UK spending growth ‘at two-year high’

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Today’s edition features:

  • Orogen Gold (ORE.L)
  • easyJet (EZJ.L)

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"While some market watchers consider the US equity bonanza may have got ahead of itself, with giant inflows from bonds and other international markets pushing almost US$70bn into the US market since Trump’s election according to BofA Merrill Lynch, for now at least the only way appears to be up. Economists were somewhat taken aback by Friday’s below consensus non-farm payrolls figure of 156,000, but comfort was drawn from the fact that the previous two months had been revised up by a net 19,000 and, perhaps more significantly, that average hourly wages growth rose to an annualised rate of 2.9%, up from 2.5% in November. This was the fastest pace since 2009 and underwrites the fact that inflationary pressure will have already build up a head before Trump can actually enact his campaign pledge to ramp up fiscal spending. Assuming this starts arriving during the second quarter with an economy already close to full employment, the consequent pressure on earnings means the US could encountering something of an inflationary shock before the year end. This suggests the market’s current expectation of just three 25bp Fed rises during 2017 may be much too prudent. The UK meanwhile, continues to struggle with Brexit uncertainties. Over the weekend, Prime Minister, Theresa May, said the UK would be making a definitive break with the EU, insisting full control of its borders would be taken back while also seeking to negotiate the best possible trade access. The rising chances of a ‘Hard’ Brexit knocked Sterling, however, whose slide accelerated as Nicola Sturgeon, leader of the Scottish National Party, confirmed that such an outcome might result in a second independence referendum. Just about all the international equity markets made gains after London’s close on Friday, with the Dow Jones kissing the psychologically significant 20,000 level for the first time before tracking back marginally, while the NASDAQ recorded another all time closing high. This morning’s Asian trading was led by the ASX which at one stage touched its highest since May 2015, while Chinese stocks made modest gains amid news that the country’s foreign-exchange reserves had fallen to their lowest since March 2011; the Nikkei remaining closed for a public holiday. Today the UK will see the release of the Halifax House Price Index for December, while the EU publishes its November Employment Rate ; two Fed members, Eric Rosengren and Dennis Lockhart, are also due to speak, which could provide additional light on recently release FOMC minutes. UK corporates due to provide earnings or trading updates this morning include Centamin (CEY.L), Ferrexpo (FXPO.L), Ilika (IKA.L), Safestore (SAFE.L) and William Hill (WMH.L). UK equities, however, are expected to take their lead from the overnight markets, with the FTSE-100 seen rising some 30 points in early trade."
– Barry Gibb, Research Analyst



Markets

Europe
The FTSE-100 finished Friday’s session 0.20% higher at 7,210.05, whilst the FTSE AIM All-Share index closed 0.58% better-off at 863.06. In continental Europe, the CAC-40 finished 0.19% higher at 4,909.84 whilst the DAX was 0.12% higher at 11,599.01.

Wall Street
In New York on Friday, the Dow Jones gained 0.32% to 19,963.80, the S&P-500 added 0.35% to 2,276.98 whilst the Nasdaq ended the session 0.6% higher at 5,521.06

Asia
In Asian markets this morning, the Nikkei 225 had fallen 0.34% to 19,454.33, while the Hang Seng added 0.25% to 22,559.98.

Oil
In early trade today, WTI crude was down 0.54% to $53.70/bbl and Brent was down 0.46% to $56.84/bbl.


Headlines

UK spending growth ‘at two-year high’
The final three months of last year saw the strongest quarterly growth in consumer spending in two years, according to payment card company Visa. Its research, which reflects cash and card spending, showed expenditure rising at an annual rate of 2.8% in the fourth quarter. That was the quickest quarterly growth rate since the end of 2014. The report comes ahead of trading updates this week from Marks and Spencer (MKS.L), Tesco (TSCO.L) and Morrisons (MRW.L). Last week Next (NXT.L) supplied a shock to the retail sector when it reported a disappointing Christmas trading period and warned that conditions would continue to be difficult this year. Next shares lost almost 20% in two days and the warning also hit shares in Mark and Spencer and Debenhams.

Source: BBC News


Company news

Orogen Gold (ORE.L, 0.01p) – Speculative Buy
Orogen Gold announced today initial results from its RC drill programme on the Silverton gold-silver project in Nevada. Orogen has the right to earn-in to an initial 51% interest in Galileo Resources’ Silverton property by way of exploration expenditure of US$0.4m and earn an additional 24% interest with a further US$1.5m. The Silverton property covers a 6km2 area comprising 72 lode claims in Nevada where historical exploration has discovered widespread gold and silver mineralisation within highly a prospective geological and structural setting. Orogen completed 1,274m of RC drilling comprising five holes that targeted the Silverton Fault Zone and potential high-grade structurally controlled feeder zones. Mineralised intervals up to 71.63m grading 0.20g/t Au including 1.52m grading 1.33g/t were intersected. The initial drill programme has now tested 600m of strike length at intermediate depths within weakly a mineralised tuff-quartzite package.

Our view: Unfortunately the above drill results did not identify any new lithologies or evidence of a structurally controlled high-grade feeder zone at depth and along the Silverton Fault Zone. Whilst the results are disappointing its not surprising given the early exploration stage of the project. Management will now assess the drill results along historical results in order to better understand the style of mineralisation in the area and generate additional drill targets in 2017 if appropriate. Despite the initial drill results, the Silverton property is located within a mining friendly jurisdiction that has a history of prolific gold production and remains highly prospective. We look forward to the management’s assessment and potential for additional targets to be tested in 2017. In the meantime, we maintain a Speculative Buy on the stock.

Beaufort Securities acts as corporate broker to Orogen Gold plc

easyJet (EZJ.L, 1,059.00p) – Buy
easyJet, a low-cost European short-haul airline company, on Friday released its passenger statistics for December 2016. During the month, passenger traffic increased by +15.1% y-o-y to 5,579,978, while load factor rose by +3.3% to 89.9%. On a rolling basis for the past 12 months, passenger traffic grew +6.6% to 74.5 million customers and the load factor declined by -0.1% to 91.5%. Passenger traffic represents the number of earned seats flown while load factor represents the number of passengers as a proportion of the number of seats available for passengers.

Our view: easyJet delivered strong y-o-y passenger growth in December with load factor returning to positive growth. Although December’s strong statistics were helped by a relatively weaker comparative (against December 2015 vs December 2014), where passengers traffic increased by only +4.6% and load factor fell by -1.8%. In November, easyJet announced resilient preliminary results for the FY2016, in which it delivered -0.4% declined in revenue, -27.9% fall in pre-tax profit and -21.9% drop in basic earnings per share, in line with guidance during a period that was significantly disruptive for the entire industry. The Group registered record passenger numbers and load factor in the FY2017, while delivering a strong balance sheet at the period-end despite increasing its dividend pay-out ratio to 50%. While keeping one careful eye on the oil price and economic/political uncertainties, Beaufort retains its Buy rating on the shares based on a FY2017E earnings multiple of 12.1x and 4.1% yield.

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Compiled by:
Barry Gibb, Kazunaga Senga, Sheldon Modeland & Charles Long
(t) +44 (0) 207 382 8384
(e) info@beaufortsecurities.com


Weekly diary


Click here to see all this week’s planned corporate and economic announcements.


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