The Markets
Market opening: The FTSE-100 is expected to start the session fairly flat (around 3-points lower) this morning.
New York: Wall Street ended in the red, as oil prices falling to a seven-year low exerted pressure on energy and material stocks. The S&P 500 fell 0.7%, with the energy sector losing the most.
Asia: Equities are trading lower, tracking the losses made in Wall Street. Furthermore, a continuous fall in commodity prices resulted in losses for energy companies. The Nikkei 225 fell 1.0%, despite positive data on Japan’s Q3 GDP. The Hang Seng was trading 1.8% down at 7:00 am.
Continental Europe: Markets ended in the green, taking positive cues from the strengthening US economy. Moreover, a weaker euro lifted export-driven stocks. Germany’s DAX and France’s CAC 40 rose 1.3% and 0.9%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices slumped 5.8% and 5.3%, respectively. The spread between the two varieties stood at US$3.1 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.18% higher yesterday at 741.68.
Today’s news
Slowest November since 2011 for retail sales in UK
As per a survey conducted by the British Retail Consortium (BRC), retail sales fell 0.4% y-o-y on a like-for-like basis, the slowest November since 2011, following a 0.2% decline in October. While, total sales improved 0.7% y-o-y in November compared with a 2.2% rise in November 2014.
Japan’s economy advances in third quarter
As per data released by the government, Japan’s GDP grew 0.3% q-o-q in Q3 2015, beating the initial reports of a 0.2% contraction, following a 0.5% decline in Q2 2015. Growth in the economy was led by capital expenditure, which was revised up to a 0.6% gain from a preliminary 1.3% decline.
Company News
DekelOil Public (LON:DKL) – Buy
DekelOil Public Limited, operator and 51% owner of the vertically integrated Ayenouan palm oil project in Cote d’Ivoire, announced today that it has entered into an agreement with its joint venture partner, Biopalm Energy Ltd, which reduces the Company’s debt position by €5.1m. This will have a major positive impact on the Company’s profitability, where excellent progress continues to be made in increasing crude palm oil production at its state of the art Mill. An offset agreement has been signed between the Company and Biopalm, whereby a capital note totalling €5.1 million owed to Biopalm is to be cancelled. Under the terms of the loan note, interest was payable by DekelOil at 10% per annum and ranked above that of future dividends to ordinary shareholders. In exchange for the cancellation of the loan note, DekelOil has agreed to waive Biopalm’s outstanding equity contribution to the Project, which totals €1.1m, to allow Biopalm to maintain its 49% interest in the joint venture.
Our view: This is an excellent arrangement for DekelOil, having a capital note of €5.1m cancelled, saving €500,000 annual interest charge. Biopalm retains its 49% stake in the joint venture, and no longer has to remit its outstanding equity contribution of €1.1m. Whilst there is no announcement about dividends, with the debt removed the Company is now in a position to pay dividends. Buy
Beaufort Securities acts as corporate broker to DekelOil Public plc
StratMin Global Resources (LON:STGR) – Speculative Buy
Yesterday, StratMin Global Resources (StratMin) released an operational update and progress since appointment of its new CEO, Brett Boynton. For the three months to November 2015, a total of 705 tonnes were produced and 603 tonnes dried, finished and packaged ready for sale. Sales stood at 478 tonnes, while revenues from these sales totalled to £195,000. The company reached its breakeven in October and generated small operational profit in November. Till date, StratMin has received £0.28m from its funding partner Bass Metals, who 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. On the operational front, the company has initiated the process of upgrading the present plant to a steady more than 6,000 tonnes per annum. The results from the upgradation have been positive as StratMin achieved 24 hour production facility.
Our view: The aforementioned update is encouraging and reflects StratMin’s sustained focus on improving operational efficiencies. Commencement of 24 hour production at its Loharano project has enhanced efficiencies and helped to achieve operational breakeven in October. Throughout the month of September, the processing plant operated for 24 hours a day, six days a week allowing one day for planned maintenance, while the drying plant operated non-stop for seven days a week. 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, would be used by Stratmin to carry out the expansion of Graphmada’s operations. Overall, the company is well placed with solid assets and funds to capitalize on the opportunities in the graphite industry going forward. Therefore, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to StratMin Global Resources plc
Evgen Pharma (LON:EVG) – Speculative Buy
Yesterday, Evgen Pharma declared its unaudited interim results for the half year ended 30th September 2015. Pre-tax loss on ordinary activities remained broadly flat at £1.2m in H1 2015. Cash and cash equivalents at the end of period stood at £1.8m (30th September 2014: £0.2m). The company successfully raised £2.0m via equity fund raising in August 2015. Evgen Pharma got listed on 21st October 2015, after raising £7m in an oversubscribed placing. On the operational front, Evgen Pharma bought exclusive worldwide licensing rights to a wide range of novel compounds from the Spanish National Research Council (CSIC) and the University of Seville, Spain. In addition, the company in collaboration with UK Manchester Institute carried out a study which showed SFX-01 reduced the number of cancer stem cells in patient-derived breast cancer tissue in xenograft models. Evgen Pharma appointed Dr Alan Barge to the Board as a Non-executive Director at the time of admission to AIM in October 2015.
