The markets
Europe
The FTSE-100 finished yesterday's session 0.68% higher at 6,242.39, whilst the FTSE AIM All-Share index closed 0.56% higher at 725.70. Continental markets ended higher, as a rally in oil and commodity prices resulted in gains for basic resource stocks. Investors digested a mixed set of corporate earnings releases. Germany’s DAX and France’s CAC 40 gained 0.8% each.
Wall Street
Wall Street ended in the green, as oil prices rallied amid hopes that key oil producers would agree to freeze production levels at an upcoming meeting on Sunday. The gains in oil prices boosted financial stocks ahead of the earnings releases later this week. The S&P 500 advanced 1.0%, with the energy sector gaining the most.
Asia
Equities are trading higher, taking positive cues from the global indices. Investors cheered the rally in oil prices and positive trade data released in China. The Nikkei 225 rose 2.8%, driven by advances in export-driven stocks. The Hang Seng was trading 2.5% up at 7:00 am.
Oil
Yesterday, WTI and Brent oil prices increased 4.5% and 4.3%, respectively. The spread between the two varieties stood at US$2.5 per barrel.
Headlines
China’s export data improves in March
As per the data released by China's General Administration of Customs, the country’s dollar-denominated exports for March rose 11.5% y-o-y to US$160.8bn after a 25.4% decline in February, expanding for the first time in nine months. Imports fell 13.8% y-o-y to US$131bn, following a similar dip in February. The trade surplus for March narrowed to US$29.86bn from February’s US$32.5bn.
Company news
Ferrum Crescent (LON:FCR, 0.23p) – Speculative Buy
Ferrum Crescent, the AIM, ASX and JSE listed mining development company announced yesterday that it has completed its due diligence on GoldQuest, a private company that wholly-owns two lead-zinc projects in Spain. As previously announced (16 February 2016), Ferrum has entered into an option and potential sale agreement with GoldQuest, where Ferrum has the exclusive option, valid until 31 July 2016, to acquire 100% of GoldQuest’s issued share capital. Ferrum has conducted field trips and completed a desktop study in respect of the Toral and Lago lead-zinc exploration projects. Management believes there is a potential for re-interpretation of historical data and delivery of a new geological model identifying potential zones of continuous mineralisation. Mineralogical data supports initial assessment of the mineralisation as being metallurgically straight forward. Following completion of its desk top study, Ferrum believes that, subject to requisite funding to exercise the option, it can implement a cost effective work programme including a JORC compliant resource estimate.
Our view: With its due diligence now completed on the Toral and Lago lead-zinc projects, Ferrum can focus on closing its option over GoldQuest. 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 completion of the option agreement and updates on the re-interpretation of the geological model and a revised compliant resource estimate. In the meantime, we reiterate our Speculative Buy on the stock.
Beaufort Securities acts as corporate broker to Ferrum Crescent plc
Strat Aero (LON:AERO, 1.38p) – Hold
Yesterday, Strat Aero raised £400,000 (before expenses) by placing 35.6 million new ordinary shares of 1p each at a placing price of 1.125p per share with new and existing shareholders. In addition, the company granted 8,000,000 warrants, with a three-year expiry, at an exercise price of 1.125p in connection with the placing. Post the issue of the placing shares, Strat Aero’s issued share capital would have 182.2 million ordinary shares. The shares will rank pari passu with existing ordinary shares. Strat Aero has submitted an application for placing shares for trading on AIM and expects the admission to complete on 15th April 2016.
Our view: Fundraising via the issue of equity shares is a positive development for Strat Aero. The funding would be used by the company to support the launch of its vertically integrated unmanned aerial vehicle (UAV), which covers all value chain stages, including the provision of hardware, software, data analysis services and working capital. Of late, Strat Aero has made good progress across its business divisions, particularly in Geocurve Holdings, a 100% owned subsidiary and a specialist in the provision of UAV-operated topographical surveys and inspection services to blue-chip customers. Strat Aero’s proprietary Digital Data Management software has received its first contract from a leading aviation industry service provider. Recently, Strat Aero released a corporate update, informing the termination of Mr W Hulsey Smith, Chairman and CEO of Strat Aero's subsidiary Aero Kinetics. Furthermore, Strat Aero has intimidated the resignation of Mr Tony Dunleavy, who has stepped down from the board to pursue other interests. These untoward changes add some degree of uncertainty to the company’s management at a crucial time. We would like to wait for the outcome of the Strat Aero’s full-year financial results for 2015 and therefore maintain a Hold rating on the stock.
