SP Angel . Morning View . Friday 20 03 20
More drastic quarantine measures raise economic costs of the pandemic
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PolyMet Mining (PLM N) - Polymet agrees US$30m financing with Glencore
Resolute Mining (RSG LN) – US$300m debt refinancing
Vast Resources* (VAST LN) – Shipments of Baita Plai equipment continue
From our Healthcare team Vadim Alexandre and Liam Gascoigne-Cohen:
Teva Pharmaceutical donating over 6m doses of hydroxychloroquine sulfate tablets
Roskill: Chinese metals and mining activity showing a rapid recovery
- Despite the number of coronavirus cases rising rapidly in recent days and now at the 6000-7000 a day mark, on Wednesday China confirmed it had no new domestic cases for the first time since the outbreak began.
- Metals production is resuming rapidly, with alumina producers in Shandong province are reportedly back producing at normal levels.
- Over 80% of Chinese steel mills are back in operation.
- The new risk to the Chinese economy is disruptions to external trade as the virus begins to peak in various European countries, causing downstream demand for Chinese metal products to plummet.
- This is a view shared by analysts at ING, who maintain the view that the metals market 'has yet to hit bottom'. This is in part driven by the supply growth of metals not slowing to mirror the sharp fall in demand.
- Another consequence of the mismatch between supply and demand is that LME base metals inventories have steadily risen as the virus has spread throughout the world.
- Last week, LME copper inventories were at almost 190,000t, up from less than 125,000t in mid-January. Similarly, nickel inventories climbed from 156,000t at the start of January to 235,000t at the end of February (Small Caps).
Expect deeper economic impact than 2008 but with rapid recovery as economies return to normal
- The developing economic crisis looks like a rerun of 2008 though it has much greater and wide ranging impact.
- The Coronavirus has the potential to suspend every manufacturing plant and office in the world as the virus works its way through the population.
- Governments are slowing the spread of the virus so as to allow their healthcare systems to catch up but this risks more problems with the economy.
- Saving lives is the precedent and politicians want to show that they care but policymakers also recognise the devastating impact of economic crisis.
- China called it a day after fighting the disease after about 8-10 weeks. It’s difficult to really know when China really started to clamp down on the Coronavirus.
- China claims no new Coronavirus cases but many suspect that this is not really true and is part of their justification for rebooting economic growth.
- While Wuhan is recovering from the crisis movement is still restricted and many other states are still working to contain virus spread.
- Business and investors want to get consumption and production back to normal ASAP while not seeming unsympathetic to the emotional impact of the crisis.
We Expect this phase of the Coronavirus pandemic will be over in 8-12 weeks in the UK
- New drugs for treating the Coronavirus are being identified:
- Japanese drug favipiravir, which is already approved is effective.
- Remdesivir an experimental Ebola drug may also work but is not approved.
- The first Covid-19 vaccine in China is expected to be ready for clinical trials at end April. China says chloroquine has lethal side effects if dose is accidentally doubled.
- Other vaccines are already being trialled and will be fast tracked for approval
- If the coronavirus spreads faster than the NHS can manage, which is probably inevitable, then there will be greater casualties but maybe a shorter epidemic in the UK.
- Government action should limit the economic consequences and companies which are loyal to their staff should recover faster as the nation returns to a new normal.
- We hope a number of vaccines and treatments will be available to limit the impact of any second potential wave of the virus as was seen with the Spanish flu (H1N1).
Stimulus funding relating to the Coronavirus (Updates in bold, figures converted to US dollars)
- $1,000bn - IMF available
- $900bn – US Stimulus – going through Congress inc $50bn in the form of low-interest loans to companies in affected areas through the Small Business Administration.
- $963bn (€750bn) ECB no limits for Action for Europe. QE through bond purchases inc $28.3bn (€25bn) from the EU inc. $120bn - ECB increased bond purchases + ECB – targeted loans to companies at an interest rate of -0.75%
- $700bn – US + Fed rate cut to 0-0.25% last night. The $700bn QE program is to buy Treasuries and mortgage-backed securities. The program in two parts $500bn + $200bn
- $242bn (£200bn) UK QE from Bank of England.
