The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 16-points lower.
New York: Wall Street ended in the green in a low-volume trading session, driven by a rally in oil prices. Investors await the European Central Bank (ECB)’s policy meeting to be held this week. The S&P 500 advanced 0.5%, with the energy sector gaining the most.
Asia: Equities are trading higher, tracking the global indices. Investors cheered an increase in oil prices and expect the ECB to ease its monetary policy later today. The Nikkei 225 added 1.3%, supported by a stable yen. The Hang Seng was trading 0.5% up at 7:00 am.
Continental Europe: Markets ended higher, as an improvement in commodity prices boosted basic resource stocks. Investors anticipate additional stimulus from the ECB in its policy meeting. France’s CAC 40 and Germany’s DAX increased 0.5% and 0.3%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices rose 4.9% and 3.6%, respectively. The spread between the two varieties stood at US$2.8 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.10% lower yesterday at 699.35.
Today's news
House price balance in UK gains in February
As per the Royal Institution of Chartered Surveyors, the monthly house price balance in the UK rose to +50 in February from a downwardly revised +48 in January. The prices gained as investors sought to buy houses before the government implements a 3% surcharge on their purchases from next month. However, the three-month outlook for house prices declined to +21 in February from +33 in January.
Company News
Armadale Capital (LON:ACP, 2.94p) - Speculative Buy
Armadale Capital, the investment company focused on natural resource projects in Africa, announced yesterday details of its proposed exploration programme for 2016 at its Mpokoto gold project located in the Katanga Province in the DRC. The company is planning a 2,000m auger drill programme followed by a 2,500m diamond drill programme as well as reviewing historical results over the entire Kisenge licence area to identify further exploration targets. The object of the drill programme is to expand the current resource of 678,000oz grading 1.45g/t and increase the planned four year life of mine which will improve the overall project economics. The auger drill programme will focus on oxide mineralisation to the north and south of the main ore body where mineralisation remains open along strike and the diamond drill programme with focus on the high-grade mineralisation previously identified in drill hole MPD064, which intercepted 55m grading 3.8g/t. The company also announced that it has raised £210,000 through the placing of 7M new ordinary shares at a placing price of 3p per share to existing investors. Armadale continues its discussions with African Mining Contracting Services (A-MCS) regarding project financing of at least US20m.
Our view: We are encouraged with the potential to increase additional gold resources which should increase the overall economics of the Mpokoto project. We also note the additional targets identified following soil sampling to the NW and SE of the Mpokoto mine area. With funding potentially secured through on going discussions with African Mining Contracting Services (A-MCS) group and a Mining Licence already in place we look forward to continued development of the low capital project, currently estimated at US$20m. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Armadale Capital PLC
Restaurant Group (LON:RTN, 414.02p) - Hold
Restaurant Group, the UK restaurants and pub restaurants operator, yesterday announced its final results for the 52 weeks ended 27 December 2015. During the period, revenues increased 7.9% to £685.4m from £635.2m in FY2014 with like-for-like (‘LFL’) sales rising 1.5%. The Group’s EBITDA advanced 9.4% to £128.0m (FY2014: £117.0m). Pre-tax profit improved 11.2% to £86.8m from £78.1m, consequently, resulting in basic EPS of 33.80p per share, 12.8% higher than FY2014. Its operating cash flow stood at £135.5m (FY2014: £125.0m) and cash and cash equivalent at the end of the period were £2.1m compared to £0.9m a year ago. The Board proposed a final dividend of 10.60p per share, bringing full year dividend of 17.4p per share, jumped 13%, to be paid on 6 July 2016. On the operational front, the Group opened 44 new sites in the year, surpassed 500 total sites for the first time. According to the management, those new sites are consistently generating strong returns on investment and the Group is expected to open a similar number of restaurants during FY2016. Its CEO, Danny Breithaupt has commented “TRG has made good progress in 2015 and, despite difficult trading conditions, delivered double digit growth in profits and earnings per share. In common with most consumer businesses we will again have some challenges to face in 2016. However, I am confident that the underlying strengths of our business will enable us to successfully navigate our way through this more challenging external environment”.
