Markets
Europe
The FTSE-100 finished yesterday's session 0.30% lower at 6,710.13, whilst the FTSE AIM All-Share index closed 0.58% higher at 744.49. In continental Europe, markets ended in the green, as positive corporate earnings releases outweighed the decline in oil prices. Germany's DAX advanced 0.5% on a higher-than-expected IFO business climate index reading. France's CAC 40 closed 0.2% higher.
Wall Street
Wall Street ended in the red, as a sharp fall in oil prices put pressure on energy stocks. Investors remained cautious ahead of earnings, economic data releases and central bank meetings. The S&P 500 registered a 0.3% decline in yesterday's trading session.
Asia
Equities are trading mixed, as investors await central bank meetings of the US and Japan later this week. The Nikkei 225 shed 1.4%, dragged down by a stronger yen, after reports indicated that the government's stimulus package may not meet expectations. The Hang Seng was trading 1.2% up at 7:00 am, tracking the Chinese market.
Oil
Yesterday, WTI prices slid 2.4% to US$43.13 per barrel and Brent prices fell 2.1% to US$44.72 per barrel.
Headlines
UK industrial orders drop in July
According to the Confederation of British Industry, the UK's order balance declined to -4% in July from -2% in June and export order book fell to -22% in July from -14% in June. The output balance for May–July 2016 stood at 16%, same as the level recorded two years ago. The decline in orders is primarily due to uncertainty over the industry after Brexit.
Company news
Bushveld Minerals (LON:BMN, 1.55p) – Speculative Buy
Bushveld Minerals announced it has renegotiated payment terms for Vametco (one of Evraz's vanadium subsidiaries) which includes a slight reduction in total consideration to $16.5m (previously $17.2m) and one payment in June 2017 as opposed to two payments. The original agreement meant that Bushveld and its partner Yellow Dragon would pay $4.7m for 24% of Vametco this June followed by $12.5m next June (2017) for the remaining 55.8% (total 78.8%). One of the problems with staged payments was the risk that, should Bushveld and its partner find the $4.7m and not the $12.5m, they could end up as part owners. This new agreement removes that risk. Importantly Bushveld and Yellow Dragon will be able to attend board meetings in between now and transaction completion this time next year.
Our view: As a recap, Vametco is a low cost vanadium producer with a primary vanadium mine and a processing operation producing a (patented) high quality vanadium product. Bushveld Minerals also controls the neighbouring vanadium Brits mine project - the strike extension of Vametco's mine. These two projects together will make Bushveld a significant vanadium player. We maintain a Speculative Buy rating on the stock.
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Beaufort Securities acts as corporate broker to Bushveld Minerals plc
Acacia Mining (LON:ACA, 544.50p) - Speculative Buy
Acacia Mining reports its results to the 6 months to 30th June 2016. Through continuing optimisation, Acacia assets are starting to deliver performance, which reflects their potential and as a result increased its net cash position by US$47 million in the second quarter. Strong production of 221,815 ounces aided a further reduction in All-in Sustaining Cost (AISC) to US$926 per ounce, even after US$72 per ounce of cost due to the impact of the strong share price on the valuation of future share-based payments to employees. The transition to underground mining at North Mara continues to deliver ahead of expectations with high grades at Gokona supporting production of 100,016 ounces in the quarter. Bulyanhulu again produced above plan, delivering 78,643 ounces, although a planned two-week shaft closure for maintenance in August and a move back towards reserve grade will reduce output in Q3. As a result of the strong operational performance, coupled with the improved gold price outlook, the Board have declared an interim dividend of US2.0 cents per share, a 43% increase over the prior year. The Board is pleased with the performance in the first half, and the Company is now expecting to deliver at or above the upper end of full year production guidance of 750-780,000 ounces, and at the lower end of AISC guidance of US$950-980 per ounce.
Operational Highlights
• Q2 gold production of 221,815 ounces, 19% higher than Q2 2015, with gold sales of 216,782 ounces
• H1 gold production of 412,025 ounces, 12% higher than H1 2015, with gold sales of 400,963 ounces
• Continued low cost expansion of exploration activity, with 10 rigs active across Africa, delivering positive results
Financial Highlights
• H1 revenue of US$505 million, 13% higher than H1 2015, due to a 13% increase in gold sales
• H1 EBITDA of US$185 million, 91% higher than H1 2015, due to higher revenues and lower operating costs
• H1 net loss of US$6 million (US1.5 cents per share) as a result of US$70 million of additional tax provisions made in Q1 2016, with H1 Adjusted net earnings1 of US$59 million (US14.3 cents per share), up from US$18 million in H1 2015
• Operational cash flow of US$157 million, 47% up on H1 2015, driven primarily by higher sales volumes
• Cash position of US$284 million as at 30 June 2016, an increase of US$47 million during the second quarter
• Net cash of US$171 million, an increase of 38% during Q2 2016
• Interim dividend of US2.0 cents per share declared, an increase of 43% over the 2015 interim dividend
Our view: These are very strong Q2 production and financials. The 222koz of gold output is 16% better than the consensus and the $119m EBITDA is 36% above. Guidance is reiterated at 750-780koz, but we expect upgrades. Net cash increased to $171m following $56m Free Cash Flow in Q2. We consider ACA undervalued and it is one of our share tips for 2016, and whilst we still retain our positive stance on the Company (Speculative Buy), if you followed our earlier advice and bought at significantly lower levels shorter-term investors, reflecting on the 25% spike in the physical gold since the beginning of 2016, may wish to top slice their holdings with a view to buying back should the gold price back-track during the fall. Speak to your broker.