- $400bn (£330bn) UK - Government-backed loan scheme. New business interruption loan scheme up to £5m with no interest. Will add whatever is required in COVID-bill
- $39m – UK (£30bn) stimulus + $29bn (£20bn) – UK No business rates plus £25,000 cash grants for shops, pubs, clubs in hospitality sector inc. $5bn (£3.5bn)
- $383bn (€300bn) – France - loan guarantees for French business inc. $50bn (€45bn) + France to also pay half wages for employees in affected firms
- $200bn (€200bn) – Spain
- $127.2bn China - China stimulus was $586bn in 2009 to rescue itself and the global economy. This time it is simply lowering lending rates slightly and made $77bn of new loan capacity at banks
- $15.4bn – Hong Kong relief package
- $13.7bn South Korea, $12bn World Bank, $10bn Australia, $10bn Switzerland, $8.4bn Italy, $17.4bn Japan, $7bn NZ, $3.5bn Ireland, $2bn Taiwan, $0.75bn Indonesia,
- $5.58tr – TOTAL stimulus offered to-date vs G20 GFC stimulus of ~$2 trillion or 1.4% of global GDP (ILO, EU, IILS)
Cannabis sales jump in the US as more people ‘work from home’
- We suspect allot of Pot smokers will not be available for calls at 4:20pm.
- See Urban Dictionary for the 4:20pm explanation
Dow Jones Industrials
HK Hang Seng
FTSE 350 Mining
AIM Basic Resources
US – The Fed increased supply US$ liquidity to a number of countries through expanded swap lines as the US$ index climbed to a three year high.
- The central ban would provide $60bn each in dollar liquidity to monetary authorities in Australia, Brazil, South Korea, Mexico, Singapore and Sweden.
- Additionally, $30bn each will be offered to Denmark, Norway and New Zealand.
- “These facilities, like those already established between the Federal Reserve and other central banks, are designed to help lessen strains in global US dollar funding markets, thereby mitigating the effects of these strains on the supply of credit to households and businesses, both domestically and abroad,” the Fed said.
- Lawmakers are debating the proposed $1tn emergency economic aid package that would include direct payments to Americans under a certain income threshold, $200bn in loans to airlines and distressed industry sectors and $300bn in bridge loans to small businesses.
- US Initial Jobless Claims Mar 14: 281K (est. 220K)
- US Continuing Claims Mar 7: 1701K (est. 1738K)
Bank of America forecasts collapse of 12% in US GDP for Q2
- BoA is also forecasting 0.5% GDP growth in Q1
- The bank expects to see growth return in Q3 and an overall 0.8% contraction for the full year.
New York Stock Exchange floor closed as traders test positive for Coronavirus
- While many in the US are taking the virus seriously there are many more who are not.
- We suspect the US will have a tough time of this due to obesity and other health issues.
California goes on quarantine with 40m residents ordered to stay at home unless required to make essential trips.
- Los Angelis mayor issues emergency order ordering all residents to ‘stay inside their homes and immediately limit all nonessential movement’
- The state with the fifth world’s largest economy is the first the one in the US to announce such drastic measures.
- The deadline is uncertain with preliminary estimates pointing to an eight week period.
- The virus infected 675 Californians and killed 16 people as of March 8.
Amazon coronavirus case shuts down NY delivery station for deep clean
- The situation highlights the logistical impact of coronavirus cases in supply chains.
- Expect to see substantially more disruption as more cases develop.
China – Authorities claimed the nation recorded none domestic new cases of coronavirus with all new 39 infected people reported to have travelled to China from abroad.
- “The number of imported cases in China has further increased, and so the pressure to be on guard has also increased,” an official of the National Health Commission said.
- Premier Li Keqiang says no effort will be spared to help small firms survive with fiscal and monetary policies should be more targeted to small companies (Reuters)
UK – The central bank cut rates yesterday by 15bp to 0.1% and increased bond purchasing programme by £200bn to £645 bn in an emergency move to support the waning economic growth.
- Yields on government debt dropped and continued to slide this morning with two year gilt yields back in the negative territory.
- Expectations building up for the Chancellor to announce another stimulus package to help companies retain stuff through the crisis.
