Market Update & Important Indicators
In February, the Dow Jones Industrial Average jumped 5.6%, its best month since January 2013, while the S&P 500 rose 5.5%, its best month since October 2011. The Nasdaq Composite rose 7.1%, positioning it within striking distance of 5,000, a level last touched nearly 15 years ago. The strong month followed a lacklustre January, when U.S. stocks posted their biggest monthly losses in a year, with the Dow losing 3.7% and the S&P 500 falling 3.1%. In economic news, the Commerce Department said that U.S. gross domestic product expanded at a 2.2% annual rate in the fourth quarter, down from an initial estimate of 2.6%.
European stocks climbed Friday, extending a run of multiyear highs this week. The Stoxx Europe 600 index closed 0.4% higher, adding to Thursday's 1% surge to hit its highest close in more than seven years. The rally of the past few days has come as fears surrounding Greece's bailout eased, and investors anticipate the start of the European Central Bank's massive bond-buying stimulus program next month. Earlier this week an agreement to extend Athens's financial-aid package was approved by European leaders.
Tokyo stocks booked their best weekly performance in a month Friday, helped by domestic pension-fund buying, while in China, the yuan fell to its weakest level against the dollar in more than two years. The Nikkei Stock Average outperformed other Asian stock benchmarks with a gain of 2.5% for the week. On Friday, data showed Japanese industrial production rose 4% in January, beating economists' forecasts for a 2.8% gain. But that didn't translate into improving consumer sentiment nine months after a broad sales-tax increase. Household spending fell 5.1% in January from a year earlier, worse than the 4.1% forecast. Retail sales fell 2%. The Nikkei finished up 0.1% at 18798.
Copper prices rose 0.1% on the LME, although other base metals were slightly softer. Brent crude jumped 4.2% to $62.58/bbl and gold added 0.4% to $1,214/oz.
In This Issue
Our forecasts are little changed following delivery of 1H15 earnings in line with expectations and confirmation of guidance. Negative operating cash flow was unexpected but is anticipated to improve in the 2H.
TFS Corporation (TFC)
TFC’s 1H15 results reinforce a strong investment case. The widening and more visible end markets for sandalwood products has led to increased grower demand for investment product, while the exposure to the US$ has led to a significant revaluation of the Company’s plantations. The results were impressive given earnings and cash flow are typically strongly second half weighted. Although reported net earnings of $55m include a large non-cash element, it supports our positive view on the value of the underlying assets and the vertically integrated business model.
Gage Roads (GRB)
Disappointing sales and increased working capital requirements strained cash flow in 1H15. Fixed costs result in significant operating leverage in the business and while this works both ways, we believe that in the short term it will result in another weak half.
Austin Engineering (ANG)
The underlying 1H15 result was weak (EBITDA of $9.0m), but as expected. Positively, cash flow and net debt both moved in the right direction, although gearing remains high on a reduced equity base. Covenants have been renegotiated and ANG forecasts an improved performance, suggesting that perhaps the worst is over.
Recent Contacts & Presentations
Northern Star (NST), Saracen (SAR), Doray (DRM), Troy (TRY), Resolute (RSG), Gold Road (GOR), Regis (RRL), Independence Group (IGO), Energia Minerals (EMX), Rewardle (RXH), Doray (DRM), Alexium (AJX), Orbital (OEC), IMF Bentham (IMF), Metals X (MLX), Pura Vida (PVD), Image Resources (IMA), Tangiers (TPT), ABM Resources (ABU), Centaurus (CTM), Rox (RXL), Pacific Energy (PEA), MMA Offshore (MRM), Tox Free (TOX), Commodities Group (COZ), Pioneer Credit (PNC), Rift Valley (RVY), Orion Gold (ORN), Austal (ASB), Ausdrill (ASL), Gage Roads (GRB)