Beaufort Securities Breakfast Alert: Wishbone Gold
(MENAFN- ProactiveInvestors - UK) Beaufort Securities 09:49
Market opening: The FTSE-100 is expected to start this morning's session around 37-points higher.
New York: Wall Street ended in the red as disappointing earnings led to losses in consumer and technology stocks. Moreover mixed employment data raised concerns over interest rate hike by the Fed this year. The S&P 500 fell 1.9% pulled down by the information technology sector. For the week the markets declined 3.1%.
Asia: Equities are trading higher offsetting losses from previous sessions. Investors digested weak economic data released in the US. The Nikkei 225 gained 1.1% while the Hang Seng remained closed due to the Lunar New Year holiday.
Continental Europe: Markets ended lower as weak employment data in the US raised concerns of slowdown in the country. Furthermore disappointing corporate earnings released hurt investor sentiment. Germany's DAX and France's CAC 40 dropped 1.1% and 0.7% respectively.
Crude Oil: On Friday WTI and Brent oil prices decreased 2.6% and 1.2% respectively. The spread between the two varieties stood at US$3.2 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.49% lower on Friday at 689.85.
Today's news
China's foreign currency reserves fall in January
As per a report by the People's Bank of China the country's foreign currency reserves declined US$99.5bn to US$3.23trln in January 2016 the lowest since 2012. The fall in reserves could lead to rapid devaluation of the country's currency and destabilise the economy.
Wishbone Gold (LON:WSBN 0.31p) - Speculative Buy
Wishbone Gold on Friday announced the acquisition of Precious Metals International Ltd ("PMI") and its wholly owned subsidiary Black Sand FZE ("Black Sand") (together Black Sand and PMI are "the PMI Group") in an all share transaction. Black Sand holds a gold precious metals and gem trading licence to operate in the United Arab Emirates. Black Sand currently has agreements in place for importing gold from Colombia and Honduras with a pipeline of other supply deals from other parts of South America. Black Sand was established by its CEO Barret Kosh in 2014 as a successor company to Multinational Commodities FZE which had an established profitable trading record. The PMI Group is 100% owned by Solent Nominees an independent Gibraltar based nominee company which holds these shares on behalf of Mr Kosh. Solent currently holds preference shares over the PMI Group which will continue to entitle them to 30% of any annual audited profits after tax in the PMI Group. These preference shares hold no voting rights and are effectively a management incentive plan. The PMI Group made a nominal loss of 5564 for the financial year ended 30 June 2015 and had gross assets of 454. It has not yet produced any revenue but is in the process of transferring Multinational Commodities FZE's trading relationships. Wishbone also corrected the actual number of Ordinary shares it has in issue to 759900364.
Our view: The terms of the acquisition are an initial payment of 240000000 ordinary shares in the Company with a further payment of an additional 240000000 Ordinary Shares once the annual profit after tax of the PMI Group exceeds $1m. This values the initial consideration for the PMI Group at 648000 based on the Company's closing mid-market share price on 3 February 2016 of 0.27p per share. Wishbone retains its Australian exploration properties and considers that in due course it may become possible to realise synergies between the exploration and trading operations of the Company. Following the issue of the new Ordinary Shares the Company's total issued share capital on Admission will consist of 999990364 Ordinary Shares. The overall effect of this move will be to re-position Wishbone from being another exploration company with promising properties into one where it also has the support of cash flow from the trading operations in Dubai. This is important as the bear phase in precious metals has undoubtedly opened multitude of opportunities for business creation and acquisitions whose profitability in the right hands might be transformed when the pricing cycle reverses once again as it inevitably will be assuming access to cash flow remains sufficient to keep the business plan alive. Right now Wishbone is a management story. Beaufort retains it Speculative Buy recommendation in anticipation of more interesting times ahead.
Beaufort Securities acts as corporate broker to Wishbone Gold plc
BG Group (BG..L 1060.0p) - Buy
On Friday BG Group reported its fourth quarter and annual results for FY2015. For the year the company's Exploration and production was up 16% to 704 kboed (thousand barrels of oil equivalent) and the delivery of LNG cargoes soared 58% to 282. However the results were largely impacted by the lower commodity prices with the revenue and other operating income slipping 16% to US$16.4bn. The upstream EBITDA stood at US$4.17bn down 35% and the LNG EBITDA was US$1.5bn down 46%. The company swung to profits of US$2.3bn for the year due to disposal of non-current assets and post-tax gains on re-measurements and impairments. The company's losses for 2014 were US$1.1bn owing to post-tax impairment charges. BG Group's capital expenditure for FY 2015 declined 32% to US$6.2bn. During the year BG Group added new low cash cost volumes in Brazil and Australia that helped mitigate some impact of lower commodity prices. For Q4 2014 the company's revenues declined 2% to US$4.3bn. On 8th April 2015 the company reached an agreement with Royal Dutch Shell to sell all its issued and to be issued share capital in a recommended cash and share offer. Under the terms of the Combination BG Group shareholders will be entitled to receive for each BG Group share 383 pence in cash and 0.4454 Shell B Shares. The company did not declare any final dividend for 2015.
Our view: Though BG's revenues and earnings declined in 2015 owing to lower commodity prices yet the company took unprecedented measures to combat it through production expansion in low cost projects mainly in Australia and Brazil. Overall the company succeeded in reducing its spending and improving the cash flow management and performed better than its peers. The company also propped up its production despite the downturn in energy prices. Taking a long term view we believe that the company is well placed to deliver good returns to its shareholders when the oil prices rebound. In addition the merger with Shell expected to be completed in February is likely to further bolster the company's operational performance. Thus in view of these several positives we retain our Buy rating on the stock.
Economic News
Germany factory orders
German factory orders decreased on a seasonally adjusted 0.7% m-o-m in December 2015 after a 1.5% increase in November the Federal Ministry of Economy and Technology said on Friday. Economists had forecasted orders to fall by 0.5% during the month.
US change in nonfarm payrolls
The US economy added 151000 jobs in January 2016 after a revised 262000 addition in December 2015. The markets expected nonfarm payrolls to increase by 190000.
US unemployment rate
The unemployment rate for October fell to 4.9% in January 2016 after a reading of 5% in December 2015.
US trade balance
US trade deficit widened to US$43.4bn in December 2015 from US$42.2bn in November the Commerce Department said on Friday. Economists had expected a trade gap of US$43.2bn.