Beaufort Securities Breakfast Alert: DDD Group Orogen Gold Avanti Communications Bushveld Minerals and others
Date
5/10/2016 6:08:55 AM
(MENAFN- ProactiveInvestors - UK) Beaufort Securities 08:39
"A potentially volatile start to trading this morning is expected with the FTSE-100 anticipated to start around 25-points higher. The US markets saw no strong trend with the Dow nursed minor energy-related losses on the falling oil price and further reflection on continuing oversupply while healthcare-related advances pushed the NASDAQ into positive territory. Asia by comparison was more decisive with the Nikkei advancing sharply after Japan's Finance minister appeared ready to intervene to calm the continued rise in the Yen while China's Shanghai Composite ended flat during a nervous session as falling commodity prices were countered by a steady monthly inflation figure. In the UK today watch for BRC April Same-Store Retail Sales which are forecast to decline around 1% year-on-year while total Retail Sales expected unchanged. Amongst the corporates results are expected from EasyJet along with AGM statements or trading updates from Bovis Homes Capita Grafton Group Hiscox."
Barry Gibb Research Analyst
The markets
Europe
The FTSE-100 finished yesterday's session 0.18% lower at 6114.81 whilst the FTSE AIM All-Share index closed 0.10% higher at 723.49. On the continent equities pared initial gains but ended positive even though oil prices declined. Mining stocks tumbled after weaker-than-expected Chinese trade data fuelled concerns regarding the country's economy. Germany's DAX and France's CAC 40 closed 1.1% and 0.5% higher respectively.
Wall Street
Wall Street closed marginally higher in high-volume trading yesterday even as oil prices dropped. Gains in the healthcare sector largely offset the declines in the materials and energy sectors. The S&P 500 added 0.1% with healthcare leading five sectors higher.
Asia
Markets are trading mixed due to instability in commodity prices. The Nikkei 225 advanced 2.2% amid reports that the government could intervene against a sharp rise in the yen. Meanwhile the Hang Seng was trading 0.2% lower at 7:00 am.
Oil
Yesterday Brent and WTI crude oil prices decreased 1.7% and 1.2% respectively. The spread between the two varieties stood at US$0.2 per barrel.
Headlines
UK retail spending stagnates in April: BRC
As per the British Retail Consortium (BRC) retail spending in the UK was flat against the previous year for the second consecutive month during April. The weak demand for fashion and footwear was primarily ascribed to the unusually cold weather in April. On a like-for-like basis BRC said sales fell 0.9% y-o-y in April.
China's CPI for April remains flat
China's consumer price index (CPI) for April stood at 2.3% y-o-y in April in line with the March reading. Food prices were the largest contributors to consumer inflation rising 7.4% y-o-y in April. Meanwhile consumer inflation declined 0.2% m-o-m.
Company news
DDD Group (DDD.L 1.42p) Speculative Buy
DDD Group plc the advanced imaging company yesterday announced that its subsidiary GenMe Inc. has launched the Mac OS X version of TriDef SmartCam an innovative real time background replacement solution for popular Apple Mac applications. TriDef SmartCam is already gaining a growing user base in the gamecasting/webcasting and video conferencing markets. It turns a conventional 2D webcam into a powerful compositing tool that can replace the user's immediate environment with alternative background images and filter effects in real time. Users of popular gamecasting/webcasting applications including Open Broadcaster System and popular video conferencing applications such as Skype can use the TriDef SmartCam solution to overlay their head and torso image on gameplay videos and webcasts or replace their background during video calls.
Our view: The fact that it only took a few months to ship the first two hundred thousand TriDef SmartCam licenses when it took over two years to achieve this same benchmark in 3D underscores just how much larger the target markets for the Group's new products are. Over 278000 evaluation copies of TriDef SmartCam for Windows have already been downloaded and distributed with gaming PCs and gamecasting/webcasting apps since the product was introduced in late May 2015. During Q1'16 the response to this unique solution with downloads and pre-installs of the Windows version surpassed 30000 per month. Delivering the solution for Apple Mac OS X users is a further important critical component to address the needs of business users in particular those using video conferencing applications who want greater flexibility as to where they can participate in video calls. The affiliate business model is also being well received by the Group's partners given that it unlocks incremental value from their end users. Having recently taken out an US$800000 secured loan near term financing requirements appear covered. Cash burn will however continue to stress the balance sheet as the Group rolls out and refines its 2D apps appoints licensees and undertakes end-user marketing in its push toward break-even. Given the market size for gamecasting/video conferencing that is forecast to deliver growth from hundreds of millions of existing end-users however potential shareholder rewards remain very large indeed. Beaufort retains its Speculative Buy recommendation on DDD Group.
