The FTSE 100 gained on Thursday as the Bank of England raised rates and investors digested the latest comments from Russia that progress towards a ceasefire was ‘wrong’.

European shares had started the day on positive note after the Federal Reserve increased rates, leading to a rally in US stocks overnight.

The FTSE 100 eked out some gains Thursday morning after the US Federal Reserve moved to raise interest rates for the first time since 2018,” said Russ Mould, Investment Director, AJ Bell.

By the time the Bank of England announced a 0.25% rate hike to 0.75%, the FTSE 100 was trading comfortably higher 7,320, up 0.4%.

However, the pound fell as doubt was cast over the possibility of future rates hikes, despite a revised Bank of England 8% inflation target.

UK Banks

UK banking shares were marginally lower on Thursday before the Bank of England voted 8-1 to raise rates, but extended losses after the bank changed their language around further rate hikes this year.

In February the bank said it would be ‘likely’ they raised rates again – which they have done today – but they now say there ‘might be’ more rate hikes this year, casting doubt over the trajectory for UK rates.

This means UK banks could miss out on further benefits to their Net Interest Margins in absence of more rate hikes.

Lloyds, Barclays and Natwest shares were down over 2% at the time of writing and continuing their declines.

Ocado

The top fallers included the Ocado Group, declining 8% to 1,106.5p. During the height of Covid-19 Ocado was trading at almost 3,000p per share in September 2020.

The online retailer took a dent to its earnings after it failed to acquire new clients, alongside issues including its patent lawsuit with Norwegian Autostore and a robot fire in its South-East London property.

“The pressure on margins from rising inflation looks to be a growing issue and will not help Ocado at group level given the solutions business remains heavily loss-making,” said AJ Bell investment director Russ Mould.

Diageo rose 2.2% to 3,674.7p after JP Morgan upgraded the stock’s rating from hold to buy earlier today.

Scottish Mortgage Investment Trust continued its upward trajectory after the 7% rebound in the Hang Seng index today saw its major Asian holdings Tencent and Alibaba recover recent losses.

Commodities

Oil prices have once again exceeded the $100 mark to $102 earlier today as a result of the International Energy Agency stating that the sanctions imposed will lead to a loss of 3m barrels a day of Russian oil exports.

Shell and BP shares were up 1% in Thursday morning trade.

Marshalls’ adjusted pre-tax profit flew 221% from £22.5m to £72.1m in 2021, and revenue climbed to £589.3m in 2021 from £469.5m as the landscape product specialist saw demand recover from the pandemic.

In the aftermath of the pandemic, project timelines, supply chain pressures and inflationary costs of input materials were mitigated by a proactive supply chain management initiative.

The group faced operating problems with the supply of raw materials and labour however still managed to report strong financials as they altered the prices by introducing flexibilities in labour and manufacturing practices to match the increase in costs.

Adjusted EBITDA had an increase of 86% to £107.1m in 2021 compared to £57.6m in 2020.

The groups St Ives project is in line with the plan and capital investments of £35m have been allocated to the projects coming in 2022. The capital expenditure however reduced from £30m to £21.9m in 2021.

Net debt declined from £75.6m to £41.1m as the company understood the importance of liquidity and remained discipline in their capital expenditure. Adjusted ROCE increased from 8.2% to 20.6% in 2021.

The groups total dividend is 14.3p including a proposed final dividend of 9.6p in 2021 compared to 4.3p in 2020 as a result of their progressive dividend policy.

Going forward, the company will keep health and safety as a priority in their operations, a practice they focused on during the pandemic.

Martyn Coffey, Chief Executive Officer, Marshalls, “trading remains strong and has continued to improve since the start of the year, notwithstanding ongoing supply chain challenges.”

“Our strong market positions, focused investment plans and established brand underpin the group’s business strategy. We remain confident that our strategy will continue to deliver profitable long ‑ term growth and that we will be able to mitigate raw material shortages and cost inflation through the effective management of our supply chain.”

“Given the strength of recent and current trading the board’s expectations for the current year are now ahead of its previous view.”

