Markets
Europe
The FTSE-100 finished yesterday's session 0.10% lower at 6,185.61, whilst the FTSE AIM All-Share index closed 0.38% higher at 739.94. In continental Europe, markets ended mixed after OPEC failed to reach an agreement to lower production level. Banking stocks were under pressure after European Central Bank (ECB) decided to maintain its interest rate. France's CAC 40 fell 0.2%, while Germany's DAX closed broadly flat in yesterday's trading session.
Wall Street
Wall Street erased early losses to end in the green, as oil prices closed higher after a report revealed fall in US crude inventories. Investors await key economic data, including jobs data. The S&P 500 rose 0.3%, with the healthcare sector leading the gainers.
Asia
Equities are trading higher, as investors await US payrolls data, which would determine the course of action for the Fed. The Nikkei 225 rose 0.5%, despite the strengthening of yen against the dollar. The Hang Seng was trading 0.3% higher at 7:00 am.
Oil
Yesterday, Brent and WTI oil prices rose 0.6% and 0.3%, respectively. The spread between the two varieties stood at US$0.9 per barrel.
Headlines
ECB raises growth and inflation forecasts for 2016
The ECB upwardly revised the inflation forecast for 2016 to 0.2% from the earlier projection of 0.1%. The bank maintained the inflation projections for 2017 and 2018 at 1.3% and 1.6%, respectively. ECB also raised the growth forecast for 2016 to 1.6% from 1.4%. The projection for 2017 was retained at 1.7%.
Company news
Bushveld Minerals (LON:BMN, 2.45p) - Speculative Buy
Bushveld Minerals, a diversified mineral development company with a portfolio of vanadium, iron ore, tin and coal assets in Africa, announced today that it has secured financing amounting to US$5.2m with strategic and financial partners. The proceeds will be used to complete the first phase of the acquisition of Strategic Minerals Corporation (SMC) from Evraz Group as announced on 9 May 2016. Bushveld with its partner Yellow Dragon, a private and strategic investor in African resource projects, will own 45% and 55% equity interest, respectively in Bushveld Vametco Limited (BVL), a special purpose vehicle established for the acquisition. SMC owns the producing Vametco vanadium mine in South Africa (Vametco Alloys). The total consideration of the acquisition is US$17.2m and will be executed in two tranches of US$4.7m and US$12.5m. Upon completion of Tranche 1, BVL will have an effective interest of 23% in SMC, which would increase to 78.8% on completion of Tranche 2. Bushveld will fund its portion through a placing of 98.3M new shares at a price of 1.8p per share. The funding package agreed with Yellow Dragon reduces Bushveld's effective interest in SMC such that the transaction is no longer classified as a reverse takeover under AIM rules. As such, neither an Admission Document or Bushveld shareholder approval are necessary to complete the acquisition.
Our view: The transformational acquisition achieves Bushveld's strategy to develop a significant, vertically integrated vanadium platform and accelerates the company's path to production by several years. We note that the total consideration payable for SMC is substantially less than the construction and development costs associated with a greenfield mine and plant of the same capacity. Vametco Alloys is a high quality, low cost producer with a patented vanadium product and a global vanadium customer base. We believe vanadium prices will recover in over the medium term due to increased demand coupled with curtailment of supply from high cost producers. A rebound in vanadium prices provides strong upside potential. As such, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Bushveld Minerals plc
AFC Energy (LON:AFC, 13.88p) - Speculative Buy
Yesterday, AFC Energy (AFC) declared its interim results for the six months ended 30th April 2016 (H1 2016). During the period, European Union (EU) grant income received by the company stood at £763,204, in line with H1 2015. Pre-tax loss stood at £3.96m as compared with a profit of £1.53m in H1 2015, leading to a loss per share of 1.15p as against an EPS of 0.60p in the same period last year. Cash balance at the end of period stood at £2.84m, with a further €1.95m of EU funding due to be received imminently. The net cash inflow totalled to £1.08m (30th April 2015: £0.97m net outflow). AFC raised £3.6m through a placing and offer for subscription. On the operational front, the company demonstrated the capability of the KORE fuel cell system in Stade Germany. Additionally, AFC entered into a heads of agreement with DNR Industries Ltd, part of the Dutco Group of Companies, while it also entered into a strategic partnership with plantIng GmbH. In January 2016, AFC appointed Cantor Fitzgerald as its new Nominated Adviser (NOMAD) and Joint Broker. The company didn't declare any dividend for the period.
