Market Update & Important Indicators:
U.S. stocks closed lower on Monday after touching record highs as Wall Street caught its breath in the wake of last week’s upbeat jobs data. The S&P 500 index was dragged down by a sharp drop in healthcare stocks, which outweighed a rise in energy shares that accompanies strong gains for crude-oil futures. At the close, the Dow and S&P 500 were each down around 0.1% whilst the Nasdaq was off 0.2%. The 10-year Treasury yield was 1.59% whilst the 5-year yield was 1.14%. European markets were also higher on Monday. The French CAC 40, the FTSE 100 and Germany’s DAX were up 0.1%, 0.2% and 0.6% respectively.
Asian shares gained again Monday following the aggressive easing by the Bank of England. many investors were buoyed on the back of the U.S. jobs data, which was better than expected. Asian shares rallied on the back of Friday’s strong U.S. Jobs report. The Nikkei 225 soared 2.4%, the Hang Seng gained 1.6%, whilst the Shanghai Composite was 0.9% higher.
The local market opened higher on Monday on the back of gains on Wall Street overnight with a strong jobs report encouraging traders. The positivity continued throughout the day as stocks maintained above the flat-line until close, with big lenders leading the way. There were strong results from the sectors; energy gained most significantly whilst telecommunications services was the only sector to show a low. The Australian dollar rose against the greenback but fell against other major currencies. The All Ordinaries rose 40.10 points to 5,625.70 whilst the S&P/ASX 200 rose 40.40 points to 5,537.80.
The London Metal Exchange's three-month copper contract was 0.44% higher at $4,810/t at the PM kerb close Monday, after trading higher earlier in the day. Other base metals were mixed. Aluminium was down 0.2% at $1,631/t, zinc was up 0.5% at $2,275/t, nickel was up 0.5% at $10,727/t, lead was up 0.3% at $1,781/t and tin was down 0.2% at $18,305/t.
In this Issue:
Paragon Care (PGC) | Strong pulse | BUY
Market cap $124m | Current Price $0.76 | Valuation $1.05
With a guidance-beating result, PGC’s strong finish to the year augurs well for FY17 and underpins our confidence in management’s growth strategy. Cash conversion was much improved in the 2H, and the strengthened balance sheet places the Company in a good position to take advantage of further opportunities. Given solid delivery to date, we expect management to sensibly execute further growth in an industry benefiting from demographic tailwinds. We reduce the risking in our valuation, which climbs to $1.05 (prior $0.90). PGC remains a key growth pick in our coverage.
Thought of the day:
Industrials picks & previews:
Exploring value
We discuss our views on the mining services sector in the light of the dramatic shift in sentiment and performance over the last couple of months. As we expect an earnings recovery to be patchy across the sector, stock selection remains very important. We maintain our buy calls on Ausdrill (ASL), GR Engineering (GNG) and Pacific Energy (PEA). We believe they are all very well positioned relative to peers, and we can argue higher valuations for all three on longer term earnings assumptions.
However, given the strong share price performance of mining service stocks under coverage of late, key picks come from outside this sector:
- Paragon Care (PGC): We believe management has done a commendable job delivering strong financials while integrating large acquisitions. We like the business model and expect further organic and acquisitive growth.
- Peet (PPC): Although the property market has cooled, it provides PPC the opportunity to add to its diversified land bank. The value of this will become apparent with development over time and it offers good value at current prices.
- TFS Corporation (TFS): The model continues to be de-risked. There is continued interest in the investment product, harvest sizes are increasing, and the end markets are deepening. We believe stronger cash flow will be a key feature in FY17.
Recent Contacts & Presentations:
AngloGold Ashanti (AGG), Blackham Resources (BLK), Doray Minerals (DRM), Sandfire Resources (SFR), Gold Fields Australia (NYSE: GFI), Heron Resources (HRR), Gascoyne Resources (GCY), Vimy Resources (VMY), West African Resources (WAF), Dacian Gold (DCN), Pilbara Minerals (PLS), Independence Group (IGO), Rio Tinto (RIO), Silver Lake Resources (SLR), Lynas Corporation (LYC), Evolution Mining (EVN), Regis Resources (RRL), Xanadu Mines (XAM), Mincor Resources NL (MCR) , Carbine Resources Ltd (CRB), Antipa Minerals (AZY), Energia Minerals Ltd (EMX), Pantoro Limited (PNR), Boss Resources Ltd (BOE), Metro Mining Ltd (MMI), Metal Bank Ltd (MBK)
Please read Argonaut's Important Disclaimers & disclosures
