The Markets
Market opening: "London shares are being called 16 points higher this morning, taking their lead from Asia’s stronger close while choosing to overlook setback seen in US stocks overnight. Beaufort sees the FTSE100 gaining 29 points at 6120. The Dow’s weakening appeared to be influenced primarily by domestic issues, as the Obama administration steps up its attack on corporate tax inversion deals and its potential to force Pfizer to walk away from its proposed combination with Allergan. Investors also await todays’ IMF world economic outlook release, while U.S. crude-oil stocks are expected to increase again in data due this afternoon, with analysts forecasting a 3.3m barrel rise in stocks." - Barry Gibb, Research Analyst
New York: Wall Street ended in the red amid decline across global markets and weak trade data released in the US. Investors remained concerned over volatility in oil prices and slowdown in the global economy. The S&P 500 fell 1.0%, with the utilities sector losing the most.
Asia: Equities are trading mixed, despite the sell-off in global equities. Oil prices rallied on expectations that exporters would agree to freeze output amid global oversupply. Investors digested positive services PMI data from China. The Nikkei 225 fell 0.1%, amid continuous pressure on the value of yen. The Hang Seng was trading 0.1% up at 7:00 am.
Continental Europe: Markets ended sharply lower amid poor economic data released in Germany. Moreover, losses in auto and commodity shares dragged the market lower. Germany’s DAX and France’s CAC 40 shed 2.6% and 2.2%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices increased 0.5% each. The spread between the two varieties stood at US$2.0 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.02% lower yesterday at 712.12.
Today's news
Shop prices in UK fall for 36th consecutive month
According to the British Retail Consortium, shop prices in the UK fell 1.7% y-o-y in March compared with 2.0% y-o-y in February, marking the 36th straight month of decline. The drop in prices follows the intense competition and price war amongst the retailers. Food prices decreased 0.4% in March, while non-food deflation rose to 2.6%.
Company News
Cyan Holdings (LON:CYAN, 0.13p) - Speculative Buy
The Company announced today that further to the announcement of 9 February 2016 in relation to an initial purchase order, and after an initial period of live demonstration, it has now received a purchase order from telecommunications contractor Micromodje worth approximately £10 million for a 360,000 unit smart electricity metering implementation in the Islamic Republic of Iran. The purchase order is significantly larger than any purchase order received to date by Cyan and marks a step change in the Company’s commercial progress. This £10 million purchase order is for the supply of both Cyan’s CyLec Advanced Metering Infrastructure hardware solution and its proprietary Head-End Software (HES). The 360,000 units will be installed for high value, high demand customers that represent an estimated 25% of total national power consumption of Iran. Hardware shipments are expected to commence towards the end of the current financial year following the integration with a locally manufactured smart meter. Hardware revenue will be recognised as delivered to Micromodje, with the 360,000 smart meters expected to be rolled out over a two year period. Cyan’s proprietary HES will be hosted by its partner Micromodje with annual software license income being recognised over a five year contractual period following successful smart meter installation. As over 50% of the total order value consists of software license income, the recurring revenues from this purchase order will continue well beyond the two year hardware installation period. The software licenses will be paid annually in advance and charged on a per meter per year basis. International sanctions on Iran were lifted on 16 January 2016 and this is believed to be one of the first substantial purchase orders secured by a UK business, with support from the specialist UK Trade and Investment team. The National Smart Metering Program of Iran1 (FAHAM in Persian) has the stated goal to replace the electricity meters for all customers, representing approximately 33 million meters, in seven years with funding provided by the Iran Power Generation, Transmission and Distribution Management Company (TAVANIR). Cyan has started a dialogue with Micromodje on the next planned rollout of 1 million units, leading to the overall Iran market requirement of 33 million smart electricity meters.
Our view: This is a very significant order in Iran so quickly after the Company’s initial pilot deployment. This is a transformational point in Cyan’s development. Not only is the order ten times larger any previous orders it has received, but this Iranian order also marks Cyan’s entry into a new territory and demonstrates the compelling value of the Cyan solution for the Iranian market and emerging markets globally. The fact that Cyan has secured such a substantial order so quickly after the pilot highlights just how far the Company has become operationally. Considering total orders received to date and the historic revenues, this is an extremely important milestone for the Company. It is excellent for Cyan to have expanded its geographical footprint and to have provided a customer reference point from which it can expect to establish further new relationships. The order from Micromodje shows its confidence in Cyan’s enabling technology and the Company look forward to working with the highly experienced system integrator to deliver smart metering technology, enhancing the quality of service for energy utilities and customers in Iran. We retain and reiterate our Speculative Buy Stance.
