Today's edition features:
• Armadale Capital (LON:ACP)
• Katoro Gold (LON:KAT)
• Obtala Limited (LON:OBT)
• Tiziana Life Sciences (LON:TILS)
"US traders took the Commerce Department's figures suggesting a bigger than expected rebound in June housing starts well yesterday. Upbeat Q2'17 earnings numbers from Morgan Stanley also helped, particularly following a disappointing statement from Goldman Sachs on Tuesday. As a result, the three major averages remained in the positive throughout the session as the Nasdaq and S&P-500 both powered to new record highs on good seasonal trading volumes. Strong demand for tech stocks like Facebook, Microsoft, Alphabet and pharma play Vertex, which surged on release of positive news for its cystic fibrosis treatment, was enough for the S&P-500 sector to exceed the peak it achieved during the bubble-year 2000 for the very first time and sufficient to drown out disappointment from the IBM, which dropped 4.3%, on disappointing quarterly revenues. Firmer crude also boosted Energy plays, as WTI for August delivery rose US$0.50 during afternoon trading to hit a six-week high in New York, lifting the Arca Oil Index up 1.49% at the close as traders considered the larger than expected decline in US inventories to be evidence supply-demand was once again achieving balance. Pausing for breath during this morning's Asian session, however, September Brent eased a few cents back to US$49.65. Treasuries remained largely directionless, leaving the yield on the benchmark ten-year note up by less than a basis point at 2.268%, as the US$ bounced modestly off its 10-month lows during the US session and traders held their breath ahead of this afternoon's policy statement from the ECB. News that Donald Trump's son, son-in-law and aides are to testify before Senate committees investigating alleged Russian meddling in the 2016 Presidential election, however, reversed the US$ back into declines during this morning's Asian trading. Regional equities nevertheless followed the US lead with reasonable gains across the board, led by the Nikkei throughout the session despite the US$:Yen remaining above the 112 level as the S&P/ASX 200 found demand for Oils, Techs and Financials. European shares yesterday rode on the back of Asia's firm Wednesday closing along with a number of positive corporate earnings reports. The STOXX Europe 600 ended up 0.77%, with all its local markets closing in the positive after being led by the CAC-40 (+0.83%) and the IBEX 35 (+0.6%), as Swedish appliance maker Electrolux and Dutch semiconductor company ASML beat expectations, while a US$4 billion deal to sell its food division also pushed Reckitt Benckiser Group (RB..L) shares higher. The Euro fell back from the 14-month high achieved on Tuesday, as ECB policy maker Francois Villeroy de Galhau yesterday suggested the Eurozone still needs to retain a loose monetary policy. This news marginally tempered expectations of an early stimulus withdrawal following a sharp rise in the Euro, but traders still hold onto the view that a move to easing bias on its asset purchase programme is likely to be forthcoming. Given that President Mario Draghi also noted that 'reflationary forces' are now evident across the Bloc, the question appears to be simply whether he chooses today or next month's Jackson Hole Symposium to tell the market. London's FTSE-100 also ended firmer, rising 0.55%, supported similarly by the Reckitt Benckiser deal, while Housebuilders were also pushed up by a broker's positive sector note; Miners were mostly weaker, following softening US$-denominated metals prices, while Royal Mail (RMG.L) gave back some of Tuesday's gains and Domino Pizza (DOM.L) was hit by 2%. Macro releases from the UK today include June Retail Sales numbers. The EU is expected to publish its May Current Account data and July Consumer Confidence preliminaries; at 12:45hrs BST, the ECB also publishes its Interest Rate Decision followed at 13:30hrs BST, by its Monetary Policy Statement and press conference. The US offers its weekly Initial Jobless Claims, the Philadelphia Fed Manufacturing Survey for July and EIA Natural Gas Storage Change figures. UK corporates due to release earnings or trading updates include Unilever (ULVR.L), SSE (SSE.L), easyJet (EZJ.L), Anglo American (AAL.L), Sports Direct (SPD.L), Howden Joinery (HWDN.L), Mothercare (MTC.L) and Hilton Foods (HFG.L). London equities are seen riding the positive mood of the overnight markets, with the FTSE-100 rising around 20 points in early trading, although sentiment will remain touch sensitive on release of the ECB's Statement early this afternoon."
- Barry Gibb, Research Analyst
Markets
Europe
The FTSE-100 finished yesterday's session 0.55% higher at 7,430.91 whilst the FTSE AIM All-Share index was up 0.69% at 963.48. In continental Europe, the CAC-40 finished 0.83% higher at 5,216.07 whilst the DAX finished 0.17% higher at 12,452.05.
Wall Street
In New York last night, the Dow Jones rose 0.31% to 21,640.75, the S&P-500 firmed 0.54% to 2,473.83 and the Nasdaq gained 0.64% to 6,385.04.
