Market Update & Important Indicators
U.S. stocks advanced, as rising oil prices and upbeat data on China's services sector helped ease concerns about the global economy. Stocks pared some of their gains after the release of minutes from the Federal Reserve's March meeting. The move higher follows two consecutive sessions of losses for major indexes, including the S&P after surging from their Feb. 11 lows, and many investors say they are waiting for first-quarter earnings results to get a sense of whether the rally has more room to run. Minutes from the Federal Reserve's March policy meeting showed officials were leaning against an April rate increase when they last met.
Shares in Asia were mixed, as sentiment stayed cautious, despite data showing improvement in Chinese services activity. South Korea's Kospi gained 0.4% and Hong Kong's Hang Seng Index rose 0.2%. But the Nikkei Stock Average, which fell sharply on Tuesday, slipped a further 0.1%. That was even as the Japanese yen eased from its strongest level against the U.S. dollar since October 2014. The Nikkei and yen usually move inversely as a weaker currency boosts the competitiveness of Japanese exporters. Meanwhile, trading on the Shanghai Composite Index was choppy with the benchmark finishing off 0.1% to 3050.59. The lackluster performance highlights the uncertainty weighing on investors after a torrid rally last month, which raised the question of whether markets got ahead of themselves.
Australian shares ended a choppy session modestly higher as energy stocks rebounded along with a rise in oil prices. In a recovery after losses the last three days, the S&P/ASX 200 rose 21.5 points, or 0.4%, to finish at 4945.9. The basket of energy shares led a push by modest industry sectors, jumping 3.2% to retrace some of their recent losses.
The London Metal Exchange's three-month copper contract was up 0.3% at $4,788 a metric ton at the PM kerb close, having hit a low of $4,751 a ton earlier in the session. Elsewhere, aluminum closed down 0.3% at $1,494 a ton, zinc was down 0.3% at $1,797 a ton, nickel was up 1.3% at $8,550 a ton, lead was up 1.1% at $1,704 a ton and tin was up 1.0 % at $16,523 a ton.
Thought of the Day
Tox Free Solutions (TOX) | It’s a busy space | BUY
Market Cap $427m | Current Price $3.03 | Valuation $3.35
We noted last year the large French waste management Company, Suez Environment, had indicated €600-700m financial capacity to acquire assets, and that Australia was on the radar. It has since followed through on these comments, with the announcement in September 2015 of the A$485m acquisition of the 40% minority stake in Sembsita Pacific that it did not already own.
Subsequently, earlier this week Suez announced an agreement to acquire Perthwaste, one of the leading waste management service providers in WA, for A$87m. Perthwaste has numerous local authorities’ contracts in Perth and south-west WA and has extensive infrastructure assets, including two transfer stations, two recycling facilities, three depots, a landfill, an organics composting facility and 68 trucks. Suez expects Perthwaste to generate revenue of at least A$50m in 2016.
TOX hasn’t been left out of the recent action, announcing last month the acquisition of Worth Recycling, a NSW-based liquid waste and industrial services business. This $70m acquisition is expected to generate pro forma revenue and EBITDA of $62.4m and $12.9m respectively in FY16 (at an attractive 20.7% margin), significantly increasing the exposure to NSW and broadening TOX’s geographic reach and client base. (See our recent report, Well Worth It, 22 March 2016.)
These deals continue to highlight the waste management consolidation opportunities in Australia. As we stated in our recent report, TOX has demonstrated sound financial discipline, and has a solid track record of managing acquisitive growth. We expect TOX to continue to grow market share, both organically and acquisitively in a sector supported by regulations and sustainability concerns. In our view TOX is one of the better WA-based industrial businesses, and despite the strong share price run over the last two months, our valuation still indicates value at current levels.
Recent Contacts & Presentations
Evolution Mining (EVN), St Barbara (SBM), Troy Resources (TRY), Explaurum (EXU), Sino Gas & Energy (SEH), Western Areas (WSA), Finders Resources (FND), Carnarvon Petroleum (CVN), Threat Protect Australia (TPS), Austal (ASB), Paragon Care (PGC), Salt Lake Potash (SO4), Peet (PPC), Department 13 (D13), Actinogen Medical (ACW)