The Markets
Market opening: The FTSE-100 is expected to start the session around 62-points higher this morning.
New York: Wall Street ended in the green, taking positive cues from the Fed’s interest rate hike by 25 basis points to 0.25-0.50%. The S&P 500 rose 1.5%, with the utilities sector gaining the most.
Asia: Equities are trading higher, as interest rate hike by the Fed boosted confidence in investors across the markets. The Nikkei 225 added 1.6%, led by the financial sector. The Hang Seng was trading 0.6% up at 7:00 am.
Continental Europe: Markets ended higher, as investors awaited the Fed’s decision on interest rate in its policy meeting. Meanwhile, a downslide in oil prices continued to weigh on investor sentiment. France’s CAC 40 and Germany’s DAX rose 0.2% each.
Crude Oil: Yesterday, WTI and Brent oil prices decreased 4.9% and 3.3%, respectively. The spread between the two varieties stood at US$1.7 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.12% lower yesterday at 718.64.
Today’s news
US Fed raises interest rates by 0.25%
The US Federal Reserve’s policy-setting committee increased its benchmark interest rate by 25 basis points to 0.25-0.50%, marking the first increase since 2006. Furthermore, the agency would gradually increase the rate depending on inflation and employment data. The Fed also raised its projected economic growth for the next year to 2.4% from 2.3%.
Company News
Alecto Minerals (LON:ALO) – Speculative Buy
Alecto Minerals, the African-focused gold and base metal exploration and development company, announced yesterday that it has entered into an agreement with PenMin Limited to assist in the development of the recently acquired Matala and Dunrobin gold mines in Zambia. PetMin is a South African based consultancy group that has extensive knowledge of the Matala and Dunrobin gold mines. Under terms of the agreement, PenMin will, inter alia, update and finalise the DFS previously prepared by Coffey Mining for the Matala mine as well as finalise the project design, secure vendor financing and provide EPC management.
Our view: The engagement of PenMin is an important step following the recent acquisition of the Matala and Dunrobin gold mines given the consultant’s extensive knowledge of the area and should help expedite the development of the Matala mine towards production. We look forward to further updates on the development of Matala as well as Alecto’s wholly owned Kossanto East gold project in Mali. In the meantime, we maintain a Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Alecto Minerals plc
Ferrum Crescent (LON:FCR) – Speculative Buy
Yesterday, Ferrum Crescent announced the appointment of Mr Justin Tooth as Non-Executive Chairman of the company. Mr Tooth would replace Mr Edward Nealon with immediate effect. He has over 20 years’ experience in equity sales and corporate broking, along with knowledge in natural resources.
Our view: Mr Tooth joining Ferrum Crescent’s board is positive news for the company. Ferrum Crescent would gain from his vast experience in the financial sector, primarily in equity sales; he has also held various management positions in this segment. The company would leverage on his knowledge and skills as it prepares to implement the Bankable Feasibility Study (BFS) for its high-grade Moonlight magnetite project, located in the Limpopo Province in the northern region of South Africa. This project has estimated mineral resources of 307.7 million tonnes (Mt) at 26.9% Fe, with the inferred category estimated to contain 172.1Mt at 25.3% Fe. Additionally, as per recently announced results, Ferrum exhibited a resilient performance, with reduced loss and an improved cash position. The company plans to use the latest drilling data to enhance the mine’s model along with the direct reduction (DR) pellet centre at Thabazimbi. Furthermore, the company’s marketing team has identified potential South African off-takers for products obtained from the project. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Ferrum Crescent plc
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Dixons Carphone (LON:DC.) – Buy
Yesterday, Dixons Carphone declared interim results for the 26 weeks ended 31st October 2015. Revenues for H1 2015 fell 3% y-o-y to £4,394m, primarily due to a stronger pound against the Norwegian krone. Like-for-like (LFL) revenues grew 5% in H1 2015; expansion was recorded across territories. EBIT improved to £135m (H1 2014: £120m). Consequently, pre-tax profit rose to £121m from £98m in H1 2014, which resulted in EPS of 7.5p, compared with 6.3p in the previous year. Net debt at the end of this period stood at £378m (H1 2014: £293m). The company declared an interim dividend of 3.25p, from 2.50p in the previous year, to be paid on 22nd January 2016. Separately, Dixons Carphone informed that it has appointed Lord Livingston of Parkhead as Deputy Chairman of the Board and Tony DeNunzio CBE as Senior Independent Director, with immediate effect.