Marshalls share were trading up 1.8% to 655p in early morning trade on Thursday.

Cineworld shares were trading up 4.5% at 38p after the cinema operator reported a $1bn increase in group revenue.

The group’s revenue soared from $852m in 2020 to $1.8bn in 2021 despite location closures due to covid restrictions.

In 2021, box office sales contributed $955m followed by retail contributing $552m.

A substantial amount of $296m was received in revenue from other income which is mainly on-screen advertising and booking fees.

Pre-pandemic revenue was $4.3bn leaving the group in a position to rethink their strategy on how to recover from the consequences of lockdowns.

Covid-19 caused closures of public venues such as Cineworld and thus the results include impact of the restrictions between January to May 2021.

Group adjusted EBITDA was $454m in 2021 after a loss of $115m in 2020. The company restructured their labour policy, renegotiated contracts and controlled their expenses in an attempt to reduce their losses incurred by the pandemic.

Out-of-home entertainment saw an increase in demand with ease of restrictions after the pandemic resulting in Cineworld admissions increasing 75% to 95.3m in 2021.

Operating profits was $15m in 2021 as opposed to losses of $2.2bn were set in 2020.

A net reversal of impairment charges of $127m in 2021 was a big contributor to a swing in operating profits following charges of $1.3bn in 2020.

Cineworld’s net financing costs were $690m in 2021.

The company understands the importance of liquidity and thus raised $425m through convertible bonds. The United States CARES Act tax refund also returned $203m.

The groups net debt rose from $4.3bn to $4.8bn in 2021.

Cineworld disagrees with the C$1.2b award from Ontario Superior Court’s judgement and has submitted an appeal.

In 2020 the group paid interim dividends of $0.38, however final dividends will be declared after the group evaluates their cash balances post liabilities.

Mooky Greidinger, Chief Executive Officer, Cineworld Group said, “whilst our 2021 results still reflect the impacts of COVID-19, particularly at the start of the financial year, we are encouraged by the recent strong trading performance throughout the final quarter.”

“It is clear that our customers remain loyal and have missed the big screen experience as well as the sociability of watching a movie with others.”

“Our strong final quarter performance reflects the pent-up demand for affordable out-of-home entertainment and the record breaking film slate, including “Spider-Man: No Way Home”, which showcased the importance of cinematic releases.”

“The business is well positioned to execute its strategy and capitalise on the highly anticipated movie schedule, which includes Avatar, Top Gun Maverick, Jurassic World: Dominion, Minions: The Rise of Gru, Doctor Strange in the Multiverse of Madness, Thor: Love and Thunder, Black Panther: Wakanda Forever, Bullet Train, Spider-Man: Across the Spider-Verse, Pixar’s Lightyear, Fantastic Beast, Elvis and many more.”

Rolls-Royce shares have faced significant downside throughout the pandemic but shares have recently seen all the benefits of increased air travel scuppered by a poor set of results that missed expectations.

During the pandemic, the company suffered huge losses of nearly £4bn as a result of stringent travel restrictions.

Rolls-Royce is one of the world’s largest suppliers of jet engines. However, the company’s main source of revenue comes from the maintenance costs of the engines rather than just the sales. This means the company needs planes to be flying to earn revenue.

In 2021, Rolls-Royce saw operating profits of £513m as opposed to losses of £1.9bn in 2020 as the pandemic came to an end.

The company saw revenues over £11bn with largest contributions of £4.5bn and £3.3bn from the civil aerospace and defence segment respectively.

Rolls Royce’s Civil Aerospace division produced revenues of £4,536m in 2021 after recording 7.4m large engine flying hours, up 11% on 2020.

This is set for further recovery in the coming year and will be a key driver of revenue growth and profitability in 2022.

Although the key driver of demand in their Civil Aerospace unit is set to return, there should be caution around the impact of inflation on household spending and a possible reduction in leisure travel.

Defence

With tensions arising on the geopolitical front due to the Russia-Ukraine war, Rolls Royce will likely see an uptick in defence orders as global powers once more refocus their budgets on bolstering their military capabilities.

