The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 21-points higher.
New York: Wall Street ended in the green amid positive views on the Fed's policy announcement. A rally in commodity and oil prices led to gains in basic resource stocks. The S&P 500 advanced 0.7%, with the materials sector gaining the most.
Asia: Equities are trading mixed as the US dollar weakened and investors sought riskier assets. The Nikkei 225 fell 1.3%, as a stronger yen led to a sharp decline in export-driven stocks. The Hang Seng was trading 0.6% up at 7:00 am, tracking the Chinese market.
Continental Europe: Markets ended in the red, as the strengthening of the euro hurt export stocks. Furthermore, losses in banking stocks countered the surge in oil prices. Germany’s DAX and France’s CAC 40 shed 0.9% and 0.5%, respectively.
Crude Oil: Yesterday, WTI and Brent oil prices increased 4.5% and 3.0%, respectively. The spread between the two varieties stood at US$1.3 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.70% lower yesterday at 705.25.
Today's news
Bank of England maintains bank rate
The Monetary Policy Committee of the Bank of England (BoE) retained its benchmark interest rate at 0.5%, with 9-0 votes in favour of maintaining rates. The reading has remained same since March 2009, and matched market expectations.
Company News
Cyan Holdings (LON:CYAN, 0.15p) - Speculative Buy
Yesterday, Cyan Holdings informed it raised £450,000 through the issue of 250 million ordinary shares of 0.01p each at a price of 0.18p per share. The issue represents a 20% premium to the closing mid-market price of 0.15p on 16th March 2016. The company received confirmation from HMRC about subscription shares qualifying for EIS tax relief under its existing EIS headroom of up to £12.6m. Cyan would make an application for the subscription shares to trade on AIM where it is expected to be admitted for trading on 23rd March 2016. The shares would rank pari passu in all aspects with the company's existing ordinary shares. Following the admission of these shares, Cyan's issued share capital would total 7.1 billion ordinary shares of 0.01p each.
Our view: The aforementioned funds raised would meet Cyan's working capital requirements. Investors subscribing to the shares would also get EIS tax relief for investments in Cyan. The company performed strongly in 2015, as it strengthened relationships with existing partners through repeat orders and established new commercial partners across target markets. Cyan entered the Chinese smart metering market in December 2015 via a partnership agreement with Newcapec Electronics Company Limited. This is to seek opportunities following the release of China's Ministry of Industry and Information Technology 12th Five-Year Development Plan in 2012, which sets a goal of scaling the IoT market to US$163bn by 2020. The company's existing financial resources sufficiently support its near-term prospects. In light of the above argument, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Cyan Holdings plc
Keras Resources (LON:KRS, 0.83p) - Speculative Buy
Keras Resources announced yesterday that it has completed its first blast at the Anomaly 22 project, located within the Grants Patch Gold Tribute lease area. Mining is expected to commence during the week of 21 March 2016 as part of an initial bulk sample of up to 10,000t in order to confirm grade continuity, mining practices and ore delivery to the Paddington Mill. Revenues from the toil milling agreement with Norton Gold Fields remains on track for Q2 2016.
Our view: Keras has, in less than four months, advanced the Grants Patch gold tribute project to a point where it expects to begin mining imminently. We look forward to the commencement of gold production from the existing Grants Patch and Wycheproof tribute mining agreements as well as the revised mining proposal from the recently signed agreement on the Lindsay's Project. In the meantime, we maintain our speculative buy on the stock.
Beaufort Securities acts as corporate broker to Keras Resources plc
Sirius Minerals (LON:SXX, 16.25p) - Speculative Buy
Yesterday, Sirius Minerals published its findings from the definitive feasibility study (DFS) at North Yorkshire polyhalite project. The DFS defines a framework for a production capacity of 20 million tonnes per annum (Mtpa), with initial installed capacity of 10Mtpa. The project’s NPV stands at US$15bn at a discount rate of 10% as of today. While NPV would increase to US$27bn as production commences, the project’s after-tax debt-free internal rate of return (IRR) would be 26%. The annual operational EBITDA is expected to be US$1-3bn per year, depending on volumes and price. Cash margins are estimated at 70-85%, while average cash operating costs are estimated at US$27.20 per tonne. To install a capacity of 10Mtpa, financing of US$3.56bn is to be obtained in two tranches — US$1.63bn in the first stage and US$1.93bn in the second. The company expects to start output in 2021 and reach capacity for its first phase in 2023.
Our view: Sirius finally publishes its much awaited DFS on the York Potash project. The project has a JORC-compliant probable mineral reserve of 250 million tonnes of 87.8% polyhalite. The results of the study have been encouraging, with increased capacity, good NPV and enhanced IRR. The expected costs involved in the project are low and margins are high. The company plans to implement three phases of volume growth starting with the initial installation of a capacity of 10Mtpa. This would be followed by expansion up to 13Mtpa to utilise the hoisting capacities and to the current approved production level and finally to 20Mtpa. Meanwhile, Sirius has initiated the selection process of preferred tenderers. Recently, Sirius signed a major take-or-pay offtake agreement with Huaken International (Huaken) in China to purchase polyhalite generated from the project. This is in addition to the renewal of its take-or-pay supply contract with one of its agribusiness customers supplying 1.5 million tonnes of polyhalite per annum. These contracts confirm that Sirius supplies high-quality polyhalite. In light of the overall optimism, we maintain a Speculative Buy rating on the stock.