Beaufort Securities acts as corporate broker to Strat Aero plc
Hutchison China Meditech (LON:HCM, 1,925.0p) - Buy
Hutchison China MediTech (‘Chi-Med’), the China-based healthcare group, yesterday announced that Hutchison MediPharma (‘HMP’), its drug R&D subsidiary, has initiated the first-in-human (‘FIH’) Phase I clinical trial for HMPL-689 in Australia. HMPL-689 is a highly potent and selective small molecule inhibitor targeting the delta isoform of the phosphatidylinositol-3-kinase, also known as PI3Kδ, a key component in the B-cell receptor signaling pathway. The FIH Phase I clinical trial aims to evaluate the safety, tolerability, and pharmacokinetics properties of HMPL-689, conducted in healthy adult volunteers. Following this FIH Phase I trial, HMP plans to investigate HMPL-689 in hematological malignancies.
Our view: Chi-Med is making good progress with HMPL-689, having now commenced clinical trials on 7 April. In pre-clinical studies, HMPL-689 not only demonstrated a superior potency and better kinase selectivity compared to drugs in the same class, but also indicated significant efficacy and a favourable safety profile. HMPL-689 is designed to improve on existing PI3Kδ inhibitors to minimise the serious infection observed with duvelisib (AbbVie/Infinity) due to its strong immune suppression as well as minimising compound related toxicity (such as the high level in observed in liver with idelalisib (Gilead Sciences)). HMPL-689 has the potential to be a best-in-class PI3Kδ agent, offering superior characteristics to both idelalisib and duvelisib. We continue regard Chi-Med as a core holding and await further results from the various studies they are undertaking. Additionally, following the Group’s recent listing on NASDAQ, Bank of America Merrill Lynch, Canaccord Genuity and Stifel has all initiated coverage with BUY ratings on Chi-Med. Beaufort maintains its Buy rating on the stock.
Stratex International (LON;STI, 1.62p) - Speculative Buy
Yesterday, Stratex International (Stratex) announced that it would provide an unsecured, short-term loan of up to US$100,000 to Goldstone Resources. Stratex has a 33.45% interest in Goldstone Resources. The loan is repayable by 31st December 2016 and carries an interest rate of 5.0% per annum. It is to be paid on a quarterly basis.
Our view: Stratex continues to support Goldstone Resources, as it provides the latter a short-term loan. Goldstone Resources would use the loan to meet working capital requirements. Recently, Stratex reported results for financial year ended 31st December 2015. Its after-tax loss narrowed to £638,000 in 2015 from £2.5m in 2014. The improvement was due to a 20% decrease in administration costs and no project impairments during the year. Stratex has made progress across projects, including the completion of a feasibility study on the Muratdere copper-gold porphyry project in Turkey and the first gold pour at its 45% owned gold mine in Altıntepe, Turkey. At present, Stratex is drawing up plans to optimise the development of the remaining parts of the resource. Stratex expects to witness recurrent cash flows from the mine in 2016. It plans to look for merger and acquisition targets to enhance its resource potential. In the light of the above argument, we maintain a Speculative Buy rating on the stock.
ASOS (LON:ASC, 3,703.0p) - Hold
Yesterday, ASOS declared interim results for the six months ended 29th February 2016 (H1 2016). During the period, ASOS reported a 21% y-o-y rise in revenues (including retail sales, delivery receipts and third-party revenues) to £667.3m. In H1 2016, retail sales increased 21% y-o-y to £648.6m, with the UK division registering a 25% rise in sales to £289.5m. Retail sales from the international segment rose 18% to £359.1m in H1 2016. Meanwhile, pre-tax profit rose 18% to £21.2m in H1 2016, leading to EPS of 18.3p (up 4% y-o-y). Cash and cash equivalents rose to £135.9m in H1 2016 from £64.9m in H1 2015. The number of active customers increased 17% to 10.9 million during the period. On the operational front, ASOS extended its Click & Collect Service with Boots in the UK. The company now delivers to 61 stores across several major cities nationwide. Furthermore, the company introduced Doddle Click & Collect in 24 London stores and launched a returns solution with ToYou with ASDA.
Our view: ASOS delivered a good performance in H1 2016. The company recorded solid growth across the UK and international markets. Retail sales from the UK benefitted from the biggest ever Christmas trading period and continuous expansion of the range of locally relevant brands. The European Union gained from continued price investments and proposition expansions, registering 23% sales growth. ASOS’s investments in technology and logistics led to a 21% rise in visits to sites and growth in average order frequency, basket value and conversion. Its high margins resulted in a solid cash position at the end of H1 2016. Last week, ASOS announced that it would shut down its operations in China and would cater to customers through ASOS.com instead of the local website. ASOS expects to book a one-off £10m cost arising from discontinuation, along with an operating loss of £4m, for the financial year to August 2016. Moreover, ASOS continues to face stiff price competition from other online retailers. We would like to wait and assess the company’s approach and performance in the near term and maintain a Hold rating for now.