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Beaufort Securities Breakfast Alert: Keras Resources, Man Group

Published: 03:06 18 Apr 2016 EDT

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The markets

Europe
The FTSE-100 finished Friday's session 0.34% lower at 6,343.75, whilst the FTSE AIM All-Share index closed 0.03% lower at 732.29. Continental markets declined as investors grappled with a slowing Chinese economy and earnings releases by several companies. Investors remained cautious ahead of the upcoming meeting between oil producers on Sunday. Germany's DAX and France's CAC 40 shed 0.4% each.
Wall Street
Wall Street ended in the red as investors remained cautious ahead of the upcoming meeting between global oil producers this weekend to freeze oil output to contain the glut. Furthermore, mixed economic data failed to lift investor sentiment. The S&P 500 closed 0.1% lower on Friday. Energy was the top decliner.
Asia
Equities are trading lower after the Doha talks between oil producers failed to put a cap on global oil production. The news led to a decline in oil prices. The Hang Seng was trading 1.5% lower at 7:00 am. Meanwhile, the Nikkei 225 plunged 3.4% owing to a series of earthquakes in Japan last week.
Oil
On Friday, WTI and Brent Crude Oil prices declined 2.7% and 1.7%, respectively. The spread between the two varieties stood at US$2.3 per barrel.

Headlines
Talks collapse as oil producers fail to reach agreement
The long-awaited meeting between oil producers to freeze production at existing levels to curb glut ended indecisive. OPEC members such as Saudi Arabia, Qatar, Venezuela and Russia participated to discuss plans to limit production and protect their profits. The talks stumbled after Iran refused to comply with the production cut.
Spain economy expands 3.2% in 2015
Spain, the Eurozone's fourth largest economy, expanded 3.2% on 2015. The expansion was primarily driven by high business and consumer spending. Falling oil prices, record low interest rates and a weak euro were other drivers. The country is expected to expand 2.7% in 2016.

Keras Resources (LON:KRS, 1.32p) - Speculative Buy
On Friday, Keras Resources (Keras) raised £1,250,000 (before expenses) through the placing of 113.6 million new ordinary shares at 1.1p per share to new and existing shareholders. The company informed that the proceeds would be used to accelerate production at the high-grade Prince of Wales (POW) underground mine and the Lindsay's mine.

Our view: Keras' fundraising via the issue of equity reflects strong shareholder support. The company plans to use the funds to expedite production at two of its major assets: POW and Lindsay's mines. The POW mine is expected to produce 15,000–20,000 ounces of gold at an all-in cost of less than A$900 per ounce. The mine is projected to generate pre-tax cash flows of A$1m per month at the current gold price. The Lindsay's mine holds 215,100 ounces Au at a grade of 1.7g/t Au. Keras expects to achieve a production of 30,000–40,000 ounces per year from the mine in H1 2017. Recently, the company commenced ore mining under its bulk sample permit at the Anomaly 22 deposit, located in the Grants Patch Gold Tribute lease area in the Western Australian goldfields. Overall, Keras is well-placed with sufficient funds and resources to deliver long term growth. Therefore, we maintain a Speculative Buy rating on the stock.

Beaufort Securities acts as corporate broker to Keras Resources plc

Man Group (LON::EMG, 162.4p) - Hold
On Friday, Man Group released a trading statement for the quarter ended 31st March 2016 (Q1 2016). During the period, funds under management (FUM) stood at US$78.6bn compared with US$78.7bn as on 31st December 2015. Net flows in Q1 2016 amounted to US$0.5bn, comprising sales of US$5.1bn and redemptions of US$4.6bn. Net inflows for quant alternative stood at US$1.3bn and US$0.4bn for quant long only strategies. Net outflows from discretionary alternative, discretionary long only and guaranteed products stood at US$0.6bn, US$0.5bn and US$0.1bn, respectively. Net flows for fund of fund alternatives remained unchanged in Q1 2016. Man Group reported an overall investment movement of negative US$0.7bn for Q1 2016. The company's AHL segment reported positive investment performance across strategies, adding US$0.8bn to FUM. On the other hand, the GLG segment registered negative investment performance, with FUM decreasing by US$1.5bn. Investment performance for Numeric and FRM remained flat in Q1 2016. Man Group recorded FX movements of positive US$0.8bn in Q1 2016, mainly due to weakening of the US Dollar against the Japanese Yen and Euro.

Our view: Man Group performed resiliently in Q1 2016 despite difficult market conditions. The company reported net inflows of US$500m due to good contributions from quant alternative and quant long only strategies. Quant alternative FUM increased by US$2.3bn during the quarter, led by net inflows, positive investment performance and favourable currency movements. Quant long only FUM increased by US$0.4bn as a result of net inflows, directed mainly into emerging markets. The ongoing uncertainty in the market has reduced the risk appetite of investors, however, which has negatively impacted performance of some of the Company's products. As a result, Man Group has undertaken initiatives to diversify its business model and identify new growth opportunities. We believe the company will be able to successfully navigate through these challenging conditions, where after it should find itself positioned to generate lucrative returns once markets have stabilized once again. This will provide the incentive to upgrade our recommendation but, in the meantime, the background environment is likely to restrain the Group's net flows. In view of this mixed outlook and uncertain timing, we retain our Hold rating on the stock.

Economic news
US empire manufacturing
The US Empire State manufacturing index for general business conditions jumped to 9.6 in April from a reading of 0.6 in March, the manufacturing survey by the Federal Reserve Bank of New York revealed on Friday. The economists had expected the reading to improve to 3.0.
US industrial production
Industrial production in the US dropped 0.6% m-o-m in March, matching the downwardly revised decline for February, the Federal Reserve announced on Friday. Markets, on the contrary, were expecting the output to fall 0.1% compared to the previously reported 0.5% drop in February. Manufacturing output, the key component of industrial production, fell 0.3% on a monthly basis following 0.1% drop in February. Mining output also lowered 2.9%.
US University of Michigan sentiment
The US University of Michigan's preliminary consumer sentiment index for April fell to 89.7, from a reading of 91 in March, data indicated on Friday. Economists expected the reading to improve to 92. The consumer expectations index, which closely forecasts the direction of consumer spending, edged down to 79.6 from 81.5, whereas the current economic conditions index declined to 105.4 from 105.6. The one-year expectation for inflation remained unchanged at 2.7% in April.

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