CityFibre Infrastructure Holdings (LON:CITY, 51.50p) - Speculative Buy
Yesterday, CityFibre Infrastructure Holdings (CityFibre) informed that it has been selected by Southend-on-Sea Borough Council to build a 50km future-proof dark fibre network connecting 120 key public sector sites throughout the town. The deal is worth £3.24m. As per the contract, CityFibre would provide scalable, ultra-fast connectivity to underpin the Council's ambitious digital strategy and make Southend CityFibre's latest Gigabit City.
Our view: CityFibre continues to expand its order book with a contract from the Council. The new infrastructure would allow the Council to deliver cost-effective and efficient digital public sector services and nurture business growth and inward investment. Of late, the company has sought acquisitions and partnerships to widen and strengthen its market position. Earlier this month, CityFibre signed an agreement with Updata Infrastructure to provide the latter with its existing national network infrastructure as a platform for public sector and enterprise customers. Furthermore, CityFibre acquired the infrastructure assets of KCOM Group. The acquisition provides the company an opportunity to establish its presence in 21 new markets across the UK. The company won its first contract under the master services agreement with Vodafone Limited to provide its pure fibre connectivity to the latter’s customers. CityFibre is well-placed with some impressive contracts, national-level partners and joint venture with the UK’s leading broadband service providers to cover a large customer base. Therefore, we maintain a Speculative Buy rating on the stock.
Imperial Innovations (LON:IVO, 420.0p) - Buy
Imperial Innovations (‘Imperial’), an investment company working with universities in London, Cambridge and Oxford, yesterday announced that portfolio company TopiVert Pharma Ltd (‘TopiVert’) has received a positive Phase I study results for TOP1288, its lead compound for the treatment of ulcerative colitis (‘UC’), a general inflammatory disease that affects the large bowel. The Phase I study results showed an excellent safety and tolerability profile in healthy volunteers and with only minimal systemic exposure for TOP1288, supporting the concept that Narrow Spectrum Kinase Inhibitors (‘NSKIs’) has the potential to produce sustained effects in mucosal tissues after local administration, but without the undesirable side-effects often seen in UC patients treated with systemically available therapies. TopiVert is a clinical-stage biotechnology company developing NSKIs where Imperial has 30.6% interest (or net fair value of £7.5m). TopiVert expect to start Phase II proof-of-concept study with a rectal formulation of TOP1288 in UC patients in mid-2016, with results anticipated by mid-2017.
Our view: TopiVert continues to make good progress, having received positive results from TOP1288 after commencing Phase I study in May last year. The development of this topical treatment may provide solution to the patients of ulcerative colitis without any systemic side effects. Since its formation in December 2011 through a £8m investment from Imperial and SV Life Sciences, TopiVert has added strong investors including NeoMed and Johnson & Johnson. In addition, TopiVert plans to start the clinical development of TOP1630, its candidate for dry eye disease, in early 2017. On 4 February 2016, Imperial successfully raised £100m (before expenses) by placing 23,529,412 new Ordinary Share at 425p each, c.8% premium mid-market closing price of the Group's Ordinary Shares on 3 February 2016. The new funding will allow Imperial to invest further in existing portfolio companies thereby allowing it to avoid dilution, while also adding new companies to build its pipeline for long-term value creation. Imperial invested £21.2m in its portfolio and added five new companies to its portfolio in the first five months of FY2015/16, compared to six in the whole of the previous year. We are encouraged with TopiVert’s progress and continue to believe Imperial can maintain its growth momentum and has opportunity to further enhance shareholders’ returns. Beaufort maintains its Buy rating on the stock.
Hutchison China Meditech (LON:HCM, 1,905.0p) - Buy
Hutchison China Meditech (‘Chi-Med’), the China-based healthcare group, yesterday announced the pricing of its US public offering of American depositary shares (‘ADSs’), raising gross proceeds of approximately US$101.25m. 7,500,000 ADSs were sold in the Offering at a price of US$13.50 per ADS, and the offering price is thus equivalent to approximately £19.42 per ordinary share (on the basis of an assumed exchange rate as quoted in the preliminary prospectus of £1.00 to US$1.39). Each ADS represents one-half of one ordinary share of Chi-Med. The ADSs have been approved for listing on the NASDAQ Global Select Market and are expected to begin trading on March 17, 2016. In addition, Chi-Med has granted the underwriters a 30-day option to purchase up to an additional 1,125,000 ADSs at the Offering price. Closing of the Offering is expected to occur on or about March 22, 2016, subject to customary closing conditions. Bank of America Merrill Lynch and Deutsche Bank Securities are acting as joint global coordinators and joint book runners for the Offering. Stifel, Canaccord Genuity, Panmure Gordon & Co. and CITIC CLSA are acting as co-managers for the Offering.
Our view: As promised, Chi-Med has announced details of its NASDAQ quotation yesterday. The slight fall in Hutchison’s London share price yesterday simply reflected equalisation with the ADS’s discounted placing pricing of c.£19.42. A listing on NASDAQ will introduce greater US analyst coverage and might be expected to boost its valuation, given that the US typically comprehends and values the risk entailed in early stage Biotech & Pharma development projects better than the London market. We believe Chi-Med is capable of sustaining its momentum to grow both in China and globally. Beaufort maintains its Buy rating on the stock.