
Yesterday, Inspired Energy (Inspired) informed that it has acquired STC Energy and Carbon Holdings Limited (STC) for an initial consideration of around £9m. The deal will be financed through a cash payment of £5.0m and the issue of 32,786,885 new ordinary shares of Inspired to the founders of STC. Inspired has entered into a new facility agreement with Santander UK plc for a £10m term loan to fund the initial amount. About £7m of the term facilities will amortise over a period of five years and the remaining £3m will be repayable by way of a bullet repayment on 16th May 2021. An additional consideration of up to £3m may be payable subject to some financial performance criteria for the period ending 30th September 2017. This amount would be equally funded through cash and shares. Inspired would fund these payments using its internal cash flows. The acquisition is likely to be earnings enhancing in FY 2016.
Our view: The aforementioned acquisition of STC is a positive news for Inspired. Post the acquisition, the company’s order book has increased to more than 23 million along with a customer base of 9,500 comprising of 1,400 corporates and 8,100 SMEs. Additionally, the acquisition provides the company an entry into the public sector and regional diversification, which would expand its client base. Inspired expects to leverage on the network of STC to acquire new clients and also generate savings for current portfolios. Furthermore, Inspired delivered solid first half results led by continuous growth across the divisions and due to the rising order book. The company improved its cash position as it took several measures to improve operational efficiency. Inspired acquired Wholesale Power UK Limited (WPUK), which provides it an easy entry into new industry segments including leisure and logistics. Going ahead, we expect the company to maintain its earnings growth owing to its strong fundamentals and plans to seek attractive acquisition targets. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Economic News
UK CPI
The UK consumer price index (CPI) grew 0.1% m-o-m in October, after a decline of 0.1% in September, the Office for National Statistics (ONS) said yesterday. This was in line with the market expectations. On y-o-y basis, consumer inflation fell 0.1% in October, following a similar decline in September and in line with the market expectations. Core consumer price inflation – which excludes energy, food, and tobacco – grew at 1.1% y-o-y in October, after a 1.0% increase in September.
UK PPI
The UK producer price index (PPI) output remained flat in October, after a 0.1% drop in September, the Office for National Statistics said yesterday. Economists had forecasted a PPI output fall of 0.1% for the month. On y-o-y basis, output prices were down 1.3% in October, following a decline of 1.8% in September.
Germany ZEW survey
The Centre for European Economic Research/ZEW reported that the German economic sentiment rose to 10.4 in November from 1.9 in October. Meanwhile, the gauge of current situation fell to 54.4 in November from 55.2 in the previous month, missing the market expectations of an index reading of 55.2.
US Industrial Production
Industrial production in the US fell 0.2% m-o-m in October, following a similar decline in September, the Federal Reserve announced yesterday. Markets were expecting output to increase by 0.1%. The capacity utilization declined to 77.5% compared to a revised 77.7% in September.