Beaufort Securities Breakfast Alert: Arian Silver Corporation Xtract Resources BAE Systems Next Royal Dutch Shell Ryanair
(MENAFN- ProactiveInvestors - UK) Beaufort Securities Thu
The markets
Europe
The FTSE-100 finished yesterday's session 1.19% lower at 6112.02 whilst the FTSE AIM All-Share index closed 0.28% lower at 723.86. In Europe shares ended sharply lower as investors digested mixed corporate earnings released. On the economic front the Eurozone's composite and services PMI weakened in April while retail sales declined sharply in March. Germany's DAX and France's CAC 40 shed 1.0% and 1.1% respectively..
Wall Street
Wall Street ended in the negative terrain amid weaker-than-expected private sector jobs data and a drop in worker productivity for April. The energy sector declined the most while three sectors advanced led by utilities. The S&P 500 fell 0.6%.
Asia
Markets are trading lower tracking global equities. A moderation in the China's services PMI for the month of April also remained in focus. The Hang Seng was trading 0.4% lower at 7:00 am. The Nikkei 225 was closed for a public holiday.
Oil
Yesterday Brent Crude Oil prices decreased 0.8% whereas those of WTI crude oil increased 0.3%. The spread between the two varieties stood at US$0.8 per barrel.
Headlines
Shop prices in UK decline in April
As per the British Retail Consortium shop prices in the UK fell 1.7% y-o-y in April matching the rate of decline observed in March primarily due to a decrease in non-food prices. The drop in prices was ascribed to intense competition across the retail industry as shops introduced additional discounts to attract consumers.
China's services PMI falls in April
The China Caixin services Purchasing Managers' Index (PMI) declined to 51.8 in April from 52.2 in March. The reading indicates an expansion in the sector but suggests the economy still faces relatively strong downward pressure. The survey primarily focuses on small- and medium-sized enterprises.
Company news
Arian Silver Corporation (LON:AGQ 0.98p) - Speculative Buy
Yesterday Arian Silver Corporation secured exclusive rights to evaluate the Tierra Nuevo Mining Ltd's (TNM) Noche Buena gold and silver tailings project located in northern State of Zacatecas in Mexico for another 120 days for US$25000.
Our view: This is a positive development for Arian Silver. In February 2016 Arian Silver signed a memorandum of understanding with TNM to evaluate the private company's portfolio of mineral properties. The securing of exclusive rights would allow Arian Silver to carry metallurgical test work to define the process required to produce saleable gold and silver concentrates. TNM is a prospective site as according to a report in 2012; it has an indicated mineral resource of 1 million tonnes with 3 grams per tonne (g/t) gold and 55 g/t silver representing approximately 100000 ounces (oz) of gold and 1.7 million oz of silver. Just last week Arian Silver raised 700000 before expenses through the placing of shares. Furthermore the company is progressing well regarding the exploration of potential mineral sites in Mexico. We are buoyed by Arian Silver's progress in the recent past and look forward to further developments. Therefore we maintain a Speculative Buy rating on the stock.
Beaufort Securities acts as corporate broker to Arian Silver Corporation plc
Xtract Resources (LON:XTR 0.18p) - Speculative Buy
Yesterday Xtract published its Q1 2016 operational update a period impacted by the temporary closure of the Chepica's processing plant due to last year's unfortunate accident. Following visits from the Inspector of Works and Inspector of Mines the plant was eventually re-booted on the 5th of February. However it was only fully operational on the 20th so for the majority of the quarter Chepica was without a processing plant. Despite this tonnes milled were 11kt (down only 25%) while tonnes mined were up 228% (note that mining wasn't affected by the plant closure). In terms of financials revenue decreased 38% to $230663 costs increased 48% to $249103 and there was a small loss of $18440. Chepica aside we believe the most exciting news surrounds the alluvial project in Manica (Mozambique). The 50% JV partner is planning to invest $20m and the 1st plant should be up and running in June a 2nd in August and a 3rd in October. The JV partner is mobilizing 100 people.
Our view: Behind the headline numbers the Chepica mine is being transformed from an inflexible operation to one with multiple stopes on multiple levels. This is taking time and money is not yet complete but will be worth the effort. The new Chepica adit is only 15m from intersecting the Chepica reef which will add even more flexibility and should produce higher grades. Other key positives include improving ground conditions at depth (unstable fractured rock had been a big issue) 2 months' worth of stockpile at surface and tonnes milled should be nearer 30000 tonnes in Q2 2016. Management also said that it expects a new and improved earn-in agreement will be signed with the Chepica vendor in the coming weeks. Over in Mozambique the alluvial project appears to be progressing and assuming it goes to plan should be generating significant cash for Xtract. When combined with an improved Chepica operation Xtract should generate both positive newsflow and cash over the coming months. We maintain our Speculative Buy.