Beaufort Securities acts as corporate broker to Cyan Holdings
Ferrum Crescent (LON:FCR, 0.15p) - Speculative Buy
Ferrum Crescent, the AIM, ASX and JSE listed mining development company announced the passing of all resolutions considered and voted on at its General Meeting of Shareholders held today. Following the resignation of Tom Revy as Managing director, the Board resolved to withdraw Resolution 4 (Approval of issue of Shares to Tom Revy). The company now has shareholder approval to issue additional shares for general working capital purposes as well as the potential exercise of the option to acquire and conduct exploration on the lead-zinc projects in Spain. As previously announced (16 February 2016), Ferrum has entered into an option and potential sale agreement with GoldQuest, a private company with two lead-zinc exploration projects in Spain. Under terms of the agreement, Ferrum has the exclusive option, valid until 31 July 2016, in which to conduct due diligence on GoldQuest and its two Iberian lead-zinc projects. GoldQuest owns 100% of the Toral project covering 2,024ha in the province of Leon and the Lago project located in the province of Galicia, both projects have high prospectivity for lead and zinc mineralisation.
Our view: The Moonlight iron project in South Africa continues to develop under the previously announced BFS farm-in agreement and JV funding arrangement with BVI. In the meantime, Ferrum can focus on its option over GoldQuest and the two lead-zinc projects. We are encouraged with the potential sale agreement given the high prospectivity for lead-zinc mineralisation particularity in the more advanced Toral project. We look forward to updates in respect of the potential exercise of the option as well as the continued development of the Moonlight project. In the meantime, we reiterate our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Ferrum Crescent plc
Asiamet Resources (LON:ARS, 3.02p) - Speculative Buy
Yesterday, Asiamet Resources announced the results of a preliminary economic assessment (PEA) completed at its Beruang Kanan Main (BKM) copper reserve in Kalimantan, Indonesia. The assessment was undertaken by Australia-based mine planning consultant Orelogy. The main highlights of PEA include target annual production of 25,000 tonnes of LME grade A (99.999%) copper metal to deliver gross revenue of US$1.27bn over the eight-year life of the mine. The project has an after-tax net present value (NPV) of US$204.3m and internal rate of return (IRR) of 38.7%. After-tax net free cash flow would be US$387.5m with a payback period of 2.4 years. The initial capital cost of the project is US$163.8m and cash operating costs have been set at US$1.28 per pound.
Our view: The aforementioned update underpins the considerable potential and quality of the BKM deposit in Indonesia. The results of PEA are attractive, with high NPV and IRR. In addition, the assessment has demonstrated low operating costs, low strip ratio, strong cash flow generation capacity and short payback period. In addition, further work and exploration work in and around BKM would enhance the value of the project. The BKM deposit remains open in several directions with presence of targets at Beruang Kanan South (BKS), Beruang Kanan West (BKW) and BKZ polymetallic prospects. These prospects have shown potential for additional copper mineralisation, as demonstrated by the strong surface and drilling results to date. Asiamet plans to conduct drilling work at the targets around BKM to increase its resource potential. We are buoyed by the company’s PEA results and look forward to further developments. Therefore, we maintain a Speculative Buy rating on the stock.
CityFibre Infrastructure Holdings (LON:CITY, 47.0p) - Speculative Buy
Yesterday, CityFibre Infrastructure Holdings (CityFibre) signed contracts with two new service providers on its Leeds and Bradford networks acquired from KCOM Group. The two partners are Bradford-based Exa Networks (Exa) and Leeds-based Diva Telecom (Diva). The combined value of the deal holds a minimum total contract value (TCV) of £4.9m over six-year terms. Exa has committed for a minimum of 250 connections in the Bradford area and two diverse circuits over the acquired long distance network connecting the city to Leeds for TCV of £3.5m. Diva has committed to a minimum of 100 connections in Leeds for a TCV of £1.4m. Furthermore, Exa and CityFibre have agreed upon a national partnership to target the education sector in the UK. The partnership would support Exa as it targets educational institutions across CityFibre's national network footprint.
