Markets
Europe
The FTSE-100 finished yesterday's session 1.19% lower at 6,776.95, whilst the FTSE AIM All-Share index closed 0.43% lower at 805.39. In continental Europe markets ended in the red on Friday, following the slump in US indices. Moreover, the focus remained on the drop in Germany's exports for July Germany’s DAX and France’s CAC 40 declined 1.0% and 1.1%, respectively.
Wall Street
Wall Street ended sharply lower on Friday due to comments from a Fed official that raised speculations about a hike in interest rate later this month. The S&P 500 dropped 2.5%, with telecommunications and utilities losing more than 3% each. The index closed 1.9% lower for the week.
Asia
Equities are trading lower, amid negative cues from the Wall Street and concerns that the Fed may switch to a stricter monetary policy. The Nikkei 225 closed 1.7% lower, despite a larger-than-expected expansion in the machinery orders for July. The Hang Seng was trading 2.7% lower at 7:00 am.
Oil
On Friday, WTI prices decreased 3.7% to US$45.88 per barrel, while Brent oil prices declined 4.0% to US$48.01 per barrel.
Headlines
Japan’s core machinery orders rise in July
Japan’s Cabinet Office informed on Monday that the country’s core machinery orders increased 4.9% m-o-m in July, thereby signalling a pick-up in capital spending activities, compared to an 8.3% m-o-m rise in June. On a y-o-y basis, the orders increased 5.2% for the month.
Company news
Hummingbird Resources (LON:HUM, 23.50p) – Speculative Buy
Hummingbird Resources, the gold exploration and development company with assets in Mali and Liberia, announced today that it has appointed IMAGRI-SARL as civil works contractor for its 2.2Moz Yanfolila gold project in Mali. IMARGI is a leading specialist of building, mining and industrial infrastructure in Mali and will be responsible for the completion of plant civil works, including ROM tip and primary crusher, secondary crusher and screening, and milling and carbon-in-leach (CIL) area. Mobilisation will continue through September with work expected to commence in early October 2016. The execution of works will be in accordance with the scope, description, drawings, specifications, delivery dates and terms and conditions set out by SENET, which was awarded the EPCM contract for Yanfolila in July 2016.
Our view: Having secured the majority of project funding HUM is ready to commence full-scale construction at Yanfolila with initial production of 130,000oz from the first full year production. We are encouraged with IMAGRI’s experience having contributed to the construction of several gold projects in Mali. We look forward to further developments as the construction process proceeds. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Hummingbird Resources plc
Keras Resources (LON:KRS, 0.61p) – Speculative Buy
Keras Resources, the Australian gold mining company, announced today that it has acquired Arcadia Minerals’ Klondyke Gold Project and planned consolidation of the Warrawoona Grenstone Belt in the Pilbara region of Western Australia. Klondyke has a JORC-compliant resource of 5.6Mt grading 2.08g/t Au, representing only 2km of the 7.5km strike length and mineralisation remains open at depth. Keras has also acquired the right to mine and an option agreement with Haoma Mining for tenements contiguous and near to Klondyke, including three historic mines, a resource of 315,000oz grading 1.8g/t Au and a new discovery potential as suggested by high-grade intercepts. Under terms of the acquisitions, Keras will own 100% of Arcadia Minerals’ Klondyke Gold Project for a total consideration of A$1.42m cash and issuance of 100m Keras ordinary shares, subject to lock-up and orderly trading terms, plus a 2.5% royalty (capped at A$3.5m and will commence post production of 20,000oz of gold). The Company will also pay A$250,000 for the five year right to mine Haoma Mining tenements and the irrevocable right to acquire within a five year period for a total consideration of A$1.25m, comprising A$5m cash and a Convertible Note of A$750,000. Keras also announced that it has secured a US$2m bridge facility arranged by Riverfort Global Capital in order to fund the above acquisitions and is payable at an interest rate of 10% per semi-annum. The Company also plans to dual list on the Australian Stock Exchange (ASX) to reflect its increase focus on Australian gold.
Our view: This is positive news for Keras giving the company access to additional resources that could potentially elevate Keras to a stand-alone owner-operated gold miner in Western Australia, in addition to its tribute miner model. We look forward to further updates as Keras plans a four phase programme to confirm historical drilling results and assess the feasibility of a stand-alone open-pit mining operation. In the meantime, we maintain our speculative buy on the stock.
Beaufort Securities acts as corporate broker to Keras Resources plc
Savannah Resources (LON:SAV, 4.32p) – Speculative Buy
Savannah Resources, the diversified mining group focused on exploration and development of mineral sands in Mozambique, copper-gold projects in Oman and lithium projects in Finland, announced today a drilling update over its highly prospective Block 4 and 5 properties in the Sultanate of Oman. Savannah owns a 65% shareholding in Al Fairuz Mining, the owner of the Block 5 licence and is earning a 65% shareholding in Al Thuraya LLC, the owner of Block 4, both are highly prospective for copper and gold. Six diamond drill holes totalling 608m have been completed at Mahab 4 and Maqail South deposits (Block 5) as well as at the Bayda (Block 4) deposit. Savannah is targeting an increase and upgrade in the overall resource potential at Maqail South and Mahab 4, which have a current resource of 1.7Mt grading 2.2% Cu. Drill hole 16B5DD012 intercepted 15.18m grading 4.02% Cu and 0.2g/t Au from 62.5m at Mahab 4 and drill hole 16B5DD001 returned 25.63m grading 2.66% Cu and 0.1g/t Au from 49.37m at Maqail South. Whilst drill hole 16B5DD001A returned 20.55m grading 3.09% Cu and 0.1g/t Au from 48.95m. Additional drilling at Bayda in Block 4 intersected 33.4m grading 0.69% Cu and 0.1g/t Au from 87m, including 4m grading 1.56% Cu and 5.1m grading 1.22% Cu from drill hole 16B4DD003. A revised mineral resources estimate for Maqail South and Maqail 4 is expected in Q4 2016.
