Markets
Europe
The FTSE-100 finished Friday's session 0.15% lower at 6,858.95, whilst the FTSE AIM All-Share index closed 0.28% higher at 786.48. In continental Europe, markets ended in the red, dragged down by sharp loss in banking and mining stocks. Investors eyed the movement in oil prices and digested a mixed set of corporate earnings releases on Friday. France's CAC 40 and Germany's DAX shed 0.8% and 0.6%, respectively.
Wall Street
Wall Street ended marginally lower as investors remained cautious on uncertainty over whether the Fed would increase interest rates in the near future. The S&P 500 edged down 0.1% on Friday, with the utilities sector losing the most. For the week, markets remained broadly unchanged.
Asia
Equities are trading mixed as investors await a speech by Fed Chair Janet Yellen at a gathering at Jackson Hole to assess the possibility of an interest rate hike. The Nikkei 225 gained 0.3% amid the speculation of a further stimulus by the Bank of Japan. The Hang Seng was trading 0.3% down at 7:00 am.
Oil
On Friday, WTI prices rose 0.6% to US$48.52 per barrel, while Brent oil prices remained unchanged at US$50.88 per barrel.
Headlines
Public finances in UK improve less than expected in July
Net borrowing in the public sector in the UK came in at a surplus of £1bn in July, compared with £1.2bn in July 2015, despite strong corporation tax receipts. The economist estimated a surplus of £1.6bn. For the financial year to date, public borrowing was 11.3% lower than in the previous year. Conversely, public sector debt at the end of July stood at £1,604.2bn, around 82.9% of the GDP, and £35.3bn higher than in July 2015.
Company news
PHSC, a leading provider of health, safety, hygiene and environmental consultancy services and security solutions to the public and private sectors, on Friday, announced that it has raised £350,000 (before expenses) through a placing of 1,590,909 new ordinary shares of 10p each with new investors at a price of 22p per share. The placing shares represented 10.8% of the enlarged issued ordinary shares of the Group. The placing shares will rank pari passu with the existing ordinary shares and admission of the placing shares to trading on AIM is expected to be effective on 5 September 2016.
Our view: Beaufort has previously pointed out that the relative weakness of PHSC's balance sheet and its modest cash resource could either limit scope for the re-organised Group to maximise its new divisional structure or seize opportunistic acquisitions. We also highlighted the fact that income investors may also become concerned that the high yield presently afforded by the shares could find itself under threat. With this in mind, Friday's announcement that the Group raised £350,000 for working capital and for recent acquisitions-related purposes at least provides some short-term comfort for the shareholders. As it stands, PHSC has now positioned itself for recovery in the current year, having been hit on the chin during 2016/17 by doubly bad luck from impairment charges due to its subsidiary, Adamson's Laboratory Services Limited, failing to secure a replacement contract as well as tumbling Sterling following the Brexit vote. The full effects of the latter will take some time to be become apparent. There is likely to be some form of direct impact because both the Group's security-related subsidiaries, B to B and SG, are routinely importing the electronic products they install and supply; a weaker pound has a detrimental effect on gross margins. Indirect impacts will also arise from how client confidence at Group subsidiaries is affected and whether there are any adjustments to UK economic policy. In addition, particularly as far as the safety-related subsidiaries are concerned, there could be changes to existing EU-initiated regulatory requirements that affect or change demand for specific services. Against this background, management stated in its full-year 2016 result that it believes the majority of retained clients and those who have given repeat business over many years will continue to provide a stable source of income, the risk profile of the Group has clearly changed over the past months. Given that without a bigger injection of additional funding, management will find its potential to seek & grab future opportunities limited, Beaufort retains hold rating on PHSC while awaiting further details of operational progress.
Beaufort Securities acts as corporate broker to PHSC plc.
Fox Marble (LON:FOX, 9.25p) - Speculative Buy
Fox Marble, the AIM listed company focused on marble quarrying and finishing in Kosovo and the Balkans region, on Friday provided an operational update ahead of the publication of its Interim Results for the six months ended 30 June 2016, which expected to be announced on or before 30 September 2016. It detailed the fact that its 2016 order book currently stands at €4.1 million, €0.5 million lower than previously announced on 29 June 2016. This was due to the impact of currency fluctuations on Sterling orders post the EU Referendum and a revised order from a customer included in the order book. The Board however confirmed it is beginning to see progress, not only in an increasing the order book but importantly conversion into sales and that it anticipates fulfilling the Group's order book for the 2016 financial year. Revenues for the half year were indicated as €0.26 million, with advances received totalling €415,000. Fox's cash balance at 30 June 2016 was €2.69 million, following a successful £2 million placing during June 2016. Management also confirmed that its factory is nearing completion, with two of the three eighty-blade block processing gang saws installed, the block yard prepared and the two gantry cranes operational. The resin line is on route from Italy to Kosovo for installation. As previously announced, the power and water to supply the processing plant are already in place. Commencement of installation of the polishing line is anticipated during September 2016, and once installed, the factory will be complete.
Our view: Fox Marble has to break free of its apparently endless 'Jam Tomorrow' scenario before it becomes really interesting for investors. They want delivery of a completed factory, that has been thwarted for the past couple of years either by bad luck or bad planning, together with a clear understanding that traction with global distribution partners will shortly start to boost sales momentum. Confidence in the exceptional quality and range of the Group's effectively infinite resource is not in doubt; low costs and relatively good transportation links, together with what will be an ultra-modern facility to industrialise elementary, but high-volume, stone cutting, means that Fox is ready to become a serious player on the dimensional stone 'stage'. And this is an expanding $10 billion global market, whose consumers are driven more by grading, fashion and ability to deliver in the right volume, at the right time and in the right place, than commodity pricing. Which suggests that Fox's real market test is about to come. It has to gain trust and credibility with a wide range global distribution partners – whereby it becomes one of the default suppliers-of-choice when, for example, a San Francesco contractor receives an order for half an acre of pure while Sivec destined for a new Middle Eastern hotel. This is a steep hill to climb and the question must be, just how long will it take? Once it has risen to this pinnacle, however, the rewards could become quite exceptional as low, largely fixed operating costs will see higher revenues trickle almost straight down to the bottom line. Management has already suggested this will be quickly returned to patient shareholders in the form of dividends. In expectation of the Board delivering an increasingly confident message with its half-year statement, Beaufort retains its Speculative Buy recommendation on Fox Marble shares.