The Markets
Market opening: The FTSE-100 is expected to start the session around 30-points higher this morning.
New York: Wall Street ended in the green, dismissing the poor manufacturing data released yesterday. Investors await the Fed’s comments and non-farm payroll data this week. The S&P 500 advanced 1.1%, with the healthcare sector gaining the most.
Asia: Equities are trading mixed, taking negative cues from weak manufacturing data globally. The Nikkei 225 fell 0.4% as a stronger yen hurt export-driven stocks. The Hang Seng was trading 0.4% up at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended in the red despite positive economic data released yesterday. Investors remained cautious ahead of the European Central Bank’s monetary policy decision later this week. Germany’s DAX and France’s CAC 40 shed 1.1% and 0.9%, respectively.
Crude Oil: Yesterday, WTI oil prices increased 0.5%, while Brent prices decreased 0.4%. The spread between the two varieties stood at US$2.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.13% higher yesterday at 738.30.
Today’s news
UK shop prices fall in November: BRC
According to the British Retail Consortium, shop prices in the UK fell 2.1% y-o-y in November, compared with 1.8% in October, matching the record decline in March 2015. The decrease was ascribed to a 3.3% y-o-y fall in non-food prices in November.
UK manufacturing sector slows in November
As per Markit, the UK purchasing managers’ index (PMI) fell to 52.7 in November from 55.2 in October. The agency reported small- and medium-scale enterprises are lagging behind large ones. Furthermore, a minor change was witnessed in job creation in the manufacturing sector vis-à-vis last month
Company News
Cyan Holdings (LON:CYAN) – Speculative Buy
Cyan, the integrated system and software design company delivering mesh based flexible wireless solutions for utility metering and lighting control, announces that it has signed a strategic partnership agreement with Newcapec Electronics Company Limited, a leading solutions provider in China.
Together, Cyan and Newcapec will explore new opportunities in next generation smart metering applications for the power, gas and water industries as well as emerging city applications, such as lighting and sensors, both in China and internationally.
In August, Cyan’s Executive Chairman, John Cronin met Mr Yang Weiguo, President and Mr Fu Qiusheng, Executive Vice President at Newcapec in Henan, China. Following this meeting, Cyan and Newcapec have agreed to collaborate to create added value from their combined solutions, as well as identifying and developing new applications across emerging smart energy, ‘Smart Cities’ and Internet of Things (“IoT”) markets.
China’s Ministry of Industry and Information Technology released its 12th Five-Year Development Plan in 2012, with the goal of scaling the IoT market to $163 billion by 2020 (Source: GSMA’s "How China is Scaling the Internet of Things").
In China, economic growth and urbanisation is driving the adoption of connected technology as the government seeks to balance supply and demand in key sectors of the economy, namely energy and transportation. Furthermore, other major industries are also embracing IoT which provides real-time information to increase efficiency, lower costs and manage infrastructure more effectively.
Our view: This partnering with Newcapec to provide integrated solutions through combined value is good news for shareholders. Cyan’s objective is to deliver smart metering solutions to enable increased intelligence for both utilities and consumers, and to support energy efficiency, consumption and demand side management initiatives. In addition, the company will work with Nescapec to identify new applications for their combined technology within the IoT and ‘Smart Cities’ to support the creation of sustainable, viable living spaces with Cyan’s integrated platform providing insight and control.
Mr Yang Weiguo, President, Newcapec, commented: “China aims to lead the world in the use of connectivity to consume electricity and other utility services efficiently. Proven by its experience in emerging markets, Cyan’s integrated smart energy solutions address the immediate market requirement as well as providing a platform to develop new smart city applications for the future.”
We retain a Speculative Buy on Cyan and look forward to developments from the strategic partnership in China in the coming months.
Beaufort Securities acts as corporate broker to Cyan Holdings plc
Condor Gold (LON:CNR) – Speculative Buy
Yesterday, Condor Gold (Condor) informed that it has completed an Environmental Impact Assessment (EIA) and submitted an application for an Environmental Permit to the Ministry of Environment and Natural Resources in Nicaragua (MARENA) for the construction and operation of an open pit mine at its processing plant at La India Project, located in Nicaragua. The EIA is a document pertaining to the environmental and social impacts of gold production from the La India Open Pit mine. In addition, the document includes environmental management plans and social management plans to monitor and control any such impacts.