Australia - BHP to hire 1,500 workers to support its Australian workforce
- The jobs will be offered as six-month contracts to cover a range of skills required, and afterwards BHP will look to offer some permanent roles.
South Africa Central Bank Cuts Rates By 100Bps To 5.25% (est 50bps cut)
- South Africa also cuts Repo rates by 100bp.
- SARB Statement:
- 2020 core Inflation est. 3.9% vs 4.3% In January
- 2021 core Inflation est. 4.3% vs 4.4% In January.
- 2022 core Inflation est. 4.4% vs 4.5% In January
UK – Bank of England cuts interest rates to 0.1%
- The Monetary Policy Committee at a special meeting on 19 March voted to cut Bank rate to 0.1% and increase its holdings of UK government and corporate bonds by £200 billion.
- BoE Increases Holdings Of UK Govt Bonds And Sterling Non-Financial Investment-Grade Corporate Bonds By GBP200 Bln To A Total Of GBP645 Bln.
Mercedes-Benz enforce holiday for all workers in Brazil
Bentley to suspend its production lines in the British factory from the end of Friday for four weeks.
Rolex shuts all plants as demand and prices for luxury watches plummets
Italy – With number of casualties from the virus overtaking that of China and reports of escalating new cases PM Conte urged the EU to use the €500bn rescue fund to step up mitigating measures.
- “Monetary policy alone cannot solve all problems; we need to do the same on the fiscal front… the route to follow is to open ESM (European Stability Mechanism) credit lines to all member states to them fight the consequences of the Covid-19 epidemic,” PM said.
- Earlier, the government is planning to extend the original April 3 deadline with the announcement due “in the next few days”.
- The nation imposed the lockdown on March 12 shutting down most businesses, banning public gatherings and urging people to stay at home.
Portugal -The country joined Spain, France and Italy in announcing the quarantine to April 2 while leaving the door open for a potential extension.
- Spain and France implemented severe restrictions on March 16 and 17, respectively.
Coronavirus - impact
- The world will return to a ‘new normal’ after the virus
ð American Airlines have cut international flights by 75%. Industry may lose up to $113bn in sales (IATA).
ð Airlines account for 12% of all oil demand, just one of many reasons for the decline in oil demand.
ð There will be fewer shops and more online sales as shoppers stay away. Bored consumers are likely to ramp up online purchases.
Leisure, bars, clubs and pubs
ð Will be hit hardest, UK government advice is to avoid bars, clubs and pubs. These businesses can claim on insurance if the government orders their closure.
ð Many bars, clubs and pubs can not survive more than a few weeks of no business and will go bust if government support is not forthcoming
ð Construction sites will slow and maybe stop altogether as key staff go off sick with the virus
ð But, new infrastructure programs will be used to restart economic growth. London roads have more
ð Building materials should see significant uplift following a short-term fall as current projects suffer logistical and staff-related delays.
ð Government support for banks to avoid sub-prime style collapse likely to follow GFC rescue plans. Bank failures will precipitate greater economic collapse as seen with Lehman Bros. in 2008.
ð Lower interest rates and tax adjustments to support consumers – the US just cut rates to 0-0.25%, other central banks will likely follow
Inflation / deflation
ð Some deflation likely on lower oil and other commodity prices and worsening consumer sentiment
ð inflation is likely to follow as new government spending restarts economic growth
ð Scrappage schemes are likely to be used to help shift unsold stock for automotive manufacturers.
Oil & gas
ð Oil prices likely to continue to around $30/bbl. The price war between Russia and Saudi Arabia will likely run for one to two months as the major oil blocks compete for shrinking demand.
ð Demand for Oil & gas and power in general to continue to fall as factories and their logistics slow down
ð Many flights grounded causing kerosene (oil). The grounding of flights to the US after 911 reduced global oil demand by around 10% at the time.
Shameful bosses at Aviemore Coylumbridge Hotel fire staff and withdraw their accommodation
- The Aviemore Coyumbridge Hotel has fired its staff and chucked them out of their accommodation yesterday due to the Coronavirus situation.
- Sacking staff in a time of crisis is shameful, deducting holidays pro-rata but kicking them out of their accommodation with no warning reaches a new low.
- The UK government is offering to help struggling businesses but Britannia Hotels which has 61 hotels across the UK doesn’t seem able to wait.
