The Markets
Market opening: London equity markets are being called slightly lower, down 12 points, on the open this morning, despite gains in the US and Asia following Friday's close. Bonds are expected to track slightly lower, while benchmark crude prices remain under pressure on reports of Iran's Oil Minister refusing Saudi demands to participate in a production freeze at January's levels by OPEC members which is due to be negotiated at a meeting on 17th April. UK market sentiment is also being driven by newspaper reports of the UK considering offering support to attract an independent Tata Steel Suitor. Investors this morning also await the 09:30hrs release of key UK construction PMI data.
New York: Wall Street ended in the green, as better-than-expected US jobs data and ISM manufacturing data offset the impact of weak oil prices. The S&P 500 rose 0.6% on Friday, with the healthcare sector gaining the most. For the week, the markets closed 1.8% higher.
Asia: Equities are trading lower, despite positive economic data released in the US. The Nikkei 225 fell 0.3%, as a strong yen exerted pressure on export-driven stocks. The Hang Seng remained closed due to a holiday for the Ching Ming Festival.
Continental Europe: Markets ended in the red, taking negative cues from weak economic data released in Japan. Moreover, a decline in commodity prices resulted in losses for basic resource stocks. Germany’s DAX and France’s CAC 40 shed 1.7% and 1.4%, respectively.
Crude Oil: On Friday, WTI and Brent oil prices decreased 4.0% and 2.3%, respectively. The spread between the two varieties stood at US$1.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.12% higher on Friday at 711.60.
Today's news
House prices in UK increase in March
As per Nationwide, house prices in the UK rose 5.7% y-o-y in March compared with 4.8% in February, marking the highest y-o-y gain since February 2015. On an m-o-m basis, prices increased 0.8% in March against 0.4% in February. The surge in house prices was due to the introduction of surcharge tax on buy-to-rent properties. The agency expects prices to rise in the near term, driven by lower unemployment, wage growth, low interest rates and shortage of homes for sale.
Take advantage of your 15/16 ISA allowance by TOMORROW!
You can contribute up to £15,240 into an ISA this tax year and the deadline for doing so is tomorrow (5th April). Therefore if you haven't taken full advantage of this year's ISA allowance you only have 24 hours left to do so. You can find out more about the award-winning Stocks & Shares ISA offered by Beaufort and how to make use of your 2015/2016 allowance before you lose it visiting our website.
Company News
StratMin Global Resources (LON:STGR, 2.13p) - Speculative Buy
StratMin Global Resources, the graphite production and exploration company with assets in Madagascar, announced on 1 April that it has entered into a heads of terms agreement with Base Metals to acquire the outstanding 93.75% of Graphmada Mauritius, which operates the Loharano natural flake graphite mine in Madagascar. Under terms of the proposed agreement, Base Metals will make staged cash, equity and royalty considerations of up to A$15.3m. The term sheet replaces that signed on 2 September 2015 which envisaged an investment by Bass into Graphmada of a sum totalling up to £2m for a 25% stake, Bass has already made payments totalling £0.5m for a 6.25% stake.
Our view: At an implied value of £8.6m, StratMin's board believes this to be a reasonable control premium of the original implied premium of £8m under the 2 September 2015 term sheet. After consideration of alternatives for funding of the development of operations management considers the proposed disposal gives shareholders the best available development proposition given the proportion of equity-based consideration based on certain operational milestones. As a result, StratMin will be able to pursue other opportunities while retaining an interest in Graphmada's graphite operations. We look forward to the details regarding the company's other corporate opportunities in the near term. In the meantime, we maintain our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to StratMin Global Resources plc
Strat Aero (LON:AERO, 3.13p) - Hold
Strat Aero Plc, the AIM quoted international aerospace company focused on the Unmanned Aerial Vehicle ('UAV') sector, on Friday announced a corporate update relating to one of the Group's subsidiaries, Aero Kinetics, in addition to changes to the Board. Following the announcement released on 11 December 2015 regarding the acquisition of Texas based Aero Kinetics, the Company has filed a legal action in Texas, USA against Mr W. Hulsey Smith, the vendor of Aero Kinetics on counts of fraud and breach of contract. Strat Aero has also terminated the services of Mr W. Hulsey Smith, Chairman and CEO of Strat Aero's subsidiary Aero Kinetics with immediate effect. Further updates in connection with this legal action will be made as appropriate. The Company also announced the resignation of CEO, Mr Tony Dunleavy, who has stepped down from the Board to pursue other interests, with immediate effect. The Board is pleased to announce the appointment of Mr. Iain McLure as his replacement. Mr. McLure is a highly experienced executive who has held a number of senior management roles throughout his career, including CEO of Spring Global Mail, one of the leaders in the cross-border logistics and postal services market. The Board went on to confirm that Strat continues to make good progress across its various other business divisions, particularly, the Company's 100% owned subsidiary Geocurve Holdings Limited, a specialist in the provision of UAV operated topographical surveys and inspection services to blue chip customers, including the UK's Environment Agency, EDF Energy, Carillion, and the RSPB. In tandem with this, the Company's proprietary Digital Data Management software ('DDM'), which secured a contract with leading aviation industry service provider ReadyJet on 1 March 2016, continues to attract potential new customers in line with the Company's roll out strategy to new industries and geographic regions. In addition, as announced on 19 February 2016, Strat Aero secured its first orders in the wind sector and discussions are ongoing with other operators.
