Initially buoyed by energy prices as crude oil firmed while tech stocks good found demand, the major averages then turned down following release of dull macro data and reports of Donald Trump Jr. apparently attempting to secure damaging information about Democratic rival, Hilary Clinton, in order to support his father’s 2016 Presidential campaign. The data itself confirmed wholesale inventories in May declined 0.5% from a month earlier, albeit up 6.2% from last year, with the ratio to sales falling to 1.29 from 1.34 for the same period in 2016, while the JOLTS Job Openings for the same period at 5.66m were also slightly below consensus of 5.95m and the weekly Johnson Redbook Index, which is a sales-weighted y-on-r same-store sales growth across a large sample of US merchandisers, also contributed to the day’s disappointing rendition, contracting 1.1% on the month. The mood turned again later in the session, however, as Senate Republican leader, Mitch McConnell announced a fortnight delay in the August recess in order to agree proposed legislation and nominees, suggesting that finally significant progress was being made in moving the Republican’s market friendly agenda forward. After a day of high volatility, this was sufficient to drive each of the principal indices back to virtually unchanged by the close and ahead of the Fed Chair’s semi-annual Congressional Testimony. Janet Yellen will be before the House Financial Services Committee today at 15:00hrs BST before going onto the Senate Banking Committee tomorrow. Her comments could have significantly influence on expected timing for the next interest rate move, quantitative easing and prospective shrinkage of the Fed’s balance sheet ahead of the Central Bank's monetary policy meeting later this month. investors are still expecting the U.S. Central Bank to hike rates at least one more time this year, but while US$ bulls are counting on continued hawkishness the Fed’s present ‘wait-and-see’ approach suggests the move could well be pushed into the fourth quarter. Few other features were apparent amongst individual companies, although gold stocks build further on Monday’s gains with the BUGS index ending up 0.54% as the precious metal drifted higher on rising political tensions. The 10-year U.S. Treasury yield again declined marginally to 2.354%, from 2.371% on Monday. Gains for both the Yen and Australian Dollar applied pressure on the Nikkei and S&P/ASX 200 during this morning’s trading; Australia’s heavily weighted banks in particular found themselves in the firing line, with several tumbling over 1%. By contrast, the major Chinese banks quoted on the Hang Seng ensured the index stood out as the day’s only riser amongst the major regional markets, while the more domestic Shanghai Composite gave back early gains to end fractionally down. European bourses also gave up their early strength yesterday, turning negative by mid-morning and tumbling further during afternoon trading following the cautionary US macro and political releases. The STOXX 600 closed 0.65% lower, with all its local markets ending similarly in the red. The FTSE-100 Index was down by 0.55%, as Pearson shares dropped sharply in response of its sale of 22% in Penguin Random House for US$1 billion in order to recapitalise the business, while Marks & Spencer dropped after a disappointing update. Amongst FTSE-250 shares, Carillion dived again following Monday’s trading update and CEO resignation. UK macro releases scheduled for today include the ILO Unemployment Rate and Average Earnings figures for May, while later in the evening the RICS Housing Price Balance for June is due. The EU also posts May Industrial production figures, while the US offers weekly MBA Mortgage Applications, just before Mrs Yellen speaks, followed by EIA Crude Oil Stocks change numbers and the Fed Beige Book. UK corporates scheduled to release earnings or trading updates include Barratt Developments (BDEV.L), Burberry Group (BRBY.L), Micro Focus (MCRO.L), Robert Walters (RWA.L), JD Wetherspoon (JDW.L), NEX Group (NEX.L) and Xaar (XAR.L). With EU tensions rising as Foreign Secretary Boris Johnson call’s the Bloc’s demands to settle outstanding commitments upward of €68bn “extortionate”, traders are looking to next week’s talks for evidence of some progress; ahead of this market focus will remain on Janet Yellen’s testimony to Congress this afternoon following the Fed’s Lael Brainard suggesting in a speech yesterday that she sees the Central Bank’s balance sheet run-off commencing “soon”. Riding on the back of a better than expected US close, the FTSE-100 is seen recovering most of yesterday’s losses on the open, rising around 30-35 points in early trading.
The FTSE-100 yesterday's session 0.55% lower at 7,329.76 whilst the FTSE AIM All-Share index was down 0.44% at 954.45. In continental Europe, the CAC-40 finished down 0.48% at 5,140.60 whilst the DAX finished 0.07% lower at 12,437.02.
In New York last night, the Dow Jones was largely flat at 21,409.07, the S&P 500 fell 0.26% to 2,425.53 and the Nasdaq added 0.27% to 6,193.31
In Asian markets this morning, the Nikkei 225 had fallen 0.51% to 20,092.51, while the Hang Seng firmed 0.78% to 26,079.56.