Our view: Restaurant Group’s final result were somewhat disappointing with management citing various cautions looking forward. Although it delivered good overall financial result for the FY2015 improving the revenue by +7.9%, EBITDA by +9.4% and hiked the dividend by +13%, these were largely driven by the opening of the 44 new sites, as LFL sales only grew by +1.5%. Its overall performance were dragged down by its challenging Q4 against a backdrop of softening in consumer demand and weaker overall consumer confidence. Moreover, the Group continued to experience this tougher trading environment as it enters FY2016, with LFL sales over the first 10 weeks of FY2016 decreasing by -1.5% (although overall sales expanded by +6%). It appears that falling retail footfall due to growing online shopping and the intense competition from branded restaurants and food-led pubs cannot be treated as a temporary factor. The Group said in their statement that “more challenging environment and recent trading patterns are likely to persist. Although total sales will continue to increase as our new restaurants open and deliver good returns, in the current environment consistent like-for-like sales increases are likely to be difficult to generate”. Furthermore, the National Living Wage coming into effect April this year will result in additional costs to the Group against which they have yet to taken new initiatives to mitigate the impact of an estimated to £2m of incremental direct cost. Given retirement of its Chairman, Alan Jackson, after successfully driving the Group for 15 years, and in view of the weak current trading, management’s more cautious outlook and less favorable market environment, Beaufort has now downgraded its recommendation to Hold from Buy.
Tissue Regenix Group (LON:TRX, 16.75p) - Speculative Buy
Tissue Regenix, the regenerative medical devices company, announced that it has been granted 510k market clearance from the Food and Drug Administration (FDA) for SurgiPure™ XD. This is the first FDA market clearance for a medical device developed by the Group and clears SurgiPure™ XD for a commercial launch within the US in 2016. SurgiPure™ XD, a porcine dermis product which utilises the Group's patented dCELL® technology, will be used for the reinforcement of soft tissue where weakness exists and for the surgical repair of damaged or ruptured soft tissue membranes, which may include the repair of hernias or body wall defects. The hernia market is estimated to have a US$2-3bn global market value, with an estimated US$1bn market opportunity in the US alone, with biologic treatments accounting for around US$300m of this. Separately, the Group also announced that Tissue Regenix Wound Care, Inc. has secured further Medicare coverage for DermaPure®. DermaPure®, a decellurised human dermis, used for the treatment of chronic and acute wounds in both inpatient and outpatient settings will now be available for reimbursement under Wisconsin Physicians Service Insurance Corporation ('WPS'), a Medicare administrator whose jurisdictions cover Iowa, Kansas, Missouri, Nebraska, Indiana and Michigan, comprising a further 4.4m Medicare beneficiaries and bringing DermaPure® Medicare coverage to 74%. Medicare, a federal insurance programme for the over 65s, subsidises costs for healthcare treatments through a reimbursement programme. However, in order to qualify for this subsidy, the treatment must initially be approved under the relevant Medicare jurisdiction often determined by geographic area.
Our view: Having gained its first FDA market clearance for a dCELL® application is excellent news for Tissue Regenix. The Group continue to anticipate that the first SurgiPure™ XD product will be available in the US in H2 2016. Tissue Regenix dCELL® applications are quickly gaining clinical validation and demand on an international scale, through both the Wound Care and Cardiac sectors, a testament to the strength of its dCELL® technology platform. Interestingly, the Group also comment that further announcements will be made on distribution partners and launch in the coming months. The US is a key market for the Group and Tissue Regenix has proven that it can successfully commercialise product in the US with DermaPure®. Since being granted a Medicare 'Q' code for reimbursement, which came into effect on 1st January 2015, DermaPure® has now secured coverage from 9 of the 11 Medicare administrators. Moreover, the Group added that DermaPure® sales surpassed the US$1m mark, proving that the Group's hybrid commercialisation model, adopting both direct sales and distributors, is quickly gathering momentum. The clinical results that the Group have seen, to date, have been outstanding and it will now be accessible to additional Medicare beneficiaries. In the coming months, the Group is targeting coverage in the remaining Medicare jurisdictions and also expanding its availability throughout the private insurer groups. With an estimated 29m diabetes sufferers within the US, the Group remains committed to bringing DermaPure® to as many patients as possible. These two announcements are excellent news for Tissue Regenix and the recent underperformance in the share price is an opportunity for buyers and we continue our recommendation as a Speculative Buy.
Imaginatik (LON:IMTK, 2.50p) - Speculative Buy
Imaginatik announced that trading in the third quarter of the year was positive, continuing the momentum from the first half of the year. Gross bookings for the three months ended 31 December 2015 were £1.28m, slightly higher than what was also a strong quarter in the prior year (Q3 FY15: £1.26m). The Company enjoyed success both with new customer signings and importantly delivering a series of contract renewals. Five new clients were signed in the quarter (Q3 FY15: 6) across a range of industries including a major international professional services firm, a global food services and facilities business, and a global defence and aerospace business. The strength of Imaginatik's offering, which combines the power of its unique software with its innovative consultancy practice, continues to be a valuable differentiator for the Company in securing new business. The Company comment that trading in the final quarter of the year is progressing well, securing four further consultancy contracts, two of which are with new US customers, including one of the world's most iconic apparel and footwear brands. These contracts will be substantially delivered over the current and subsequent quarter.