The defence segment saw an increase of £155m to £3.3bn in 2021 revenues, with an underlying operating loss of £172m.

Rolls Royce have secured a B-52 engine replacement contract with the US which promises a long term revenue source and have recently announced the launch a joint-venture to create a fighter jet engine for Turkey, an TF-X aircraft.

Investors will be watching closely for any surprise contract wins this year.

Power Systems

The revenues in the power systems business division increased by £89m to £2.7bn. Rolls Royce power solutions are focused on clean energy across a diverse range of applications from hydrogen combustion engines to power solutions for a hyperscale data centres.

Rolls Royce is also moving into nuclear power after receiving a $546m funding round supported by the UK Government for Rolls-Royce to start developing their first small modular nuclear reactors.

Earlier in the week, the British government requested the UK nuclear regulators to begin the process of approving Rolls-Royce’s nuclear reactor initiative.

The results from the nuclear reactors should help reduce carbon emissions and fossil fuel dependence, and in time, Rolls Royce revenues.

“We have also made significant progress with our new businesses in electrical power and small modular reactors, both of which have the potential to create very significant long-term value,” said Chief Executive Officer, Warren East.

Warren East is set to leave his post at the helm of Rolls Royce which has dented investor sentiment around Rolls Royce shares.

The power division saw an increase of £67m in underlying operating profit to £242m.

The increase in revenues and underlying operating profits have been observed due to reduced impact of COVID-19 leading to increased order intake in the fourth quarter.

Rolls-Royce Shares Valuation

With Rolls-Royce trading at 93p, the stock has a forward P/E of 29.3x which is high given earnings growth recently missed expectations and margins look weak for 2022.

However, investor sentiment around travel related shares may improve through 2022 and benefit Roll Royce shares, which may swept up in broad-based allocations to the sector.

The BAE Systems’ share price saw a dip of 4.5% to 699.2p in early afternoon trading on Wednesday in a move towards the lowest levels since the beginning of the Ukraine crisis.

BAE Systems is the largest arms contractor in Europe and saw their shares picked up by investors positioning for increased defence spending as a result of the conflict.

The start of the conflict coincided with the release of their 2021 results which revealed an increase in revenue and operating profit in 2021.

However, BAE’s share price has experienced a decline after diplomatic negotiations began this week, potentially quashing the stock’s attractiveness for investors realigning their portfolio’s for prolonged geopolitical tensions.

Should there be a ceasefire, the premium built into BAE’s shares could quickly evaporate and see the stock move back to around 600p, the level it was trading before the conflict.

Financial Results for 2021

Regardless, BAE Systems is a historically strong company and has sound fundamentals. The group saw its sales increase to £21.3 billion in 2021 compared to £20.8 billion in 2020.

The arms contractor reported an underlying EBIT of £2.2 billion against £2 billion in 2020 and a revenue of £19.5 billion in 2021 compared to £19.2 billion in 2020.

BAE Systems highlighted its operating profit of £2.3 billion in against £1.9 billion in 2020, and its order intake of £21.4 billion compared to £20.9 billion in 2020.

The arms group announced a dividend per share of 25.1p against 23.7p in 2020. BAE has almost always been an income investors favourite, and there is nothing in its latest results to suggest this will change.

BAE Systems Growth

BAE Systems reported an expected growth between 2-4% over 2022, attributed to electronic systems, air, maritime, cyber and intelligence sectors in the company.

The company recently acquired US-based Bohemia Interactive Simulations, which specialises in military training simulations, a point of interest as the Ukraine conflict continues.

The arms developer noted that 75% of expected sales are already in its order backlog for the coming year. This has the potential for upside surprises in future earnings releases.

BAE Systems shares

BAE Systems has strong fundamentals and is operating in favourable environment. The company has reported increased profits and dividend for 2021, and is projected to grow 2-4% over 2022 based on its current backorder portfolio.

However, the potential for the Ukraine war premium to be removed from the BAE share price means investors should be patient looking for an entry.

