The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 22-points lower.
New York: Wall Street ended in the green, as dovish comments from the Fed Chair Janet Yellen eased concerns about potential interest rate hikes. The S&P 500 rose 0.4%, with the information technology sector gaining the most.
Asia: Equities are trading lower despite overnight gains in the global markets. Investors remained concerned over the volatility in commodity prices. The Nikkei 225 fell 0.7%, amid growing pressure on the value of yen. The Hang Seng was trading 0.3% down at 7:00 am.
Continental Europe: Markets ended higher, buoyed by the prospect that the US Fed would not raise rates quickly. Additionally, the rally in commodity prices resulted in gains for basic resource stocks. France’s CAC 40 and Germany’s DAX advanced 1.8% and 1.6%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices increased 0.3% and 0.1%, 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% higher yesterday at 709.73.
The investments discussed here may not be suitable for you. You should read the Important Risk Warnings & Disclaimers at the foot of this newsletter.
The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 22-points lower.
New York: Wall Street ended in the green, as dovish comments from the Fed Chair Janet Yellen eased concerns about potential interest rate hikes. The S&P 500 rose 0.4%, with the information technology sector gaining the most.
Asia: Equities are trading lower despite overnight gains in the global markets. Investors remained concerned over the volatility in commodity prices. The Nikkei 225 fell 0.7%, amid growing pressure on the value of yen. The Hang Seng was trading 0.3% down at 7:00 am.
Continental Europe: Markets ended higher, buoyed by the prospect that the US Fed would not raise rates quickly. Additionally, the rally in commodity prices resulted in gains for basic resource stocks. France’s CAC 40 and Germany’s DAX advanced 1.8% and 1.6%, respectively.
Crude Oil: Yesterday, Brent and WTI oil prices increased 0.3% and 0.1%, 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% higher yesterday at 709.73. To read our latest research click here.
Today's breakfast menu:
- Beaufort Securities on MySQUAR Limited - Speculative Buy; Rambler Metals and Mining - Speculative Buy; K&C RIET - Speculative Buy; and Chariot Oil & Gas - Speculative Buy
- Eurozone consumer confidence; US MBA mortgage applications; Germany CPI; and US ADP employment change
Today's news
UK consumer confidence unchanged in March: GfK
As per a GfK survey, the UK’s consumer confidence index remained at 0 in March, following a similar reading in February, the worst since December 2014. Consumer confidence was dampened over concerns about Britain's referendum on the EU membership. Conversely, GfK’s poll displayed households were more optimistic about their personal finances than a year ago.
Company News
MySQUAR Limited (LON:MYSQ, 9.62p) - Speculative Buy
MySQUAR Ltd, the Myanmar-language social media and entertainment platform whose principal activity is to design, develop and commercialise Myanmar-focused internet-based mobile applications, yesterday announced its unaudited interim results for the six months ended 31 December 2015. Operational highlights for the period included the acquisition of approximately 2.0m User Accounts, including monthly active users of some 600,000 in the month of December; revenue for the period of USD350,000 from ongoing implementation of its MyPAY payment solution; operating expenses of USD1,629,304 (including USD289,964 of share based payments) and the joining of a cross-promotion partnership with Ooredoo Myanmar, the international telecommunications provider owned by Qatar Telecom. Post period end, MySQUAR's total User Accounts had risen to in excess of 2.45m as of today’s date, with monthly active users on average being some 25% - 30% of this total. The Group also detailed its continued of the integration of MyPAY’s payment services into MyCHAT, while MySQUAR and MyPAY had also agreed to increase the software platform integration fee to be paid to MySQUAR from USD500,000 to USD750,000 reflecting additional implementation work required, with the outstanding balance of the increased integration fee of USD400,000 having already been received. Commercial relationships have also been established with a number of advertisers in the sectors of consumer goods, recruitment services, online retail and media agencies among other sectors; examples include MyJobs, Work.com.mm, Shop.com.mm (an ecommerce website in Myanmar owned by the Rocket Internet Group) and Sharp - advertisers pay for using MyChat's marketing tools such as Boosted Post, Direct Messaging, Brand Account, etc. Partnerships have also been put in place with leading local content providers, including Myanmar Times, Lwin Pyin and Irrawaddy, in order to provide free content; and further similar arrangements are actively being sought.
