Morning Notes

10/09/2017 Argonaut Morning Note

Market Update & Important Indicators:

U.S. stocks stalled Monday, as gains in shares of energy companies failed to offset losses elsewhere. Trading was quiet, with major indexes wobbling in a narrow range after they hit several fresh records the previous week. Economic data in the second half of the year has been largely upbeat, helping stocks trading near records and at historically high valuations keep climbing. As long as corporate earnings continue to point to solid growth, some analysts said they favour looking at short-term pullbacks in the stock market as buying opportunities. The Dow Jones Industrial Average finished down 0.1% at 22,761. The S&P fell 0.2% and the Nasdaq Composite also declined 0.2%. The U.S. gold price continued its movement upward overnight, rising 0.6% to finish at 1,283.60 US$/oz.

European stocks nudged higher Monday, finding support from advances in Spanish stocks and strength in German economic data. The Stoxx Europe 600 index rose 0.2% to close at 390.21, partly rebounding from a 0.4% loss on Friday. Spain's IBEX 35 stood out by rising as much as 1.2% intraday. The move came after hundreds of thousands of people gathered in Barcelona on Sunday to protest Catalonia's secessionist push. The demonstration was organized by Catalan Civil Society, an anti-separatist group. The index later trimmed its gains to close 0.5% higher. Meanwhile, data out of Germany showed industrial output grew 2.6% in August, outstripping expectations of a 0.9% increase.

Asian stocks continued to rise Monday in holiday-impacted trading. That included China, which was offline all of last week and came back with solid gains. But they weren't of the size many anticipated in the wake of how strong stocks, and in particular H-shares, were in Hong Kong. Meanwhile, Hong Kong's Hang Seng lagged in falling 0.5% and moving back from Friday's 10-year high amid selling in property developers. Equities there were a lone down spot for the region, coming after broad gains last week. Most other margins notched modest gains, with the Philippines again hitting record highs.

Aussie stocks followed up their best day in nearly three months with more outperformance Monday, even as the market weakened into the finish. The S&P/ASX 200 rose 0.5% to 5739.30, its highest close since mid-September. The fade was led by the likes of Rio Tinto. Up as much as 1.8% earlier to hit 3 1/2-year highs, the miner slid into the final bell to end down 0.1%. Australia's big banks held up better, with NAB rising 1.2%. Oil stocks lagged, however, with Santos falling 1% in the wake of Friday's skid in crude prices.

The London Metal Exchange’s 3-month copper contract traded slightly lower on Monday, losing 0.01% to finish at $6,666/t. The other base metals finished mainly higher. Aluminium prices rose 0.9% to 2,150/t, whilst tin prices jumped 1.1% to 20,883/t. Zinc prices also rose slightly, rising 0.1% to 3,301/t. Nickel prices surged to their highest point in more than two weeks, jumping 3.9% to finish at 10,930/t. This has mainly been supported by higher steel prices which have shrugged off weaker consumer data from China. Lead prices finished the day lower, slumping 0.8% to 2,497/t.

In this Issue:
Austal (ASB) | Big wins boost order book | BUY
Market Cap $615m | Current Price $1.76 | Valuation $1.96

ASB has announced two big contract wins; a further US Navy LCS contract worth up to US$584m, and a €126m order from Fred Olsen S.A. for two 117m high speed vehicle passenger trimaran ferries. They provide a significant lift to the order book and support our view that FY19 earnings will be boosted by all regions delivering in tandem. Further, the near-term commercial workload in Australia could dovetail well with potential longer term naval work. In this regard we note an award for the $3b OPV naval programme is due shortly. We believe ASB is well credentialed to support the Government’s desire for a continuous build, sovereign naval shipbuilding industry in Australia. Buy maintained.

Recent Contacts & Presentations:

Meteoric Resources NL (MEI), Emmerson Resources Ltd (ERM), 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)

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