Our view: The results from the current drill programme continue to be very encouraging particularly at Mahab 4 and Maqail South where high-grade copper has been intercepted at shallow depths. We note that drilling at Bayda suggests a larger tonnage and lower grade deposit. We look forward to additional drill results from Blocks 4 and 5, expected to be completed by end of Q3 2016, as well as the revised mineral resource estimate for Mahab 4 and Maqail South in Q4 2016. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Savannah Resources Plc
CityFibre Infrastructure Holdings (LON:CITY, 62.50p) - Speculative Buy
CityFibre has announced the signing of a commercial launch partner agreement for its Southend-on-Sea network currently under construction. Hampshire-based business ISP Onecom, the largest service provider in the Vodafone Partner Programme by customer connections, becomes CityFibre's 50th service provider partner, taking the Company halfway to its medium-term target of 100 service provider relationships. The five-year, £1.7m agreement commits Onecom to a minimum of 150 business customer connections across CityFibre's network of up to 100 kilometres currently under construction in the city. With the conclusion of this agreement, CityFibre has now sold a total of 270 connections on the Southend asset, representing an incremental unit sales uplift of 125% above the original anchor customer commitment in only six months.
Our view: Onecom is CityFibre’s 50th service provider partner relationship and its launch partner to deliver superior pure fibre connectivity solutions to the business community in Southend. Onecom's national base of over 300,000 customer connections is testament to its established reputation for quality and customer service, making it an ideal addition to the CityFibre partner universe. We continue to believe CityFibre as a leading designer, builder, owner, and operator of fibre optic infrastructure in UK towns and cities, who is building a business through commercial partnerships and this signing, with ISP Onecom with its relationship with Vodafone is a further step in growing its portfolio. Speculative Buy.
Greene King (LON:GNK, 789.0p) – Buy
In a trading update issued at its AGM last Friday, Greene King announced in the first 18 weeks of the year, Pub Company delivered like-for-like sales growth of 1.7% including a strong start to the year as customers enjoyed the European Football Championships and better weather. Growth was driven by the Company’s Local Pubs estate. In Pub Partners, LFL net income was up 4.5% after 16 weeks, while in Brewing & Brands, own-brewed volume declined 0.5% over the same period. The Company reported strong progress with the integration of Spirit, with over a quarter of the managed pubs operating with the ‘best of both’ IT systems. The Company also completed 41 brans conversions with encouraging sales uplift.
Our view: An encouraging trading update in sales and further progress announced on the planned synergies of the Spirit acquisition. Tempered by uncertainty over consumer confidence and softening of ‘some economic indicators’ the company state they are alert to potentially tougher trading environment ahead. Notwithstanding this, Greene King has a track record of success in challenging environments and with its strong balance sheet, together with the opportunities following the Spirit acquisition, leads us to re-emphasise our Buy stance.
JD Wetherspoon (LON:JDW, 946.5p) - Hold
JD Wetherspoon (Wetherspoon) declared preliminary results for the 52 weeks ended 24th July 2016 (FY 2016). Revenue (before exceptional items) increased 5.4% y-o-y to £1,595.2m. Like-for-like (LFL) sales growth was 3.4%. Operating profit (before exceptional items) declined 2.5% to £109.7m. Pre-tax profit (before exceptional items) rose 3.6% to £80.6m, leading to EPS (including shares held in trust) of 48.3p, up 2.8% y-o-y. Free cash flow per share stood at 76.7p (FY 2015: 89.8p). Operating profit (after exceptional items) increased 3.0% to £109.7m. Pre-tax profit (after exceptional items) rose 12.5% to £66.0m, leading to EPS (including shares held in trust) of 43.4p (FY 2015: 36.7p). As at 24th July 2016, the company's total net debt, including bank borrowings and finance leases, but excluding derivatives, stood at £650.8m (FY 2015: £601.1m). On the operational front, Wetherspoon opened 16 pubs during the year, with 41 sold or closed, reducing number of pubs to 926. Wetherspoon proposed a final dividend of 8.0p, taking the full year dividend to 12.0p, similar to the FY 2015 dividend. The dividend is covered 3.6 times (2015: 3.1 times).
Our view:Wetherspoon registered a decent FY 2016 performance, with good sales and LFL sales growth. The company continued to assess their pub performances, resulting in closures/sale of 41 under-performing outlets, while opening 16 new once in FY 2016. Nonetheless, Wetherspoon’s operating margin, before exceptional items, registered a decline, primarily due to an increase in staff costs, utilities and depreciation. Wetherspoon expects an improvement in the UK’s prospects after Brexit. However, we believe that the company’s post-Brexit performance would be affected owing to a negative influence on consumer confidence and spending. Moreover, Wetherspoon’s high debt and low cash flow levels remain a problem. We maintain a Hold rating on the stock owing to a mixed outlook.
Economic news
US wholesale inventories
US wholesale inventories remained unchanged in July, following an upwardly revised 0.3% gain in June, the US Commerce Department reported on Friday. The markets expected the inventories to rise 0.1% for the month.