The markets
Europe
The FTSE-100 finished yesterday's session 0.32% lower at 6,136.43, whilst the FTSE AIM All-Share index closed 0.40% worse-off at 730.81. In continental Europe, markets ended lower due to mixed economic data in the Eurozone and a fall in oil prices. Additionally, prospects of an interest hike by the Fed in June dampened investor sentiment. Germany's DAX and France's CAC 40 shed 0.7% each.
Wall Street
Wall Street ended in the red in a low volume trading session. Investors await important economic data release later this week for clarity on an interest hike by the Fed. The S&P 500 fell 0.2%, with the utilities sector losing the most.
Asia
Equities are trading lower, extending losses on global markets. Fall in oil prices and speculation of an interest hike in the US hurt investor confidence. The Nikkei 225 fell 0.9% as a strong yen exerted pressure on export-driven stocks. The Hang Seng was trading 0.4% down at 7:00am, tracking the Chinese markets.
Oil
Yesterday, Brent oil prices fell 0.8%, while WTI prices increased 0.7%. The spread between the two varieties stood at US$0.3 per barrel.
Headlines
Eurozone consumer confidence improves in May
As per preliminary data from European Commission, the Eurozone's consumer confidence climbed to -7.0 in May from -9.3 in April. The reading was the highest in the last four months. In the European Union as a whole, consumer sentiment increased 1.1 points to -5.7.
Company news
Keras Resources (LON:KRS, 1.22p) - Speculative Buy
Keras Resources, the Australian gold mining company, announced today that it has entered into a Pre-Payment Agreement with Norton Gold Fields Ltd on all gold ore delivered to the Paddington Mill. Under terms of the original tribute agreement, Norton had 42 days to pay for the agreed contained gold, as determined by truck weights and gold grades based on rigorous sample procedures at the processing plant. The Pre-Payment Agreement will expedite 80% of payment to Keras and the gold content will be calculated from run-of-mine (ROM) tonnes at an average grade based on assay results and assuming 5% moisture and 90% metallurgical recovery. The gold price applicable to the estimated recovered ounces will be fixed to the close of business on the first day of gold pour following delivery to the mill. The final payment difference of adjustment will be made on the final grade as determined through the Paddington Mill sampling plant.
Our view: Keras has delivered some 1,427oz of contained gold from two deposits within the Grants Patch Gold Tribute lease area. The first pre-payment on the first batch of ore is currently being processed and pre-payment on the second batch is expected in the first two weeks of June. We are encouraged with the expedited payment plan as it creates flexibility for Keras as it brings new production on line. We look forward to updates confirming gold grades and payments as final reconciled production will be reported quarterly. In the meantime, we maintain our speculative buy on the stock.
Beaufort Securities acts as corporate broker to Keras Resources plc
Sunrise Resources (LON:SRES, 0.14p) - Speculative Buy
Sunrise Resources has published its half year report to March which includes no new news but is a useful recap of its main projects and current activity. Sunrise's flagship asset is the diatomite project in Nevada which is now being developed by a major diatomite player in the region. Sunrise has retained a royalty on the project but the quantum/percentage has not been published. Given the large size of the project (i.e. its scale and potential value) plus the fact it remains Sunrise's main asset (top of the announcement), we expect the royalty to be in excess of 5%, potentially significantly more. Sunrise's other projects include two gold properties in Nevada (one is on the Carlin Trend) and a high grade narrow vein silver project. It also has a Pozzash deposit in California. This is an industrial minerals project which test work depending could be a source of environmentally friendly raw material for cement manufacture.
Our view: Sunrise management has always had a low cost approach to generating and developing mining projects. When compared to many if not most of its peers, Sunrise's incubator approach delivers results and value at a fraction of the cost. The diatomite project is a good example and we are hopeful the Pozzash project will be a similar success. The gold and silver projects offer a little more excitement. We retain our Speculative Buy recommendation.
