The Markets
Market opening: The FTSE-100 is expected to start the session 25-points lower this morning.
New York: Wall Street ended in red as a decline in oil prices led to losses for energy stocks. Moreover, the Fed’s comments indicating a possible interest rate hike in December weighed on investor sentiment. The S&P 500 closed 1.1% lower.
Asia: Equities are trading lower taking negative cues from the Wall Street. In addition, the continuous fall in commodity prices resulted in losses for energy and mining companies. The Nikkei 225 closed broadly flat, while the Hang Seng was trading 0.1% down at 7:00 am.
Continental Europe: Markets ended lower as weaker-than-expected inflation data from the Eurozone hurt investor confidence. Meanwhile, investors await the European Central Bank’s policy meeting to be held today. Germany’s DAX and France’s CAC 40 shed 0.6% and 0.2%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices decreased 4.6% and 4.4%, respectively. The spread between the two varieties stood at US$2.6 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.46% higher yesterday at 741.70.
Today’s news
US Fed on track to increase interest rate: Yellen
According to Fed Chairperson Janet Yellen, the agency remains on track to increase interest rates from the record lows in December. The agency stated that a balance of financial and economic data over the past one year and the expected growth in the economy drove its decision to increase rates. However, Yellen warned that poor economic data release over the next two weeks may change the Fed’s decision.
Company News
Minco (LON:MIO) – Speculative Buy
Minco, the exploration and development company currently engaged in zinc-lead exploration in Canada, announced yesterday that, through its wholly owned subsidiary Buchans Minerals, it has entered into a collaboration agreement with Canadian Zinc Corporation (CZN.T) to undertake a research programme on the physical and metallurgical bench scale studies on seven volcanic massive sulphide (VMS) deposits. The deposits are located in central Newfoundland, Canada and the companies will share research data on their respective VMS deposits containing Cu-Pb-Zn and Ag. Total cost of the research project is estimated at £735,000 with Buchans and Canadian Zinc each contributing up to £100,000. The Research & Development Corporation of Newfoundland and Labrador (RDC) is providing remaining funding of £535,000. The objective of the programme is to determine the technical and economic viability of developing the companies’ key deposits into producing operations by utilizing a central milling facility. Thibault & Associates Inc., an applied process chemical engineering firm has been awarded the contract to complete the bench scale physical/metallurgical studies and process simulation.
Our view: We are encouraged the announced collaboration agreement between Minco and Canadian Zinc to study the synergies of a centralised progressing facility fed by satellite deposits held by both companies. The Buchans area of central Newfoundland is one of Canada’s rich VMS districts. Minco holds four advanced base metal properties including: Tulks North, Bobbys Pond, Tulks Hill and Buchans and Canadian Zinc owns the South Tally Pond, Tulks South and Long Lake project. All seven deposits are all within trucking distance (30-90km) from the recently closed Duck Pond Cu-Zn mine. We look forward to the results from the physical/metallurgical studies. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Minco plc
Vodafone Group (LON:VOD) – Buy
Yesterday, Vodafone Group (Vodafone) informed that it has agreed to extend its partnership with Swisscom AG, a Swiss telecommunications group for the next four years. The renewal would start from the beginning of 2016. The financials of the agreement were not mentioned.
Our view: Vodafone continues to build on its existing relationship with its partner Swisscom. The company’s 4G network would provide high-speed internet along with roaming benefits to the customers of Swisscom. Of late, Vodafone has focussed on expanding its network across geographies. As per the recently reported results for the first half of 2015, the company added 2.7 million new mobile contracts and 0.5 million new broadband customers during the period. Vodafone is expanding its data coverage in Africa, Middle East and Asia Pacific region under its Project Spring. This project is in full swing as it has modernized 80,000 mobile sites, added 36,000 2G, 47,000 3G and 41,000 4G sites, and upgraded 71,000 sites to high capacity since its inception. Recently, the company extended its partnership with MTS Ukraine. The expansion of partnership provides Vodafone an easy access to more than 20 million existing customers of MTS. Furthermore, preparation of IPO in India is proceeding as expected which will help the company in monetizing its long-term investments. In light of the above argument, we maintain a Buy rating on the stock.
Sirius Minerals (LON:SXX) – Speculative Buy
Yesterday, Sirius Minerals (Sirius) informed that all key town and country planning approvals for its York Potash Project have cleared all the judicial reviews. This is a period during which parties can question the validity of the decision on legal grounds. The company also informed that the mine’s definitive feasibility study (DFS) is about to complete and its findings would be declared in January 2016.
