Morning Notes

27/10/2017 Argonaut Morning Note

Market Update & Important Indicators
U.S. stocks were mostly higher Thursday after several companies reported upbeat earnings and European Central Bank officials unveiled plans to scale down but extend their bond-buying program. Corporate results continued to drive swings in individual U.S. stocks in one of the busiest days for third-quarter reports. Without geopolitical developments or major legislative changes in Washington, D.C., money managers say they are closely following earnings season. The Dow Jones Industrial Average was up 0.3% in the last half-hour of trading, recouping some of the losses suffered Wednesday. The S&P 500 rose 0.1%, while the Nasdaq Composite fell less than 0.1%. DowDuPont, one of the biggest gainers in the Dow Jones Industrial Average, rose 3.1% after it gave investors an early look into its sales and profit results, the first window into the global chemical giant following the combination of Dow Chemical and DuPont. Ford Motor added 1.4% after the auto maker said third-quarter profit rose amid strong sales of its F-Series trucks, a lower tax rate and cost-cutting efforts. Twitter reported a narrower loss and raised its earnings forecast for the fourth quarter, but also said it overstated its number of users for the past three years. Twitter shares surged 18%, its largest percentage increase in more than a year. The U.S. gold price traded lower overnight, shedding 0.9% to finish at 1,266.20 US$/oz.

European stocks closed firmly higher with the Stoxx Europe 600 Index up 1.1% and Germany's DAX 30 index scoring an all-time closing high. The upbeat mood came after the ECB said it would cut its monthly asset purchases to EUR30 billion from currently EUR60 billion, but extend the program by nine months until at least September 2018. The bank also hinted more easing could be in the cards if required, sparking a selloff in the euro. ECB President Mario Draghi stressed the move wasn't tapering of the quantitative-easing program, but rather a "recalibration" and a "downsizing". U.K. stocks closed higher, tracking a positive mood across Europe after the European Central Bank extended its bond-buying program and hinted rates will stay low at least until 2019. The FTSE 100 index rose 0.5%, partly rebounding from a 1.1% slump on Wednesday.

A widely lower start to Asian stock trading became a little less so as the day went on as bulls rested amid a global pause to this month's equities strength. China and Japan were up throughout the session and finished modestly higher. Last-hour selling resulted in noted declines for the Kospi into the close; it fell 0.5% to fare worst in the region.

Steady afternoon buying reversed modest early declines and allow Australia's stock benchmark to log a third-straight day amid declines in a number regional markets. The S&P/ASX 200 finished up 0.2% at 5916.3, the session's best and a near-six-month closing high in rising for 11 of the past 12 days. Thursday's early weakness came amid a mixed full-year report from ANZ and Fortescue scaling back price expectations for iron ore; they fell 1.2% and 3.6%, respectively. Energy stocks helped, with Woodside and Oil Search each up 0.8%.

The London Metal Exchange’s 3-month copper contract traded lower overnight, slippng 0.3% to finish at $6,986/t. The other base metals finished mixed. Aluminium prices added 0.1% to close at 2,176/t, whilst tin prices fell 0.1% to 19,980/t. Zinc prices moved 0.2% higher to 3,274/t, while Lead prices lost 0.2% to 2,476/t. Nickel prices dropped overnight, closing 0.9% lower at 11,716/t.

In this issue
CTI Logistics (CLX) | Across the Nullarbor | BUY
Market Cap $82m | Current Price $1.10 | Valuation $1.60

The $7.5m acquisition of Jayde Transport fits with CLX’s intention to build a national transport and logistics business. It is strongly accretive given a compelling EBITDA acquisition multiple of 3.2x. We anticipate a slowly reviving WA economy to be reflected in west coast earnings over time, while an increasing east coast exposure expands CLX’s footprint and provides stability. We believe CLX is building a solid platform off which to grow, is ably led by an experienced management team, and is trading on undemanding multiples. We maintain a buy call on a revised valuation of $1.60 (prior $1.50).

Fortescue Metals (FMG) | Sept Q result – Mind the gap | HOLD
Market Cap $15.2bn | Current Price $4.87 | Target Price $5.26

Fortescue Metals (FMG) reported Sept Q results with 44.0Mt shipped at US$12.15/wmt C1 vs June Q 44.7Mt @ US$12.15/wmt (-2% shipped Q-o-Q). Operations ran at an annualised rate of ~180Mtpa during the Q. Gross debt decreased to US$4.4bn (from US$4.5bn in Q4FY17), inclusive of finance lease liabilities of US$800m and cash increased to US$2.3bn (from US$1.8bn in Q4FY17). Price realisation gap to the Platts 62 CFR index widened to 71% (down from 73% in Q4 and 76% in Q3FY17). Group strip ratio’s increased to 1.4:1 (vs 1.0:1 in June Q). We maintain our HOLD recommendation and revise our target price to $5.26 (prior $5.23).

Recent Contacts & Presentations
Evolution Mining Ltd (EVN), Silver Mines Ltd (SVL), 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)

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