Market Update & Important Indicators:
The Dow Jones Industrial Average is poised to close at a new high for the first time since Jan. 26 as investors' convictions in a booming U.S. economy helped them look past the latest trade sparring between the U.S. and China. Nearly all 30 stocks in the Dow industrials rose intraday, from the tech giants like Apple and Microsoft that have helped power the stock market to new highs to trade-sensitive stocks like Boeing and Caterpillar. The broad gains also pushed up the S&P 500, which is on track to top its Aug. 29 record, while the Nasdaq Composite moved within 1.2% of its high set the same day. The major indexes are rising alongside a recent jump in bond yields, a sign the market is shrugging off worries the Federal Reserve's pace of economic tightening could roil stocks. A strengthening U.S. economy has boosted sentiment, and several investors said the torrid pace of growth appears likely to outlive the trade tensions that have rocked stocks this year. The Dow industrials climbed 251 points, or 1%, to 26657. The S&P 500 added 0.8%, and the Nasdaq Composite rose 0.9%. The US gold price was up 0.3% to 1206.90 US$/oz.
Europe's main stock gauge ended higher, logging a fifth day of gains for the index, as banks and mining stocks once again did the heavy lifting. The Stoxx Europe 600 rose 0.5%, after Wednesday's gain of 0.3%, to end at 382.63. The index is up 1.6% over the course of the five-day run. Germany's DAX 30 rose 0.9% to finish at 12,326.48, while France's CAC 40 jumped 1.1% to 5,451.59. The U.K.'s FTSE 100 rose 0.5% to close at 7,367.32. U.K. retail sales for August beat forecasts, driving the pound higher, while Brexit concerns continued to cloud the investor horizon. A European Union summit in Salzburg was under way, with leaders hoping to nudge Prime Minister Theresa May and stalled Brexit talks to a solution.
Asian equities lacked direction, after posting broad gains or declines for much of this month. Investors who had shrugged off trade worries in recent days appeared to be taking stock of the latest developments and preparing for next week's Federal Reserve meeting, the looming end of the third quarter, and coming holidays. Most indexes moved no more than 0.3% from Wednesday's closing levels. Outliers have included the Philippines' benchmark, which dropped 1.2%, and Indonesia's main index, which was 1% higher. South Korea's Kospi rebounded 0.6% as Samsung climbed 2.4%. Japan's Nikkei Stock Average finished flat while Hong Kong's Hang Seng was up 0.3%.
Australian stocks were lower for most of the day, lagging many Asia-Pacific markets as the S&P/ASX 200 struggled to regain traction after early-September's skid. The benchmark fell 0.3% to 6169.5 despite the health-care and materials sectors each rising more than 1%. Energy shares fell 1% and REITs dropped 1.5% as bond yields climbed further overnight, making the dividend-favoured play look less attractive.
Base metal prices were mixed overnight on the London Metal Exchange. Losses were seen in the 3-month copper contract and lead that was down 0.4% and 0.8%, respectively. Larger gains were observed in lead that was up 1.2% to 2,445/t, and aluminium that appreciated 1.1% to 2,012/t. Nickel had a positive session and closed 1% higher at 12,541/t.
In this Issue:
Gage Roads (GRB) | Finalises Matso’s | HOLD
Market Cap $126m | Current Price $0.125 | Target Price $0.128
GRB has finalised the acquisition of Matso’s and announced a rebranding of its marketing framework. Both will help maintain the strongly positive strategic momentum, and accelerate the move towards a targeted $1 EBITDA per litre. We have reviewed our forecasts post this update and with the additional detail in the FY18 results. Changes are relatively minor, and we still assume this target is achievable by FY21. Our target price, which reflects a ~12.3x FY20 EBITDA multiple, of $0.128 (prior $0.123), is close to the current share price. It does not take into account potential corporate interest, which should be considered a possibility. Our HOLD call (prior BUY) is based on valuation grounds, and we remain impressed with GRB’s ongoing craft beer strategy execution.
Northern Star (NST) | Is this the end of the EKJV? | HOLD
Market Cap $5,742m | Current Price $8.98 | Target Price $6.77
Northern Star (NST) has a 51% interest in the East Kundana Joint Venture (EKJV), a group of deposits including Raleigh, Rubicon and Pegasus amongst others. The remaining 49% is owned by Tribune Resources Ltd (36.75%, ASX: TBR) and Rand Mining Ltd (12.25%, ASX: RND). Ore from the EKJV is mined separately from NST’s 100% owned Kundana mines and batch treated through the Kanowna Bell plant. The majority of gold produced by TBR and RND has been stored at the Perth Mint. Today, both companies announced that they are selling gold inventories and paying out the proceeds in a special fully franked dividend to their respective shareholders. TBR’s value of gold sold is $250m.
Stanmore Coal (SMR) | Growth and margin expansion | BUY
Market Cap $222m | Current Price $0.88 | Target Price $1.40
Stanmore’s FY18 underlying EBITDA rose more than 70% yoy to A$45.5m, vs Argonaut’s forecast of AS$48m, driven by 14% yoy increase in underlying margin. The Company announced a final dividend of 2c/sh, which we regard as a sign of balance sheet strength ($20m cash and no debt) and confidence to fund growth projects from expanding free cashflow. SMR’s FY19 ROM production is expected to increase >50% with the commissioning of the Isaac Plains East mine (IPE). This mine will have lower strip ratios, higher yields and a higher ratio of coking to thermal coal, resulting in lower FOB costs (A$100/t) and higher realised prices. SMR has growth options including the recently acquired Wotonga South (Isaac Downs) project immediately south of Isaac Plains and the Isaac Plains Underground (IPUG). A BFS on the underground is due for completion in the second half of CY18. The stock is currently trading at a very attractive EV/EBITDA of 2.1x, based on FY19 earnings. We reiterate our BUY recommendation on Stanmore and upgrade our target price to A$1.40 (prior A$1.10).
Recent Contacts & Presentations:
Navarre Minerals (NML), Explaurum (EXU), FAR (FAR), Ramelius Resources (RMS), Strandline (STA), Dimerix (DXB), Aspire Mining (AKM), Austal Limited (ASB), Macmahon Holdings Limited (MAH), Nickle Mines Limited (NIC), Carnarvon Petroleum Limited (CVN), Prodigy Gold (PRX), Ausdrill Ltd (ASL), Bionomics Ltd (BNO), Gold Road Resources (GOR), Encounter Resources Ltd. (ENR), OZ Minerals Limited (OZL), Melbana Energy (MAY), Botanix Pharmaceuticals Ltd (BOT), Novo Litio (NLI), Classic Minerals (CLZ), OZ Minerals (OZL), Saturn Metals (STN), Antipa Minerals (AZY), SRG Ltd (SRG) Bowen Coking Coal (BCB), Birimian (BGS), Breaker Resources (BRB), Galena Mining (G1A), Valmec (VMX),Bryah Resources (BYH), Calima Energy (CE1) Genesis Minerals (GMD), Agrimin (AMN), Magnetic Resources (MAU), Core Exploration (CXO), Marindi Metals (MZN), MOD Resources (MOD), Santos (STO), Adriatic Metals (ADT) Bio–Gene Technology (BGT), Walkabout Resources (WKT), Triton Minerals (TON), Calima Energy (CE1)