Markets
Europe
The FTSE-100 finished yesterday's session 0.70% higher at 7,423.66 whilst the FTSE AIM All-Share index was up 0.65% at 985.63. In continental Europe, the CAC-40 finished 0.65% higher at 5,127.03 whilst the DAX finished up 1.10% at 12,251.29.
Wall Street
In New York overnight, the Dow Jones closed 0.33% higher at 21,963.92, while the S&P 500 added 0.24% to 2,476.35 and the Nasdaq rose 0.23% to 6,362.94.
Asia
In Asian markets this morning, the Nikkei 225 was 0.55% higher at 20,095.43 and the Hang Seng was up 0.46% at 27,667.39.
Oil
In early trade today, WTI crude was down 0.92% to $48.71 per barrel and Brent was 0.85% lower at $51.34 per barrel.
Headlines
Apple sales boosted by apps and music
Technology giant Apple said newer lines of business such as Apple Pay, the App Store and Apple Music helped to drive growth in its third quarter. The services unit was what one analyst described as a "shining light" during a period with robust sales across Apple's different product lines, including iPhones and iPads. Apple said quarterly revenues grew by 7% year-on-year to $45.4bn (£34.4bn). The news sent its stock surging more than 5% in after-hours trade. Apple, which also forecast strong sales, is expected to release new and updated iPhones next month. Apple chief executive Tim Cook was tight-lipped when it came to details on the new launch and said reports about the new phones may have caused some people to "pause" their purchases of the existing phones. But "while that affects us in the short-term, it probably bodes well", he added. Even with some people waiting for the new models, Apple said the number of iPhones sold in the quarter increased a solid 2% year-on-year, driven by strong demand in markets such as Latin America and the Middle East. The growth lifted revenue from iPhones, which account for the bulk of the company's sales, by 3% to $24.8bn. Apple also said the number of iPads sold climbed 28% year-on-year, while revenues from the product increased 2%. The rise follows the introduction of new models, as well as increased efforts to incorporate the tablets into operations at schools and in businesses. Revenue from other devices, such as the Apple Watch, Apple TV and Beats products, jumped 23% year-on-year.
Company news
Thor Mining (LON:lTHR, 0.85p) – Speculative Buy
Thor Mining, the exploration and development company with assets in Australia and USA, announced yesterday that it has agreed to acquire an interest in the historically mined Kapunda copper deposit in South Australia. Thor has signed a binding term sheet to provide funding through convertible notes to Environmental Copper Recovery (ECR), a private Australian company, of up to A$1.8m. This will fund field test work and feasibility activities at Kapunda over the next three years. In turn, ECR has entered into an agreement to earn, in two stages with ASX-listed Terramin (TZN.A), of up to 75% of the rights over metals which may be recovered via in-situ recovery (ISR) methods in the Kapunda deposit. ECR can earn up to an initial 50% by spending A$2m on various studies and ern a further 25% through an additional A$4m expenditure.
Our View: Upon conversion of the convertible notes, at the sole discretion of Thor, it could potentially own up to 60% equity interest in ECR. More importantly, should ECR fulfil its work expenditure commitments with TZN it could own up to 75% of the metals extracted via ISR at Kapunda. ISR is a common extraction method for several metals globally with a low environmental impact and relatively low operating costs. Whilst there is still a lot of work to be done to prove that ISR method at Kapunda is feasible, we are encouraged with the potential for low cost extraction from a historic copper mine. We look forward to further updates including a resource estimate as well as technical studies relating to the potential for ISR extract at Kapunda. In the meantime, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as a corporate broker to Thor Mining PLC
Taylor Wimpey (LON:TW., 194.00p) – Buy
The national housebuilder yesterday released half-year results for the period ended 2nd July 2017. Pete Redfern, Chief Executive, commented: "Trading through the first half of 2017 has been very positive, supported by favourable UK housing market fundamentals and good customer confidence. In the central London market in particular, we are pleased to see improved customer confidence following a period of uncertainty.” Operational highlights included the completion of a total of 6,580 homes, excluding joint ventures, an increase of 9.3% (H1 2016: 6,019) along with a 6.3% increase in total average selling price to £253k (H1 2016: £238k), excluding joint ventures. Pre-exceptional operating profits rose 24.2% to £346.2 million (H1 2016: £278.8 million); previously announced provisions of £130 million were recorded as an exceptional item in the H1 2017 accounts as a result of the leasehold review, in turn leading to a Group profit before tax of £205.0 million (H1 2016: £268.8 million). A strong foundation behind this is reflected by a strong order book representing 8,741 homes (3 July 2016: 8,683) with a total value of £2,111 million (3 July 2016: £2,156 million), excluding joint ventures, which continued to grow to £2,224 million as at 23 July 2017 (2016 equivalent period: £2,237 million). The Group’s short term landbank stands at 76,503 plots, of which 58% has been sourced from the strategic land pipeline. The Board also announced a special dividend of £340 million (c.10.4p pence per share) to be paid in July 2018 (July 2017: £301 million and 9.20 pence per share); this confirms the Group’s Ordinary Dividend Policy amounting to approximately 5% of Group net assets and at least £150 million per annum through the cycle. Taylor Wimpey’s balance sheet remains strong with significant further growth in net cash to £429.0 million as at 2 July 2017 (3 July 2016: £116.7 million).
Our View: Still not blinking! Remembering just how painful past cyclical downturns for the UK housebuilders have been for shareholders, the sector already appears to price in a slowdown. Even the CEO appears to be holding his breath, noting yesterday that “Although the wider political backdrop could have an impact on confidence levels and market dynamics, we have seen no material change in trading since the General Election, and our first half performance has been strong.” But, as Nationwide yesterday also reported, British house prices rose for a second month in a row in July after falling between March and May, with the mortgage lender suggested it was now seeing a stabilisation in the housing market which had weakened since last year's Brexit vote. So, amid an obvious housing shortage across the country, the message appears to be that the market has regained some of its confidence, underpinned by a competitive mortgage environment, the Help-to-Buy scheme and low interest rates. For new builders like Taylor Wimpey, who enjoy yet further assistance through the Government’s Help-to-Buy scheme, customer interest remains particularly resilient, with website visits solid and high levels of interest being registered in forthcoming developments; easy access to finance ensured its cancellation rate for H1 2017 was 11%, compared to 12% in H1 2016. With UK net operating asset turn having increased to 1.45 times (H1 2016: 1.25), benefiting from the combination of a very benign land market that offers an improving environment for acquisition, revenue growth and cost control, 2017 build cost increases of c.3-4% will also be passed onto buyers. As a result, market consensus 2017E earnings are expected to be lifted a few percentage points following a confident management conference call. While Taylor Wimpey’s P/E and P/TNAV to the year of 9.2x and 1.99x are almost exactly in line with sector multiples of 9.1x and 1.97x for the same period, its yield of 7.6% compares with 5.8%, rising to 8.0% in 2018E. Management has also confirmed its intention to make further material capital returns to shareholders in 2019E and beyond, while intending to provide an update on the future approach at the next Strategy Day in H1 2018. On this basis the shares, which have slightly underperformed the broader sector YTD, still represent good value both for income and value investors. Beaufort retails its Buy recommendation on Taylor Wimpey with a price target of 220p/share.