Market Update & Important Indicators
Stocks fell on after weak economic data added to concerns about U.S. growth at the start of the year. The Dow Jones Industrial Average declined 78 points, or 0.4%, to 17698. The S&P 500 shed 8 points, or 0.4%, to 2060, and the Nasdaq Composite lost 36 points, or 0.7%, to 4865. Soft economic reports, such as Wednesday's weaker-than-expected private employment and manufacturing data, dim the outlook for corporate profits.
European stocks climbed on Wednesday after better-than-expected eurozone manufacturing data, a further sign that the region's economy is picking up. The Stoxx Europe 600 closed 0.3% higher, bouncing back from early losses. The turnaround came after manufacturing-activity figures for the eurozone were revised higher, meaning that the sector grew more quickly in March than initially estimated. The data are the latest signal that a modest recovery is taking hold in the euro area. Germany's DAX rose 0.3% on Wednesday, France's CAC 40 added 0.6% and the U.K.'s FTSE 100 advanced 0.5%.
China shares gained, extending a whirlwind first-quarter rally, despite a mixed picture of manufacturing activity in the country. Chinese firms trading in Hong Kong were up 1.6%, while the Shanghai Composite Index rose 1.7% to 3810.29. Japan stocks led other Asian markets lower following a worse-than-expected survey of business sentiment, a weaker dollar and an overnight Wall Street selloff. The Nikkei Stock Average was down 0.9% at 19034.84.
Base metals on the LME were mixed. Nickel was the strongest performer, up 2.6%. Gold stepped up US$1,203.1/oz and Brent rose 2.8% to US$56.67/bbl. The AUD is buying US$0.760.
Thought for the Day
Resource Services: Down and out with a couple of bright spots
Is there value following share price falls? In the Thought for the Day on Monday we took a look at sector winners and losers. Resource services, not surprisingly, was one of the weaker sectors. Despite large share price falls leading up to 2015, more than 50% of these companies have lost at least a further 10% in less than three months year to date. So is value emerging in the sector? At 8.3x, the sector is trading below the three year average but is still above the lows seen over the last 6 months and in 2013.
With themes such as low commodity prices, price pressure and a lack of new project work still front of mind, we remain cautious on the sector as a whole. While Argonaut’s industrial research coverage is now focused on companies with no or limited resource exposure, there are a couple of bright spots in the resource services sector.
GR Engineering (GNG) | BUY
The appointment as preferred EPC tenderer by Sirius Resources was an excellent result for GNG and reflects the capabilities of a team that has a strong reputation in the delivery of EPC projects. It will provide order book clarity through next financial year and our revenue forecast for FY16 (currently $160m) is likely to be revised upward.
A strong net cash position ($50.4m at the interims), an impressive dividend yield, and a decent order book that will be boosted by the addition of the Sirius contract, all continue to solidly underpin our buy recommendation.
Pacific Energy (PEA) | BUY
Our expectations for EBITDA growth in FY16 are driven by a number of factors. Firstly, the expected uplift in earnings from Tropicana following the conversion to gas which we expect will start to contribute in the back end of FY16. Secondly, potential new opportunities (such as Sirius) and restarts and, lastly, contribution from Waste Heat Recovery technology. The recent announcement by Saracen for Thunderbox development approval has positive read through for Pacific Energy as assets are already in place.
PEA is one of the few resource service companies with a business model that has held up well during the downturn and we continue to factor in a return to earnings growth in FY16. The Company is continuing to search for a new CEO.
Recent Contacts & Presentations
Saracen (SAR), Beadell (BDR), Pacifico (PMY), Fertoz (FTZ), Atrum (ATU), Doray (DRM), Helix Resources (HLX), Rift Valley Resources (RVY), West African Resources (WAF), Matrix (MCE), Austal (ASB), Ausdrill (ASL), TFS Corporation (TFC), Gage Roads (GRB), Austin Engineering (ANG), Buru Energy (BRU), OBJ Limited (OBJ), Strandline Resources (STA), Carnarvon Energy (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), Pura Vida Energy NL (PVD), MMA Offshore (MRM), Migme (MIG), Vmoto (VMT)