The Markets
Market opening: The FTSE-100 is expected to start the session 35 points higher this morning.
New York: Wall Street ended in the green, as robust jobs data released on Friday strengthened the prospects of an interest rate hike by the Fed. The S&P 500 advanced 2.1%, led by the telecommunications sector. For the week, the markets closed 0.1% higher.
Asia: Equities are trading higher, taking positive cues from Wall Street. The Nikkei 225 added 1.0%, led by a rally in export-driven stocks. The Hang Seng was trading 0.3% up at 7:00 am.
Continental Europe: Markets ended in the negative territory amid a fall in oil prices after Organization of the Petroleum Exporting Countries (OPEC)’s decision to maintain the production at a high rate in spite of the low demand. Investors also digested non-farm pay rolls data from the US. Germany’s DAX and France’s CAC 40 shed 0.3% each.
Crude Oil: On Friday, WTI and Brent oil prices decreased 2.7% and 1.9%, respectively. The spread between the two varieties stood at US$3.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.17% lower yesterday at 740.37.
Today’s news
Greek Parliament approves austere budget
The Greek Parliament approved the 2016 budget, which includes significant spending cuts and tax increases. A total of €5.7bn would be cut in public spending, including €1.8bn from pensions and €500m from defence. In spite of the cuts, the budget would have a higher deficit than the 2015 budget.
Company Newes
StratMin (LON:STGR) – Speculative Buy
StratMin Global Resources, the graphite production and exploration company with assets in Madagascar, announced Friday an update on the farm-in agreement with ASX-listed Bass Metals into the Company’s subsidiary, Graphmada Mauritius. To date, amounts totalling £0.28m have been received by StratMin and Bass has committed to fully funding the First Tranche of £0.5m by 31 December 2015 and the Second Tranche of £1.5m by 31 March 2016. Completion of the former gives Bass a 6.25% interest in Graphmada Mauritius and completion of the latter will give a 25% interest. The Investment Agreement also includes an option incentive for Bass to further increase its holdings such that, Bass may acquire a further 15% of Graphmada Mauritius under the option pricing agreement as announced on 2 September 2015. The exercise of the Option Incentive is subject to completion of the Second Tranche by 31 March 2016 and must be exercised by 30 April 2016, or mutually agreed alternative date. The exercise price requires Bass to pay premium to the implied share price of StratMin set by reference to the five day volume weighted average price (VWAP).
Our view: We are encouraged with the continued commitment of Bass Metals. The funds received from the First and Second Tranches and the Option Agreement, if exercised, will be used by Stratmin to progress the expansion of Graphmada’s operations. The agreement with Bass greatly reduces the financing risk for Stratmin going forward. As such, we maintain our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to StratMin Global Resources PLC.
Tissue Regenix (LON:TRX) – Speculative Buy
On Friday, Tissue Regenix informed that two patients have received the first OrthoPure XT decellularised tendons using the company’s dCELL technology. The operation was conducted by Dr Gabriel Oliver, an Orthopaedic & Trauma surgeon at the Bellvitge University Hospital in Barcelona. The surgery was carried out to replace damaged anterior cruciate ligament (ACL) with the company’s decellularised tissue. Tissue Regenix performed the above operation as a part of a clinical safety study to secure a CE mark that would help it in the launch of the OrthoPure XT in the European Union in 2017.
Our view: The aforementioned news is encouraging for Tissue Regenix as the world’s first OrthoPure XT implants were successfully undertaken. The company is progressing well towards securing regulatory approval to launch this technology in 2017. With this, Tissue Regenix would bring a new biological replacement in surgeries treating ACL, thereby offering affordable treatment. The company expects to complete recruitment of the first 20 patients in the OrthoPure XM (meniscus) clinical trial by early Q1 2016. Recently, Tissue Regenix reported good revenues in the first half of 2015 following the successful launch of DermaPure in the US. The company enjoys a healthy balance sheet with enhanced cash position. We believe capitalizing on the infrastructure and capacity, Tissue Regenix is well placed to benefit from growth opportunities going ahead. In light of the above argument, we recommend a Speculative Buy rating on the stock.