Our view: Friday's release was a bit of a shocker, particularly given Strat's apparent strong operational progress of recent months. It is clear, however, that the events far from derailed Company's Board. Instead, it was able to confirm both an immediate, highly capable, immediate, replacement for Mr Dunleavy, together with their continuing confidence in the Company's highly qualified and experienced team remaining capable of exploiting the framework already created to capitalise on opportunities presented by a young and dramatically expanding UAV sector. Chairman, Graham Peck went on to note "I believe that Iain can steward the Group to build on this platform to deliver tangible results in the coming months." A trading update together with full year results for period to end-December 2015, which should be expected should be expected in coming weeks, is expected to provide shareholders with more background and information. Investors should note, however, that Aero Kinetics was not projected to have a significant impact on the Company's near-term performance and, although legal proceedings will likely be a future distraction for management, it is clear that its business plan remains intact. While it is also true that Mr Dunleavy had worked hard to build investor confidence in his vision of capturing a slice of a global UAV/UAS market which is expected to be worth as much as US$82.1bn in the US alone by 2025, Iain McLure must now demonstrate his ability to complete the job already started. Assuming he is up to the challenge, and recognising Strat Aero's unique positioning as a quoted vehicle looking to capture early mover advantage in what is generally will be one of the world most significant, long-term opportunities, the share price now appears to wholly overlook the Company's upside potential. Having hit an all-time low on Friday there now appears to be considerable value in the equity, although Beaufort has decided to formally downgrade its recommendation to Hold from Speculative Buy ahead of shareholders being provided with greater disclosure.
Beaufort Securities acts as corporate broker to Strat Aero plc
Anglo Pacific Group (LON:APF, 74.25p) - Speculative Buy
On Friday, Anglo Pacific Group informed that it has settled the outstanding amount due under its promissory note receivable from Atrum Coal Groundhog and its parent company, Atrum Coal NL. The promissory note was issued as part of the consideration for the sale of Anglo’s coal licences in September 2014 and, subsequently, extended in September 2015. The remaining balance of US$1.4m (including principal and accrued interest) has been settled by way of US$0.6m in cash and the issue of a new royalty. The new royalty includes 0.5% gross revenue royalty (GRR) overall production within Atrum's Groundhog Anthracite Project (Groundhog) tenements for 10 years from the date that Atrum declares commercial production on the project. In addition, subsequently, 0.1% GRR would be generated from production within the Groundhog North Mining Complex project area. Moreover, Anglo Pacific would continue to retain the higher of a 1% GRR or US$1.00/t royalty on the areas of Groundhog that Atrum acquired from Anglo Pacific in 2014.
Our view: This is positive news for Anglo Pacific, as it has recovered the full value of its promissory note. In addition, the company increased its royalty exposure to Atrum's high-quality anthracite project. Groundhog consists of 46 granted licences and 40 licence applications. High grade and ultra-high grade anthracites are likely to be used in the manufacture of blast furnace steel and in electric arc furnaces. Recently, Anglo Pacific reported strong results for the financial year 2015. Despite a challenging year in the resource sector, Anglo Pacific made good progress in 2015, as its royalty income more than doubled. This coupled with a significant reduction in operating costs marked a return to profitability for the year. With production expected to increase from Kestrel in 2016 and from Narrabri in 2017, we believe Anglo Pacific is well-placed to achieve further growth in the near term. Given the company’s pipeline of future royalties combined with stringent cost controls, we maintain a Speculative Buy rating on the stock.
Sainsbury (LON:SBRY, 276.60p) - Hold
On Friday, the boards of Sainsbury and Home Retail Group agreed on the acquisition of Home Retail by Sainsbury. As per the terms of the agreement, Home Retail’s shareholders would receive 0.321 new Sainsbury’s shares and 55p in cash for each Home Retail share. To reflect the proceeds of the Homebase sale, investors would receive about 25p per share, reflecting the £200m return to shareholders with regard to the Homebase Sale and payment of 2.8p in lieu of a final dividend. The offer consideration represents an indicative value of 143.7p per Home Retail Group share and values Home Retail’s issued ordinary share capital at approximately £1.2bn. The offer consideration and proposed capital returns together represent an indicative value of 171.5p per Home Retail share and value Home Retail’s issued ordinary share capital at approximately £1.4bn.
Our view: This is encouraging news for Sainsbury, as it is all set to acquire Argos owner Home Retail. The merged entity would bring together two of the UK’s leading retail businesses with a variety of products. The merger would result in combined capabilities and networks to deliver fast and reliable services for a range of food and non-food products. Moreover, the entity would ensure profitable sales growth by offering customers the perfect mix of location, range, speed and flexibility. Sainsbury’s expects to generate EBITDA synergies of more than £120m after three years of the completion of the proposed merger. Nonetheless, the grocery market recently slowed down amid stiff competition among the market players. The company’s performance in Q3 2015 was unexciting; it reported lower sales and LFL growth. Meanwhile, food deflation and pressure on pricing continue to make the business environment challenging. Thus in view of the overall uncertainty that surrounds the UK retail market, we maintain a Hold rating on the stock.