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CityFibre Infrastructure Holdings (LON:CITY, 54.0p) - Speculative Buy
CityFibre provide a trading update for the six months to 30th June 2016. The Group continued to see strong demand for its national fibre infrastructure in the first half, booking record levels of new orders. Initial contract value added in the first six months totalled £53.8m, more than double the amount added in all of 2015, and over six times the level added in H1 2015. New contracts signed in the period comprise 3,702 new customer connections, more than three times the total amount sold in all of 2015, and over eight times the level added in H1 2015. Of the new connections sold, new anchor contracts represented 55%, and incremental business comprised 45%. Excluding the legacy KCOM customer connections in the acquired footprint, 93% of new connections sold in the period were incremental sales on existing assets. The Company ended the first half with 49 service provider relationships, up from 33 one year ago and 41 at the end of 2015. Notable additions in the period were new trading relationships with Level 3 and SSE Enterprise Telecoms, who join CityFibre's growing ranks of national partners, including KCOM, Vodafone, MBNL, Three UK, Capita, Serco, Interoute, and Logicalis. The Group's medium term target of a 50 city footprint is fully funded by the £80m equity placing and debt facilities of up to £165m closed in January.
Our view: The Trading Update is excellent news for shareholders and the strong growth in demand and new business wins speak for themselves, underpinning 2016 forecasts. Further contract wins before the financial results for the six months to 30 June 2016, to be reported on Monday 26 September 2016, could lead to upgrades. We reiterate our Speculative Buy stance.
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Hammerson (LON:HMSO, 548.50p) - Hold
Hammerson declared its unaudited results for the half year ended 30th June 2016 (H1 2016). During the period, net rental income increased 5.1% y-o-y to £167.7m, with like-for-like (LFL) growth of 2.1%. Profit (including valuation changes) slipped 50.2% to £162.5m. Adjusted profit rose 6.0% to £112.6m, leading to an adjusted EPS of 14.3p, 5.1% higher than that in H1 2015. As at 30th June 2016, the company's property portfolio stood at £8,964m compared with £8,374m as at 31st December 2015. Equity shareholders' funds totalled £5,682m. The European Public Real Estate Association (EPRA)'s net asset value per share increased to £7.27 from £7.10 as at 31st December 2015. Gearing increased to 59%, while loan to value rose to 40%. Weighted average cost of debt lowered to 3.2%. On the operational front, Hammerson successfully agreed on a deal with borrowers to transfer the ownership of its Irish loan platform. It signed 20 leases across its shopping centres and retail parks since the Brexit vote on 23rd June 2016. The company secured the ownership of Dundrum Town Centre and recorded a significant market share in Europe's fastest growing economy. Hammerson is close to the completion of a £500m disposal programme. It remains on track to open Victoria Gate and WestQuay Watermark in the next six months. The company raised long-dated debt of £830m. Its acquisition facility has been fully refinanced, and the next bond maturity is in 2019. As at 30th June 2016, liquidity, comprising cash and undrawn committed facilities, was £945m, compared with £931m at the end of 2015. Hammerson stated its plan to pursue a secondary listing on Johannesburg Stock Exchange in order to access a wider pool of international capital. The company declared an interim dividend of 10.1p, up from 9.5p in H1 2015.
Our view: Hammerson delivered acceptable result in H1 2016. The company registered an increase in net rental income on both reported and LFL bases. However, Hammerson recorded a sharp fall in profit due to the declining value of its properties. The company incurred a loss of £12.6m against the latest valuations on three properties sold for a total of £296m during H1 2016. During the period, Hammerson delivered its market-leading platform in Dublin, speeded the momentum in signing new leases and is nearing completion of the disposal programme to bring financial flexibility. The company's intent to list on Johannesburg Stock Exchange would allow it to raise additional capital to fund its growth activities. Nonetheless, we remained concerned over the economic and political instability in the UK after Brexit and its impact on the real estate market. We would wait and watch Hammerson's progress in the near term and maintain a Hold rating for now.