US$1.0761/eur vs 1.0807/eur last week. Yen 110.02/$ vs 109.20/$. SAr 17.318/$ vs 17.271/$. $1.178/gbp vs $1.151/gbp. 0.592/aud vs 0.572/aud. CNY 7.072/$ vs 7.102/$.
- South African rand has worst week in three years and that’s saying something
- Oil related currencies collapse – Norwegan Krone has collapsed 20% despite the huge and diverse value in its Sovereign wealth fund
Gold US$1,506/oz vs US$1,477/oz yesterday - WGC: Gold remains one of the best performing asset classes despite recent volatility
- Gold, like most other assets is being affected by the economic turmoil experienced in markets around the world.
- Recent volatility in the gold price has been driven by liquidations across all assets, and the mass sell-off of gold has been used to raise cash to cover loses in other asset classes.
- Despite gold-backed ETFs experiencing outflows in recent days, funds across all regions saw $3.6bn of net inflows in March, and $11.5bn year-to-date.
- The World Gold Council believe that although the gold price has experienced high levels of volatility in recent months, sustained high-risk levels, negative real rates and the plethora of financial stimulus will be supportive of gold as a safe haven asset.
- Furthermore, similarities can be drawn between the 2008 financial crisis and now regarding the recent pullback in gold. Gold experienced pullbacks at the onset of the last financial crisis, but by the end of the year became one of the few assets to post positive returns.
- Spot gold rose 1% earlier this morning to $1,485/oz, and is on track for a weekly decline of about 3% (Reuters).
Gold ETFs 88.3moz vs US$85.7moz yesterday
Platinum US$625/oz vs US$606/oz yesterday
Palladium US$1,702/oz vs US$1,573/oz yesterday
Silver US$12.80/oz vs US$11.95/oz yesterday
Copper US$ 4,913/t vs US$4,667/t yesterday – Chinese copper inventories fall for the first time in two months
- Stockpiles in SHFE approved warehouses declined 2,838t to 377,000t this week, as manufacturers returned from prolonged shutdowns (Bloomberg).
- The fall in stockpiles is evidence that metals demand in China is gradually picking up as the virus is contained.
- According to Fastmarkets MB, Chinese copper fabricators have recovered to operating at a 70-80% operational rate.
- Kennecott – earthquake halts production on a temporary basis
- Codelco – cut production due to state of emergency in Chile
Aluminium US$ 1,622/t vs US$1,611/t yesterday - Aluminium producer slashes output due to lack of demand from auto industry
- Norsk Hydro has announced it is reducing or halting production of aluminium products due to a lack of demand from the auto and construction industries.
- Despite maintaining production at its primary metals plant, Hydro has cut output at several of its facilities which produce aluminium products for downstream industry.
- So far this week news outlets have reported GM, Ford, Fiat Chrysler, Tesla, Bentley and Volvo among others have either cut or halted production at factories.
Nickel US$ 11,610/t vs US$11,180/t yesterday
Zinc US$ 1,910/t vs US$1,832/t yesterday
Lead US$ 1,696/t vs US$1,640/t yesterday
Tin US$ 14,150/t vs US$13,480/t yesterday
Oil US$30.5/bbl vs US$26.3/bbl yesterday - Who will blink first –
- OPEC or Russia? Saudi Arabia is already feeling the pain of very low oil prices confirming today that it will cut spending by 5%, or US$13.3bn, to offset the impact of plunging oil prices and the effects of the Coronavirus on its economic outlook
- Saudi has c.US$500bn (compared to US$1.7tn during the 2014 oil price war) in foreign reserves, but with oil prices plummeting to c.US$30/bbl and tourism revenue drying up due to a suspension of the Muslim pilgrimage to Mecca, it was expected the Kingdom would make cuts to its spending
- Oil prices plunged as Saudis moved to flood the market and dominate sales amid a slowdown in demand for oil worldwide
- Saudi Crown Prince Mohammed bin Salman has long been pushing to diversify the economy away from reliance on oil for revenue
- Despite broad efforts at transforming the economy, the country continues to rely on higher oil prices of US$80/bbl to balance its budget
- Russia on the other hand requires c.US$50/bbl for fiscal breakeven given its more diversified economy, however its treasury reserves are also severely reducing