Asia
In Asian markets this morning, the Nikkei 225 had risen 0.59% to 20,139.57, while the Hang Seng firmed 0.3% to 26,752.92.
Oil
In early trade today, WTI crude was down 0.02% to $47.11/bbl and Brent was down 0.04% to $49.68/bbl.
Headlines
One-third of card payments contactless
More than a third of all card payments are now contactless, according to new figures which also show a jump in pest control purchases. Trade association UK Finance said 33% of all spending on plastic was settled with a tap instead of a swipe in May. This is a rise from 18% in the same month last year. It also said that shopping on cards were strong at "pest control merchants", followed by chemists. There was a particular rise in travel-related purchases, such as foreign currency exchanges and airport terminals. A total of £4.5bn was spent through contactless payments in May, out of £57.2bn on credit and debit cards. Compared with last May, people spent more on debit cards at £40.6bn, up from £37.9bn the year before. Credit card purchases increased to £16.6bn from £15.2bn.
Source: BBC News
Company news
Armadale Capital (LON:ACP, 1.48p) – Speculative Buy
Armadale Capital announced yesterday an update on its exploration activities at its wholly owned Mahenge Liandu graphite project in Tanzania. The Company has a two-stage development plan with Stage one focused on processing higher-grade mineralisation before a later expansion to take advantage of the large deposit for Stage two. A 2,500 RC (Reverse Circulation) drill programme is currently underway focused on updating the current JORC compliant resource as well as defining higher-grade zones of +10% total graphic content (TGC). Recent completion of access roads has exposed wide zones of up to 110m of graphite mineralisation near surface. Mahenge Liandu has a current JORC-compliant resource of 40.9Mt grading 9.41% TGC.
Our View: We continued to be encouraged with exploration results from the Mehange Liandu graphite project. Wide zones of coarse and high-grade mineralisation coupled with high-purity graphitic carbon demonstrate the project's potential as a commercially viable graphite source suitable for a range of commercial applications. We understand the Company has met with several potential off-take partners in China following successful completion of its bulk sampling programme. Armadale is looking to capitalise on the expected growth in the graphite market driven by increasing applications particularly in the energy storage market. We look forward to drill results from the planned resource update. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Armadale Capital PLC
Katoro Gold (LON:KAT, 3.62p) – Speculative Buy
Katoro Gold, the Tanzania focused gold exploration and development company, announced today that the drill programme for the Imweru resource update was completed on 19 July 2017. The infill drilling programme was a month ahead of schedule and expanded to include 2,000m of additional drilling for a total of 31 drill holes comprising 3,410m. All assay samples will now be submitted in one batch with results expected within two weeks once received and will be used to help complete the PFS. In the meantime, work on the ESIA (Environmental and Social Impact Assessment) is on-going and progressing well. The Imweru gold deposit has a current JORC-compliant mineral resource estimate of 515,110oz of gold comprising 82% in the Inferred and 18% in the Indicated categories.
Our View: The Tanzanian Government has made significant changes to its mining code and continues the ban the export of gold concentrate, however, these changes have limited impact on Katoro given Imweru's early stage of development. We are encouraged with the pace of the expanded drill programme as well as the increase in scope to include commissioning of the ESIA and an additional 2,000m of drilling. We look forward to the assay within results in the coming weeks as Katoro works through the pre-feasibility study on Imweru project. In the meantime, we maintain a Speculative Buy recommendation on the stock.
Beaufort Securities acts as corporate broker to Katoro Gold plc
Obtala Limited (LON:OBT, 16.88p) – Speculative Buy
The African forestry and agriculture operators yesterday released a comprehensive Q2' 2017 trading update. It confirmed that the quarter had been a transformational quarter for the Group. The text review a number of highlights of the period, including (i) Completion of US$14.6m WoodBois acquisition, incl. c.US$15m per annum trading business and 96,851 hectare concession in Gabon with 42,000m3 capacity sawmill; (ii) Completed purchase and commenced construction of new sawmill site in Nampula; (iii) Six management plans now approved in Mozambique covering 153,500 hectares and (iv) In Tanzania, the fact that melons had been planted on farms, packhouse renovation is being complete for the 2017 harvest, while the acquisition of farmland on which majority of production assets are located will increase profit share on two farms. During the period, the Board also underwent changes with the retirement of Frank Scolaro NED and Philippe Cohen as Finance Director; CFO duties have since been assumed by Paul Dolan and Group Accountant Carnel Geddes, while suitable candidates continue to be vetted. In addition, a number of other operational level hiring were made to fulfil various critical functions.
