The Markets
Market opening: The FTSE-100 is expected to start this morning's session around 74-points higher.
New York: Wall Street ended in the green as oil prices rallied amid speculations of production cut by the Organization of the Petroleum Exporting Countries (OPEC). Investors digested a mixed set of economic data released. The S&P 500 advanced 2.0%, led by the financial sector. For the week, the markets closed 0.8% lower.
Asia: Equities are trading higher following gains in the global markets. The Nikkei 225 jumped 7.2%, shrugging off losses made in the previous sessions. Weakening of the yen against the dollar led to gains for export-driven stocks in Japan. Additionally, investors cheered the rally in oil prices. The Hang Seng was trading 2.9% up at 7:00 am.
Continental Europe: Markets ended in the positive territory, as a sharp rise in oil prices boosted energy shares. Furthermore, positive corporate earnings lifted investor sentiment. France’s CAC 40 and Germany’s DAX added 2.5% each.
Crude Oil: On Friday, WTI and Brent oil prices increased 12.3% and 11.0%, respectively. The spread between the two varieties stood at US$3.9 per barrel.
UK small caps: The FTSE AIM All-Share index closed 0.14% higher on Friday at 664.82.
Today's news
UK asking house prices jump in February: Rightmove
As per property tracking website Rightmove, the asking price per home in the UK rose 2.9% m-o-m to £299,287 in February 2016, following a 0.5% increase in January. On y-o-y basis, house prices jumped 7.3%, after a 6.5% rise in the previous month. The agency stated increase in demand and fairly static supply as reasons for the rise in prices.
Japan’s economy contracts in the fourth quarter
As per data released by the Cabinet Office, Japan’s economy shrank 0.4% in Q4 2015 compared with the previous quarter. A fall in consumer spending and exports resulted in the contraction. On annualized basis, the economy declined 1.4% in Q4 2015, and expanded 0.4% for 2015.
Eurasia Mining (EUA.L, 0.60p) - Speculative Buy
Two separate announcements from Eurasia last Friday detailed (i) The extension of an Option agreement held by Metal Tiger plc over the Semenovsky Tailings Project (‘STP’) to 15 March 2016 and, (ii) The execution of a Loan Agreement with Sanderson Capital Partners Limited. The former resulted in a US$25,000 further contribution to work on STP, while the latter made available £250,000 which can be drawn down any time until 14 February 2016 and must be used by Eurasia for working capital purposes; Eurasia also confirmed it is its intention that the full amount will be drawn down immediately and that this loan must be repaid on or before 11 May 2016. No interest accrues on the loan, but the loan is subject to a £62,500 arrangement fee, which is to be satisfied by the issue of 11,363,637 ordinary shares in the Company at a price of 0.55p and a documentation and legal fee of £7,500. It is anticipated that the Company will issue the New Shares, and make application to admit them to trading on AIM shortly, and a further announcement will be made at that time.
Our view: Back on 9 November 2015, Eurasia Mining signed a Heads of Terms agreement whereby it had the right to participate in a gold tailings opportunity in respect of the STP, a near term gold production opportunity in Russia. The latest internal work undertaken by the Company has provisionally estimated that the project net present value was around US$23m (Nov 15: US$14m) at a 10% discount rate, project IRR of 82% (Nov 15: 65%) and project payback within 1 year of production start-up, against a total estimated plant construction cost of approximately US$5.2m (Nov 15: US$5m). Management has confirmed that work will continue on due diligence to ensure that these robust economics can be sustained and that permitting of the project proceeds favourably. Meanwhile, management also continues to look at financing options with mining planned to commence at its Urals alluvial platinum prospect in West Kytlim, this summer. The interim financing facility provided by Sanderson gives it time to select the best option. In view of these new arrangements, Beaufort repeats its Speculative buy recommendation on Eurasia Mining.
Company News
Beaufort Securities acts as corporate broker to Eurasia Mining plc
Eurasia Mining (LON:EUA, 0.60p) - Speculative Buy
Two separate announcements from Eurasia last Friday detailed (i) The extension of an Option agreement held by Metal Tiger plc over the Semenovsky Tailings Project (‘STP’) to 15 March 2016 and, (ii) The execution of a Loan Agreement with Sanderson Capital Partners Limited. The former resulted in a US$25,000 further contribution to work on STP, while the latter made available £250,000 which can be drawn down any time until 14 February 2016 and must be used by Eurasia for working capital purposes; Eurasia also confirmed it is its intention that the full amount will be drawn down immediately and that this loan must be repaid on or before 11 May 2016. No interest accrues on the loan, but the loan is subject to a £62,500 arrangement fee, which is to be satisfied by the issue of 11,363,637 ordinary shares in the Company at a price of 0.55p and a documentation and legal fee of £7,500. It is anticipated that the Company will issue the New Shares, and make application to admit them to trading on AIM shortly, and a further announcement will be made at that time.
