"London equities remain preoccupied by the forthcoming EU referendum plus newer concerns regarding the health of the global economy. The FTSE-100 is set to open some 25 points lower in early trade following the down-trend that knocked the US overnight (despite Microsoft's surprise US$26bn swoop on LinkedIn) and morning trade across Asia. Falling US government bond yields along with the strengthening 'safe harbour' Japanese yen highlighted investor doubts, compounded by multiple uncertainties including central bank policies, the market reaction to Chinese equities prospective inclusion in the MSCI Emerging Market Index and the impact of an upcoming UK vote, all of which potentially triggers a period of significantly higher volatility for EUR/US$. With the US FOMC interest rate meeting on Wednesday, followed by Japan's monetary policy meeting on Thursday, some of the questions will be answered this week. More will be provided on June 23rd. Until then, the markets are braced for some difficult sessions. Data watchers should anticipate UK inflation figures, house price index and producer prices this morning, while the EU releases industrial production figures. This afternoon, the US Federal Open Market Committee meeting gets underway. No major UK corporate results are due today."
- Barry Gibb, Research Analyst
The FTSE-100 finished yesterday's session 1.16% lower at 6,044.97, whilst the FTSE AIM All-Share index closed 1.24% worse-off at 730.42. In continental Europe, markets ended in the negative territory as fear of the UK withdrawing from the EU weighed heavily on investor sentiment. Additionally, falling bond yields exerted pressure on banking stocks. Germany's DAX and France's CAC 40 shed 1.8% each.
Wall Street ended in the red as investors remained concerned about Britain's vote on its European Union (EU) membership. Investors await the policy meetings of the US Fed and Bank of Japan. The S&P 500 fell 0.8%, with the materials sector leading the laggards.
Equities are trading lower, tracking losses in the global markets. Investors await the policy decisions of central banks and Britain's vote on its EU membership. The Nikkei 225 fell 1.0%, dragged by losses in financial stocks. The Hang Seng was trading flat at 7:00 am.
Yesterday, WTI and Brent oil prices declined 0.4% each. The spread between the two varieties stood at US$1.5 per barrel.
ECB may cut interest rates in 2016: S&P
According to Standard & Poor's (S&P), the European Central Bank (ECB) could reduce the deposit rate further if the US Fed decides to maintain its interest rate. The agency stated ECB's failure to meet the inflation target may also lead to an interest rate cut. The ECB dropped the deposit rate to -0.4% earlier this year.
Bushveld Minerals (BMN.L, 1.98p) - Speculative Buy
Bushveld Minerals, a diversified mineral development company with a portfolio of vanadium, iron ore, tin and coal assets in Africa, announced yesterday the signing of a cooperation agreement between its energy subsidiary, Bushveld Energy, and the Industrial Development Corporation of South Africa (IDC). Under terms of the agreement Bushveld Energy will partner with IDC to determine the economic viability of vanadium redox flow batteries (VRFB) for use and manufacture in South Africa. Accordingly, the partners will commission a feasibility study to determine: 1) VRFB viability and costs including market potential studies for VRFB use in South Africa and Africa, 2) identify potential local and foreign partnerships in support of roll-out and local manufacturing, and 3) establish two VRFB verification sites of up to 1.0 WM each in South Africa to demonstrate performance in commercial and utility applications.
Our view: The above announcement is an important first step in developing a sustainable energy storage industry for South Africa. Given the chronic shortage of power in South Africa coupled with increasing demand there exists is an opportunity for mass-scale energy storage applications across several industries throughout the country. We also note that South Africa is a leading global vanadium producer and exporter that offers a logical base for VRFB manufacturing. We believe that the vanadium energy storage market could potentially disrupt the global vanadium supply. Bushveld offers investors leverage to rising vanadium prices with its recent acquisition of the Vametco vanadium mine in South Africa. We believe vanadium prices will continue to recover in the near term due to production curtailments from high cost producers. As such, we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Bushveld Minerals plc
Petropavlovsk (POG.L, 8.25p) - Hold
Yesterday, Petropavlovsk informed that it is holding talks about the potential to acquire gold assets lying in the Far East region of Russia from its largest shareholder. On 28th April 2016, Petropavlovsk, along with its subsidiaries, entered into an agreement with Russia's Alliance Mining Group and Lexor Group SA to acquire Amur Zoloto (AZ), a gold company with production and development assets in the Khabarovsk region. Petropavlovsk, Alliance Mining and Lexor are now holding talks to include the acquisition of additional gold assets, which are owned by the London-listed company's largest shareholder. Renova Group, a Russian conglomerate that focuses on various natural resource sectors, is the largest shareholder in Petropavlovsk with a 14.76% stake.
Our view: The news is a positive development for Petropavlovsk. The company plans to initiate the acquisition of both AZ and Kamchatka Gold, and put these plans before shareholders for approval. The inclusion of the entities would enable Petropavlovsk to expand its resource and potential base. We appreciate the company with regard to the steps taken to improve its prospects. Nonetheless, Petropavlovsk's exposure to volatile gold price environment cannot be ignored. Considering the mixed outlook, we reiterate a Hold rating on the stock.
UBM (UBM.L, 560.0p) - Buy
Yesterday, UBM announced that the Department of Justice (DOJ) had filed for clearance for the proposed sale of PR Newswire to PWW Acquisition. DOJ filed its proposed settlement under the Hart-Scott-Rodino (HSR) Antitrust Improvements Act of 1976. UBM expects the government to grant early termination of the HSR Act waiting period shortly, which would subsequently permit the parties to close the transaction.
Our view: The DOJ filing for clearance for the sale of PR Newswire is a positive development for UBM. Earlier this month, UBM agreed to divest its electronics media portfolio to an affiliate of Arrow Electronics, Inc. This bodes well for UBM's Events First strategy. The move would enhance the alignment in its portfolio of events and other marketing services. In addition, UBM acquired Content Marketing Institute, which further strengthened its position in the US events industry. Content marketing is an exciting sector, which complements UBM's presence in the technology sector. Recently, UBM released a trading update and stated that its performance was in line with expectations for the year to date (18th May). Large events such as Game Developers' Conference, MAGICVegas, Enterprise Connect, MD&M West and Hotelex/FineFoods continue to drive performance. The company progressed further by integrating the Events First strategy with its new customer relationship management (CRM) platform; its savings from procurement remain on target. The integration of the recently acquired Business Journals, Inc. is underway. Considering the developments surrounding UBM, we maintain a Buy rating on the stock.
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Barry Gibb, Harry Stevenson, Sheldon Modeland & Charles Long
(t) +44 (0) 207 382 8384
During the three months to end-May 2016, the number of stocks on which Beaufort Securities has published recommendations was 332, and the recommendations were as follows: Buy - 127; Speculative Buy - 156; Hold - 49; Sell - 0.
Full definitions of the recommendations used by Beaufort Securities in its publications and their respective meanings can be found on our website here.