Market Update & Important Indicators
The Dow Jones Industrial Average fell to a five-month low Wednesday amid a nearly four-hour suspension of trading on the New York Stock Exchange and broader concerns about the pace of global growth. The Dow Jones Industrial Average fell 261 points, or 1.5%, to 17,515 and the S&P 500 declined 35 points, or 1.7%, to 2,047. NYSE trading reopened Wednesday afternoon after a halt of nearly four hours, with the exchange attributing the outage to a technical issue. Concerns about the pace of global growth were sparked earlier Wednesday after the selloff in Chinese stocks spilled over into other markets.
European share prices rose on Wednesday, as Greece, according to a copy of a letter seen by The Wall Street Journal, has requested a three-year bailout from the eurozone's rescue fund and pledged to start implementing some fresh fiscal overhauls. On Tuesday, eurozone leaders set Greece a Sunday deadline to come up with measures that could unlock fresh aid. Without new cash, Greece won't be able to make a 3.5 billion-euro ($3.8 billion) debt payment to the European Central Bank on July 20, leading to what would be the country's second debt default in less than a month. The FTSE, DAX and CAC climbed 0.9%, 0.7% and 0.8% respectively.
China introduced fresh measures to restore confidence Wednesday, but that didn't stop investors from dumping stocks and Chinese bonds traded offshore. The Shanghai Composite fell 5.9% to 3,507 even as hundreds of Chinese stocks were frozen from trading. The index has tumbled 32.1% since its mid-June peak. Concern is growing that Beijing's failure to prop up its equity markets means it will be unable to push through its broader agenda of liberalizing the economy to mitigate the country's slowing growth. Policy makers have been hoping that the emergence of a less volatile stock market would give companies more confidence to raise equity capital, reducing their reliance on funding from state-owned banks. Other Asian markets were also lower, with the Nikkei down 3.1% and the Hang Seng off 5.8%.
Base metals stage a bit of a comeback on the LME overnight, with copper up 3.4% and nickel up 2.9%. Gold added 0.3% to $1,158/oz and Brent crude climbed 0.4% to $57.05/bbl. Iron ore continued its decline however, dropping to $44.59/t.
Thought for the day
OBJ Limited (OBJ) | Cementing the P&G Relationship
Market Cap $90.8m Current Price $0.055
Recommendation SPEC BUY
What does OBJ do?
OBJ has developed leading technologies that enhance the penetration and effectiveness of pharmaceutical, cosmetic, healthcare and other consumer products. The science is based on physics rather than chemistry. Technologies deal with how products are applied, not their formulations, allowing OBJ to partner with some of the leading names in the pharmaceutical and consumer healthcare industries, and to avoid the lengthy approvals processes typical to the biotech sector.
What’s the latest news?
Yesterday OBJ announced that the relationship with Proctor & Gamble (P&G) and one of its best known brands, SK-II, has firmed further:
• P&G will develop a new next-generation SK-II product based on OBJ’s technology
• Following its recent successful Asian market launch the SK-II Eye Wand product is now a permanent feature of SK-II’s expansion plans going forward
• A 3-5 year multi-product development and innovation programme utilising OBJ’s technology across multiple products has been initiated
Why do we like it?
Global partnerships: The relationship with P&G, a company that turns over >US$80b, and boasts well-known brands such as SK-II, Gillette, Olay and Covergirl, provides a strong endorsement of OBJ’s technologies. A global partner like P&G making significant investments and commitment to a broadening range of products gives us confidence that the commercialisation of this technology is not a matter of “if”, but “when”. Further, OBJ has also signed a Development & License Term Sheet with Coty for skincare, and is working with GlaxoSmithKline in oral health and analgesics.
Cusp of commercialisation & attractive potential annuity style income: We believe the hard yards have been done and it’s now a question of timing. Once a product progresses to commercial roll-out, OBJ will in the future receive a royalty stream on product sales. It is still too early to try and make forecasts, but we note that P&G has 23 brands each with annual sales above US$1b, and that even a small royalty share of significant sales can be meaningful. In our view OBJ would then deserve to trade on high multiples given annuity-style revenue streams, high margins, growth potential, and the value of the patented technology.
Expect continued positive news flow: A key unknown is the timing of future product releases and therefore revenue. However, with P&G’s marketing and promotion of OBJ’s technology in the SK-II Eye Wand product, continued interest from other global brands, upcoming results of trials of the Bodyguard product, and the recently announced breakthrough in emulsion technology, we believe the coming 12 months will be characterised by further positive newsflow.
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