- All this would suggest that an intervention from the major producers will come sooner rather than later
Natural Gas US$1.670/mmbtu vs US$1.667/mmbtu yesterday
- Natural gas prices moved higher on Thursday despite a smaller than expected draw in natural gas inventories reported by the Department of Energy
- This follows Wednesday’s price action which same natural gas prices hit a fresh all-time low of 1.55
- Drilling rigs are likely to halt production, as oil prices dipped into the low to mid-’20s
- Warmer than expected weather is expected to cover the east coast for the next 6-10 and 8-14 days which is likely to weigh on prices
Uranium US$24.05/lb vs US$24.05/lb yesterday
Iron ore 62% Fe spot (cfr Tianjin) US$87.4/t vs US$88.2/t
Chinese steel rebar 25mm US$531.4/t vs US$529.5/t
Thermal coal (1st year forward cif ARA) US$55.3/t vs US$55.5/t
Coking coal swap Australia FOB US$152.0/t vs US$157.0/t
Cobalt LME 3m US$30,000/t vs US$30,000/t
NdPr Rare Earth Oxide (China) US$38,748/t vs US$38,582/t
Lithium carbonate 99% (China) US$5,657/t vs US$5,632/t
Ferro Vanadium 80% FOB (China) US$28.0/kg vs US$28.0/kg
Antimony Trioxide 99.5% EU (China) US$5.0/kg vs US$5.0/kg
Resistance is futile as Tesla is forced to shut Fremont, California factor
- After continuing to run the CA plant despite shelter-in-pace orders Tesla will halt production on March 23 to comply with San Francisco Bay restrictions (LA Times).
- The lockdown orders issued by six Bay Area counties are in place until the 7th of April but could continue beyond that date (Yahoo).
- Tesla is also closing their solar energy facility in Buffalo, with workers at both factories on paid leave from Monday.
- The Company had $6.3bn in cash at the end of 2019 and raised $2.3bn in a stock issue earlier this month which should enable it to ride out the storm.
- Operations at it Nevada factory will continue as normal (Reuters).
Auto industry responds to the shortage of ventilators in the fight against coronavirus
- Jaguar Land Rover, Toyota and Vauxhall responded to Boris Johnson’s call for more ventilators by indicating their readiness to assist. (Electrek)
- In the US Tesla, Ford and GM have done similarly, offering empty or excess factory space for production of medical supplies. (ABC News)
- Chinese EV maker BYD announced it is operating a plant capable of producing 300,000 bottles of hand sanitiser gels and 5 million face masks per day. (Energy Live News)
- The Company is shipping medical grade hand sanitisers to medical staff in hospitals and agencies across China.
CATL announces EV recharging network partnership
- CATL has begun a JV with local energy company Baicheng New Energy, called the Shanghai Kuaibu New Energy Technology. (Just Auto)
- CATL has a 49% stake and Baicheng a 51% stake. The new Company will develop an intelligent, integrated service network. The focus will be new energy technology, parking lot operations and the construction and operation of new facilities. (China Daily)
- A test run of the charging poles is scheduled for some locations in the near future. (Economic Observer)
Chilean lithium miners suggest output unaffected by the virus
- Miners have ramped up sanitary precaution at their sites and asked non-essential worker to work from home but report operations have largely been unaffected. (Seeking Alpha)
- Cases in Chile rose to 181 on Tuesday prompting authorities to close the border, shut schools and prohibit large gatherings. (Reuters)
- Although reporting lithium sales volumes across China has taken a significant hit, SQM also said there had yet to be any material impact to operations as a result of the virus. (Nasdaq)
- Albemarle echoed these sentiments with similar reports on Chinese sales and little operational impact as a result of the virus. (Mining Weekly)
PolyMet Mining (PLM N) US$0.22, Mkt cap US$220m - Polymet agrees US$30m financing with Glencore
- The financing is through unsecured convertible debentures to advance ongoing litigation relating to permits for the NorthMet project in Minnesota in the US
- Funds will also be used to continue engineering and optimisation on the project.
- The first tranche is convertible into shares at a conversion price equal to $22c
- PolyMet may issue up to 135m new shares on conversion representing around 13% of its stock.
