Overseas Market Report – U.S. Stocks Higher as Oil Prices Recovers
U.S. stocks reversed earlier losses to finish modestly higher on Wednesday, as oil prices rebounded in late trade.
New U.S. home sales fell 9.2% in January to a seasonally adjusted annual rate of 494,000. The data was well below the 520,000 annual rate expected by economists. Median prices fell to US$278,000 from US$295,800 in December.
At the close the Dow and S&P 500 were up 0.3% and 0.4% respectively, while the NASDAQ was up 0.9%.
For Australian ADRs listed on the NYSE, BHP Billiton lost 129 cents (-5.35%) to $22.80, ResMed lost 20 cents (-0.34%) to $57.79, Telstra Corporation rose 11 cents (0.59%) to $24.01, Spark New Zealand gained 33 cents (2.96%) to $11.47 and Westpac declined 49 cents (-2.31%) to $20.70.
At 7:45 AM (AEDT), the 10-year Treasury note yield was 1.75% and the 5-year yield was 1.22%.
Shares of Target (TGT) were up after the firm reported strong online sales results. Same-store sales were up 1.9% in the fourth quarter, driven by a 34% rise in online sales. Gross margin fell to 27.9% from 28.4% in the year-ago quarter.
TJX's (TJX) winning streak continued in the fourth quarter as the firm reported a 2.8% rise in profit and a 6% rise in same-store sales. The firm also boosted its dividend by 24% to 26 cents per share and authorized an additional US$2 billion in share buybacks.
Lowe's (LOW) reported better-than-expected sales in the fourth quarter but profit fell short as the firm took a charge related to an Australian joint venture. Management also provided guidance of 4% same-store sales growth in 2016, a deceleration from the 4.8% growth the metric saw in 2015.
European markets headed lower on Wednesday.
The FTSE 100, French CAC 40 and Germany's DAX were down 1.6%, 2.0% and 2.6%, respectively.
Asian shares were mostly lower.
The Shanghai Composite rose 0.9% on the back of a late rally, the Nikkei 225 was down 0.9% and the Hang Seng was off 1.2%. India's Sensex fell 1.4%.
Australian Market Report- Local Market Expected To Open Higher
Ahead of the local open, SPI futures were 31 points higher at 4,886.
Wednesday 24 February – close. The local market opened lower today on the back of losses on Wall Street overnight with oil prices tumbling. The negativity continued throughout the day as stocks remained below the flat-line until close, weighed down by the banks and big miners. Most sectors closed in the red, with the exception of industrials and utilities. The Australian dollar depreciated against the greenback but experienced mixed results against most major currencies.
The All Ordinaries fell 95.80 points to 4,943.30 while the S&P/ASX 200 dropped 104.60 points to 4,875.00.
In This Issue
Argonaut Research | St Barbara (SBM) | Buy
St Barbara (SBM) released H1 financial results featuring an underlying NPAT of A$60m and FCF of A$99m. The results reinforced the Company’s outstanding margins and the ability to generate FCF. The stock is trading on a competitive normalised EV / FCF of 4.8, one of the lowest amongst the mid-cap ASX gold peers. Despite the recent stellar share price performance, SBM could deliver further valuation upside by proving up the depth extension of the Gwalia mine sequence, incorporating a larger portion of the West Lode, as well as demonstrating a viable, long life sulphide project at Simberi. Whilst SBM has several options to evaluate in the near term in relation to Gwalia deeps and Simberi Sulphide, Argonaut recognises the Company is in an enviable position with a solid >6 years of Reserve life at Gwalia and strong cash generation, providing ample flexibility. Based on recent performances and spot gold / FX, the Company is expected to be net cash positive by the end of CY16 / early CY17 and generate >A$200m pre-tax FCF in CY17, which could be used to fund its growth projects. BUY maintained.