In early trade today, WTI crude was up 1.71% to $45.81/bbl and Brent was up 1.52% to $48.24/bbl.
Lloyds ends fees for unplanned overdrafts
Fees for unplanned overdrafts are to be scrapped for the 20 million customers of Lloyds Banking Group, which includes the Halifax and Bank of Scotland. From November this year, any customer going over their overdraft limit will face no fees at all, Lloyds said. However, the bank may continue to block payments from the account until the overdraft is paid off. It follows criticism of high charges by consumer groups and the Competition and Markets Authority (CMA). The Financial Conduct Authority (FCA) is also expected to propose measures on overdraft fees within the next few weeks, as part of its inquiry into high-cost creditPreviously Lloyds customers taking out unauthorised overdrafts faced interest payments at an annual rate of 19.89%, a daily charge of up to £10, the monthly charge of £6, and up to £30 a day for returned (unpaid) items. These will all now be abolished. Fees for missed payments from basic bank accounts will also disappear. Lloyds said that it expected to make less money as a result of the changes, although it said fewer people now use an unauthorised facility than used to be the case. As well as scrapping charges for unplanned overdrafts, Lloyds is also simplifying fees for planned overdrafts, making it cheaper for many customers to borrow. Those with overdrafts of less than £500 are likely to pay less, while those borrowing more than £1000 are likely to see higher charges.
Katoro Gold (KAT.L, 3.38p) – Speculative Buy
Katoro Gold, the Tanzania focused gold exploration and development company, announced today an update on its Imweru drill programme. The infill drilling programme continues ahead of schedule and below budget. As a result, the scope of the Imweru development plan has been expanded to include commissioning of a full environmental and social impact assessment study (ESIA). In addition, the proposed drill programme has been expanded by 2,000m from the original 1,400m and is 75% complete. Metallurgical samples required for the Imweru Feasibility Study are currently being exported under the new Tanzanian mining rules samples will be sent to South Africa for analysis. The Imweru gold deposit has a JORC-compliant mineral resource estimate of 515,110oz of gold comprising 82% in the Inferred and 18% in the Indicated categories.
Our View: Whilst the Tanzanian Government continues to receive a lot of negative attention regarding significant changes to its mining code and the current ban on exports of gold concentrate, we note 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. We look forward to results from the assay and metallurgical samples as Katoro works through the pre-feasibility study on Imweu project. In the meantime, we maintain a Speculative Buy recommendation on the stock.
Mineral & Financial Investment Limited (MAFL.L, 13.00p) – Speculative Buy
Mineral & Financial Investment (MAFL), the metals and mining focused investment company, announced today that TH Crestgate, a private investment company in which MAFL holds a 49% interest, has released another batch of assay results from its 2017 drill programme designed to expand the current resource at the Lagoa Salgada project in Portugal. The 13,400ha Lagoa Salgada project is a polymetallic deposit with a preliminary resource estimate of 4.5Mt grading 2.79% Pb, 2.85% Zn, 0.34% Cu, 53.43g/t Ag and 0.81g/t Au for the LS-1 Zone. The second of six planned drill holes (LS MS-02) intersected 105m grading 10.24% Zn Eq., including 20m grading 20.10% Zn Eq. TH Crestgate has an exploration target of between 8.0Mt and 10.0Mt on the LS-1 Zone. In addition to the LS-1 Zone, Lagoa Salgada hosts at least 16 other gravimetric anomalies which have yet to be fully tested.
Our View: We continue to be encouraged with the significant assay results from the second drill hole of the current drilling campaign which suggest that Lagoa Salgada is a large mineralised system with potentially numerous ore zones. The first two drill holes have intercepted thicker mineralised zones than expected and we note that LS MS-02 is mineralised from 150m to bottom of the hole at 280m with an average Zn Eq. grade of 7.79%. These results bode well for an expanded resource targeted between 8Mt and 10Mt. We look forward to further drill results and the subsequent resource update for the LS-1 Zone. In the meantime, we maintain a Speculative Buy on the Stock.
Xtract Resources (XTR.L, 2.88p) – Speculative Buy
Xtract Resources announced yesterday that its wholly owned subsidiary Explorator Limitada has agreed to a second mining contractor agreement with Sino Minerals Investment on its Manica alluvial mining concession in Mozambique. The agreement will focus on the eastern half of the alluvial deposit on the Manica licence which has reported grades of 0.5g/t Au. Under terms of the agreement, Explorator will be entitled to 25% of the gold mined which amounts to 19% after Appling the Mining Production Tax. Initial mining is expected to take place no later than 15 October 2017 with a minimum output of 200t per hour and a further 200t per hour to be achieved by 15 January 2018. Based on a gold price of 1,250/oz and grades of 0.5g/t, the initial monthly income is expected to be no less than US$160,000 and then increasing to US$320,000 once the plant is fully operational.
