Morning Notes

26/10/2017 Argonaut Morning Note

Market Update & Important Indicators
A raft of downbeat earnings sparked broad declines in U.S. stocks Wednesday, sending the Dow industrials down more than 100 points and putting the blue-chip index on track for its worst session in weeks. Results from American companies have generally been solid, investors and analysts said. But after several quarters of strong earnings, some cautioned that expectations are high, which could limit gains in stocks. The Dow Jones Industrial Average fell 0.5%. The S&P 500 declined 0.6%, with all 11 sectors falling, and the Nasdaq Composite shed 0.7%. Almost one-third of the S&P 500 has reported earnings so far, and roughly 73% of those firms have beat expectations compared with the five-year average of 69%, according to FactSet. Still, relatively weak earnings from some firms Wednesday led investors to take profits, possibly because of the market's almost uninterrupted run this year. Strong earnings from a few firms propelled the Dow industrials to another record close Tuesday. The U.S. gold price traded slightly higher overnight, adding 0.1% to finish at 1,277.20 US$/oz.

European stocks ended with losses Wednesday as investors sold holdings ahead of a much-anticipated European Central Bank decision on monetary policy. The ECB is slated to release its decision Thursday, and it may reduce its massive asset-purchase program. Investors also juggled a fresh round of corporate financial updates. The Stoxx Europe 600 index fell 0.6% to close at 387.13, extending Tuesday's drop of 0.4%. In London, the FTSE 100 tumbled 1.1% to end at 7,447.21, with the drop deepening after a better-than expected preliminary reading on third-quarter U.K. gross domestic product propelled the pound higher. Germany's DAX 30 index slipped 0.5% to finish at 12,953.41, while France's CAC 40 lost 0.4% to close at 5,374.89.

Japan's Nikkei Stock Average fell 0.45% Wednesday after a record-smashing winning streak. Tuesday's session had brought the 16th straight gain for the Nikkei, which hadn't logged a down day this month. Hong Kong's benchmark index rose 0.5% from its lowest close of October, led higher by Chinese consumer and energy shares after China's new line up of leaders was named. Shanghai's benchmark index was up 0.3% while Shenzhen's added 0.9%.

Modestly higher nearly all session, Australian stocks finished that way in continuing October's recovery. Driven by resource stocks amid gains in oil and metals prices, the S&P/ASX 200 rose 0.1% to 5905.6. It's up 3.9% this month after falling each of the prior 5, in the process badly underperforming the region. Major banks were mixed, with ANZ adding 0.1% ahead of tomorrow's FY report, kicking off earnings season for the group. Wesfarmers slid 2.9% on soft quarterly sales.

The London Metal Exchange’s 3-month copper contract traded higher overnight, gaining 0.4% to finish at $7,035/t. The other base metals finished mostly higher. Aluminium prices added 0.9% to close at 2,145/t, whilst tin prices jumped 1.0% to 19,877/t. Zinc prices rebounded 1.9% to 3,246/t, while Lead prices lost 1.2% to 2,460/t. Nickel prices rose overnight, closing 1.2% higher at 11,940/t.

In this issue
Independence Group (IGO) | Pivotal quarter | SELL
Market Cap $2,570m | Current Price $4.47 | Target Price $3.80

Independence Group (IGO) released September Q results with all assets generating positive free cashflow (FCF) and producing within stated guidance. Most notable was Nova nickel /copper achieving commercial production, ramping up to near-nameplate throughput. On a group level, IGO returned to positive FCF, before a $29m debt repayment. Net debt decreased to $142m (from $164m). Argonaut downgrades to a SELL (from HOLD) upon valuation grounds.

Swick (SWK) | Re-initiation | BUY
Market Cap $63.6m | Current Price $0.275 | Valuation $0.400

Swick’s latest innovation, Orexplore, has the potential to significantly disrupt the multi-billion-dollar a year minerals analysis industry and is a world-first technology. If commercialised successfully we believe Orexplore will provide substantial growth in coming years. We also expect growth from Swick’s core drilling business on the back of margin expansion in an improving commodities environment. These strong growth prospects underpin our BUY recommendation on a blended valuation of $0.40 per share.

Recent Contacts & Presentations
NTM Gold Ltd (NTM), Gascoyne Resources Ltd (GCY), Southern Cross Electrical Ltd (SXE), MOD Resources Ltd (MOD), 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)

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