Our view: This is another strong quarter of trading, marking a clear turning point in revitalisation of Imaginatik. New customer wins is very encouraging and the announcement of a series of contract renewals is very positive in demonstrating the Company’s offering is effective and of value to its customers. Having built a unique offering within the international innovation marketplace, the Company is seeing a steady flow of new customer numbers and a growing demand for its consulting and innovation advisory work to complement its robust technology offerings. It appears that Imaginatik is progressing, not only on a more secure financial footing but the current update on its third quarter results auger well for the future. The fourth quarter has started well and we have no hesitation in recommending the Company as a Speculative Buy.
Falcon Oil & Gas (LON:FOG, 4.88p) - Speculative Buy
Yesterday, Falcon Oil & Gas (FOG) released an operational update for operations in Australia, South Africa and Hungary. The company started the preparations for the drilling and testing programme at Beetaloo Basin, Australia. FOG is in the process of finalising two new vertical wells following the technical evaluation undertaken by Origin, Sasol and Falcon. The drilling is expected to commence in Q2 2016. The key objectives of the drilling programme are: testing gas productivity of the Middle Velkerri shale by multi-stage hydraulic stimulation, determining the areal extent of the Middle Velkerri shale, and ascertaining the gas saturation levels in the southern part of the basin. Moreover, the drilling would explore the shallower oil sections of the shale. In South Africa, the processing of the exploration licence by the Petroleum Agency of South Africa (PASA) is in progress. Recently, PASA confirmed that it expects to finalise a recommendation to the Minister of Mineral Resources on FOG’s application for a shale gas exploration licence in South Africa's Karoo Basin by May 2016. The company expects the minister to issue a licence to explore shale gas in 2016. In Hungary, FOG reviewed its operations and evaluated all options available to increase shareholder value. On the financial front, the company received US$3.7m in cash in December 2015 as per an agreement with NIS. FOG’s cash and cash on deposit as of 31st December 2015 stood at US$12.7m.
Our view: FOG continues to make good progress across its operations. The company is well set to commence drilling at Beetaloo Basin. FOG has four exploration permits in the basin. After the completion of the objectives for the year, we expect an increase in resource potential from the region. Meanwhile, the company is progressing well in South Africa and expects to receive the shale exploration licence this year. FOG already holds a technical cooperation permit in the southern part of the Karoo Basin. In addition, the company is moving steadily in Hungary operations, as it looked out for opportunities to enhance its resource base. Moreover, FOG remains financially strong with a solid cash position and no debt. In light of the overall developments surrounding FOG, we maintain a Speculative Buy rating on the stock.
CityFibre Infrastructure Holdings (LON:CITY, 51.50p) - Speculative Buy
Yesterday, CityFibre Infrastructure Holdings (CityFibre) signed a national framework agreement with Updata Infrastructure, which is part of Capita IT Enterprise Services. As per the deal, Updata can use CityFibre's existing national network infrastructure as a platform for its public sector and enterprise customers.
Our view: The agreement strengthens CityFibre’s position as a preferred supplier to the public sector. The deal provides Updata an opportunity to access an exhaustive network and platform for its wide range of customers. Of late, the company has been seeking acquisitions and partnerships to widen and strengthen its market position. Recently, CityFibre acquired the infrastructure assets of KCOM Group. The acquisition provides the company an opportunity to establish its presence in 21 new markets across the UK. After the acquisition, CityFibre’s footprint has increased to 36 cities, offering pure fibre connectivity, which would be used by regional and national service providers. The company won its first contract under the master services agreement with Vodafone Limited to provide its pure fibre connectivity to the latter’s customers. CityFibre is well-placed with some impressive contracts and national-level partners and joint venture with the UK’s leading broadband service providers to cover a large customer base. Therefore, we maintain a Speculative Buy rating on the stock.
DS Smith (LON:SMDS, 396.60p) - Buy
Yesterday, DS Smith provided a trading update for the four months since 1st November 2015. In the second half of the year to date, the company progressed as per expectations with good volume growth (especially in Western Europe and South Eastern Europe). The returns on sales and the average capital employed have been higher compared to the same period last year. On the operational front, DS Smith completed the acquisition of Milas Ambalaj, a high quality producer of specialist corrugated packaging and displays in Istanbul, Turkey.
Our view: DS Smith, a supplier of recycled packaging for consumer goods, has performed in line with the expectations for the year-to-date. The company’s volumes and financial returns improved despite the difficult market conditions. DS Smith remained focused on investment in quality, service and innovation to enhance customers’ experience. Meanwhile, the company is progressing well with regard to the integration of Milas Ambalaj. Moreover, the businesses acquired in the first half of the year are delivering as per expectations. DS Smith plans to develop high quality package and expand its geographic footprint. We are encouraged by the company’s progress and look forward to further updates on its developments. Therefore, we maintain a Buy rating on the stock.