Argonaut Research | Troy (TRY) | Buy
Troy Resources (TRY) declared commercial production at its 100% owned Karouni Project, located in Guyana. Continued ramp up according to the current schedule will see the mine becoming one of the highest margin operations on the ASX in CY16 given high open pit grades. Despite the recent strong share price appreciation, Argonaut recognises further upside including:
• Potential CY16 guidance upgrade
• Resource and Reserve upside from the ongoing positive reconciliation
• Mine life extensions through exploration
At spot gold price, the mine is expected to generate ~A$100m pre-tax FCF during the maiden year, putting the stock on an EV / FCF of <2.0x, a level we consider attractive given the three year Reserve life and excellent extensional upside. Outside of the one year modelled underground production, Argonaut’s valuation has not factored in the positive reconciliation recorded to date. The stock remains a key pick in the gold space.
Argonaut Research | Fortescue Metals (FMG) | Hold
Fortescue Metals (FMG) delivered strong first half result with $3.3b revenue, $1.3b EBITDA and NPAT of $319m, largely in line with Argonaut’s forecasts of $3.3b revenue and $259m NPAT. The Company’s strong cash balance facilitated a A$0.03/sh interim dividend and the repayment of $1.1b debt over the period. C1 costs are forecast to be $13/wmt by the end of FY16, which will make FMG the lowest cost iron ore major at a FOB level. Argonaut downgrades to HOLD due to share price performance with a revised target price of A$2.10 (previously BUY and A$2.00).
Argonaut Research | MZI Resources (MZI) | Buy
MZI Resources (MZI) has received notice from its key leucoxene offtake customer (Chemours) that it is exercising a contractual right to reduce sales volumes of L70 and L88 products for the second half of 2016. While the Company remains contracted for 100% of zircon concentrate and 55% of leucoxene in 2016, further offtake agreements will be required to maintain a positive cash balance. The loss of sales only affects H2 2016 and has little impact on our valuation (>3%).
Argonaut Research | Tox Free Solutions (TOX) | Buy
Tight control of opex and capex saw margins expand and the balance sheet strengthen in 1H16. This financial discipline and the track record of managing growth, combined with a positive view on the sector and a belief that TOX will continue to gain market share, underpins our expectations for steady long term performance. Our forecasts are little changed and continue to support a blended valuation of $3.10. Trading metrics are undemanding in our view and we maintain a buy call.
Argonaut Research | Matrix (MCE) | Hold
EBITDA of $7.2m on revenue of $63.4m in 1H16 was in line with our expectations, although guidance for $100m in full year revenue implies a much tougher second half, even assuming further cost cutting. We believe negligible bottom line profit over the next couple of years is likely, although the cost-outs that have been forced on the business mean the rebound, when it comes, could be dramatic. Sentiment will remain weak in the short to medium term, but a hold call is appropriate given the longer term earnings potential, the quality PP&E at Henderson and low gearing levels.
Commonwealth Bank of Australia (CBA)
Commonwealth Bank of Australia announced that it has completed the bookbuild for the offer of CommBank PERLS VIII Capital Notes. The Offer received strong demand from brokers to the Offer as well as institutional investors. The Group has allocated $910m of PERLS VIII on a firm basis under the Broker Firm Offer and the margin has been set at 5.20% per annum. This result includes significantly more applications for the new money component of the Broker Firm Offer than the $650m cap agreed between the Group and the Syndicate. Consequently, such applications were scaled back. The Group will continue to accept applications under the Reinvestment Offer (for Eligible PERLS III Holders) and Securityholder Offer. CBA lost 202 cents to $71.26.
Fortescue Metals Group (FMG)
Fortescue Metals Group announced a fully franked dividend of 3 cps for the period of six months ending 31 December 2015, with a record date of 4 March 2016 and a payment date of 7 April 2016. The Company's dividend reinvestment plan will apply to this dividend. FMG lost 10 cents to $2.00.
Recent Contacts & Presentations
Troy Resources (TRY), Northern Star Resources (NST), Regis Resources (RRL), Medusa Mining (MML), Doray Minerals (DRM), Beadell Resources (BDR), Red 5 (RED), Kingsgate Consolidated (KCN), OBJ (OBJ), Sino Gas & Energy Holdings (SEH), TFS Corporation (TFC), Paragon Care (PGC), Austal (ASB), Orbital Corporation (OEC),Energia Minerals (EMX), Berkeley Energia (BKY) , Finders Resources (FND), 4DS Memory Ltd (4DS) , Bionomics Ltd (BNO)