Beaufort Securities acts as corporate broker to DDD Group plc
Orogen Gold (ORE.L 0.03p) Speculative Buy
Yesterday Orogen Gold announced its audited results for the year ended 31st December 2015. The company's operating loss for the period narrowed to 895m owing to a lower impairment charge for exploration and evaluation assets. Orogen's total comprehensive loss for the year stood at 892m compared to 1.9bn a year ago. Consequently the company's loss per share for the period stood at 0.02p. On the operational front the company intersected two holes with enhanced gold grades in the shallow gold bearing intervals at its Mutsk gold project in Armenia. The 2015 drilling programme was successful in identifying significant extensions to the previously discovered gold zones as two distinct gold-bearing zones were identified covering a minimum strike length of 550m. Meanwhile the company raised 450000 at 0.025p before expenses with a subscription from each director. Orogen's cash position at the end of the fiscal year was 921000. During the period the company also appointed Colin Bird as Chief Executive Officer. Post the period the company's highly prospective gold-silver property was optioned in Nevada in the US.
Our View: The company managed to narrow losses for the year despite the sharp decline in gold prices during 2015. Though gold prices showed steady signs of recovery by the end of the year and continued to rise in 2016 the company should best conserve its cash reserves at the moment until the commodity price environment stabilises. On the other hand development of the mining industry in Armenia got a boost towards the end of 2015 after an independent geological review concluded that this is a large hydrothermal system of which only a small portion has been explored to date. The report added that drilling in 2014 indicated potential for higher grade mineralised zones. We look forward to the continued evaluation of the potential for increased tonnage and higher gold grades from the Mutsk project. In the meantime we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Orogen Gold plc
Avanti Communications (LON:AVN 93.75p) Speculative Buy
Avanti announced that it has won a contract to supply EE Limited with satellite capacity for cellular backhaul. Avanti will connect a number of cellular sites across the UK to EE's network using the HYLAS 1 and 2 satellites to provide communications in remote areas and additional network resilience. The first phase of this multiyear contract has an initial value of $29m plus options to double the capacity.
Our View: This is a significant win for Avanti. We remind readers of an announcement EE made In December 2015. EE announced it was selected by the Home Office to provide Britain's Emergency Services with a resilient national mobile network giving 300000 critical emergency workers access to 4G voice and data for the first time.
'In order to deliver the mission critical Emergency Services Network (ESN) EE will implement a number of key tasks including the implementation of satellite backhaul for Britain's most hard-to-reach areas.'1
EE now owned by BT Group would have conducted an exhaustive tender process involving major satellite players many much bigger than Avanti such as Intelsat Eutelsat and Inmarsat.
Avanti have designed the HYLAS satellite fleet to offer the highest levels of network quality and flexibility beyond the levels that have been previously available via satellite. This contract win demonstrates those qualities and affirms the company's ability to deliver at the highest level. Avanti will announce third quarter 2016 trading update on Monday 16th May 2016. We reiterate our Speculative Buy stance and believe there is considerable upside.
1. 'EE selected to deliver critical new 4G voice and data network for Britian's emergency services' 10/12/2015
Bushveld Minerals (LON:BMN 2.45p) Speculative Buy
Yesterday Bushveld Minerals informed that its wholly owned subsidiary Bushveld Vametco Limited (BVL) had signed a share purchase agreement (SPA) with Evraz Group (Evraz) for the conditional purchase of Evraz's 78.8% economic interest in Strategic Minerals Corporation (SMC). SMC owns the producing Vametco vanadium mine and plant in South Africa (Vametco Alloys). The total consideration of the acquisition is US$17.2m and will be executed in two tranches of US$4.7m and US$12.5m. The deal is subject to shareholder and other regulatory approvals. The consideration payable is substantially less than the cost of a greenfield mine and plant of the same capacity.