Our View: The above announcement is more good news following on from the recently announced agreement for the western half of the Manica alluvials. Taken together, the expected monthly revenues could be significant. As such, this could provide a solid platform for the Company whilst it continues to evaluate the potential development of the Manica hardrock deposit. We look forward to further updates on the hardrock project as well as initial alluvial mining which is expected to begin in September on the western half followed by mining on the eastern half in October. In the meantime, we maintain our Speculative Buy rating on the stock.
Galliford Try (GFRD.L, 1,261.00p) – Buy
Galliford Try, the housebuilding, Partnership & Regeneration and Construction group, yesterday provided a trading statement for the year ended 30 June 2017 (‘FY2017’). The Group confirmed that both financial and operational performance across its three business was strong that it guides FY2017 pre-tax profit to be at the upper end of the £46m to £59m analysts’ forecast range. Net cash at period end will be below £10m against net debt of £9m last year (FY2016), with average net debt expected to be lower than previous guidance at below £250m. The Group expect to pay final dividend in line with previous guidance. Linden Homes division is expected to report a strong performance, particularly as growth has accelerated in the H2. Total completions (including units in joint ventures) increased by +7% to 3,296 units (2,876 units net of its partners' shares) at FY2017 (FY2016: 3,078 and 2,691 units respectively). Margin has improved as a result of product standardisation and operating efficiencies. In H2, average sales rates increased to 0.68 units per site per week (H1 FY2017: 0.56) despite from a reduced average number of outlets of 77 (FY2016: 80), while average private sales price rose by +6% to £354,000. Partnerships & Regeneration division also expect to report increase in both revenue and margin supported by growth in higher-margin mixed-tenure projects. The recently acquired mixed-tenure developer, Drew Smith is expected to deliver accelerated growth across the southern region. Construction division performed well for the newer contracts. As announced before, the Group said non-recurring costs of £98m from two large legacy contracts will impact the division’s performance this year, while reducing the Group’s cash position to £136m (FY2016: £160m). The division no longer undertakes these types of fixed-price contracts on large infrastructure projects. Galliford Try’s CEO, Peter Truscott, commented “Galliford Try made excellent operating progress in the financial year…all three businesses have clearly defined plans to improve operating efficiency and grow revenue and margins, providing the Group with confidence in its ability to deliver a strong performance even in a period of lower growth in the wider economy”. The Group is scheduled to announce its final results on 13 September 2017.
Our View: A positive and confident update from Galliford Try. With its FY2017 having ended, the Group confirmed that its pre-tax profit for the year will be at the upper end of the £46m to £59m consensus forecasts. All divisions performed strongly with Linden Homes and Partnerships & Regeneration expected to deliver increased revenue and improved operating margins, while newer contracts in Construction are performing well. Looking ahead, the Group reiterated its guidance for FY2018 with margin improvement for both Linden Homes and Construction expected, while Partnerships & Regeneration remain beneficially of the healthy demand for affordable housing. Volumes for Linden Homes are also expected to improve further over the year. A forward order book for Linden Homes amounts to £373m at 30 June 2017 (FY2016: £380m) with all land plots already secured for FY2018 and 83% secured for FY2019. In line with its strategy, the Group limits its landbank to 3.5 years (10,650 plots) while increased strategic land assets. Partnerships & Regeneration division recorded contracting order book at the period-end of £1.05bn, up +23.5%, with landbank of 2,700 plots (FY2016: 2,700). The Construction division has started the new year with a “high quality” order book of £3.5bn (FY2016: £3.5bn), predominantly in the public and regulated sectors, which stands at 84% of projected revenue for FY2018 (FY2016: 82%). The Group also confirmed that it is well positioned to deliver against its 2021 strategic targets. Galliford’s business model fits well with the expectation that the UK government will seek to ramp-up the build-out of social housing, both for sale and rental, in an effort to alleviate the nation’s obvious housing shortage. With all three of the Group’s division now seemingly firing on all cylinders, the significant hit on the shares since May’s announcement detailing major provisions of historic problem Construction contracts has made the shares look too cheap relative to its sector peer. Even after yesterday’s 8% share price spike, a FY2018E P/NTAV of 1.95, a P/E of 7.2x and a yield of 7.7%, there is still some way to go. Beaufort repeats its buy recommendation on Galliford Try with a price target of 1450p/share.
During the three months to end-June 2017, the number of stocks on which Beaufort Securities published recommendations was 195, and the recommendations were as follows: Buy - 73; Speculative Buy - 109; Hold - 11; Sell - 2.