Market opening: The FTSE-100 is expected to start this morning's session around 15-points higher.
New York: Wall Street ended marginally higher in a quiet trading session yesterday. Investors eyed the movement in oil prices and awaited key economic data to be released later this week. The S&P 500 edged 0.1% up, with the consumer discretionary sector gaining the most.
Asia: Equities are trading mixed, as investors remained concerned ahead of Fed Chair Janet Yellen’s speech on signals for the outlook on US interest rate hikes. The Nikkei 225 fell 0.2% after the release of poor economic data in Japan. The Hang Seng was trading broadly flat at 7:00 am.
Continental Europe: Markets were closed on account of Easter Monday.
Crude Oil: Yesterday, Brent and WTI oil prices declined 0.4% and 0.2%, respectively. The spread between the two varieties stood at US$0.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.22% lower on Thursday at 708.80.#
Today's news
Unemployment in Japan advances to 3.3% in February
As per data from the Ministry of Internal Affairs and Communications, the unemployment rate in Japan rose to 3.3% in February from 3.2% in January. The job-to-applicant ratio remained flat at 1.28 in February, the highest level since December 1991.
Company News
Northcote Energy (LON:NCT, 0.05p) - Speculative Buy
On 24 March, Northcote Energy published details of its fully funded 2016 work programme at its Shoats Creek Field in Louisiana including a spud date for drilling of Lutcher Moore #21 (LM #21), which has been set for 16 May 2016. The 2016 work programme entails drilling and completion of three new wells with a target depth of 5,500 feet in order to test multiple Frio sands at approximately 5,000 feet. The programme also plans re-entry and installation of production equipment to support existing production from the Cockfield well. Re-entry and conversion of an existing well to a second salt water disposal well is also planned. In addition, negotiation of a natural gas contract and installation of necessary equipment to permit sales of natural gas. Leasing of an additional 500-700 gross acres to expand the project area and provide additional prospective drilling locations. Northcote's net cash requirement for the above programme is US$295,133 which is expected to be funded from existing cash resources.
Our view: We are encouraged with the 2016 work programme at Shoats Creek field with the focus to grow production while high grading additional potential locations. There are a number of high grade drilling targets across the Shoats Creek property and we look forward to completion of three new wells in 2016. Additional geophysical and engineering work will focus on high grading existing and add additional locations within the Cockfield formation. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Northcote Energy plc
Asiamet Resources (LON:ARS, 3.50p) - Speculative Buy
On Thursday, Asiamet Resources confirmed that it remains on track to release the findings of a preliminary economic assessment (PEA) on the Beruang Kanan Main (BKM) deposit located within its 100%-owned KSK Contract of Work in Kalimantan, Indonesia. The company expects to release the findings at or close to the end of Q1 2016 as previously announced. Separately, Asiamet disclosed that it is continuing to progress the conversion of its exploration licences to production licences for both the Beutong and Jelai projects with the help of Government of Indonesia.
Our view: The aforementioned update is positive for Asiamet as it remains on schedule to complete the PEA at its BKM deposit. The deposit holds considerable indicated and inferred resources. As per the latest evaluations, BKM has indicated resources of 15 million tonnes at 0.7% copper, containing 231 million Ibs (105,000 tonnes) of copper at a 0.2% copper cut-off grade. Inferred resources Total 49.7 million tonnes at 0.6% copper, containing 657 million Ibs (298,000 tonnes) of copper at a 0.2% copper cut-off grade. The significant inventory of mineral resources provides the company an opportunity to enhance plant output and improve mine life. Asiamet is well assisted by consultants who have significant experience and exposure to operating conditions in Indonesia. Furthermore, Asiamet has identified targets for copper mineralisation at Beruang Kanan South (BKS), Beruang Kanan West (BKW), and BKZ polymetallic prospects. The company has started assessment of these targets using surface exploration and scout drilling. We believe Asiamet has bright prospects, supported by its enhanced resource potential. Therefore, we maintain our Speculative Buy rating on the stock.
