The FTSE-100 finished yesterday's session 0.45% lower at 6,381.44, whilst the FTSE AIM All-Share index closed 0.06% higher at 733.80. Continental markets ended mixed after the ECB upheld key interest rates and corporate earnings disappointed. Germany's DAX added 0.1%, whereas France's CAC 40 fell 0.2%.
Wall Street erased previous day's gains, as the earlier rally in oil prices fizzled out and focus shifted to downbeat quarterly earnings releases. Encouraging data on jobless claims and leading indicators failed to lift investor sentiment. The S&P 500 dropped 0.5%, primarily dragged by decline in the defensive sectors, including telecom and utilities.
Markets are trading mixed, tracking a mixed bag of quarterly earnings reports in the US. The Nikkei closed 1.2% higher as a relatively weaker yen lifted export-driven companies. Meanwhile, the Hang Seng was trading 0.8% down at 7:00 am.
Yesterday, Brent Crude Oil prices decreased 2.8%, whereas those of WTI increased 1.3%. The spread between the two varieties stood at US$1.4 per barrel.
Draghi warns of negative inflation in Eurozone
ECB Chief Mario Draghi cautioned that inflation in the Eurozone may turn negative again during the year even as the ECB upholds key interest rates. However, he expects the inflation to begin rising before the year end and expand further in 2017. The Eurozone inflation stood at zero last month, which was well below the ECB's target of around 2%.
Acacia Mining (LON:ACA, 336.70p) - Speculative Buy
Acacia Mining reported its first quarter results yesterday and it has had an excellent start to 2016, having produced 190,210 ounces at an all-in sustaining cost of US$959 per ounce during the quarter, the Company's best cost performance since 2010. All three operations performed ahead of expectations leading to a US$19 million increase in the net cash position, after making its first prepayment of corporate tax amounting to US$10 million. This performance is not reflected in the headline net earnings given the tax provision Acacia has taken following a recent adverse court ruling, but the underlying adjusted earnings of US$18 million were 71% higher than Q1 2015. Revenue of US$221 million, 3% higher than Q1 2015, driven by increased gold sales and EBITDA of US$66 million was 24% higher than Q1 2015, mainly due to higher revenue and lower cash costs and the net loss of US$52 million as a result of additional tax provisions of US$70 million. Operational cash flow of US$52 million, 11% up on Q1 2015, was driven primarily by increased EBITDA with capital expenditure of US$36 million, 15% lower than Q1 2015, due to stringent capital controls and timing of spend. Net cash position increased to US$124 million, US$19 million higher than 31 December 2015, with the cash balance increased to US$237 million as at 31 March 2016.
Our view: The Q1 results are excellent and ahead of a subdued guidance. This is Acacia's best quarter since its IPO in 2010. Year's guidance of 750-780k, will push consensus to the top of this range. One negative is the $70m of new tax provision relating to retrospective tax claims although it represent £0.12p per share, following the change of Government. This is one of Beaufort Securities 'Tips for the Year' and we retain our Speculative Buy stance.
Pets at Home (LON:PETS, 246.30p) - Buy
Yesterday, Pets at Home Group released its trading statement for the 53-week period ended 31st March 2016. The Group's like-for-like (LFL) revenues increased 2.1% for the period, with merchandise and services recording 1.4% and 10.0% growth in LFL revenues, respectively. Overall revenues grew 8.8% to £793.1m, with major contribution from merchandise revenues £710.2m, followed by services revenues £82.9m. On the operational front, the company opened 20 new Pets at Home superstores, 6 Barkers stores and 1 Whiskers 'n Paws trial format store. During the year, the group also opened 50 vet practices and 60 grooming salons. Moreover, the group added 1.3 million members to its VIP club during the period, taking its membership to 4.5 million. The company expects its performance to be in line with market expectation, with pre-tax profit in the range of £93–97m.
Our view: Sales momentum in the company's merchandise business picked up in the final quarter of the year, when LFL revenues grew 3.2%. Meanwhile, vet practices and grooming saloons also performed well. Benefitting significantly from the recent trend of customers splurging on pampering their pets, the company has been on an expansion spree—it opened several Pets at Home superstores, vet practices and grooming salons. Currently, the company has an impressive number of stores (427), vet practices (388) and grooming salons (240), and plans to expand further. We expect the company to perform in line with expectation, well supported by strong demand for pet grooming products and services. Therefore, we maintain our Buy rating on the stock.