Beaufort Securities acts as corporate broker to Xtract Resources PLC
BAE Systems (LON:BA. 478.50p) - Buy
BAE Systems a provider of advanced technology defence aerospace and security solutions yesterday provided an outline of the continued progress of the Group in the year to date. The Group has reaffirmed that the trading during the period has been in line with management expectations published on 18 February 2016 and the Group's outlook remains unchanged. BAE expects underlying earnings per share to be circa +5% to +10% higher than the adjusted underlying earnings per share of 36.6p in 2015. On the operational front BAE has been awarded a number of contracts in excess of 100m in value and includes a 472m extension to the Type 26 Global Combat Ship demonstration phase contract by the UK Ministry of Defence awarded on 22 March. BAE's partner and joint venture has also signed new contracts. BAE system CEO Ian King commented "Whilst economic and geo-political conditions remain volatile we have started the year with good momentum and the business is performing well. In 2016 and beyond we are well placed to continue to generate attractive returns for shareholders". BAE Systems will announce its financial results for the half year ending 30 June 2016 on 28 July 2016.
Our view: BAE performed well in 2016 to date winning a number of high value contracts and meeting its expectations set out in FY2015 final result. The Group's partners and joint ventures also performed well where its Italian Eurofighter partner Finmeccanica signed a contract for the supply of 28 Typhoon aircraft to Kuwait on 5 April which is expected to result in value at c.1bn for BAE. Also the MBDA joint venture in which BAE has 37.5% stake continued to win new orders with a value c.182m. The Group now expect underlying earnings per share to increase by +5% to +10% against the adjusted 36.6 pence and it remains committed to shareholders as its CEO commented that it is well placed to generate "attractive returns" for shareholders. We believe BAE can secure more high profile contracts and is well placed with substantial resources and funds to deliver long-term growth. Beaufort maintain a Buy rating on the stock.
Next (LON:NXT 5150.0p) - Buy
Next plc gave a Trading update yesterday on sales performance during the period 31st January 2016 to 2nd May 2016. Total Sales for the period from 31 January to Monday 2 May were down -0.2% with full price sales down -0.9% which is at the lower end of the Company's sales guidance for the full year of -1.0% to +4.0%. Consensus from Bloomberg was flat. Cold weather in March and April including the Easter period was cited as one reason. Splitting sales by Retail and Next Directory paint does appear to validate the weather reason with Retail down 2% and Next Directory up 4.2%. Better availability also helped the latter. Next add that the poor performance of the last six weeks may be indicative of weaker underlying demand for clothing and a potentially wider slow-down in consumer spending. Given this uncertainty the Company think it is prudent to widen and lower their full price sales guidance range to -3.5% to +3.5%. The lower end of this range is based on sales for the rest of the year continuing to run at the rate of the last six weeks. They do add though that they have seen a significant improvement over the last few days as temperatures have risen. Cash flow remains strong and the Company still expect to generate 350m of surplus cash after deducting interest tax capital expenditure and ordinary dividends in the current year. Of the 350m Next has returned to shareholders through share buybacks 181m (including 151m at the end of the last financial year) and the Company paid a special dividend in February which amounted to 88m.
Our view: There may be some relief that the statement was not as bad as feared. There are some issues regarding the Directory with increasing competition in the on-line space. With consensus forecasts reduced since the beginning of the year following the cautious trading statement in January the shares have fallen 30% and trade at a modest 11x. We regard the current level as good value and reiterate our Buy stance on the Company.