Parkmead Group (LON:PMG, 64.88p) - Speculative Buy
Parkmead, the UK and Netherlands focused oil and gas group, reported its interim results for the six-month period ended 31st December 2015, on Thursday last. During the six-month period to 31st December 2015, the Group generated revenues of £7.0m (2014: £10.1m). The reduction in revenues was principally attributable to the global drop in commodity prices with Brent Crude Oil averaging US$48 per barrel in the second half of 2015 compared to US$91 per barrel in the second half of 2014. The reduction in revenue was partly offset by the increasing contribution from Diever West in the Netherlands following first gas in November 2015. A significant reduction in operating costs was achieved in the period which, combined with no impairment charge being recorded compared to the corresponding period last year, reduced the Group's post-tax loss substantially to £4.8m (2014: £14.9m). The first commercial gas production was achieved at the Diever West gas field in the Netherlands, following a successful fast-track development. The excellent Diever-2 well is outperforming, averaging approximately 30 million cubic feet per day during February 2016 (approximately 5,100 barrels of oil equivalent per day). The Diever West field brought on-stream within just 14 months of discovery. The low-cost onshore gas portfolio in the Netherlands produces from four separate gas fields with an average operating cost of US$14 per barrel of oil equivalent. The Company plans further production enhancement work on its Netherlands portfolio, including new wells at the Geesbrug and Wijk en Aalburg gas fields to maximise production, serving as a natural hedge to the current low oil price environment. Parkmead believe significant development opportunities exist within its Netherlands portfolio, in addition to low-risk exploration upside such as the Rotliegendes De Mussels prospect and detailed technical work has allowed Parkmead to high-grade its portfolio and release non-core acreage, significantly reducing licence costs. Significant progress was made during the period at Parkmead's Platypus gas field development. Detailed development concept work was undertaken by the joint-venture partners in order to optimise the development of the Platypus field. It was found that by collaborating with other facilities in the area a minimal platform concept can be adopted, substantially reducing development expenditure. In addition, the field's gas reserves can be efficiently recovered from two rather than three development wells. This increases the value of the already economic Platypus development. The Platypus gas field was discovered in 2010 and was successfully appraised with a horizontal well in 2012. Platypus was flow tested at a rate of 27 million cubic feet of gas per day (approximately 4,600 barrels of oil per day on an equivalent basis). The Company was awarded a further new UK offshore licence, completing an excellent 28th Round for Parkmead. The new licence is located in the highly prospective West of Shetland area targeting two new prospects (Sanda North and Sanda South) adjacent to existing Parkmead licences. The Company is building substantial oil and gas reserves and resources:
• 2P reserves of 23.5 million barrels of oil equivalent as at 31st December 2015
• Contingent resources of 41.9 million barrels of oil equivalent as at 31st December 2015
The Company is well positioned for further acquisitions. Six acquisitions, at both asset and corporate level, have already been completed since repositioning Parkmead as a new independent oil and gas company. The Company is well capitalised with US$43.8m (£29.6m) of cash resources as at 31st December 2015.
Our view: We Highlight Parkmead’s financial strength:
• Net assets of £74.6 million at 31 December 2015 (2014: £82.8 million)
• Revenue of £7.0 million (2014: £10.1 million)
• Strong cash position of £29.6 million (US$43.8 million) as at 31 December 2015
• Parkmead operates the majority of assets within its portfolio and therefore controls the timing and quantum of capital expenditure, with low capital commitments in 2016
Parkmead has developed a new gas field at Diever West, in the Netherlands, following its successful discovery. This is delivering profitable gas production and important additional cash flow to the Group. The Company successfully brought this new gas field on-stream within 14 months of discovery. Parkmead is increasing the Group's overall gas production in the Netherlands through a low-cost, onshore work programme. This will act as a natural hedge to the current low global oil prices. The new additional licence award, in the West of Shetland region, further increases the scale of Parkmead's oil and gas operations in the UK. West of Shetland is an area the Company understand well and has the potential to add major value to the Company. Parkmead is well positioned to take advantage of the lower oil price environment and the opportunities that are arising from this. The Company has an excellent regional expertise, significant cash resources and a growing, low-cost gas portfolio. The Group will continue with its licensing and acquisition-led growth strategy, securing opportunities that maximise long-term value for our shareholders. We reiterate our Speculative Buy.