Our view: The only figure that matters when placing a value on any early-stage and strategically placed social media enterprise, is the number and growth rate of its unique Active User Accounts. In the world of social media, of course, success-breeds-success, meaning that such numbers compound dramatically for an operator capable of achieving 'go-to' status, while less successful peers and ‘me-too’ players simply fade and die. Being Myanmar’s only truly local language/script social media site, MyCHAT is clearly amongst the former and given a current expansion rate of around 160k User Accounts/month, an end-December 2016 target of as much as 4.0m cannot be considered unrealistic- which would be quite astonishingly, given that it would then be more than a full year ahead of the original target set in Beaufort IPO initiation research of less than 12-months ago. This is important for two reasons. Firstly, because a count of 4.0m unique users is the generally recognised as being the point at which highly acquisitive and cash rich global social media operators become willing to pay handsomely to add new unpenetrated geographical territories to their international hubs. Secondly, it is a number large enough to permit rapid realisation of the Group's now advanced monetisation strategy across the key areas of advertising, digital goods, user data, VOIP, gambling and transaction-based activities like affiliate sales and eCommerce. In this respect, 2016 and 2017 are expected to be years of continued expansion, commercialization and rising revenues, driven by management vision and smart marketing as opposed to simply throwing giant budgets at the project. While operating expenses rose somewhat during the first half, unaudited liabilities and assets remained virtually in balance, and given the early receipt of integration fees plus continuing availability credit facilities, including US$1m provided by Rising Dragon Singapore Pte Ltd, MySQUAR's balance sheet remains capable of supporting the Group’s continuing expansion. Beaufort retains its Speculative Buy recommendation on the shares.
Beaufort Securities acts as corporate broker to MySQUAR Limited
Rambler Metals and Mining (LON:RMM, 3.63p) - Speculative Buy
Yesterday, Rambler announced its unaudited financial results and operational highlights for the quarter ended 31st January 2016. During the period, revenues fell to C$8.3m down 26% and 21% q-o-q and y-o-y, respectively. A total of 56,548dmt of concentrate was produced (vs 58,053dmt in Q1 16 and 54,869dmt in Q2 15) at an average realised price of C$2.89/lb Cu (vs C$3.10/lb Q1 16 and C$3.39/lb in Q2 15). Cash flows generated from operating activities were C$1.8m (vs C$2.2 in Q1 16 and C$2.2 in Q215). Production costs (direct costs net of by-products) per pound of copper to were C$2.46/lb (vs C$1.99 in Q1 16 and C$2.97/lb in Q2 15). Copper production was 2.1Mlb for the quarter (vs 2.8Mlb in Q1 16 and 2.8Mlb in Q2 15). The Group reported EBITDA of C$0.75m during the period (vs C$2.9m in Q1 16 and a loss of C$4.4m during Q2 15). Loss before tax for the quarter was C$2.1m (vs profit of C$1.8m for Q1 16 and loss of C$6.0m in Q2 15). On the operational front, the Group expects to produce between 4,500 and 6,000t of copper, between 5,500 and 6,500oz of gold and between 42,000 and 57,000oz of silver during FY 2016.
Our view: Revenues were lower q-o-q and y-o-y on the back of lower copper prices and reduced copper grades. Despite the lower grades, the Group remains on target to meet its FY 16 production guidance. Production should increase during H2 2016 targeting 850tpd with the continued blending of the Lower Foot Wall Zone with the massive sulphide zones. With the expected increase in production coupled with the Group's continued stringent cost controls we expect a stronger financial performance during H2 2016. In the meantime, we maintain a Speculative Buy rating on the stock.
K&C RIET (LON:KCR, 6.50p) - Speculative Buy
K&C Reit plc operates in the residential letting market, with a particular emphasis on Central London. K&C will seek to acquire property assets held within UK-incorporated companies, where there is an opportunity to capitalise on the advantages afforded to REITs to provide an exit route for vendors. Interim Results for the six months ended 31 December 2015 were released yesterday. Shortly following admission, at which the Company issued 43,035,622 ordinary shares at £0.10 per share, including 35,663,400 shares issued pursuant to a fundraising, generating gross cash proceeds of £3,566,340, the Company acquired the entire share capital of Silcott Properties Limited (Silcott) for a consideration of £3,630,000, of which £300,000 was satisfied by the issuance of 3,000,000 ordinary shares. Silcott is a special purpose vehicle that owns a freehold property in Central London comprising ten leased apartments. A further 4,372,222 ordinary shares were issued to satisfy liabilities of the Company. K&C has traded in line with management's expectations during the period and since the period-end. Silcott has achieved strong rental growth when reletting its units and the Company has improved the property, with further refurbishment planned for this spring. One of the three Newbury properties owned by Kensington & Chelsea REIT Limited was sold during the period and a second property has been sold since the period-end, both at a profit. The final property is currently on the market. During the period, K&C reports a consolidated loss and total comprehensive expense of £938,629. The costs of admission to AIM (£780,728) and of acquiring Silcott (£100,202) have obviously added considerably to the expenses incurred during the period. As stated in the annual report, K&C is seeking to build a strong business with high quality assets that will be able to support an increasing income yield. To this end, we will need to raise more capital in order to make further acquisitions. The directors are working closely with funding sources, both equity and debt providers, to achieve this objective. In the Company’s annual report it stated the Company had exclusivity on a particular project and now confirm they are continuing to progress work on that acquisition and hope to be able to report further on developments in the near future. In addition, the Board is reviewing a number of other acquisition opportunities.
