Market Update & Important Indicators:
U.S. stocks intraday climbed toward fresh records, lifted by gains in shares of energy and consumer-staples companies. The Dow Jones Industrial Average had added 67 points, or 0.3%, to 20691, heading toward its eighth consecutive closing high. The S&P 600 had gained 0.4% and the Nasdaq Composite had risen 0.3%, after the three indexes closed at records Friday. Investors have been betting that potential tax cuts and fiscal stimulus will boost corporate profits and keep stocks moving higher, as interest rates rise from ultralow levels. Some analysts have warned that stocks have become pricey relative to their historical averages. The 12-month forward price-to-earnings ratio for the S&P 500 rose Friday to its highest level since 2004, according to FactSet. Shares of consumer-staples companies in the S&P 500 rose 0.7% intraday and were among the best performers in the broad index. The U.S. gold price finished slightly lower at 1,236.2 US$/oz.
European stocks closed at their highest in more than a year, finding support from upbeat Eurozone data. The Stoxx Europe 600 ended up 0.6% at 373.40, the best close since Dec. 2, 2015, and the tenth rise in 11 sessions. But the bulk of the advances were derived from oil, gas and technology stocks. The pan-European index on Monday rose 0.2%. European equities climbed after a better-than-expected preliminary reading on manufacturing activity in the Eurozone. IHS Markit's (sic) February PMI gauge of Eurozone manufacturing activity came in at 56.0, outstripping a 54.3 estimate from FactSet.
Asian markets inched higher, in part on the possibility of higher interest rates in the U.S. Japan's Nikkei Stock Average added 0.7%, as a stronger dollar and the prospects of higher U.S. rates lifted shares of financials and auto companies. The Nikkei Stock Average rose 130.36 points to 19381.44 after a 0.1% rise on Monday. Despite underlying, cyclical global economic strength and hopes for U.S. fiscal stimulus, geopolitical concerns persisted. In China, stock gains continued, with financials and cyclicals boosting the market after the Shanghai Composite Index posted its best day since November on Monday. Shanghai stocks rallied to a near three-month high, as positive sentiment lifted small caps in the afternoon. The Shanghai Composite Index rose 0.4% to 3253.33, the highest level since Dec. 1. Nearly 800 stocks in Shanghai closed higher. Hong Kong's Hang Seng Index fell 0.8%, as downbeat reports from global banks weighed on the index after it hit an 18-month closing high on Monday.
Australia's benchmark stock index fell for a third-straight session as investors awaited BHP's after-the-bell report. The pullback has occurred on the back of disappointing results from some firms. But BHP rose 1% ahead of its release, which included a return to profitability and an interim dividend that was more than double prior levels. Despite a late move higher, the S&P/ASX 200 finished down 4.10 at 5791.
The London Metal Exchange's three-month copper contract closed down -0.16% at $6,060/t. The other base metals were all lower on Tuesday. Aluminium prices fell 0.7% at $1,875/t, nickel prices fell 2.7% to $10,799/t, zinc prices dropped 0.5% to $2,873/t, lead prices fell 2.0% at 2,256/t and tin prices fell 0.5% at 19,756/t.
In this Issue:
Saracen Mineral Holdings (SAR) | Longer wait for higher cashflow | HOLD
Market Cap $999 | Current Price $1.23 | Target Price $1.18
Saracen Mineral Holdings (SAR) released H1 FY17 financial results with $186.6m revenue, $15.4m PBT and $14.9m NPAT, versus with Argonaut’s forecasts of $200.2m revenue (before $14m of capitalised King of the Hills revenue), $22.3m PBT and $12.5m NPAT. Cash and bullion at December 31 was $43.9m. SAR had previously forecast increasing production and declining costs in H2 FY17, however while production is on track to exit the year at the target 300kzpa rate, further development capital will see higher costs sustained for longer. An additional ~$22.5m on new projects will see AISC increase by A$150/oz. This will see higher cashflows being offset for at least another 6 months. SAR also released further exploration results highlighting thick grade continuity at Thunderbox Zone A and depth extensions to Karari. HOLD maintained with a $1.18 target price.
Sandfire Resources (SFR) | H1 FY17 Financial Results | HOLD
Market Cap $1,080 | Current Price $6.85 | Target Price $6.25
Sandfire Resources (SFR) released financial results for H1 FY17 with revenue of $248m, profit before tax of $54m and NPAT of $36m, beating Argonaut’s forecasts of $241m, $45m and $30m respectively. Despite lower H-on-H revenue (down 8%), free cash flow increased 22% due to lower operating costs and declining development capital as decline access to the distal C4 and C5 orebodies is now established. Cash and debt at December 31 were $107m and $50m respectively. In January, SFR repaid the remaining debt balance.
Independence Group (IGO) | Nova loses some fizz| HOLD
Market Cap $2,317 | Current Price $3.95 | Target Price $4.12
Independence Group (IGO) released H1 FY17 statutory financial results with revenue of $223.1m, underlying EBITDA of $81.8m and NPAT of $20.2m (pre-released in the December Q results). Respectively, these results were up 13%, 18% and 6% H-on-H. Operating cashflow was down 48% H-on-H to $26m, however this was impacted by a $58m stamp duty fee relating to the Nova acquisition. IGO has flagged a ~50% FY17 production downgrade to Nova production resulting from lower than anticipated underground development. Development is 1.8km or six weeks behind schedule. While this delay does not have a substantial impact on our valuation (Ni guidance was only 9-10kt in FY17), the sentiment impact is significant as all Company commentary to date has focussed on the successful and timely ramp up of the project. Argonaut’s price target declines to $4.12 and we downgrade to a HOLD (previously BUY at a $4.15 target price).
Recent Contacts & Presentations:
Paringa Resources Ltd (PNL), The Gruden Group Ltd (GGL), Primary Gold Ltd (PGO), Vault Intelligence Ltd (VLT), Botanix Pharmaceuticals Ltd (BOT) Orthocell Ltd (OCC), Strandline Resources Ltd (STA) Dragontail Systems Ltd (DTS), ABM Resources Ltd (ABU), Acacia Coal Ltd (AJC), Troy Resources Ltd (TRY), Hazer Group Ltd (HZR), Berkeley Energia Ltd (BKY), Sino Gas & Energy Holdings Ltd (SEH), Sovereign Metals Ltd (SVM), Kin Mining (KIN), Vital Metals Ltd (VML), Mincor Resources (MCR), Dacian Gold (DCN), Leaf Resources Ltd (LER), Alchemy Resources Ltd (ALY), OpenDNA Limited (OPN), MZI Resources Ltd (MZI), Seafarms Group Ltd (SFG), Marindi Metals Ltd (MZN)