Beaufort Securities acts as corporate broker to Sunrise Resources Plc
Aureus Mining (LON:AUE, 3.50p) - Speculative Buy
Yesterday, Aureus Mining (Aureus) released an operational update at the New Liberty project in Liberia. The company expects to commence with processing operations at New Liberty within the next two weeks. Aureus is working in tandem with the Ministry of Lands, Mines and Energy (MLME) and the Environmental Protection Agency of Liberia (EPA) to resume processing operations and ensure that the process is started in accordance with the International Cyanide Management Code (ICMC). Aureus disclosed that the EPA has approved the construction of holding zones within the wetlands area downstream of the tailings storage facility (TSF), which should enable better aeration of surface waters and improved retention times. The company has engaged technical experts to help with various modifications within the process plant and detoxification circuit to ensure that discharges onto the TSF comply with environmental and operating permits that govern the project.
Our view: Aureus has made progress after the temporary suspension of processing operations; it expects to commence operations in the next two weeks. The company continued talks with its suppliers and lenders, and continued with mining activities. Aureus' total production for 2016 to date stands at 30,000 ounces. The company performed well in Q1 2016, recording solid revenue and production. Mining activities continued, with preparations for the forthcoming wet season well underway and an additional new mining fleet (comprising five Komatsu HD785 haul trucks and a PC1250 excavator) having been deployed in May 2016. The company is taking advantage of the process plant stoppage to complete scheduled plant maintenance and increase its ore stockpile; the firm expects this would enable it to recover the lost production later in the year. Aureus has progressed well in all aspects related to the project; given the significant potential of this project, we are optimistic about positive production results from the company in the near future. We maintain a Speculative Buy rating on the stock.
Lansdowne Oil & Gas (LON:LOGP, 2.12p) - Capital Renegotiation (Shares Presently Suspended)
Yesterday, Lansdowne Oil & Gas (Lansdowne) proposed capital reorganisation to cover its anticipated liabilities and secure the necessary working capital. The company has proposed equity fundraising through the issue of 350 million new ordinary shares, which would represent around 216% of Lansdowne's current ordinary issued share capital. The issue of these shares would reduce the value of its one ordinary shares from 2.12p (as at 13 April) to 0.1p per share and one deferred share to 4.9p. Lansdowne's existing articles of association will need to be amended to make changes to allow for the creation of the deferred shares. The company would seek shareholders' approval for these proposals at its general meeting on 9th June 2016.
Our view: The aforementioned proposals by Lansdowne are an important step considering the problems it has recently faced. Lansdowne was temporarily suspended for trading as it had to make payments to rig contractor Transocean following a court ruling. The reorganisation would enable the company to raise funds that would help it cover working capital requirements and liabilities arising out of court of appeal ruling. Moreover, Lansdowne needs funds to progress with the long-awaited Barryroe project. We believe the fundraising approval by shareholders would be positive for both shareholders' and the company's growth prospects. While we look forward to the results of the general meeting in June, given that its shares are currently suspended, this note should be read as information purposes only.
Ryanair (LON:RYA, 13.65p) - Buy
Ryanair, a low-cost European airline company, yesterday announced its final results for the year ended 31 March 2016 ('FY2016'). During the period, revenue advanced +16% to €6.5bn and net margin improved by +4% to 19% against comparable period (FY2015). Profit after tax jumped +43% to €1.2bn, consequently resulting basic earnings per share also expanded by +48% to €0.93 per share. The passenger traffic for the year grew +18% to 106.4 million customers while load factor rose by +5% to 93%. Average fare fell -1% to €46 and units cost reduced by -6% (ex-fuel unit costs dropped -2%). On the operational front, Ryanair completed Year 2 of its Always Getting Better ('AGB') programme. The Group disposed Aer Lingus at €398m which was distributed to shareholders in November, and in addition, it launched 4th share buyback programme worth €800m in February, which expect to complete by the end of September 2016. Ryanair acquired 41 new B737 aircraft, launched 7 new bases and opened more than 100 new routes during FY2016. Looking ahead, AGB initiatives in FY2017 will include a new Leisure Plus service, improved Business Plus, a 'One-Flick' payment facility on mobile app, auto check-in for 'My Ryanair' customers and lower checked bag fees. The Group is planning to acquire 52 new B737 aircraft in FY2017, bringing total fleet to 380, and 7 additional bases. Ryanair secured significantly improved terms on its fuel and foreign exchange rate hedging for FY2017 as it hedged 95% of fuel at c.US$62 per barrel (FY2015: US$90) and €/$ at US$1.18. This will deliver fuel savings of c.€200m which the Group is planning to pass on most if not all of these savings to customers. For FY2018, currently 44% of fuel are hedged at c.US$50 per barrel.