Our view: AFC delivered satisfactory performance in H1 2016. The company continued to receive grants from the EU for its involvement in three projects related to the alkaline fuel cell system and other technologies such as a fuel processing system and a novel ammonia fuel system. AFC completed Milestone 11 and achieved a gross electrical output of 204kW from the KORE fuel cell system. The completion of this milestone provided significant technical and operational data, which has enabled the team to fully assess and identify further areas where enhancements can be made to optimise the fuel cell system. Meanwhile, AFC is progressing well for developing further strategic and technical partnerships for new power projects in its target markets. The company remains fully funded owing to grants received from EU and raising through offer for subscription. We are buoyed by the company's progress at the KORE system and await future updates on it. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Fox Marble Holdings (LON:FOX, 10.0p) - Speculative Buy
Fox Marble, the company focused on marble quarrying and finishing in Kosovo and the Balkans region, yesterday announced its preliminary results for the year ended 31 December 2015. Revenue of €0.23 million for the year compared with €0.15 million in 2014. Operating loss were €2.51 million (2014: €2.12 million), with net loss of €3.03 million (2014: €2.33 million) due to development costs of bringing the quarries to more consistent and larger block size production, and investment in targeted marketing activity to increase worldwide presence. The latter includes a fair value adjustment to the loan note instrument of €0.38 million (2014: nil). Net cash at the period-end amounted to €2.8 million (2014: €4.7 million), which has since been bolstered through an equity fund raise of £2m gross that became unconditional at Wednesday's General Meeting. Operational highlights for 2015 included 10,700 tonnes of marble extracted (2014: 14,188 tonnes) and the signing of a strategic relationship and long-term distribution agreement with Eboracum Marble Limited. Management also noted completion of its factory is now anticipated during this summer and that all major equipment is currently in place or due for installation. The Company order book was valued at €3.9 million as at 1 June 2016, part of which the Company has already been recognised in sales of €0.25 million recorded for the first half.
Our view: It is true to say that 2015 was a disappointing year for Fox. A run of unfortunate, hindering events together with an order book that failed to match expectations. Left with a somewhat depleted balance sheet, management also subsequently took the rather surprisingly decision to raise new equity funding at less than half the share price achieved this time last year. It all means that CEO, Chris Gilbert, now has a lot to prove, but the signs are that he will now start to deliver. The order book is already looking healthier and a key strategic long-term distribution agreement with Eboracum Marble Limited has been put in place. Progress at the factory site will bring the Company closer to self-sufficiency with completion promising increased margins and direct sales opportunities across multiple distribution networks, including the Balkans locally. With major capital costs already mostly taken care of, the recently strengthened balance sheet is now focussed on developing a global supply network, with the ambition to satisfy demand in the Middle East, North America, India and Europe. Despite global economic uncertainty, demand for premium-quality marble continues to increase with prices remaining firm and rising. Given the size and quality of Fox's resource and operational facility, a comprehensive distribution network now appears to be the final missing piece in the Company's strategic jigsaw. Assuming management can successfully put such arrangements in place, there appears little to stand in the way of the Company delivering a quite dramatic improvement in visibility and depth of its order book in coming years. These earnings, in turn, should be capable of dropping rapidly to the bottom line, of which the management has already indicated its willingness to distribute in the form of dividends. Beaufort retains its Speculative Buy rating on Fox Marble.
GlaxoSmithKline (LON:GSK, 1,444.50p) - Buy
Yesterday, GlaxoSmithKline (GSK) along with its partner Innovia brought forward the plan to file a new drug application in the US for its treatment of chronic obstructive pulmonary disease (COPD), following discussions with the US Food and Drug Administration (FDA). The company expects the US regulatory submission by the end of 2016. The NDA for the closed triple combination therapy would comprise data now in hand from the closed triple combination therapy development programme, as well as data from studies with FF, UMEC and VI either alone or in combination.
Our view: GSK's plan to file the three-drug therapy in the US earlier than schedule is an important step taken by it. The closed triple therapy is a combination of three molecules: fluticasone furoate (FF), an inhaled corticosteroid (ICS), umeclidinium (UMEC), an anti-cholinergic, and vilanterol (VI). The therapy provides GSK an opportunity to recapture its leading position in the COPD market, which has been dented by pricing pressure and competition from other products. Meanwhile, GSK is making good progress on other therapy areas such as HIV vaccines, oncology, cardiovascular and immune inflammation. We believe GSK is moving in the right direction, supported by some world-class assets and technology, to deliver long-term growth and generate stable returns for shareholders. Therefore, we maintain a Buy rating on the stock.
