The Markets
Market opening: The FTSE-100 is expected to open fairly flat this morning.
New York: Wall Street ended marginally lower, as decline in healthcare and energy stocks offset gains in technology stocks. Meanwhile, investors focused on an interest rate hike in December. The S&P 500 fell 0.1%.
Asia: Equities are trading higher. People’s Bank of China decision to cut interest rates on loans given to banks lifted investor sentiment. The Nikkei 225 added 0.1%, while the Hang Seng was trading flat at 7:00 am.
Continental Europe: Markets ended higher, taking positive cues from the Fed’s policy meeting that indicated a possible interest rate hike in December. Moreover, the European Central Bank’s decision to consider adding stimulus to the economy boosted investor confidence. Germany’s DAX and France’s CAC 40 gained 1.1% and 0.2%, respectively.
Crude Oil: Yesterday, Brent oil prices increased 0.1%, whereas WTI oil prices dropped 0.5%. The spread between the two varieties stood at US$3.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.19% higher yesterday at 730.61.
Today’s news
Manufacturing output in UK expected to fall
As per the Confederation of British Industry (CBI), a gauge of expectations for manufacturing output in the UK over the next three months fell to -6 from +5 in October, the first decline since November 2012. The total order balance of CBI’s monthly industrial trends survey increased to -11 in the three months to November from -18 in October.
Company News
Beowulf Mining (LON:BEM) – Speculative Buy
Yesterday, Beowulf Mining (Beowulf) informed that Lanstead Capital will reduce its shareholding by 3% to 11.9%. Following this, numbers of shares held by Lanstead will stand at 51,134,740 from 63,007,175.
Our view: The aforementioned update regarding Lanstead’s move to reduce shareholding by selling stock is a positive development for Beowulf as it would reduce the overhang. Recently, the company was granted the Exploitation Concession for Kallak North from the Mining Inspectorate of Sweden. We look forward to positive decision by the Government of Sweden which would take the project forward. In the meantime, management would address the points raised by the Mining Inspectorate and the CAB in their responses to the Government. The Kallak North iron ore deposit has high grade hematite with over 68% Fe content. Despite the downward pressure on benchmark iron ore prices on the back of continued oversupply and slowing economic activity in China, we note that high quality iron ore products continue to fetch premiums relative to the benchmark 62% Fe. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Beowulf Mining plc
Fox Marble Holdings (LON:FOX) – Speculative Buy
Yesterday, Fox Marble Holdings (Fox Marble) informed that it has opened a new Bianco Illirico marble quarry located in Malesheva, Central Kosovo. The quarry is spread within an area of five hectares and contains high quality, compact and consistent dolomitic marble. The company has dug two benches at the site and the first blocks of the milk-white marble have been sent for sampling.
Our view: The opening of marble quarry is a positive development for Fox Marble and reflects its growing relationship with Kosovan administration. The quarry has sufficient capacity to meet the demand for high-quality white marble, which is a rare category of marble. Additionally, the company has received requests from offtake partners to review the samples. Construction work of Fox Marble’s processing plant is also progressing well, which would accelerate future delivery of stone from the quarry and help in expanding order book. The company expects to receive the first samples before the end of the year. Furthermore, Fox Marble has a healthy order book, which amounted to €2.8 million at the end of the first half. The company has one of the most exciting portfolios of high grade on-surface dimensional stone, to supply a giant and highly fragmented international customer base. In light of the above argument, we upgrade the rating to Speculative Buy from Hold.
Royal Dutch Shell (LON:RDSB) – Buy
Yesterday, Royal Dutch Shell (Shell) informed that its acquisition of BG Group has received unconditional merger clearance from the Australian Competition and Consumer Commission (ACCC). The company has received three out of the five requisite approvals for the acquisition of BG Group.
Our view: The aforementioned news takes Shell a step closer to complete the acquisition of BG Group. Completion of this acquisition will add BG’s gas assets located in Australia to Shell’s existing portfolio. Post the completion of transaction, we expect Shell to cut spending in exploration, re-structure its capital allocation and enhance economies of scale capitalizing on a rich and vast asset base. Furthermore, as per the recently declared results for the third quarter, the company achieved high production levels benefiting from the various measures undertaken to improve operational efficiencies. Shell’s healthy cash position would further facilitate future growth initiatives. We believe Shell would deliver good results in the long-term owing to its fundamentally strong position and measures to counter the challenging conditions. Therefore, we maintain a Buy rating on the stock.
San Leon Energy (LON:SLE) – Speculative Buy
Yesterday, San Leon Energy informed that it has started spuding at the Rawicz-15 well using a rig from Poland’s Exalo Drilling. The well is operated and funded by Palomar Natural Resources, and expects to take 35 days to reach a depth of around 1,600m, and would be followed by completion and a full well testing programme.
Our view: The aforementioned update is encouraging for San Leon as it commences with spuding at the Rawicz-15 well. The Rawicz well is estimated to have more than 50 Bcf (Billions of standard cubic feet) of 2P reserves and is expected to be the largest gas development in Poland for 20 years. Recently, the company has initiated asset optimization and cost reduction strategy resulting in relinquishing certain non-core Polish licences. San Leon’s move supports its long-term strategy to focus on development and production. The company is likely to save on the annual license fees on the relinquished Polish license while remaining committed to the remaining acreage in Poland including the Baltic Basin shale licence and the Rawicz field. Furthermore, the company remains fully funded for development of projects as it raised £29m through issue of new shares. We believe the company is moving in the right direction and is comfortably placed to face the difficult trading conditions. Therefore, we retain a Speculative Buy rating on the stock.
Economic News
US initial jobless claims
Number of Americans filing their initial claims for unemployment benefits dropped by 5,000 to a seasonally adjusted 271,000 in the week ended 14th November, from last week’s claims of 276,000, the Labor Department said yesterday. Economists had expected claims to drop to 270,000.
US leading index
The Leading Economic Index for the US gained 0.6% m-o-m in October, after a revised 0.1% fall in September, the Conference Board said yesterday. Markets had expected a gain of 0.5%.