AFC Energy (LON:AFC, 14.50p) - Speculative Buy
On Thursday, AFC Energy declared its results for the year ended 31st October 2015. During the period, AFC Energy's EU grant and other income increased to £2.3m from £796,135 in 2014. Post tax losses stood at £4.8m as against £5.4m in 2014. Loss per share narrowed to 1.66p from 2.42p in 2014. Cash balances excluding restricted cash at the end of the period amounted to £1.8m compared with £4.9m in 2014. On the operational front, the company completed milestone 10 of the POWER-UP Programme, testing an entire tier of eight fuel cells. AFC signed a 50MW project development agreement with Samyoung Corp. and Chang Shin Chemical Co., Korea. The company entered into a 10MW heads of agreement with Bangkok Industrial Gas Co., Thailand. AFC also signed a memorandum of understanding with Dubai Carbon Centre of Excellence. After the end of the period, the company raised £3.6m through placing and offer for subscription. AFC’s KORE System is now commissioned and producing power at Stade in Germany. The company signed a strategic engineering partnership and services agreement with Germany-based engineering consultancy plantIng GmbH to support the optimisation and rollout of AFC Energy's alkaline fuel cell systems. AFC entered into a heads of terms with a global manufacturer and DNR Industries Ltd, which is a part of the Dutco Group of Companies, Dubai. The company received €1.07m from EU's FCH JU.
Our view: AFC made good progress in 2015 on both commercial and technological fronts. The company successfully completed 10 milestones of its POWER-UP strategy with minimal resources and within the stipulated time. AFC accomplished the final milestone 11 and achieved a gross electrical output in excess of 200kW from its proprietary KORE fuel cell system in Stade, Germany. This was the first time that all three tiers of the KORE fuel cell system had operated in parallel with each other. AFC signed many commercial agreements in 2015, displaying significant interest for AFC’s fuel cell. Moreover, AFC continued to receive good support from shareholders as its stock offering was oversubscribed. These funds would be used by the company to complete pre-commissioning activities and meet working capital requirements for the KORE system facility at Stade. Additionally, AFC receiving support from the EU by way of grants strongly strengthens the firm’s research and development programme. We are buoyed by the company’s progress at the KORE system and await future updates on it. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Next (LON:NXT, 5,655.0p) - Buy
On Thursday, NEXT declared its results for the year ended 30th January 2016. During the period, Total sales rose 3.0% to £4.1bn, led by NEXT Directory, which rose 7.7% to 1.7bn. NEXT Retail sales increased 1.1% to £2.4bn. Pre-tax profit rose 5.0% to £821.3m, leading to an EPS of 442.5p as against 419.8p in FY 2014. On the operational front, the company spent £151m on new stores, a new warehouse and systems. Net debt at the end of period stood at £850m. NEXT Retail’s trading space increased by 275,000 sq ft to 7.6 million sq ft. The number of stores remained broadly same at 540, with the increase in new stores being offset by the closure of smaller, less profitable stores. The NEXT Directory segment’s full-price sales rose 6.5%, with overseas business growing 20% and UK business increasing 4.6%. Total active customers increased 11% to 4.6 million, driven by the acquisition of UK cash customers and customers overseas. The company returned £568m to shareholders through a combination of ordinary dividends (£227m) and special dividends (£341m). In January 2016, the share price fell and NEXT re-started its buyback programme, returning a further £151m. The company proposed a final dividend of 105p, taking the Total dividend to 158p for FY 2015, up 5.3% from last year.
Our view: NEXT delivered strong performance in FY 2015, with solid contributions from all segments. NEXT BRAND’s full-price sales increased 3.9% and underlying pre-tax profit surged 5.0%. The company remained focussed on cost savings through innovation and efficiency as it reported £46m in savings for the year. NEXT improved features of the buying and design process, and would now buy products in two ways (the long game and short game). The company remained committed to shareholders as it returned cash through dividends and share buybacks, and has also proposed further dividends for FY 2015. NEXT expects FY 2016 to be one of the toughest years for it since 2008. In light of this, the company plans to increase investment in online businesses, advance buying and design capabilities, and manage costs through constantly innovating and developing more efficient ways of operating. We are encouraged by NEXT’s progress in FY 2015 and maintain a Buy rating on the stock.