The Markets
Market opening: "For Tuesday, the FTSE-100 is being called down 31 points at 6,133, with sentiment in London following the US market's overnight decline and the continuing decline of benchmark crude oil prices. Investors are reportedly becoming increasingly cautious of the global economic uncertainty ahead of what could be a bleak corporate earnings season, raising doubts about whether stocks can sustain the gains made during February's rebound. The opening of probes by both the U.S. and France for potential Evidence of Crime following the Panama document leak also raises tensions, while elsewhere investor eyes are focussed on today's macroeconomic releases. In particular, today's Markit/CIPS services PMI should show that the recovery continues to rely on the services sector while we expect Friday's industrial production figures will highlight the manufacturing sector's struggle." - Barry Gibb, Research Analyst
New York: Wall Street ended in the red in a quiet trading session yesterday as losses in basic resource sector offset gains in health care sector. The S&P 500 fell 0.3%, with the materials sector leading the laggards.
Asia: Equities are trading lower, taking negative cues from Wall Street. A fall in oil and commodity prices weighed heavily on investor sentiment. The Nikkei 225 fell 2.4% as a strong yen exerted pressure on export-driven stocks. The Hang Seng was trading 1.4% lower at 7:00am.
Continental Europe: Markets ended in the green amid optimism that strength in the US economy would boost global growth. Investors remained concerned over the decline in oil prices. France’s CAC 40 and Germany’s DAX gained 0.5% and 0.3%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices decreased 3.0% and 2.5%, respectively. The spread between the two varieties stood at US$2.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.10% higher yesterday at 712.29.
Today's news
UK construction growth remains steady in March
As per data released by Markit, the construction PMI in the UK stood at 54.2 in March, similar to the 10-month low in February. In the construction sector, rapid expansion in commercial work and civil engineering activity was offset by slowdown in residential building. New orders have risen at the weakest pace since the pre-election slowdown in April 2015.
Company News
DekelOil Public Limited (LON:DKL, 1.40p) - Buy
DekelOil Public Limited announced today that crude palm oil (CPO) production for the quarter ended 31 March 2016 has materially exceeded management's expectations and has increased significantly in comparison to the corresponding period in 2015. CPO Production in Q1 2016 was 15,141 tonnes, was a 56.4% like-for-like increase in CPO production compared to Q1 2015 and production increased month on month during Q1 2016 with production records set in February and March 2016:
- January 2016 - 3,073 tonnes of CPO produced (January 2015: 2,168 tonnes)
- February 2016 - 5,733 tonnes of CPO produced (February 2015: 3,158 tonnes)
- March 2016 - 6,335 tonnes of CPO produced (March 2015: 4,352 tonnes)
Also, 65,610 tonnes of fresh fruit bunches (FFBs) were delivered to the Mill in Q1 2016 compared to 40,448 tonnes in Q1 2015 and demonstrates DekelOil's strengthened regional position and heightened relationships with the local farming community, as well as the effectiveness of the Company's logistics network. Further, the CPO was extracted at a rate of 23.1% during the period and 12,082 tonnes of CPO were sold during the period at an average price of €532 per tonne. CPO prices have increased considerably during the quarter with early sales in April taking place at a price approximately 10% higher than the average for Q1 2016. Gross margins, particularly in February and March have increased considerably compared to 2015.
Our view: The delivery of 15,141 tonnes of CPO during the quarter represents a record for DekelOil and materially exceeds both internal and external expectations. The Company is delighted to have increased CPO production by 56% compared to the equivalent period in 2015, and remain firmly on track to deliver another year of significant production growth at the Mill in 2016. By accommodating the requirements of local smallholders and by making our Mill easy to access via the development of logistics hubs, DekelOil has ensured that DekelOil's regional reputation is that of a highly professional and reliable operator, and this is paying dividends as more farmers bring their Fresh Fruit Bunches to them, establishing the Company as a credible player in the market place. The Company's revenues and margins are also being impacted positively this quarter thanks to the increase in production together with the successful ramp up of operations at the KCP which allows us to sell Palm Kernel Oil and Palm Kernel Cake both of which are value add products. Having recently re-financed its debt on more attractive terms, and with production going from strength to strength, DekelOil has never been in a better position, both operationally and financially. At Beaufort, we believe there remain significant opportunities for growth in 2016 and beyond from the continued increase in production, together with a continual improvement of the Company's processes and efficiencies for dealing with the substantial increase in FFB volumes, particularly in an environment with rising prices for CPO. The Company is are very excited with the further step ups in the operations they have made in Q1 2016 and we at Beaufort look forward to hearing further updates on DekelOil's progress. We Reiterate our Buy Stance on the Company.
Beaufort Securities acts as corporate broker to DekelOil Public Limited
Ryanair (LON:RYA, 14.07p) - Buy
Yesterday, Ryanair released its traffic statistics for March 2016. The company's traffic grew 28% to 8.5 million in March, whereas the load factor improved 400 basis points to 94%. The company's rolling annual traffic to March rose 18% to 106.4 million customers.
Our view: With the above trading update, Ryanair has reaffirmed growth in traffic and the load factor as it continues to build on the success of its 'Always Getting Better' (ATB) customer experience programme. In addition, the company performed robustly in Q3 2016 with better revenue and margins. Although largely hedged, Ryanair is benefiting from low oil prices; the company has introduced new routes, increased frequencies and added services for business passengers. All these positives support an upward revision in profit guidance for FY 2016. More importantly, Ryanair hedged 95% of its fuel for FY 2017 at an average rate of US$62per barrel. This is estimated to generate savings of €430m in FY 2017. Moreover, Ryanair's solid cash position has allowed it to return €800m through share buybacks. The company plans to commence the third year of AGB shortly to further enhance customer experience. In light of the above argument, we maintain a Buy rating on the stock.
San Leon Energy (LON:SLE, 29.12p) - Speculative Buy
Yesterday, San Leon Energy informed that the Mart arrangement agreement is now complete, effective from 24th March 2016. The company requires shareholder and other regulatory approvals to benefit from San Leon's shares in BidCo, pledged to the debt investor.
Our view: San Leon’s long efforts to complete arrangements for the acquisition of Mart Resources by its partners Midwestern Oil & Gas finally turned fruitful. San Leon helped its partner finance the CAD$89.2m takeover of Mart Resources by securing funds for the acquisition. San Leon would receive around 10% share in a Nigerian oil field (OML 18) that currently produces more than 30,000 barrels per day. OML 18 has very low decline rates, offers light oil (receives a marginal premium to the WTI) and its operating cost is significantly below US$10/bbl. San Leon would initially receive indirect economic interest of 4.05% in OML 18, which hosts operating oil fields. The project interest could increase to 9.72%, subject to San Leon securing further funds as part of a larger overall deal. Additionally, the company holds the right to provide oil field services, such as work over and drill rigs, to the operator of OML 18. We are encouraged by the company’s progress in the recent past and look forward to further developments. We maintain a Speculative Buy rating on the stock.