Ryanair (LON:RYA, 14.0p) - Buy
Ryanair, a low-cost European airline company, yesterday provided its traffic statistics for May 2016. During the month, the Group's passenger traffic advanced by +12% to 10.6 million customers, while load factor rose +2% to 94%. The Group's rolling annual traffic to May expanded by +16% to 108.5 million customers. Ryanair's Chief Marketing Officer, Kenny Jacobs commented "customers can look forward to more improvements, as part of Year 3 of our "Always Getting Better ('AGB')" programme, which includes even lower fares, more new routes, new digital features and new cabin interiors, as Ryanair continues to deliver the lowest fares and the most on time flights in Europe".
Our view: Ryanair continued to expand its passenger traffic and load factor year-on-year, delivered record monthly statistics. Passenger traffic represents number of earned seats flown, while load factor represents number of passengers as a proportion of the number of seats available for passengers. Although the growth momentum for the passenger traffic has significantly slowed comparing to the prior 6 consecutive months where on average, passenger traffic grew +22.8%, it sees some recovery from the +10% growth in April. Such growth, despite ongoing Air Traffic Controllers ('ATC') strikes, was achieved by offering lower fares to customers. As previously announced, pricing will be lower this year (FY2017), particularly in Q1 and Q4, with management expects average fares to fall around -7%, amid intense competition. Having said that, however, given the Group's cost discipline, continuing positive impact of the AGB customer experience programme, together with significantly improved fuel and FX cost hedging terms this year, we are confident that Ryanair has its momentum for further growth and remain attractive within its sector. The Group expect flat load factor (93%), +9% growth in passenger traffic to 116 million customers, and ex-fuel cost reduction of -1% for the full year. Beaufort reiterates Buy rating on the stock.
Sirius Minerals (LON:SXX, 19.50p) - Hold
Yesterday, Sirius Minerals (Sirius) selected preferred contractors for key components of its North Yorkshire polyhalite project (Project) and the future revision to the Stage 1 capital requirements. Associated Mining Construction (AMC) UK has been selected as the preferred contractor for the design and build of mine site development (MSD) works. AMC UK is a joint venture company formed between Thyssen Schachtbau GmbH of Germany and Thyssen Mining Construction of Canada, both members of the Thyssen Group, and JS Redpath Ltd of Canada and Deilmann-Haniel GmbH, both members of the Redpath Group. Sirius has selected Hochtief Murphy Joint Venture (HMJV) as the preferred contractor for the mineral transport system (MTS) development. HMJV is a joint venture between Hochtief (UK) Construction Limited and J. Murphy & Sons Limited. Sirius is currently in the process of adjusting stage 1 requirements and is expected to reflect a reduced cost in the near future. Using the Definitive Feasibility Study (DFS), completed in March 2016, Sirius is in the process of replacing the DFS estimates relevant to the scope of the contracts with refined estimates and implementation schedules from the contractors.
Our view: The aforementioned selection of contractors for the North Yorkshire polyhalite project is a positive development for Sirius. The company plans to work with its partners for successfully implementing the Project. Last month, Sirius informed of expansion of probable ore reserve at the Project which reaffirms the outstanding nature of the deposit. The expansion comes even as the reserve was touted as the world's largest and highest quality polyhalite reserve. Moreover, the economic viability of exploiting this asset has been confirmed by the DFS. Contrasting with many other junior exploration/development minors, Sirius has continued to deliver both operationally (drilling, marketing/offtake, feasibility studies and permitting) and through shareholder value. In light of this, Beaufort retains its Hold rating on the stock.
Economic news
ECB main refinancing rate
The Governing Council of the European Central Bank (ECB) maintained its main interest rate at 0.00% in line with the market expectations. The deposit facility rate and the marginal lending facility rate were also left unchanged at -0.40% and 0.25%, respectively.
US ADP employment change
Jobs in the US private sector grew by 173,000 in May, after a revised 166,000 jobs were added in April, ADP reported yesterday. This was in line with the market expectations.
US initial jobless claims
The number of Americans that filed their first initial claims for unemployment benefits declined 1,000 to a seasonally adjusted 267,000 for the week ended 28th May, the Labor Department stated yesterday. Economists had forecasted a reading of 270,000. Meanwhile, the four-week moving average of continuing claims fell 1,750 to 276,750 last week.