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Petards Group (LON:PEG, 14.38p) - Speculative Buy
Petards, the AIM quoted developer of advanced security and surveillance systems, announces that it has been awarded a further contract to supply Bombardier Transportation with Petards eyeTrain systems. The new contract, which is worth in excess of £1.2m, is for the supply of eyeTrain saloon and Driver Only Operation (DOO) systems to be fitted to four-car Electrostar Electrical Multiple Unit (EMU) trains to be built by Bombardier. Petards' deliveries are anticipated to commence during the latter part 2016 and to be completed in 2017.
Our view: Petards' eyeTrain systems continue to be the system of choice for fitment to Bombardier's Electrostar trains. This order adds to the hundreds of Electrostar vehicles for which eyeTrain systems have previously been specified and further bolsters the Group's present order book for delivery in 2017. We reiterate our Speculative Buy recommendation.
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Ryanair (LON:RYA, 11.59p) - Buy
Ryanair, a low-cost European short-haul airline company, yesterday provided trading update for three months ended 30 June 2016 (Q1 FY2017). During the period, revenue advanced by +2% to €1,687m while margin was sustained at 15%, against comparable period (Q1 FY2016). This led post-tax profit expanded by +4% to €256m, consequently, resulted basic earnings per share to jump by +12% to 20.01 Euro cent. On the operational front, passenger traffic in the period increased by +11% to 31.2 million customers while load factor improved by +2% to 94%. Average fares was €39.92, down -10% and unit costs reduced by -9% (ex-fuel -4%). The Group has completed its €886m (Q1 FY2016: €468m) Share buyback programme at the end of June, returning an average price of €13.48 per share. Post the share buyback, Q1 capital expenditure of €381m and debt repayments of €89m, The Group's net cash balance stood at €162m (30 June 2016). Looking ahead, the Group said it is +1% better booked for Q2 and expect farers to decrease by at least -6% year-on-year (H1: -8%). For the FY2017, Ryanair expect load factor to remain flat at 93%, passenger traffic to grow by +10% to 117 million customers (+1m from previously guided), fuel bill savings of c.€200m and ex-fuel unit costs to fall by c.-1%. The Group maintained its full year profits guidance of +12% year-on-year to a range of €1,375m to €1,425m.
Our view: Ryanair delivered good performance during Q1, despite the number of unpredictable external disruptions. Such events which include terrorist attacks, a series of ATC strikes (mainly French), absence of Easter in Q1, and severe weather conditions, together caused nearly 1,000 flight cancellations. The Group remains well in control of its pricings, which has been cut by -10%, financed through a 9% fall in unit costs, including a lower fuel bill which reduced by -€42m to €518m. Ex-fuel, unit costs fell by -4% achieved through lower aircraft cost, cheaper financing, discounted airport expansion deals, lower sales & marketing spend, and weaker sterling. While the Group is very cautious about the impact of Brexit, which so far has only witnessed minor damage to buyers confidence from media paranoia, management stated it expects downward pressure on fares to persist until the end-2017 at least and noted that the Board has contingency plans in place for all eventualities. The Group will now focus on its growth away from UK airports, concentrating more on EU airports over the next two years, which contrasts with its peer, easyJet, who said it remain wholly committed to the UK. Whatever way this works out, considering the Group's strong balance sheet, its commitment to shareholders (returning over €4.2bn since 2008), and continuing growth in customers while cost cuttings, we believe Ryanair remains attractive. Beaufort reiterates Buy rating on the stock.
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William Hill (LON:WMH, 328.80p) - Hold
William Hill confirmed that it has received a preliminary approach from rival gambling companies, 888 and Rank Group, regarding the potential combination. Both 888 and Rank Group expect combination with William Hill would result in substantial revenue and cost synergies through the consolidation of their complementary online and land-based operations. However, the consortium of 888 and Rank Group has not put forward a proposal or set out a position on price, timing, terms, form of consideration, or transaction structure. William Hill's board is ready to listen and consider any proposal which might be forthcoming from the consortium.
Our view: The update mentioned above highlights a proposal for a combination of William Hill by 888 and Rank Group. The potential deal is the latest one in a fast-consolidating industry and comes during a difficult period for William Hill. The consortium expects the merger to be beneficial for all parties and achieve economies of scale. However, William Hill's board is uncertain whether the combination would help it to improve its strategic position and deliver superior value to its shareholders. Last week, James Henderson, William Hill's CEO, was ousted following his inability to capitalise on a growing online betting market. Mr Henderson, who took the position in August 2014, had seemingly unsuccessful to resolve problems in the company's struggling online business. In the light of the ongoing challenges in the gambling industry and William Hill's inability to make adequate progress on its position in the online business, we maintain a Hold rating on the stock.