The Markets
Market opening: The FTSE-100 is expected to start the session around 4-points higher this morning.
New York: Wall Street ended in the red, as a continuous slump in oil prices weighed heavily on investor sentiment. Investors await the Fed’s decision on interest rate hike this week. The S&P 500 fell 1.9%, dragged down by the energy sector. During the week, the market declined 3.8%.
Asia: Equities are trading lower, taking negative cues from losses in the global markets. The Nikkei 225 dropped 1.8%, ignoring positive economic data released in Japan. The Hang Seng was trading 0.8% down at 7:00 am.
Continental Europe: Markets ended in the negative zone, as a rout in oil prices hurt investor confidence. Moreover, weak commodity prices exerted pressure on mining stocks. Germany’s DAX and France’s CAC 40 shed 2.4% and 1.8%, respectively.
Crude Oil: On Friday, Brent and WTI oil prices decreased 4.5% and 3.1%, respectively. The spread between the two varieties stood at US$2.3 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.84% lower on Friday at 725.40.
Today’s news
House prices in UK fall in December
As per the property tracking website Rightmove, the asking price per home in the UK declined 1.1% m-o-m in December after falling 1.3% in November. On a y-o-y basis, house prices rose 7.4% following a 6.2% gain in the previous month.
Company News
Armadale Capital (LON:ACP) – Speculative Buy
On Friday, Armadale Capital (Armadale) released an update on the metallurgical testwork programme which is being conducted at its Mpokoto Gold Project. It is located in the Katanga Province of the Democratic Republic of Congo. The testwork on two bulk samples of oxide ore has verified the earlier stated recoveries of between 80-89%, with the final recovery reliant on grind size and leach residence time. The flowsheets simulated during the testwork were identical in both the samples. In the first sample, the ore was milled to 100% passing 400 microns, pre-conditioned and leached for 8 hours. While, the second sample ore was milled to 80% passing 75 microns, pre-conditioned and leached for 8 hours. Meanwhile, Armadale is continuing its testwork on the fresh rock samples to help in designing a process route for sulphide rich ores that lie below the oxidised profile.
Our view: The aforementioned update takes Armadale a step closer to commencing production at the Mpokoto Gold Project. Mpokoto holds Total mineral resource of 678,000oz gold (Au) from 14.58 million tonnes at 1.45g/t Au at a cut-off grade of 0.5g/t. As per the scoping study, the project has a net present value of US$32.3m based on a discount rate of 8% and gold price of US$1,100/oz. The results of testwork would be used by the company to finish the definitive feasibility study (DFS). We look forward to the completion of the DFS by the year end which should have a positive impact on the already robust economics of the project. Additionally, the company plans to continue its engagement with A-MCS to meet financial needs of the project. We believe Armadale is progressing well and could potentially commence the production in 2016. Therefore, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Armadale Capital PLC
Legendary Investments (LON:LEG) – Speculative Buy
On Friday, Legendary Investments (Legendary) informed that its investee company (7% stake), Virtualstock Holdings has appointed Robert Knott as Director of Healthcare and Public Sector. Mr Knott has previously worked as National Director of NHS Procurement. In addition, he has over 23 years of procurement and supply chain experience.
Our view: The appointment of Mr Knott as the Director of Virtualstock’s healthcare and public sector is a positive development. Mr Knott’s rich experience in the procurement and supply chain would help in accelerating the growth of Virtualstock’s healthcare business. Recently, Legendary obtained a 5.5% stake and an option over an additional 4.45% stake in Manas Resources LLP, to explore for gold in Kyrgyzstan. Other businesses in Legendary include Bosques Energeticos where it has a 40% stake, as stated in its recent results. The company also has a stake in Amedeo Resources, which has made investments in an offshore vessel and a ferrous metal and ore trader. Other investments include Medgold Resources, Sula Iron and Gold and Oracle Coalfields. In view of the range and opportunity of investments across sectors including technology, energy and natural resources, we maintain a Speculative Buy.
Beaufort Securities acts as corporate broker to Legendary Investments plc
Savannah Resources (LON:SAV) – Speculative Buy
Savannah Resources, the diversified mining group focused on exploration and development of mineral sands in Mozambique and copper-gold projects in Oman, announced today that it has completed the historical drilling data compilation and Exploration Target estimates for the Block 4 and Block 5 permits in Oman. Savannah owns a 65% shareholding in Al Fairuz Mining, the owner of the Block 5 permit and is earning a 65% shareholding in Al Thuraya LLC, the owner of Block 4, through agreed expenditure milestones. The historical database comprises 783 drill holes Totally 102,692m over a number of high priority prospects on Blocks 4 and 5. Based on the historical drill data, previous JORC-compliant resource estimates, mineralisation from current drill programme as well as supporting topographical, geochemical and geophysical data, Savannah has compiled a series of Exploration Targets. On aggregate, these high priority Exploration Targets have a non-compliant resource estimate ranging from 10.7Mt to 29.3Mt grading between 1.4% and 2.4% Cu and between 0.2 and 0.4g/t Au.
