Market Update & Important Indicators:
Declines in biotechnology shares dragged down the Nasdaq Composite, pressuring an index that has soared so far this year. The Nasdaq fell 0.5% intraday but is up more than 8% in 2017, outperforming both the Dow Jones Industrial Average and the S&P 500, which are up more than 5%. The tech-heavy index has closed at a fresh high 19 times so far this year-its most records in a year since 1999, according to the WSJ Market Data Group. The Nasdaq Biotechnology Index shed 0.4% while technology shares also slipped, putting the Nasdaq Composite on course for a second straight day of declines. The S&P 500 rose less than 0.1% and the Dow industrials rose 0.2% intraday, on course to close at a fresh high. The U.S. gold price also rose overnight up 1.0% at 1,249.30 US$/oz. Stocks have climbed since Election Day, as corporate earnings have improved, data has shown growth in the U.S. economy and investors have bet the new U.S. administration will implement tax cuts and fiscal stimulus. Some investors remain cautious, however, noting stocks are getting expensive. Companies in the S&P 500 traded at about 22 times their past 12 months of earnings as of Wednesday, above their 10-year average of 15.8, according to FactSet.
European stocks finished flat, following three consecutive sessions of gains. The Stoxx Europe 600 finished unchanged at 373.38, frustrating those looking for a fourth-straight win but still hovering at best levels since late 2015. The regional benchmark on Tuesday rose 0.6% to 373.40, the best close since Dec. 2, 2015, helped by a better-than-expected preliminary reading on manufacturing activity in the Eurozone.
Gains in Asian shares were capped Wednesday as investors worried that rising U.S. interest rates may prompt a flight of capital in the region. Investors opted to stay cautious ahead of the release of minutes from the U.S. Federal Reserve later in the global day. The Nikkei Stock Average closed flat, and the FTSE Malaysia index edged lower by 0.1%. Despite the apprehensions, Hong Kong's Hang Seng Index closed up 1%, adding to its 6.6% gains in the past three months, and the Shanghai Composite rose 0.2%.
Well-received earnings results from a handful of companies helped drive a broad rise in Australian equities Wednesday, snapping a three-session run of modest losses. Gains by energy stocks spurred the market as crude-oil prices recovered from recent weakness and offsetting a sharp drop in Commonwealth Bank of Australia as it traded ex-dividend. Ending at the session high, the S&P/ASX 200 rose 14.1 points, or 0.2%, to 5805.1. The consumer staples subindex notched the strongest advance, rising by 2.5%.
The London Metal Exchange's three-month copper contract closed down -0.33% at $6,040/t. The other base metals were mixed on Wednesday. Lead prices rose 0.5% at 2,267/t whilst aluminium prices ended the day flat at 1,876/t. Falling for the day, nickel dropped 0.4% to 10,754/t, tin fell 2.4% to 19,287/t and zinc prices fell 0.4% at 2,861/t.
In this Issue:
OZ Minerals (OZL) 2016 Full Year Results | SELL
Market Cap $2,876m | Current Price $ 9.63 | Target price $8.25
OZ Minerals (OZL) reported full year 2016 financial results with $823m revenue, $374m underlying EBITDA and $109m NPAT, down 6%, 23% and 17% respectively Y-on-Y. Revenue was lower in comparison to 2015 primarily due to lower copper sales, partly the result of the South Australian power outage in Q4. NPAT was impacted by a $37.3m class action settlement cost associated with the merger of Oxiana and Zinifex in 2008. Other major Y-on-Y changes included a $76m increase in D&A, and a $148m increase in inventories (the result of capitalised waste stripping in previous years and an accelerated open pit mining strategy). At December 31, the Company had $656m cash and no debt. Cash and forecast high cashflows through to 2018 (est. $300m before Carrapateena capex) puts the OZL in a position to self-fund Carrapateena development (~$980m) and maintains dividend payments. Net cash generation for 2016, before dividends, the share buyback and class action costs was $230m.
Matrix (MCE) | Diversifying away from Subdued Markets | HOLD
Market Cap $52m | Current Price $0.56 | Valuation $0.62
As expected, MCE posted weak first half results, failing to break-even at the EBITDA line. Based on the continuing soft market for MCE’s buoyancy products and a softer than expected order book, we have reduced our FY17 and FY18 revenue forecasts. The impact on our valuation has been largely offset by the pending receipt of an outstanding payment from a shipyard customer. Our Hold call remains on a $0.62 valuation (prior $0.65).
Ausdrill (ASL) | Contract wins underpin revenue | BUY
Market Cap $484m | Current Price $1.55 | Valuation $1.75
The financial year to date has seen ASL seal ~$1.2b in contract wins and extensions, with Africa being the key growth area. We expect the impact to start to be felt in 2H17, but the real gains will be evident in FY18 where we are factoring in strong earnings growth. With gearing the lowest it’s been in 5 years, ASL is well positioned to fund these wins. The rationalization strategy has been well executed, and momentum positive despite ongoing challenges in Australia. Buy maintained on a $1.75 valuation (prior $1.50).
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)
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