Our view: CityFibre has continued commercialisation of its network assets, with the addition of two partners to its Leeds and Bradford networks. CityFibre has a route length of 190 kilometres of ducted fibre in Leeds and Bradford, which would offer its partners coverage to one of the largest metro areas outside London. In addition, Exa would use CityFibre’s strong fibre connectivity to expand its footprint across educational institutes. Of late, the company has sought acquisitions and partnerships to widen and strengthen its market position. In March, CityFibre signed an agreement with Updata Infrastructure to provide the latter with its existing national network infrastructure as a platform for public sector and enterprise customers. The company won its first contract under the master services agreement with Vodafone Limited to provide its pure fibre connectivity to the latter’s customers. The aforementioned agreements catapulted the total new connections sold on the acquired metro footprints to 450 in less than 90 days. CityFibre is well-placed with some impressive contracts, national-level partners and joint venture, with the UK’s leading broadband service providers to cover a large customer base. Therefore, we maintain a Speculative Buy rating on the stock.
DiamondCorp (LON;DCP, 8.25p) - Hold
DiamondCorp published a quarterly update yesterday, reporting the first sale of kimberlite diamonds from the Lace Mine since 1931. It sold 6,247 kimberlite carats generating revenues of US$1.09m, an average price of US$175 per carat. Within the US$1.09m of sales was a 1.08 carat Type II purple stone (US$6,363 per carat) and a 22.11 carat stone which was sold to DiamondCorp’s beneficiation joint venture for US$5,000 per carat. On the mine development side, although Q1 2016 tonnage is behind budget, the mine is on target to produce 30,000 tonnes per month from July onwards from the upper block.
Our view: Management is understandably satisfied with the average price achieved and the general level of demand for the Lace Mine’s kimberlite diamonds. The first proper Lace Mine sale for 85 years is also an interesting news story. During H2 2016, DiamondCorp’s operational updates should be dominated by steady state UK4 production and development progress as the twin decline heads towards the first caving level. Diamond sales will also be reported as and when an auction takes place. On the financial side, interest and capital payments on the IDC loan have been pushed back to 2017 (quarterly from 1 Feb 2017) allowing flexibility of cashflows while the company ramps up production to 30,000t per month from July. Overall, DiamondCorp is making good progress and the stone value achieved was very good news. There remain some risks (e.g. ramp-up) and ideally management would like to refinance its two loans. We recommend a Hold.
Ferrexpo (LON:FXPO, 27.63p) - Speculative Buy
Yesterday, Ferrexpo announced its production results for the three months ended 31 March 2016. During the period, the company’s pellet production was down slightly (-3.3% Q-o-Q) but flat Y-o-Y at 2.9 million tonnes. The production of higher quality pellets (65% Fe) increased 13% Y-o-Y but fell 2.3% Q-o-Q to 2.8Mt. Despite the slightly lower quarterly production, the company is on track to produce some 12Mt for the year which would be 3% higher than 2015 record production.
Our view: Ferrexpo possesses one of the largest iron ore deposits in the world and has global transport and sales operations to provide high quality iron ore pellets to its diversified customer base in the steel industry. While growth in steel output, especially in China is expected to remain weak and the iron prices may not recover in the near term, we believe that the company has been taking the right steps to stem its losses though quality enhancement and cost cutting initiatives. Assuming Ferrexpo is successful in rescheduling its debt repayments in 2016, we see an interesting buying opportunity for this undervalued company and therefore retain our Speculative Buy rating on the stock.
Wood Group (LON:WG., 592.0p) - Buy
Yesterday, Wood Group acquired Australia-based SVT Engineering Consultants (SVT) for an undisclosed amount. SVT is a privately-owned company, with headquarters in Perth, which provides piping and rotating equipment vibration, noise, integrity engineering and asset integrity services.
Our view: The acquisition of SVT strengthens Wood Group’s vibration, dynamics and noise engineering service. SVT would operate within Wood Group’s Kenny business. Wood Group stands to benefit from SVT’s large client base that covers the onshore and offshore oil and gas market, including liquefied natural gas (LNG), mining, power and utilities sectors. In addition, the acquisition would enhance the geographic footprint of Wood Group’s VDN service. Recently, the group undertook many acquisitions and won contracts to mitigate the adverse impact of challenging market conditions. In March, Wood Group won a five-year industrial services contract worth US$120m, with a five-year extension option, from Babcock International. As per the deal, Wood Group would deliver surface preparation, application of protective coatings, scaffolding, insulation, rope access, cleaning and fire sentry services. We believe Wood Group’s strong order book, along with a healthy balance sheet, would foster its growth prospects. Therefore, we maintain a Buy rating on the stock