Our view: Although progress may have been slower than anticipated, it is right that the company proceed cautiously in order to obtain the right properties at the right price and ensure proper funding is in place. It is our view, with the management’s track record in the Kensington and Chelsea area and London as a whole that the foundations are in place to build a large property portfolio where their expertise will maximise returns for shareholders. There shares are trading at an unwarranted discount to the net asset value. We reiterate our Speculative Buy stance.
Chariot Oil & Gas (LON:CHAR, 6.50p) - Speculative Buy
Chariot announced yesterday it had signed a Farm Out Agreement with Eni in Rabat Deep Offshore, Morocco. Highlights are:
1. Eni to acquire 40% equity interest in, and operatorship of, the Rabat Deep Offshore exploration permits I-VI;
2. Eni to carry Chariot in a deep-water well on the JP-1 prospect, to an agreed cap
3. Eni to carry Chariot for other geological and administrative costs relating to work commitments in the next licence period;
• Eni to pay a contribution towards Chariot's investment to date;
• Funds to be used for continued development of Chariot's portfolio; and
• Completion is subject to receipt of Moroccan authorities and partner approvals.
Eni will also carry Chariot for other geological and administrative costs relating to work commitments in the next licence period of Rabat Deep and will pay a contribution which will equate to Chariot's investment to date and be used for the continued development of Chariot's portfolio. This agreement demonstrates Chariot's ability to deliver on its strategy; seeking third party investment in order to de-risk and progress its assets towards drilling in order to provide the opportunity for transformational growth. Following completion of this agreement the licence ownership will be as follows: Eni (Operator, 40% equity interest), Woodside (25% equity interest), Chariot (10% equity interest) and Office National des Hydrocarbures et des Mines ("ONHYM") (25% carried interest). The Rabat Deep Offshore licence area is located approximately 30km offshore in water depths ranging from 150m to 3,500m. The JP-1 prospect has been described following detailed processing and interpretation of 3D seismic data as a large, four-way dip closed structure of approximately 200 square km areal extent, with Jurassic carbonate primary reservoir objectives. Based on this data, Netherland Sewell and Associates Inc. conducted an independent Competent Person's Report and has estimated a gross mean prospective resource of 768mmbbls for JP-1. The prospect sits adjacent to a source kitchen modelled to be oil generating and third party drilling offshore Morocco has confirmed that the Jurassic can have excellent reservoirs and the presence of a light oil charge, hence the focus on this play within Chariot's acreage. Retaining a 10% equity interest in the drilling of this well has the potential to create transformational value in the success case due to the large scale of prospective resources, excellent contract commercial terms and robust economics even in the current lower oil price environment. Additional prospects and leads have been identified within the Jurassic fairway and any success in JP-1 would also materially de-risk these other targets and offer significant follow-on exploration potential in both Rabat Deep and the neighbouring Mohammedia permit (Chariot, Operator with 75% equity interest).
Our view: This is very good news for Chariot to have signed this farm-out agreement with Eni as the future operator of our Rabat Deep acreage. We look forward to working with them and our other partners, to progress to drilling the JP-1 prospect which, subject to the relevant approvals, well planning and securing a drill rig, we anticipate to occur in 2017. The response Chariot has had to the partnering initiative and subsequently securing this deal endorses its technical view of the asset and is another milestone in delivering on its strategy. Eni is a world-class explorer and an experienced operator focused on projects with the potential for material production. Despite the challenges posed by current market sentiment, Chariot's high quality assets continue to attract industry investment. The Company is rightly excited that they now have an opportunity to see one of its priority targets through to drilling at near zero cost to the Company, with the agreed cap above recent drilling cost estimates provided by an independent party. WE upgrade to Speculative Buy.