The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 23-points lower.
New York: Wall Street ended in the green, taking positive cues from the Federal Reserve’s policy decision last week. Additionally, positive economic data release in the US fuelled buying. The S&P 500 advanced 0.4% on Friday, with the healthcare sector gaining the most. For the week, the markets closed 1.3% higher.
Asia: Equities are trading mixed, as investors remained concerned over the volatility in oil and commodity prices. The Nikkei 225 fell 1.3%, as strengthening of the yen exerted pressure on export-driven stocks. The Hang Seng was trading 0.1% higher at 7:00 am.
Continental Europe: Markets ended higher amid comments from European Central Bank’s chief economist that it could further ease the monetary policy. Investors digested company updates and shrugged off concerns over fluctuation in oil prices. Germany’s DAX and France’s CAC 40 rose 0.6% and 0.4%, respectively.
Crude Oil: On Friday, WTI and Brent oil prices decreased 1.9% and 0.8%, respectively. The spread between the two varieties stood at US$1.8 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.20 higher on Friday at 706.65.
Today's news
UK house prices rise for third consecutive month: Rightmove
Rightmove, a property tracking website, revealed the average asking price in the UK increased 1.3% m-o-m in March after a 2.9% increase in the previous month. House prices rose 7.6% y-o-y compared with a 7.3% gain in February. The average selling price moved above £300,000 for the first time amid rise in demand and tight supply.
Company News
Berkeley Group Holdings (LON:BKG, 3,185.0p) - Buy
On Friday, Berkeley Group Holdings released its interim management statement for the period between 1st November 2015 and 29th February 2016. The group’s cash on forward sales stood at more than £3bn. Since the half year, Berkeley sold 62 properties at prices over £2m, similar to that over the same period in 2014/15. However, the group’s reservations were around 4% lower than that in 2014/15 due to a change in the product mix and strength of the forward sales secured in recent years. The group acquired four sites during the period, including two conditionally contracted long-term regeneration schemes. Berkeley enhanced its land holdings through three new and nine revised planning consents. The new consents are in Sevenoaks, Winchester and Kingston. The group paid a dividend of £1 per share in January 2016 (£137m), and is on target to pay a further £1 per share in September 2016. Going forward, the group expects to deliver £2bn of pre-tax profit in aggregate over the three years ending in 2017/18. The net cash as on 30th April 2016 is expected to be around £100m. For the year 2016, Berkeley anticipates results to be at the top end of expectations.
Our view: Berkeley shares fell relative to a flat UK market on Friday, despite management pointing at a consensus beating full-year outcome, an annualised 6.3% yield and overwhelming confidence going forward. In reality, the only minor caution emanating from management was the suggestion that reservations are presently 4% below the comparable period. This, we believe, in fact was an impressive result, given the Brexit and stamp duty related knock already suffered by top-end UK city centre property prices. Given that Berkeley, and the UK housebuilding sector in general, is so widely owned while also remembering that it operates in what has historically been a viciously cyclical sector, the market used this hook in order to hang cautionary sentiment. Beaufort, however, is happy to remain overweight in the housebuilding sector in general and, given its poor share price performance so far during 2016, retain Berkeley shares on its Buy list. The background is such that the veritable ‘party’ enjoyed by the sector for over three years now appears still to have at least two more still to run. As a quality vehicle, Berkeley understandably enjoys a Price/NAV premium to its peers, standing at 2.20x against 1.97x, which appears justified by expectations of a 2016E post-tax ROE of 27.5% against just 21.0%. Even if an unexpected concentration of Brexit fears is experienced in the run up to 23rd June, the hit on UK-quoted house builders would likely be considerably less than experienced by other much more exposed international trading companies. Beaufort retains its Buy recommendation on Berkeley Group.
Condor Gold (LON:CNR, 40.50p) - Speculative Buy
Announced today that it has successfully re-negotiated the terms to acquire 100% of the Espinito Mendoza Concession in the heart of La India Project, Nicaragua. The revised terms end a dispute between the sellers of the Espinito-Mendoza Concession and the Company as detailed in Condor’s interim report and accounts to 30th June 2015. The resolution allows the Company to advance the Concession on terms acceptable to the Company. The Espinito-Mendoza Concession hosts a NI 43-101 compliant Mineral Resource Estimate of 908kt at 6.66g/t for 208,000 oz gold and a Soviet classified Mineral Resource of 1,442kt at 13.03g/t gold for 513,492 oz gold. The enlarged Mestiza Vein Set includes epithermal gold veins on the Espinito Mendoza Concession and the surrounding La India Concession and has a NI 43-101 compliant Mineral Resource of 1,490kt at 7.47g/t for 333,000 oz gold and a Soviet classified Mineral Resource of 2,392kt at 10.21g/t for 785,684 oz gold. Importantly, the Mestiza Vein Set is excluded from Condor’s PFS and PEAs and has potential to increase NI 43-101 compliant resources, reserves and gold mineral production from La India Project. In February 1998, Micon International produced a report stating: “It is Micon’s opinion that La Mestiza is a property of merit, with good potential to become a small (500 to 800tpd), low cost mine.”
Our view: After many months of negotiation, it is pleasing that the Company have settled a dispute over the purchase of the high grade Espinito-Mendoza Concession, which clears the way to advance the Concession and convert more of the Soviet classified resource on the Mestiza Vein Set. In the Company’s experience, the Soviet GKZ classified resources on La India Project have generally converted to western standards upon tighter drill spacing and verification drilling of the previous drill holes. It is some comfort that Micon International’s 1998 report on the Concession concluded that the property has good potential to become a small low cost mine. Importantly, the Mestiza Vein Set is excluded from the Whittle Enterprise Optimisation of the PFS and PEA studies, which detailed 4 production scenarios ranging from 91,000 to 165,000 oz gold production per annum. The Company remain convinced that La India Project hosts a substantial gold field with considerable upside potential. We agree and reiterate our Speculative Buy recommendation.