SABMiller (LON:SAB, 4,259.0p) - Buy
Yesterday, SABMiller announced its trading update for the 12 months ended 31st March 2016. The company's net producer revenues (NPR) increased 5%, with a volume growth of 2% and price and mix realisation of 3%. Lager volumes grew 1% for the full year, with premium lager brand volumes increasing 6%. Soft drinks volumes grew 6% for the full year and fourth quarter, with growth in Africa offset somewhat by a more subdued performance in Latin America. The company's subsidiaries achieved an 8% growth in NPR for the full year. During Q4 2016, the company's NPR improved 7%, with a 4% growth in beverage volume. However, on reported basis, group NPR declined 5% for the quarter and 8% for the full year due to adverse currency movements. Region-wise, group NPR grew 8% in Latin America, underpinned by strong growth in Colombia. In Africa, the company's NPR grew 11%, with beverage volume growing 6% supported by affordability and selective pricing strategy. The growth momentum in volume increased during the second half of the year for the Asia-Pacific region, where overall NPR grew 3%. Europe and North America saw improvement in trading during the second half of the year.
Our view: SABMiller posted strong growth in NPR on constant currency basis. The company particularly witnessed an increasing momentum in lager volume growth during the second half of the year despite the economic volatility. However, NPR growth on reported basis was marred by the adverse translational impact of its key operating currencies against the US dollar. In November 2015, AB InBev announced plans to acquire SABMiller for a consideration of around £71bn. The companies are awaiting regulatory approvals across the globe to close the largest beer deal in history—together, AB InBev and SABMiller sell more than 30% of the world's beer, including brands such as Budweiser, Stella Artois, Grolsch and Pilsner Urquell. Hence, as the company awaits the final nod from regulatory authorities for the offer from AB InBev, its strategies for expanding the beer business line and diverse portfolio of brands seem judicious. Thus, in view of the impressive all-round performance during the year, we reiterate our Buy rating on the stock.
Sky (LON:SKY, 985.00p) - Buy
Yesterday, Sky released unaudited results for the nine months ended 31st March 2016. For the period, the company's revenues increased 5% to £8,715m. Its operating profit also improved 12% to £1,143m even as total costs rose 4%. The company efficiently managed its operating cost base that facilitated margin expansion despite rising costs. During the period, the company expanded its customer base by 177,000, taking the overall customer base to 21.7 million. The company also increased its product offerings in Sky Homes by 686,000, with the number of products in the UK surpassing 40 million for the quarter. During the quarter, the company traded well across all markets, including the UK, Ireland, Germany, Austria and Italy. On the operational front, the company secured a pan-European movie deal with Sony and extended its leadership in sports with new deals from Formula 1 and UEFA Euro 2016, among others. Sky also launched the Sky Q and Sky Kids applications in the UK and made its Sky Box Sets available across all markets.
Our view: The company's results for the nine months are a testimony to its strong progress, reflected in expansion of business horizons, entry in new markets and opening of new customer segments. The company also developed more products and services to attract new customers. Over the past 12 months, Sky has added 806,000 retail customers and over 3.5 million paid-for products and benefitted largely from the TV price rise in the UK in June. The pan-European agreement with Sony would enable Sky's customers to access new releases Ghostbusters and Inferno, along with a wide range of on-demand titles. Meanwhile, the integration of the three Skys remains on track, already delivering tangible benefits and enabling the company to pursue significant growth opportunities. Best-in-class innovation to transform the viewing experience for customers across markets is likely to ensure the company gets more viewership in future. Encouraged by recent developments, we reiterate our Buy rating on the stock.
ECB main refinancing rate
The Governing Council of the European Central Bank (ECB) maintained its main interest rate at 0.00% in line with the market expectations. The deposit facility rate and the marginal lending facility rate were also left unchanged at -0.40% and 0.25%, respectively.
Eurozone consumer confidence
The Eurozone consumer confidence slightly improved to -9.3 in April, matching market expectations, the European Commission said on yesterday. The modest rise in the reading came after three months of decline. The previous month's reading stood at -9.7.
US initial jobless claims
The number of Americans that filed their first initial claims for unemployment benefits decreased by 6,000 to a seasonally adjusted 247,000 in the week ended 16th April, the Labor Department stated yesterday. Economists had forecasted a reading of 265,000. Last week's unrevised figure was modestly higher at 253,000. The four-week moving average of jobless claims also dipped to 260,500 from last week's unrevised 265,000.
US leading index
The Leading Economic Index for the US increased 0.2% m-o-m in March, after a 0.1% rise in February, the Conference Board said yesterday. The markets expected a 0.4% rise in index.