Our view: Ryanair delivered good full year result for FY2016, despite the terrorist attacks that hit Paris in November 2015 and Brussels airport in March 2016, as well as series of strikes by ATC (air traffic controllers) in France, Belgium, Greece and Italy. Such events have a direct impact on airlines as they discouraged potential travellers and caused flights disruptions. In Q4 alone, combination of above events has resulted over 500 flights being cancelled and both revenues and profit after tax came slightly short compared to the consensus analysts' estimate. The reduction of ex-fuel cost by -2%, however, was attractive and, more remarkably, Ryanair surpassed the 100 million annual passenger mark by delivering +18% year-on-year growth in traffic totalling 106.4 million customers - the first airline ever to surpass this milestone in one calendar year. It reaffirmed success of its AGB programme to deliver better customer experience. Looking ahead, in the Year 3 of its AGB programme, the Group will be focused on digital acceleration and innovation, particularly through its Ryanair Labs digital developments. Ryanair provided its vision for FY2017 with flat load factor (93%), +9% growth in passenger traffic to 116 million customers, and ex-fuel cost reduction of -1%. While the Group is, on average, +2% better booked for the peak summer months than this time last year, there was some 200 plus flight cancellations so far in Q1 2017, due to further ATC strikes and expect softer pricing caused by intense competition. As usual with Ryanair's conservative forecast, the Group said it cautiously expect profit after tax for FY2017 to rise modestly by c.+13% to a range of €1,375m to €1,425m, whereas the current consensus estimate suggests profit after tax to be around €1,472m. Given reduced expectations of BREXIT on June 23rd, continuing positive impact of the AGB programme, strong balance sheet with net cash of €312m, together with significantly improved fuel and FX cost hedging terms, the Group is likely to achieve its profits close to the consensus estimate. Accordingly, Beaufort reiterates Buy rating on the stock.
Tissue Regenix (LON:TRX, 17.75p) - Speculative Buy
Full year results to 31 January 2016 were announced yesterday with sales of DermaPure exceeding US$1m in the US, cash of £20m and a net loss of £9.5m, all as expected. Revenue guidance, for the new year-end 31 December 2016, is given at US$2.5m-US$4.5m, reflecting some concern over the last two Medicare Administrative Contracts (MACs) to secure 100% - the Company has 74%. With senior sales personnel recruited we see the hybrid sales model as positive for DermaPure. We welcome the 510(k) market clearance from the FDA for medical device SurgiPure XD, in March 2016. This further validates the dCELL technology and augers well for future potential regulatory approvals.
Our view: During the year Tissue Regenix made significant progress both in the commercialisation and regulatory pathways across all of its key focus areas. The performance of DermaPure in its first commercialised year exceeded the Company's expectations and gives the Management the confidence as the Company progress with a number of line extensions in different clinical applications. This progress was also mirrored in the porcine orthopaedic products OrthoPure XM & OrthoPure XT both of which entered regulatory clinical trials for CE marks. The establishment of the joint venture in Germany, GBM-V, is an important milestone in the progress as a maturing commercial company, and allows Tissue Regenix to bring its dCELL human tissue applications to a wider European market. Also, allowing the Company to grant for the first time the dCELL heart valve licence and to begin commercialising DermaPure outside the US is significant. The momentum has accelerated since year end, with further Medicare coverage for DermaPure, and 510(k) market clearance from the FDA for medical device SurgiPure XD, the first approval for a dCELL application under this regulatory body. The CEO's statement was a confident one and we believe the Company is beginning to demonstrate the significant potential of its dCELL technology platform. We reiterate our Speculative Buy stance on the Company.