Morning Notes

29/09/2017 Argonaut Morning Note

Market Update & Important Indicators
Rising shares of chemical and health-care companies helped lift the S&P 500 on Thursday. Trading activity was relatively muted as investors appeared to take advantage of some recent pullbacks, and gauge the likelihood that Republicans would pass their proposal to overhaul the tax code. The S&P 500 continued its trend of trading in a narrow range, up less than 0.1% in the last half-hour of trading after being down slightly earlier in the session. The Dow Jones Industrial Average was recently up 0.2% while the Nasdaq Composite shed 0.1%. Shares of tech companies and financial firms were little changed Thursday after they helped lift indexes higher a day earlier, ending a four-session losing streak for the Dow industrials. The Russell 2000 index of small-capitalization stocks was recently up 0.1%, after it rallied following the release of the tax proposal Wednesday. While the plan is expected to benefit smaller companies that tend to generate more revenue domestically, some investors and analysts expressed concerns about legislative challenges ahead, especially after the GOP faltered in its latest attempt to repeal the Affordable Care Act. The U.S. gold price rebounded overnight, gaining 0.3% to close at 1,286.70 US$/oz.

European stocks booked their sixth straight win Thursday on the way to a two-month high, but bank stocks pared bigger gains as market momentum surrounding prospects for U.S. tax cuts ebbed. The Stoxx Europe Index closed up 0.2% after a choppy trading session. But that was enough to mark its longest winning streak since late April, according to FactSet data. Thursday's settlement was also the highest since July 17. Industrial and tech stocks led gainers, while telecom and utility shares, among others, fell.

Asian equities finished mostly lower on Thursday, with rising bond yields boosting finance stocks in Japan, though Chinese markets experienced selling pressure ahead of a week-long holiday. Japan's Nikkei Stock Average closed 0.5% higher, recovering from Wednesday's declines. Shares of banks and insurers, which are large holders of U.S. government bonds, drove gains in Tokyo shares. In China, the Shanghai Composite Index shed 0.2%. Hong Kong's Hang Seng Index fell 0.8% to a six-week low.

Australia's stock benchmark moved back into positive territory for 2017, though gains on Thursday moderated after an early jump. The S&P/ASX 200 advanced 0.1%, though it's still in danger of notching a fifth-straight down month. Month-to-date it is down 0.8% for September. The declines in each of the prior three months ended up being no more than 0.1%. Meanwhile, the index hasn't fallen five-straight months since falling each of the middle six months of 2011. Thursday's gains came despite Rio Tinto falling 2% and BHP Billiton shedding 1% amid continued metals-price declines. Strength in banks and utilities offset the weakness in commodities stocks in general.

The London Metal Exchange’s 3-month copper contract gained overnight, rising 1.3% to finish at $6,522/t. The other base metals finished mostly higher. Nickel prices added 2% to 10,358/t, while aluminium prices closed flat at 2,107/t. Lead prices gained 0.6% to close at 2,466/t, with Zinc prices posting gains of 1.2% to 3,188/t. Tin prices bucked the trend overnight, falling another 0.7% to finish at 20,745/t.

In this issue
Global Construction (GCS) | Sale of equipment hire division | BUY
Market Cap $158m | Current Price $0.75 | Valuation $0.90

GCS has entered into a conditional agreement with Onsite Rental Group to sell part of its equipment hire division. The terms of the sale are as yet undisclosed, but GCS has stated that the sale will be greater than the $23m total asset written down value. With the sale of the higher margin equipment hire business, we expect EBITDA margins to reduce. However, the business will be less capital intensive and will carry less debt on the balance sheet. We believe this to be positive for GCS as lower depreciation and interest charges should more than offset the EBITDA impact. GCS expects to be in a net cash position of circa $30m on completion of the sale. Balance sheet strength and an increasingly capital light business underpin our BUY call on a revised $0.90 valuation (previously $0.80).

Recent Contacts & Presentations
Gage Roads Brewing Ltd (GRB), Otto Energy Ltd (OEL), Whitebark Energy Ltd (WBE), MZI Resources Ltd (MZI), Gascoyne Resources ltd (GCY), NTM Gold Ltd (NTM), Novo Resources Ltd (NVO:TSX), Alice Queen Ltd (AQX), Melbana Energy Ltd (MAY), TOX Free Solutions Ltd (TOX), Artemis Resources Ltd (ARV), Apollo Consolidated Ltd (AOP), Vault Intelligence Ltd (VLT), Fleetwood Corp Ltd (FWD), DTI Group Ltd (DTI), Calima Energy Ltd (CE1), Austal Ltd (ASB), Indoor Skydive Australia (IDZ), OZ Minerals Ltd (OZL), NorWest Energy Ltd (NEW), Berkut Minerals Ltd (BMT), Draig Resources Ltd (DRG), Minotaur Exploration Ltd (MEP), Ausdrill Ltd (ASL), Neometals Ltd (NMT), PNX Metals Ltd (PNX), Northern Minerals Ltd (NTU), New Century Zinc Ltd (NCZ), Metal Bank Ltd (MBK), Rift Valley Resources Ltd (RVY)

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