Our view: Whilst the above resource estimate is conceptual in nature and non-JORC compliant we are confident with the potential for continued copper mineralisation on Blocks 4 and 5 given initial results compiled from previous and current drill hole data. The above results confirm the mineralisation potential from both Blocks 4 and 5 and the potential for a central processing hub and spoke strategy for development of satellite deposits. We look forward to continued development and a JORC-compliant resource estimate from the Exploration Targets on Blocks 4 and 5. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Savannah Resources plc
On Friday, Bellway released its trading update for the 18 weeks to 6th December 2015. During the period, reservation rate rose 12% y-o-y to 165 homes per week. The average selling price for the reservations has increased by 5.8% to £252,100 (2014: £238,200). The company has spent £235m on land and land creditors during the period and holds agreement on additional 4,500 plots (30th November 2014: 4,400 plots). Net debt at the end of the period stood at £136m (30th November 2014: £162m). Bellway expects housing completions for FY 2016 to increase by around 10% (FY 2015: 7,752). The average selling price of completions is projected to rise by 10% and the operating margin is expected to improve to at least 21% in FY 2016. The company proposed a final dividend of 52p (2014: 36p) to be paid on 13th January 2016. This will take the Total dividend for the year ended 31st July 2015 to 77.0p (2014: 52.0p), an increase of 48.1% compared to the prior year.
Our view: Bellway has started FY 2016 on a positive note, supported by favourable market conditions and rise in unit production. The customer demand has been high throughout the period resulting in improvement in weekly reservations. The company continues to look out for potential opportunities to improve its land bank as it made significant investments to acquire plots. Though property price growth has slowed in the recent past, rise in the real wages and a low inflation is likely to keep the housing sector buoyant. Additionally, the government has announced the extension of the ‘Help to Buy’ scheme in England till 2020, which confirms that mortgages for new homes remain affordable in the near future. We believe that a strong order book and disciplined investment strategy warrant further volume and profit growth in the current financial year. Furthermore, the company continues to enhance shareholder payout with an increased dividend. Bellway remains fundamentally strong and continues to create value for its shareholders. We therefore maintain a Buy rating on the shares.
John Laing Group (LON:JLG) – Buy
On Friday, John Laing Group released its pre-closing trading update for the year ending 31st December 2015. Total investment commitments till date stand at £170m, which is at the upper end of £150m-£175m range announced during interims. Realisations are £86m against the full year target of around £100m. The company has made an investment commitment of £27m and £16.5m at Cramlington CHP plant and I-77 managed lanes PPP project. Additionally, John Laing has made three onshore wind farm investment commitments Totalling £53.6m in Australia, Germany and France. Five of the company’s investments have moved from the primary to the secondary investment portfolio over the year.
Our view: John Laing Group plc is a British developer and operator of privately financed, public sector infrastructure projects such as roads, railways, hospitals and schools through Public-Private Partnership and Private Finance Initiative arrangements. Capitalising on growing market for new infrastructure, the company reported excellent performance with increased investment commitments and realisations. John Laing is on track to achieve its full-year targets as the market demand remains strong for secondary infrastructure investments. The company’s primary investment activities are in line with the guidance along with improving levels of bidding activity in key markets of Europe, North America and Asia Pacific. John Laing has a strong pipeline of opportunities in Public Private Partnership (PPP), renewable energy and other closely-linked infrastructure sectors. Furthermore, the company is well placed with substantial financial resources to meet its future growth plans. In light of the overall optimism surrounding John Laing, we maintain a Buy rating on the stock.
Economic News
Germany CPI
Consumer price index (CPI) in Germany grew 0.1% m-o-m in November, following a similar increase in October, as per the estimates published by the Federal Statistics Office on Friday. This was in line with the market expectations. On y-o-y basis, prices increased 0.4% in November, after similar rise in October.
US retail sales advance
US advance retail sales increased 0.2% m-o-m in November, following a 0.1% rise in October, the Commerce Department said on Friday. Excluding the sales of motor vehicle and parts, retail sales were 0.4% up in November, from previous month’s increase of 0.1%.
US PPI final demand
The US producer price index (PPI) for final demand improved 0.3% m-o-m in November, after a decrease of 0.4% in October, the Bureau of Labor Statistics stated on Friday. The markets expected a flat reading in November. Core producer prices, excluding food and energy, rose 0.3% in November. On y-o-y basis, PPI demand narrowed 1.1% in November following a 1.6% drop in October.
US University of Michigan sentiment
The US University of Michigan’s consumer sentiment index for December rose to 91.8 from 91.3 in November, preliminary data indicated on Friday. Economists expected a reading of 92.0. The consumer expectations index, which closely forecasts the direction of consumer spending, decreased to 82.0 from 82.9, while the current economic conditions index improved to 107.0 from 104.3.