Royal Dutch Shell (LON:RDSB 1722.50p) - Buy
Yesterday Royal Dutch Shell declared its unaudited results for the first quarter ended 31st March 2016. During the period current cost of supplies (CCS) earnings attributable to shareholders decreased 83% y-o-y to US$0.8bn mainly due to weak oil gas and LNG prices. As a result basic CCS earnings per share decreased to US$0.11 from US$0.76 in Q1 2015. Cash flow from operating activities amounted to US$0.7bn compared with US$7.1bn for the same period last year. Capital investment for the quarter was US$59bn which includes the investment related to the acquisition of BG group. Divestments for Q1 2016 stood at US$0.5bn. Gearing at the end of the quarter was 26.1% versus 12.4% at the end of Q1 2015. On the operational front Shell completed the acquisition of BG group for US$54.0bn. Oil and gas production in Q1 2016 increased 16% to 3661 thousand barrels of oil equivalent per day (boepd). LNG liquefaction volumes for Q1 2016 rose 14% to 7.04 million tonnes to which BG contributed 1.58 million tonnes. Shell announced a dividend of US$0.47 per ordinary share and US$0.94 per American depositary share. Total dividends distributed to shareholders in Q1 2016 stood at US$3.7bn of which US$1.5bn was settled by issuing 65.7 million A shares under the Scrip Dividend Programme.
Our view: Energy companies continue to be negatively impacted by the ongoing weak oil prices. Shell's Q1 2016 earnings have been hurt by the low prices and poor refining industry conditions. However Shell remained focused on its plan to achieve operational efficiencies and reported a decline in operating costs and capital investment. Shell expects the capital investment for 2016 at around US$30bn which would be about 36% lower than the combined investment of Shell and BG in 2014. Also operating expenses are expected to significantly fall in 2016. One of the important landmarks during the period was the acquisition of BG. The integration of BG into Shell increased the latter's asset base; this would help achieve better economies of scale. Shell plans to cut about 10000 staff and direct contractor positions in 201516 in both the companies to reduce costs. We believe Shell would deliver good results in the long term due to its fundamentally strong position and measures to counter challenging conditions. Therefore we continue to recommend a Buy rating on the stock.
Ryanair (LON:RYA 12.90p) - Buy
Ryanair a low-cost European airline company yesterday provided its traffic statistics for April 2016. During the month the Group's passenger traffic advanced by +10% to 9.9 million customers while load factor rose +2% to 93%. The Group's rolling annual traffic to April expanded by +17% to 107.4 million customers. Its Chief Marketing Officer Kenny Jacobs commented "customers can look forward to more improvements as we enter Year 3 of our "Always Getting Better" programme which includes even lower fares more new routes new digital features and new cabin interiors as Ryanair continues to deliver the lowest fares and the most on time flights in Europe".
Our view: Ryanair continued to expand its passenger traffic and load factor year-on-year. Passenger traffic represents number of earned seats flown while load factor represents number of passengers as a proportion of the number of seats available for passengers. Although the growth momentum for the passenger traffic has more than halved compared to the prior 5 consecutive months ending March 2016 (March 2016 +28% y-o-y) the +10% growth was achieved despite a series of strikes by ATC (air traffic controllers) in France Belgium Greece and Italy that resulted flights cancellations. It was also followed by the bombings that hit Brussels airport and Maalbeek metro station on 22 March which also discouraged many travellers. The continuous growth reaffirmed success of its 'Always Getting Better' ('AGB') customer experience programme to deliver better customer experience introduced 2 years ago. Ryanair improved the areas based on customers' complaints during the Year 1 and 2 and now that it entered into Year 3 of its AGB programme the Group will be focused on digital acceleration and innovation particularly through its Ryanair Labs digital developments. While there are concerns for the BREXIT situation persists positive impact of its AGB programme together with lower fuel price environment Beaufort reiterates Buy rating on the stock.
Economic news
US MBA mortgage applications
US mortgage applications declined 3.4% in the week ended 29th April following a drop of 4.1% in the prior week the Mortgage Bankers' Association said yesterday. Refinance index fell 6% while the gauge of loan requests for home purchases was flat over the week.
US ADP employment change
Jobs in the US private sector grew by 156000 in April after a revised 194000 jobs were added in March ADP reported yesterday. The markets expected 195000 jobs addition for the month.
US trade balance
US trade deficit narrowed to US$40.4bn in March from a revised reading of US$47.0bn in February the Commerce Department yesterday. Economists had expected a trade gap of US$41.2bn.
US factory orders
US factory orders increased 1.1% m-o-m in March after a revised decline of 1.9% in February the US Department of Commerce said yesterday. This was higher than the market expectations of a 0.6% increase. Excluding orders for transportation equipment factory orders increased 0.8% in March after a 0.9% drop in February.
US durable goods orders
US durable goods orders jumped 0.8% m-o-m in March following a similar rise in February the Commerce Department said yesterday. The economist has expected a rise of 0.8% for the month. Excluding transportation equipment orders fell 0.2% m-o-m in March coming below the expected decrease of 0.1%.
Beaufort Securities