The FTSE 100 climbed on Wednesday following a rally in Asian markets and hopes there would be a ceasefire in Ukraine.

Asian market strength included an impressive 9.1% jump in the Hang Seng index which translated to a strong start for European equites.

“After a big sell-off in Chinese stocks on Monday and Tuesday, Beijing has stepped in with pledges of support to try and stabilise markets,” said says Russ Mould, investment director at AJ Bell.

Ongoing negotiations between Ukraine and Russia also helped lift sentiment as investors positioned for a potential ceasefire.

“There are signs of optimism coming through on financial markets today with the FTSE 100 opening up 1.2% in early trade amid fresh signs a negotiated deal to end the conflict in Ukraine may be a step closer,” said Sophie Lund-Yates, Lead Equity Analyst at Hargreaves Lansdown.

Lund-Yates also highlighted optimism around inflation. The falling oil price may mean we have seen a top in a inflation.

“This comes hot on the heels of a rally in Asia and the US, where there are genuine hopes inflation may have peaked.”

Interest Rate Decisions

The markets are awaiting the U.S. Federal Reserve’s policy decision in which it is expected to raise rates on Wednesday.

Investors are flocking to financial stocks with the additional expectations the Bank of England will raise interest rates as a result of increasing inflation and the recent decrease in UK employment rate. Standard Chartered shares are up 2.3% to 493p while Lloyds and Barclays gained between 2.1% and 2.4%.

Scottish Mortgage Investment Trust saw its stock rise 7.6% to 944.9p as its holdings in Asian companies Tencent and Alibaba saw rebounds of 23% and 26% respectively.

Prudential rose 5.9% to 1,059.5p as its refocus on the Asian market in 2021 pulled its share price higher along with the rising Hang Seng index.

“In the UK, the FTSE 100 jumped 1.4%, led by companies exposed to Asia including Scottish Mortgage Investment Trust, Burberry and Prudential,” said Russ Mould.

Fallers

The top fallers were led by Avast with a decline of 11.5% to 570.1p after an $8.6 billion merger with NortonLifeLock was halted by an investigation by the Competition and Markets Authority (CMA).

“As the companies are close competitors, with few other significant rivals, the Competition and Markets Authority is concerned that, if completed, the proposed deal could lead to a reduction in competition in the UK market,” the CMA said in a statement.

BAE Systems fell 3.1% to 709.4p as Russia and Ukraine to discuss a peaceful resolution to the ongoing conflict.

Pearson saw its share price fall 2.2% as the buzz from its declined £7 billion Apollo cash offer subsided.

West African gold company Cora Gold has began drilling in their flagship Sanankoro Project in Southern Mali.

Cora Gold, is focused on developing the Sanankoro Gold Project in Southern Mali’s Yanfolila Gold Belt, where Cora plans to start building an open pit oxide-focused gold mine in 2022.

The drilling has began as expected in Q1 of 2022, with an initial 7,500m drill programme.

In the MRE report released in November 2021, the company found 21.9m tonnes at 1.15 grams per tonne of gold.

The total mineral resource estimate (MRE) was 809.3 koz at 1.15 grams per tonne of gold.

With the drill programme, the gold miners are trying to enhance the MRE.

All deposits remain open at depth and along strike, allowing for significant expansion.

The results from the drilling will be released once the programme is completed. The expected date for completion for the drilling is Q2 2022.

Following the completion of all definitive feasibility study (DFS) field work in January 2022, work on the DFS is picking up pace, with the study scheduled to be finished in H1 2022.

Bert Monro, Chief Executive Officer, Cora Gold, commented, “We have multiple workstreams underway as we set our sights on delivering a definitive feasibility study in the coming months, alongside a resource expansion programme, which we believe will further enhance both the quantum and confidence levels of our MRE.”

“We have consistently demonstrated Sanankoro’s potential to become an open-pittable, free-digging oxide mine and work will accelerate throughout 2022 as we look to make this into reality.” 

“We look forward to sharing updates from this drill programme over the coming weeks.”