- The Polymet approvals process has been going on for > 10 years and has been frustrated by legal challenges despite having successfully gained the necessary permits to proceed.
- Phase I development capex is $945m for 32,000tpd of throughput.
- We expect the mine to produce around 30,000tpa of copper, 6,600tpa of nickel, 91,500ozpa of palladium, 25,600ozpa of platinum and around 10,000ozpa of gold
- Processing is to be done at the former Erie taconite (low-grade iron ore) plant which would cost >$1bn to rebuild today and which is well connected from a rail and infrastructure perspective
- Opposition to the project led by the Minnesota Centre for Environmental Advocacy and Friends of the Boundary Waters Wilderness and Water Legacy continues to hold up the project.
- We suspect the government will sweep aside all opposition as the US looks for new economic growth to lead its recovery following the Coronavirus epidemic.
Resolute Mining (RSG LN) 41p, Mkt Cap £380m – US$300m debt refinancing
- Resolute Mining has announced that it has secured US$300m from a consortium of banks with a three-year US$150m revolving credit facility and a further four year facility for US$150m.
- Interest on the balances drawn is at LIBOR plus 4%.
- The loan will, in part, be used to refinance the US$63m project loan used for the construction of the Mako mine in Senegal as well as ʺthe complete repayment of the US$130 million acquisition bridge facilityʺ.
- Managing Director, John Welborn, thanked ʺour world class banking syndicate for their appreciation of the fundamental strength of our business. We now have a simple low-cost flexible senior debt package which reduces our borrowing costs, provides immediate liquidity, and will provide important flexibility for the funding of future growth initiatives.ʺ
Vast Resources* (VAST LN) 0.18p, Mkt Cap £20m – Shipments of Baita Plai equipment continue
- Following the shipment of the initial equipment from Shanghai announced on 18 March, three more containers destined for Baita Plai were packed and loaded onto a vessel due to depart on 25 March 2020.
*SP Angel acts as Broker to Vast Resources
From our Healthcare team Vadim Alexandre and Liam Gascoigne-Cohen
Teva Pharmaceutical donating over 6m doses of hydroxychloroquine sulfate tablets
- Generic drug manufacturer Teva Pharmaceuticals (TEVA.NY) is donating over 6m doses of hydroxychloroquine sulfate tablets to US hospital wholesalers as interest grows in the antimalarial as a potential treatment for COVID-19.
- The interest of the treatment stems from recent reports of the use of hydroxychloroquine and chloroquine having a beneficial effect on COVID-19 patients (link to report in International Journal of Antimicrobial Agents).
- Hydroxychloroquine is approved by the FDA for treating malaria and certain autoimmune diseases but not yet COVID-19. However, clinicians may prescribe the drug for ‘off-label’ use.
The repurposing of a drug for a eukaryotic cell (malaria) disease, as an antiviral drug is an interesting transition. Chloroquine is proposed to work by inhibiting the ability of the virus to infect the host cell by modulating the conditions required for the virus and host cell to fuse. Although the recent reports are encouraging, the efficacy remains anecdotal. A controlled clinical trial would provide more stringent evidence regarding the drug’s efficacy. The FDA indicated that it is working to evaluate the drug as a treatment for patients with mild-to-moderate COVID-19. The repurposing of existing therapies from other conditions may offer a faster route to a COVID-19 therapy rather than developing a novel treatment. The safety profile has been approved by regulators and manufacturing has already been scaled-up for commercial purposes. Furthermore, as a generic drug, chloroquine could provide a cost-effective treatment compared to a novel patented therapy.
John Meyer – 0203 470 0490
Simon Beardsmore – 0203 470 0484
Sergey Raevskiy – 0203 470 0474
Richard Parlons – 0203 470 0472
Abigail Wayne – 0203 470 0534
Rob Rees – 0203 470 0535
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Sources of commodity prices
Gold, Platinum, Palladium, Silver
BGNL (Bloomberg Generic Composite rate, London)
Gold ETFs, Steel
Copper, Aluminium, Nickel, Zinc, Lead, Tin, Cobalt
Natural Gas, Uranium, Iron Ore
Bloomberg OTC Composite
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