Our view: Back on 9 November 2015, Eurasia Mining signed a Heads of Terms agreement whereby it had the right to participate in a gold tailings opportunity in respect of the STP, a near term gold production opportunity in Russia. The latest internal work undertaken by the Company has provisionally estimated that the project net present value was around US$23m (Nov 15: US$14m) at a 10% discount rate, project IRR of 82% (Nov 15: 65%) and project payback within 1 year of production start-up, against a total estimated plant construction cost of approximately US$5.2m (Nov 15: US$5m). Management has confirmed that work will continue on due diligence to ensure that these robust economics can be sustained and that permitting of the project proceeds favourably. Meanwhile, management also continues to look at financing options with mining planned to commence at its Urals alluvial platinum prospect in West Kytlim, this summer. The interim financing facility provided by Sanderson gives it time to select the best option. In view of these new arrangements, Beaufort repeats its Speculative buy recommendation on Eurasia Mining.
Rolls-Royce (LON:RR, 606.0p) - Hold
On Friday, Rolls-Royce declared its results for the year ended 31st December 2015. During the period, the company’s underlying revenue fell 1% y-o-y to £13.4bn. While the Nuclear and Civil Aerospace segments reported a 9% and 3% increase in underlying revenue, respectively, the Marine and Defence divisions recorded a 16% and 5% decline, respectively. Underlying pre-tax profit dropped 12% to £1.4bn, leading to an EPS of 58.7p, down 10% from 2014. The fall in profit was mainly due to reduction in Marine profit, driven by weak off-shore markets. Free cash flow stood at £179m compared with £447m in 2014. Rolls-Royce witnessed an 11% increase in R&D expenses, with investments made for future technology and solutions for Power Systems applications. At the end of the period, the company’s net cash balance decreased from £666m to a net debt of £111m. On the operational front, Rolls-Royce launched a transformation programme in November 2015 to reduce costs by £150–200m per annum. The company expects to incur an exceptional restructuring charge of £75–100m in 2016. In 2015, Rolls-Royce consolidated its civil aerospace repair and overhaul activities, and subsequently shut down its sites in Brazil and the UK. The company proposed a final dividend of 7.1p for 2015, down 50% from the final dividend for 2014. It also said that the interim payment for 2016 would also be reduced to 50% of that in the prior year.
Our view: The year 2015 was challenging for Rolls-Royce, as most of its divisions reported a drop in revenue. This was primarily due to lower sales of marine turbines and declining demand for older wide-body jets. The company continued to witness weak demand from Brazil, China and other Southeast Asian countries. In addition, the slump in oil prices adversely impacted its energy customers. However, Rolls-Royce initiated a series of measures to counter the adverse situation. These included changes in its senior management team as part of a restructuring programme to reduce fixed costs, streamline senior management and improve decision-making. The company expects to generate annualized cost savings of £145m by the end of 2017. Rolls-Royce has reduced its workforce across departments to cut costs. The company recently won a US$2.7bn contract from Norwegian Air to supply Trent 1000 engines and provide service support for 19 new 787 Dreamliner aircraft. Nonetheless, Rolls-Royce’s management remains uncertain about the outlook for 2016 and expects profit to be in the lower end of the range. In view of the anticipated mixed performance by Rolls-Royce, we maintain a Hold rating on the stock.
Economic News
Germany CPI
Consumer prices in Germany rose 0.5% y-o-y in January, after a 0.3% increase in the previous month. This was in line with the market expectations. On m-o-m basis, consumer prices fell 0.8% in January, after a 0.1% decrease in December.
Germany GDP
German GDP growth expanded 0.3% q-o-q in Q4 2015, following a similar reading in Q3 2015, as per the data published by the Federal Statistics Office on Friday. On y-o-y basis, GDP grew 1.3%, from previous quarter’s growth of 1.7%. The German economy expanded 1.7% for fiscal year 2015.
Eurozone GDP
Eurozone GDP expanded 0.3% q-o-q in Q4 2015, following a similar reading in Q3 2015, European Union’s statistic office revealed on Friday. On y-o-y basis, economic growth slowed to 1.5% from 1.6% in the previous quarter.
US retail sales advance
US retail sales advance increased 0.2% m-o-m in January 2016, after a revised 0.2% rise in December, the Commerce Department said on Friday. Excluding the sales of motor vehicle and parts, retail sales were 0.1% up in January, following a similar reading in December.
US University of Michigan sentiment
The US University of Michigan’s consumer sentiment index for February fell to 90.7 from 92.0 in January, preliminary data indicated on Friday. Economists expected a reading of 92.3. The consumer expectations index, which closely forecasts the direction of consumer spending, decreased to 81.0 from 82.7, while the current economic conditions index fell to 105.8 from 106.4.