Our view: The completion of EIA and submission of Environmental Permit is a positive development for Condor, as it takes them a step closer to obtain permitting licence for the gold mine. This was one of the main objectives set by the company for the year 2015. The La India Project is fully owned by the company with a resource estimate of around 18.1 million tonnes at 4.0g/t gold comprising of 2.32 million ounces of gold. As per the EIA report, the processing plant would have a capacity between 2,200 tonnes per day (tpd) to 2,800tpd. Using the plant at its lower end capacity, the Pre-Feasibility Study (PFS) showed 76,000 ounces (oz) of gold per annum (p.a) and the Whittle Optimisation indicated 91,000oz of gold p.a. In addition, the company has recently found a total of 33 exploration targets, with 23 of them having gold veining at the surface. Furthermore, the geological setting from Tierra Blanca remains highly prospective and we expect the company to witness growth through the extension of high-grade gold mineralization. In view of the overall developments, we remain optimistic over the Condor’s future prospects and maintain a Speculative Buy rating on the stock.
Merlin Entertainments (LON:MERL) – Buy
Yesterday, Merlin Entertainments (Merlin) released a trading update for the 47 weeks ended 21st November 2015. Performance was in line with the expectations set in the last update released on 17th September. The LEGOLAND Parks witnessed an increase in like-for-like (LFL) revenue, with the resorts benefiting from the Halloween period. However, the Midway attractions segment has seen a fall in LFL revenue amid difficult market conditions in London and Hong Kong. The company expects full year results in line with its expectations and underlying EBITDA to be in the previously guided range of £40-45m. Merlin would declare its 2015 preliminary results on 25th February 2016.
Our view: Merlin’s new attractions and accommodation opened in the current year and 2014 have continued to perform well. Recently, the company formed a Joint Venture (JV) with China-based Media Capital (CMC) to develop a LEGOLAND Park in Shanghai and other Midway attractions in China. This JV would accelerate Merlin’s expansion plan in this key market. Additionally, CMC, a leading entertainment firms in China, would facilitate Merlin with the knowledge and understanding of local market needs and demands. Currently, the company has five attractions in China and expects to open three new attractions in the next 18 months. Going forward, Merlin aims to expand its global presence by opening attractions and Parks in the US, Italy and Dubai. Overall, Merlin seems to have a long-term growth potential owing to its expanding market penetration and rising number of visitors. Therefore, we maintain a Buy rating on the stock.
Yesterday, Diageo informed that the company, Heineken and The Ohlthaver & List Group of Companies, the controlling shareholder of Namibia Breweries (NBL), have completed the restructuring of their respective joint venture (JV) operations in South Africa and Namibia. The transaction fulfils all the conditions agreed upon on 28th July 2015. The company has received a total net cash consideration of ZAR2.5bn for the equity and debt positions sold in Sedibeng, DHN and NBL.
Our view: Restructuring of Diageo’s JVs in South Africa is in line with its plan to focus on the core markets. Recently, the company sold its interest in Desnoes & Geddes (D&G) and Guinness Anchor Berhad (GAB) to Heineken and also acquired additional shares in Guinness Ghana Breweries Limited (GGBL). Diageo plans to use the cash generated from these deals to reduce its borrowings. Additionally, an increased stake in GGBL would provide Diageo an easy access to the African market. Meanwhile, the company remains cautious in the emerging markets as weaker currencies would hamper its margins. Diageo is undertaking focused brand building initiatives which include innovative marketing techniques and improving distribution platform. The company has implemented several cost saving and pricing measures to boost earnings and continues to make efforts to expand into new markets. Recently, Diageo reported strong performance for 2015 with improved free cash flow and a 9% increase in the final dividend to enhance shareholder wealth. In light of the above argument, we maintain a Buy rating on the stock.
Economic News
Germany unemployment change
The number of people without a job in Germany fell by 13,000 on a seasonally adjusted basis to 2.77 million in November, the Federal Labour Agency said yesterday. Economists had forecasted unemployment to drop by nearly 5,000 for the month. The seasonally adjusted unemployment rate fell to 6.3% in November, from 6.4% in the previous month.
Germany manufacturing PMI
As per the data released by Markit, the final manufacturing PMI of Germany for November improved to 52.9 from 52.6 in October. This was better than the market expected reading of 52.6.
Eurozone manufacturing PMI
Manufacturing PMI for the Eurozone remained same at 52.8 in November, final data from Markit showed yesterday. This was in line with the market expectations.
US manufacturing PMI
The final Markit PMI for the US stood at 52.8 in November, from 52.6 in October. The markets expected a reading of 52.6.
US ISM manufacturing
US manufacturing PMI fell to 48.6 in November from 50.1 in October, as per the Institute of Supply Management (ISM). Economists forecasted a reading of 50.5.