Our View: The acquisition mentioned above bodes well for Bushveld Minerals which has a diverse portfolio of vanadium and titanium-bearing iron ore tin and coal assets in Southern Africa. The transformational acquisition achieves Bushveld's stated strategy to develop a significant vertically integrated vanadium platform and accelerates Bushveld's path to production by several years. Vametco Alloys is a high quality low cost producer with a patented vanadium product and a global vanadium customer base. The acquisition is aligned with the company's aspirations in the global energy storage space by providing capacity for potential electrolyte manufacturing. Although the commodity market's prospects do not look very promising a significant proportion of the current global vanadium production is unsustainable at current prices. We expect a sustainable price recovery in the medium to long term and that would definitely boost the company's prospects. A likely rebound in vanadium prices provides strong upside potential; therefore we assign a Speculative Buy rating on the stock.
Dignity (LON:DTY 2471.0p) Buy
Dignity the UK provider of funeral related services yesterday announced its trading update for 13 weeks ended 25 March 2016 ('Q1 2016). During the period revenue and underlying operating profit fell -5% and -13% to 81.2m and 31.1m respectively comparing to Q1 2015. This was due to exceptionally high number of deaths in 2015 compared to long term trends (+7% higher than the comparative period a highest rate of change in over 60 years). The number of death for the Q1 2016 was 156000 compared to 175000 in Q1 2015. On the operational front the Group has acquired one funeral location to 8 May 2016. Its CEO Mike McCollum commented 'I am pleased with the Group's performance in the first quarter which was consistent with our expectations and supported by surveys that continue to demonstrate the outstanding work being done by our staff. The Group's expectations for the full year remain unchanged'.
Our view: Dignity's Q1 2016 performance remains in line with the Board's expectations for the full year. Although at first sight the quarterly figures appear disappointing compared to last year it should be noted that the comparable period witnessed an exceptional surge in mortality numbers driven by dementia and Alzheimer's related deaths and respiratory diseases (including flu) among older people according to ONS. This year's reduced incidence effectively marks simply a return to trend which was already anticipated by the Board. Upon release of 2015 preliminary results (announced on 2 March 2016) the Group stated that based on long-term historical data there is a 'strong possibility the number of deaths in 2016 may be significantly lower than 2015 which in turn will affect 2016 pre-tax profit on the comparable period. On the other hand comparing the Q1 2016 figures with the more normalised numbers of Q1 2014 the revenue and underlying profit has each expanded by +18% and +21% respectively while number of deaths increased by +6%. The Board's current assumption remains that the number of deaths in 2016 will be broadly comparable to 2014 and as such it remains on track to deliver earnings per share of around +10% per year which remains the medium-term target level. Beaufort retains its Buy rating on the stock.
Wood Group (LON:WG. 605.50p) Buy
Yesterday Wood Group informed that the company has secured two new three-year contracts for delivering technical services and expertise to an international oil company (IOC) in Iraq. The contracts are collectively valued at over US$140m. As per the contracts the company would provide brownfield front-end engineering design detailed engineering project management procurement services system completion and commissioning support for operations. The company would also provide a start-up on a significant onshore asset in southern Iraq. The contracts will become immediately effective and create more than 100 new jobs. The contracts will be delivered from southern Iraq and Dubai where WGPSN established an office in 2015.
Our view: The twin contract wins have strengthened Wood Group's presence in the Middle East. The expansion of the company's operations in Iraq is likely to present new growth opportunities that would utilise Wood Group's broad service capabilities international knowledge and strong expertise. Aiming to build lasting customer relationships the company has established offices in Dubai and Iraq and is also looking to develop the company's workforce and supply chain partnerships in this area. Recently the company acquired Ingenious Inc a supplier of proprietary software and consulting services to the global chemical oil and gas and energy industries. Through this acquisition the company would gain strong manufacturing operations management (MOM) capabilities and build on and diversify its automation and control business. Moreover the recent acquisition of SVT Engineering Consultants has led to improvements in Wood Group's vibration dynamics and noise engineering services. We believe the recent acquisitions and contracts would contribute to Wood Group's growth prospects. Therefore we maintain a Buy rating on the stock.
Germany factory orders
German factory orders increased 1.9% m-o-m in March following a revised decline of 0.8% in February said the Federal Ministry of Economy and Technology. Economists had forecasted orders to increase just 0.6%. On y-o-y basis workday-adjusted factory orders jumped 1.7% in March after a revised increase of 0.7% in February compared to the economists' forecast of 0.1% rise.
Beaufort Securities