Our view: Sirius Minerals is a potash development company focused on the York Potash Project in the UK. The Project has a JORC compliant Probable Mineral Reserve of 250 million tonnes of 87.8% polyhalite. The aforementioned news is encouraging for Sirius, as it received key approvals for the Project. Additionally, the company is all set to complete the DFS and report the findings. Recently, Sirius has renewed its take-or-pay supply contract with one of its prevailing agri-business customer for the supply of 1.5 million tonnes per annum of polyhalite. The renewal increased company’s offtake agreements to a Total of 3.1 million tonnes per annum and an extra 4.8 million tonnes per annum from other deals. It also reinforces the fact that the quality of polyhalite supplied by Sirius Minerals is of a high grade. In view of the high demand, Sirius is now planning to expand its annual production of polyhalite from 6.5 million tonnes to 10 million tonnes. In view of the overall developments surrounding Sirius, we maintain a Speculative Buy rating on the stock.
Greene King (LON:GNK) – Buy
Yesterday, Greene King declared its unaudited interim results for the 24 weeks ended 18th October 2015. The Group’s Total revenues advanced 49.2% to £917.7m in H1 2016, while revenues for Greene King jumped 5.4% to £648.4m. Operating profit for the group increased 46.1% to £180.2m, and for Greene King rose 4.1% to £128.3m in H1 2016. Consequently, the Group’s pre-tax profit improved 46.9% to £121.3m, while Greene King’s pre-tax profit increased 5.9% to £87.5m. Adjusted EPS advanced to 34.5p in H1 2016 compared to 29.9p in the same period last year. Greene King Retail witnessed a 2.0% like-for-like (LFL) sales growth and Spirit saw a 1.2% LFL sales growth. Greene King’s return on capital employed (ROCE) increased 20 basis points to 9.4%. Net debt and cash at the end of period stood at £2,078.7m (3rd May 2015: £1,368.7m) and £315.1m (3rd May 2015: £210.3m), respectively. On the operational front, the company completed the acquisition of Spirit Pub. Greene King declared an interim dividend of 8.45p, 6.3% higher than the last year, to be paid on 22nd January 2016.
Our view: The first half of financial year 2016 has been fruitful for Greene King as it delivered solid performance on both financial and operational terms. The company reported improved revenues across all its segments. Greene King Retail registered higher LFL sales growth along with improvement in Net promoter score (NPS), reflecting the growing satisfaction amongst its customers. Meanwhile, the company’s acquisition of Spirit has been successful as the latter contributed £269.3m to the Total revenues. Additionally, Greene King has raised the cost synergies associated with the acquisition to £35m. The purchase of Spirit Pubs has made Greene King Britain’s largest pub and restaurant chain. The transaction has added 416 pubs into its portfolio, taking the Total establishments to more than 3,000. We believe the company is well placed with adequate assets and funds to deliver long-term growth. Therefore, we maintain a Buy rating on the stock.
Rambler Metals & Mining (LON:RMM) – Speculative Buy
Yesterday, Rambler Metals & Mining (Rambler) released an operational update for the first quarter (Q1 2016) ended 31st October 2015. The copper concentrate production increased 33% q-o-q to 4,788 tonnes in Q1 2016. The concentrate graded 26.57%, 12.90 grammes per tonne and 101.75 grammes per tonne for copper, gold and silver respectively. While, head grades for copper averaged 2.42%, gold at 1.45 grammes per tonne and silver at 8.80 grammes per tonne. The production for Q1 2016 stands at 1,272 tonnes of copper, 1,986 ounces of gold and 15,664 ounces of silver. The production strategy for fiscal 2016 includes blending Lower Footwall Zone (LFZ) ore with the ongoing production from the massive sulphide zones, as mentioned in the Pre-feasibility study (PFS).
Our view: The first quarter of 2016 has been fruitful for Rambler as its results were in line with the production guidance. The company’s strategy to blend ore from the new LFZ ore is progressing well. This is the first step towards fully optimizing all available infrastructure at the Ming copper-gold mine. As per the recently announced results for 2015, the company achieved most of its operational guidance despite difficult trading environment. Rambler’s introduction of the revised mine plan in January 2015 led to substantial decrease in the production costs. Meanwhile, the results from the PFS have been encouraging with strong internal rate of return (IRR) and significant cash flows under practical commodity price assumptions. Additionally, the mine life is extended from 6 to 21 years. The company plans to double the output from the LFZ over the next three years. Furthermore, extension of agreement with Transamine would allow key construction and development projects to proceed ahead of the main financing. Going forward, Rambler plans to continue on its exploration work to enhance available resources and reserves. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Economic News
Eurozone CPI
Consumer price inflation (CPI) in the Eurozone remained at 0.1% in November, following a similar reading in October, as per the estimates published by Eurostat yesterday. Core prices, excluding energy, food, and tobacco, grew 0.9% y-o-y in November, after a 1.1% rise in the previous month.
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, fell 0.2% in the week ended 27th November, following a 3.2% decrease in the preceding week, the Mortgage Bankers Association said yesterday.
US ADP employment change
Jobs in the US private sector grew by 217,000 in November, after 196,000 jobs added in October, ADP reported yesterday. The markets expected 190,000 jobs addition for the month.