Our view: Dixons Carphone delivered an excellent performance in H1 2015. The company’s results improved following the merger of Carphone Warehouse and Dixons Retail. Dixons Carphone’s LFL growth improved and market share rose across territories. This was led by the company’s UK and Ireland businesses, which recorded 31% earnings growth. Sales benefitted from high demand, discounted prices, customer service initiatives and better free delivery options. Moreover, Dixons Carphone began the Christmas season on a positive note with the biggest ever single day trade on Black Friday. Thus far, the company has secured 200,000 customers for its new 4G mobile network iD Mobile. Additionally, Dixon Carphone’s enhanced cash position has paved the way for a rise in the dividends payable to shareholders. Thus, in view of the company’s strong performance and increasing market penetration, we maintain our Buy rating on the stock.
Wood Group (LON:WG.) – Buy
Yesterday, Wood Group reported that Norwegian-based energy firm Statoil has awarded the company a main contractor framework agreement of around US$400m. As per the deal, the company would provide maintenance and modification services for four Statoil installations on the Norwegian continental shelf (NCS). The contract is for a period of six years and has the option to be extended for four years. Additionally, Wood Group Mustang Norway has been awarded a 10-year competition agreement, which would allow the company to tender for individual projects for Statoil-operated onshore and offshore installations in Norway. The agreement is for a period of 10 years, effective from the first quarter of 2016. Separately, Wood Group informed that it has completed the acquisition of US-based industrial and maintenance contractor firm Infinity Group.
Our view: The above-mentioned contracts and acquisition of the Infinity Group complement Wood Group’s strategy to mitigate the adverse impact of challenging market conditions. The company continues to build on its relationship with Statoil as it bags contracts to extend services for installations on the NCS. Wood Group expects to create up to 250 jobs as a result of this agreement. In addition, the contract won by Wood Group Mustang Norway is likely to enhance the company’s prospects in Norway. Recently, Wood Group acquired Automated Technology Group (ATG), among the UK’s largest independent suppliers of control and power solutions for industrial automation. ATG is expected to offer a range of opportunities to the company’s Mustang arm, which comprises growth in the automation business to include manufacturing and expansion into the food, beverage and airport markets. Furthermore, as per the recent trading update, the company remains on track to deliver results in line with its guidance. Wood Group enjoys a healthy balance sheet, which has allowed it to reinvest productively, support acquisitions and grow organically. We believe the company would achieve its profitability target for the year owing to its recent awards and contracts. Therefore, we reiterate a Buy rating on the stock.
Economic News
Germany manufacturing PMI
As per the data released by Markit yesterday, the preliminary manufacturing PMI of Germany rose to 53.0 in December from 52.9 in November. This was better than the market expected reading of 52.8.
Eurozone manufacturing PMI
The preliminary manufacturing PMI for the Eurozone increased to 53.1 in December, from 52.8 in November, as per data released by Markit yesterday. This was better than the market expected reading of 52.8.
UK claimant count rate
The claimant-count rate in the UK stood at 2.3% in November, in line with the market expectations and previous month’s reading.
UK jobless claims change
UK jobless claims rose by 3,900 in November, after an increase of 200 in October, the Office for National Statistics said yesterday. Markets had expected claims to increase by 800.
UK ILO unemployment rate
UK unemployment rate fell to 5.2% in the three months ended October, from 5.3% in the three months ended September, the International Labour Organisation (ILO) stated yesterday. The markets expected a reading of 5.3%.
Eurozone CPI
Consumer price inflation (CPI) in the Eurozone fell 0.1% m-o-m in November, after a 0.1% increase in October, as per the estimates published yesterday by Eurostat. On y-o-y basis, CPI improved 0.2% in November, following a 0.1% increase in October. Core prices, excluding energy, food, and tobacco, grew 0.9% y-o-y in November.
US MBA mortgage applications
US home mortgage applications, including both refinancing and home purchase, fell 1.1% in the week ended 11th December, after a 1.2% increase in the preceding week, the Mortgage Bankers Association said yesterday.
US housing starts
US housing starts increased 10.5% to a seasonally adjusted annual rate of 1.17 million units in November, after a fall of 12.0% in the previous month, the Commerce department said yesterday. Housing starts were reported at a revised 1.062 million units in October. The reading missed the market expectation of 1.13 million units.
US industrial production
Industrial production in the US fell 0.6% m-o-m in November, following a 0.4% decline in October, the Federal Reserve announced yesterday. Markets were expecting output to fall by 0.2%. The capacity utilization stood at 77.0%, compared to 77.5% in the previous month.
US manufacturing PMI
The preliminary Markit PMI for the US stood at 51.3 in December, lagging the market expectations of a reading of 52.6. The final US PMI for the month of November was recorded as 52.8.