Berkeley Group Holdings (LON:BKG) – Buy
On Friday, Berkeley Group Holdings (Berkeley) declared its unaudited interim results for the half year ended 31st October 2015. Revenues advanced 11.4% to £1.1bn in H1 2015. However, pre-tax profit fell 3.8% to £293.3m mainly due to the impact of ground rent sales resulting in an EPS of 166.9p against 178.6p in the same period last year. Net asset value per share rose 7.5% to 1,289p (April 2015: 1,199p), while forward sales over the next three years has increased to £3.1bn (April 2015: £3.0bn). Net cash and assets at the end of period stood at £263.1m (April 2015: £430.9m) and £1,760.0m (30th April 2015: £1,637.9m), respectively. The company sold 2,091 new homes (2014: 1,372) at an average selling price of £506,000 (2014: £649,000). Berkeley’s land bank at the end of period stands at 38,233 plots (30th April 2015: 37,473). During the period, the company sold a portfolio of ground rent assets in 43 sites for proceeds of £53.4m and a gross profit of £51.0m. Berkeley enhanced its dividend return programme by £0.5 billion from £13.00 per share to £16.34 per share in 2021. Out of this, £4.34 has already been distributed and remaining £12.0 would be paid evenly over next 6 years with the first payment of £1 scheduled in January 2016.
Our view: Berkeley delivered excellent performance in the first half of 2015 both on operational and financial terms. The company reported improved revenues and higher new home sales during the period. Berkeley boasts of contribution of £2.1bn to UK’s GDP in 2015, 40% higher than the previous year. In the past five years, the company has built more than 17,750 new homes and contributed a total of £1.8bn to the treasury through direct and wider taxation. Meanwhile, Berkeley continued to improve customer satisfaction as it rolled out series of innovations like My Home+ and tablet based applications. Going forward, the overall improvement in UK’s economic scenario with better employment opportunities and rising wages bodes well for the housing business. Also, the company is financially well-placed as its balance sheet continues to be strengthened by cash inflows due to robust forward sales. In view of the overall optimism surrounding Berkeley, we maintain our Buy rating on the stock.
Ferrex (LON:FRX) – Speculative Buy
On Friday, Ferrex informed that it has started work at the Australian Gold Production Project. The company is currently undertaking a land survey to assess the existing drill holes and previous mining operations. This survey would be used to finalise an initial, high priority, in-pit grade control drill programme before the end of December 2015.
Our view: The commencement of work at the site follows Ferrex’s acquisition of Chaffers Mining, a private Australian gold company. The acquisition was in line with the company’s strategy of acquiring additional low-cost, near term cash producing assets. Ferrex expects to produce some 20,000 to 30,000oz of gold per annum at all-in sustaining cost of A$900/oz (US$638/oz), excluding royalties. Management will initially focus on shallow laterite and oxide deposits to generate revenue rapidly and then evaluate potential underground opportunities such as the Prince of Wales deposit, which hosts a historic resource of 154,000 grading 8g/t. We view this announcement as a significant milestone for the company while it continues to develop the Nayega project into a 250,000tpa manganese export operation. We look forward to the full details of the Nayega DFS and modified process flow route upon finalisation of third party due diligence and receipt of the mining permit. In light of the bright prospects of the company, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Ferrex.
Economic News
Germany factory orders
German factory orders increased on a seasonally adjusted 1.8% m-o-m in October, after declining a revised 0.7% in September, the Federal Ministry of Economy and Technology said on Friday. Economists had forecasted orders to increase by 1.2% during the month.
US change in nonfarm payrolls
The US economy added 211,000 jobs in November, after a revised 298,000 addition in October. The markets expected nonfarm payrolls to decrease by 200,000.
US unemployment rate
The unemployment rate for October stood at 5.0%, in line with the market expectations and previous month’s reading.
US trade balance
US trade deficit widened to US$43.9bn in October from a revised reading of US$42.4bn in September, the Commerce Department said on Friday. Economists had expected a trade gap of US$40.5bn.