Market Update & Important Indicators:
Investors sold off retail shares as major U.S. indexes slipped in intraday trading. The Dow Jones Industrial Average was off 37 points, or 0.2%, to 20800 after reaching a 12th consecutive record high Monday. The S&P 500 was off 0.3% and the Nasdaq Composite off 0.6%. Consumer discretionary stocks were among the biggest decliners in the S&P 500, falling 0.6%. Global defence shares rallied ahead of U.S. President Donald Trump's first formal address to the nation since Inauguration Day. In a speech to Congress after U.S. markets close, Mr. Trump is expected to outline his policy priorities, including a call for a $20 billion increase in current military spending. Investors were being cautious ahead of Mr. Trump's address, where he is expected to clarify some of his fiscal policy plans, some analysts said.
European stocks closed moderately higher, with shares of defence companies among the notable winners, as investors prepared to hear about U.S. President Donald Trump's plans to boost growth in the world's largest economy. The Stoxx Europe 600 rose 0.2% to end at 370.24. The pan-European benchmark notched a February advance of 2.8%, marking its third monthly gain in four months.
Asian markets were mostly muted, with the Nikkei Stock Average losing 100 points in the last half-hour of trading to finish up just 0.1%. The Nikkei was helped by renewed hopes for further U.S. rate increases and U.S. President Donald Trump's big military spending plan. Thailand shares ended flat, in mixed trade as investors saw some bargain hunting in select stocks after recent weakness in the market. The Thailand SET ended at 1559.95 points, with support from banks and consumer-related stocks. Indonesian shares ended slightly higher, having given up most of the day's earlier gains. The JSX index ended up 0.1% at 5386.69.
Australian shares fell for a fourth straight session, handing back early gains as corporate earnings season wrapped up and investors awaited U.S. President Donald Trump's speech to Congress. Investors globally are bracing for Mr. Trump's speech, which White House officials have said will likely focus on dismantling the Affordable Care Act. Markets have largely priced in the new administration's policies, including corporate tax reform, infrastructure spending and deregulation, although expectations have moderated on the timing and extent of fiscal stimulus. The Australian market spent much of the day in positive territory, supported by a recovery by major bank stocks and as oil-and-gas companies were buoyed by higher oil prices. Sentiment also benefited from data showing the country's current account deficit narrowed sharply to a seasonally adjusted 3.85 billion Australian dollars in the fourth quarter. Declining for a seventh session in the last eight, the S&P/ASX 200 finished 12 points, or 0.2%, lower at 5712.2, with only the energy and utilities sectors in positive territory. Despite recent weakness, the index closed out the month with a rise of 1.6% after January's 0.8% fall.
The London Metal Exchange's three-month copper contract closed up 0.7% to $5,973/t. The other base metals were mostly higher Tuesday. Aluminium rose 1.1% to $1,920/t, zinc rose 0.6% to $2,817/t, tin rose 1.3% to $19,205/t and lead rose 0.1% to $2,254/t. Nickel prices bucked the trend falling 0.6% at 10,927/t.
In this Issue:
Austal (ASB) | Securing the future | HOLD
Market Cap $663m | Current Price $1.90 | Valuation $1.80
ASB’s momentum into 2H17 is driven by strong US performance last half. With group underlying 1H17 EBIT of $31.2m, the upgraded guidance of $55-60m for the full year looks achievable. Tenders for significant long term work in the US and Australia provide sound reasons to remain positive, and our hold call is based primarily on valuation grounds.
TFS Corporation (TFC) | Set for big 2H | BUY
Market Cap $584m | Current Price $1.50 | Valuation $3.30
Earnings in 1H are typically a fraction of the full year number (for which TFC has reiterated cash EBITDA guidance of $78m+), with the operational update providing an indication of momentum into the 2H. Product sales are ramping up, demand for plantation investment product is strong, and the pharma business is progressing Phase II trials on 4 products and has 1 potentially entering Phase III in CY2017. Buy maintained on a $3.30 valuation.
Global Construction (GCS) | Balance sheet strength underpins growth | BUY
Market Cap $120m | Current Price $0.60 | Valuation $0.75
GCS’s first half results were broadly in line with our forecasts, demonstrating continued performance in tough market conditions in WA. During the period, GCS also delivered on its geographical diversification strategy, acquiring a controlling stake in Gallery Facades – a company with operations focused on the East Coast. GCS maintained a disciplined approach to capital management, ending the half year with a net cash position of $14m. The balance sheet strength and Gallery Facades acquisition provide comfort around forecast future growth, and lead to an increased valuation of $0.75 (prior $0.65).
Gascoyne Resources (GCY) | Dollars for Dalgaranga | BUY
Market Cap $203m | Current Price $0.54 | Target Price $0.86
GCY announced it has successfully completed a bookbuild to raise up to $50m at a placement price of $0.50ps and an additional $5m via a Share Purchase Plan (SPP). The funds will be applied towards the development of the Dalgaranga Gold Project as well as exploration and working capital. Argonaut sees this as the successful first de-risking step along the path to production for GCY. We believe a number of key value catalysts will occur in the short term including i) the completion of debt financing ii) a maiden resource and reserve for Gilbeys South, iii) an upgrade to the mine plan to include the updated Gilbey’s South ores and; iv) the award of Engineering, Procurement and Construction (EPC) contracts to commence construction of the project. BUY recommendation maintained and target price of A$0.86ps ($0.75 prior).
Recent Contacts & Presentations:
Vault Intelligence Ltd (VLT), Orthocell Ltd (OCC), Strandline Resources Ltd (STA) Dragontail Systems Ltd (DTS), ABM Resources Ltd (ABU), Acacia Coal Ltd (AJC), Troy Resources Ltd (TRY), Hazer Group Ltd (HZR), Berkeley Energia Ltd (BKY), Sino Gas & Energy Holdings Ltd (SEH), Sovereign Metals Ltd (SVM), Kin Mining (KIN), Vital Metals Ltd (VML), Mincor Resources (MCR), Dacian Gold (DCN), Leaf Resources Ltd (LER), Alchemy Resources Ltd (ALY), OpenDNA Limited (OPN), MZI Resources Ltd (MZI), Seafarms Group Ltd (SFG), Marindi Metals Ltd (MZN), Rift Valley Resources Ltd (RVY), Botanix Pharmaceuticals Ltd (BOT), Thundelarra Ltd (THX), DTI Group Ltd (DTI)