Our View: Undoubtedly, the global, long-term market opportunity for Obtala's operations is huge. Forestry will drive near-term profitability, while value-added development of the Group's agricultural division can be expected to offer quite exceptional gross margins. Management is currently focused on the integration of WoodBois, which in due course will provide considerable operating and revenue synergies for operations in Mozambique. Indeed, by plugging the one-near term operational concern – that of access to a global forestry product distribution channel with a wide and currently active list of hard-currency buyers - WoodBois' acquisition at a bargain-basement price of around 1x revenues, provides confidence that the new management team fully comprehends the challenges that face it. Having also finalised the purchase of a 10.5-hectare site for the new sawmill in Nampula, ground has already been broken for its construction, with a view to completing the planned 100m3 per day capacity sawmill by the end of 2017. Six management plans covering 153,500 hectares (41,014 m3 of permitted cut) have now been approved, which should thereby allow Argento (Obtala's 75% owned forestry subsidiary) to achieve its immediate goal of being active in 5 concessions. The arrival of new harvesting equipment and the completion of the production team build-out is already showing positive results, with logging production producing a marked year-on-year increase. Within this, management is also identifying additional parts of the value chain through monetisation of wood waste and the addition of a veneer production line. While the market understands risks entailed in ambitious African business plans, the country nevertheless, is poised to commence its own green revolution. And Obtala's timing, given projected global demand growth for timber at a time when international efforts to control illegal logging have the potential to create something of a 'super cycle' for premium hardwood pricing, looks almost perfect. Modelling Obtala's business opportunity, fair value still appears to be multiple of the current share price, even after applying punitive discount rates. Beaufort retains its Speculative Buy rating on Obtala Limited.
Beaufort Securities acts as corporate broker to Obtala Limited
Tiziana Life Sciences (LON:TILS, 170.00p) – Speculative Buy
Tiziana Life Sciences ('Tiziana'), the clinical stage biotechnology company developing targeted drugs for cancer and autoimmune diseases, yesterday announced the enrolment of the first patient in its Phase IIa clinical trial for milciclib (TZLS-201) in patients with refractory hepatocellular carcinoma ('HCC'), a type of liver cancer. Milciclib is a small molecule inhibitor of several cyclin-dependent kinases ('CDKs') which plays crucial roles in progression of the cell cycle. An overexpression of CDKs and other downstream signalling pathways that regulate cell cycles have been frequently found to be associated with development of tumours resistance to chemotherapies. As such, the primary objective of Phase IIa clinical study is to evaluate the safety of milciclib in HCC patients who have failed to or are intolerant to the existing standard of care treatment, sorafenib (Nexavar). Subsequently, a phase IIb clinical trial is planned for the combination therapy of milciclib and sorafenib in HCC patients. Top line data for this trial is expected in Q4 2018. Tiziana's CEO & CSO, Kunwar Shailubhai, commented "Oral treatment with milciclib has been well-tolerated in previous studies with cancer patients. We strongly believe, based on its unique mechanism of action, that the drug may have potential to be developed either as a monotherapy or combo-therapy with sorafenib for treatment of HCC".
Our View: Tiziana has progressed one of its lead compounds, milciclib, by initiating its Phase IIa clinical trial for patients with HCC. HCC is the 5th most common cancer worldwide and the 2nd most common cause of death from cancer worldwide affecting both men and women (S. Mittal & H. El-Serag, 2013). The tumour is associated with chronic hepatitis B and chronic hepatitis C infections, as well as with nonalcoholic steatohepatitis. The rate of development of liver cancer is believed to be growing as a result of high alcohol consumption, poor diet and obesity, whilst the prognosis for liver cancer is poor due to lack of effective therapy currently available. Provided that milciclib demonstrates the same encouraging results seen at the pre-clinical stage, which suggest its ability to intervene in the development of resistance to sorafenib in HCC patients, as well as the time of its Phase I studies in patients with advanced solid tumours (e.g. thymoma) found to be safe and well-tolerated through oral admission, we look forward to the 'Top line' results announcement in Q4 2018. The Group is also progressing its another lead compound, foralumab (TZLS-401), the only fully human engineered anti-human CD3 antibody for potential treatment of wide range of autoimmune and inflammatory diseases, currently in pre-clinical/Phase I for nonalcoholic steatohepatitis ('NASH') and primary biliary cholangitis ('PBC'). Liver diseases today list amongst the therapeutic industry's fastest growth areas, with NASH and PBC seen expanding at double-digits for the next decade, potentially creating a market opportunity in excess of US$25bn by 2026. The molecule has demonstrated that oral CD3 was safe, well tolerated and produced positive clinical benefits in its two single blind randomised placebo controlled Phase IIa studies in patients with treatment resistant chronic hepatitis C virus ('HCV') infection or NASH. A valuation based on risk-based DCF methodology suggests that Net Present Value (NPV), after applying relatively aggressive 18% discount, indicates the Group's valuation more than twice the current level based on anticipated milestone fees & royalties just for foralumab and milciclib (ignoring the Group's remaining pipeline of products and opportunities). Beaufort reiterates its Speculative Buy rating on the shares with a target price of 400p.