Our view: The first half of 2015 has been remarkable for Evgen Pharma as it gets admitted for trading and raises £7m through its IPO. The company made significant progress in the development of its main product SFX-01, as it expects to move into Phase II clinical trials in subarachnoid haemorrhage in the beginning of the next year and later, in metastatic breast cancer. Addition of licencing rights further expands Evgen Pharma’s product pipeline. The agreement with CSIC and University of Seville enhances the company’s intellectual property position with rights to over 60 new chemical entities based on the core structure of sulforaphane, the major ingredient in Evgen’s lead product SFX-01. The company is positioning itself to become the world’s unique provider of sulforaphane and sulforaphane-like pharmaceuticals. Evgen Pharma enjoys a healthy balance sheet with sufficient cash to fund its study and preclinical work. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Motif Bio (LON:MTFB) – Speculative Buy
Yesterday, Motif Bio (Motif) informed that it has been selected to present at the Biotech Showcase 2016, on 11th January 2016 in San Francisco.
Our view: Motif receiving an opportunity to present at the prestigious Biotech Showcase is a testimony to its strong hold in the market. Biotech Showcase is one of industry’s largest annual healthcare investor conference proving companies an opportunity to present amongst investors and pharmaceutical executives. Meanwhile, the company continues to advance in the development of iclaprim as it receives concurrence from FDA to conduct Phase III trials. The fixed dose regime is likely to reduce the time in treatment of high risk patients. Recently, Motif received written advice from a Scientific Advice Meeting with the Medicines Evaluation Board (MEB) in relation to the Phase III clinical development. Additionally, the company has signed a clinical trial deal with Covance, a leading global Contract Research Organisation (CRO), who would run these trials. Overall, the company is progressing in the right direction to start the Phase III programme in time. We believe the market for this novel antibiotic is huge, considering the opportunities in hospital acquired bacteria pneumonia (HABP) and ABSSSI along with other potential indications. Therefore, we maintain a Speculative Buy rating on the stock.
Avanti Communications Group (LON:AVN) – Speculative Buy
Yesterday, Avanti Communications Group (Avanti) informed that it has won a new contract with BT Group. As per the deal, the company would be part of BT’s supply of wholesale consumer broadband services to be sold to consumers in the UK as a part of the government’s Universal Service Commitment. As per the plan formulated by Broadband Delivery UK (BDUK), a total of 300,000 homes without access to greater than 2Mbps would be eligible to receive a contribution from government to fund the installation of satellite broadband. The consumers would pay monthly service charges for the same.
Our view: The aforementioned contract with BT Group provides Avanti an opportunity to expand its services across the UK. The company recently informed that it has been awarded a contract by Telkom SA to offer national high-speed broadband coverage in South Africa. Avanti would deliver the service using its existing HYLAS 2 Ka-band satellite, which provides 100% coverage to South Africa. In addition, the company has won several distribution partners and improved existing relationships to access the huge latent demand for connectivity in high growth markets. Furthermore, Avanti is progressing well on the planned launch of HYLAS 3 and HYLAS 4 satellite during 2017 and plans to invest in the sales and marketing activities to cater to the markets covered by HYLAS 4. The company remains fully funded to meet all its medium-term financial commitments. Given its strong position and incremental opportunities in the pipeline, we expect the company to maintain its operational momentum in the near future. Therefore, we maintain a Speculative Buy rating on the stock.
Vodafone Group (LON:VOD) – Buy
Yesterday, Vodafone Group (Vodafone) informed that it has launched its mobile money transfer service M-Pesa in Ghana, the 11th market across its Africa, Asia and Europe segment. The services would be launched under the brand Vodafone Cash after its successful pilot in August 2015.
Our view: The aforementioned news is encouraging for Vodafone as it launches its M-Pesa service in Ghana. This service has shown encouraging results in the pilot launch in Ghana in August. Additionally, the service has received positive feedback and acceptance amongst customers in East Africa particularly in Kenya and Tanzania. Last week, the company informed that it has agreed to extend its partnership with Swisscom AG, a Swiss telecommunications group for the next four years. 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.
Economic News
Germany industrial production
Industrial production in Germany grew 0.2% m-o-m on a seasonally adjusted basis in October, after a 1.1% decline in September, the Federal Ministry of Economics and Technology said yesterday. Economists, on the contrary, had expected production to grow 0.8% for the month. On a y-o-y basis, industrial production remained flat in October, after a 0.4% increase in the previous month.