Market Update & Important Indicators
Stocks drifted lower Thursday, as earnings results sent shares of some retail chains higher while food companies fell. The Dow Jones Industrial Average lost 0.1% in the last half-hour of trading, while the S&P 500 fell 0.2% and the Nasdaq Composite slipped 0.1%. Stocks have wavered this month, as investors weigh generally solid earnings and steady global growth against geopolitical tensions and political uncertainty in Washington, D.C. Earlier this week, President Trump said he would be prepared to shut down the government if Congress doesn't approve funding for a wall along the Mexico border. Meanwhile, central bankers and economists from around the world are set to gather Thursday through Saturday in Wyoming for the annual Jackson Hole symposium. While no major announcements on interest rates or stimulus programs are expected, any hints at the course of policy in the fall could shake markets in thin summer trading. The U.S. gold price fell slightly overnight, retreating 0.3% to close at 1,285.80 US$/oz.
European stock markets notched small gains Thursday, with investors taking a cautious approach as the Jackson Hole summit that's been hanging over markets this week was finally about to kick off. The Stoxx Europe 600 index closed up 0.2%, partly recouping a 0.5% loss from Wednesday. Stock markets in Europe and the U.S. have flip-flopped between gains and losses this week, with volatility driven in part by U.S. President Donald Trump's threat to shutdown the government and uncertainty ahead of the annual gathering of global central bankers in Jackson Hole, Wyoming. European Central Bank President Mario Draghi and Federal Reserve Chairwoman Janet Yellen will speak on Friday, with markets watching for hints on the future path for monetary policy.
Where an Asian stock market started is where it finished Thursday. Markets like Hong Kong, Taiwan and Korea–which opened higher–closed there. But early weakness in Japan, China and New Zealand persisted through the session as investors awaited what comes out of Jackson Hole. Indexes in Hong Kong and Taiwan logged their best finishes in more than two weeks thanks to strength in technology shares. But Japan's Nikkei notched another four-month closing low amid overnight declines in dollar-yen which were only partially reversed during Asian trading.
Gains by some big mining stocks helped keep Australian stocks higher Thursday, as did a few well-received earnings reports and a recovery in iron-ore prices. Up most of the day, the S&P/ASX 200 settled 0.1% higher as range-bound trading continues. Iron-ore producers BHP and Rio Tinto gained 2.2% and 3.1%, respectively, while fellow metals firms South32 and Oz rose 1.7% and 2.5% after their full-year reports. That helped counter weakness among fellow sector heavyweight banks. Leading the way lower once more was CBA at 0.8%.
The London Metal Exchange's three-month copper contract traded higher overnight, notching a gain of 1.87% to $6,688/t. The other base metals again finished mixed. Aluminium prices gained 0.2% to 2,107/t, whilst lead prices fell another 0.8% to 2,331/t. Tin prices lost 0.3% to 20,615/t, whilst zinc prices closed higher, adding 0.7% to 3,112/t. Nickel prices were higher again overnight, adding 0.7% to finish at 11,689/t.
In this issue
Ausdrill (ASL) | Winning in Africa | HOLD
Market Cap $684m | Current Price $2.19 | Valuation $2.20
Africa drove strong FY17 performance, and there’s more to come. The $1.6b in awards during FY17 largely came out of Africa, and will drive strong growth in FY18 (ASL guidance is for 30-40% earnings growth), while an exceptional tender pipeline here augurs well for FY19 and beyond. There are risks to managing and funding such strong growth, but ASL is well positioned in our view. We remain attracted to the business quality and outlook, but maintain a hold call on a revised valuation of $2.20 (prior $1.95).
Matrix (MCE) | Subdued FY17 Result | HOLD
Market Cap $45.5m | Current Price $0.49 | Valuation $0.38
For MCE FY17 results were difficult, but largely expected. An underlying EBITDA loss of $4.4m reflects the subdued offshore oil and gas sector. Negligible sales in MCE’s core riser buoyancy market and a bleak outlook for new offshore rig builds has forced the Company to diversify its product offering to better utilise its state-of-the-art manufacturing facility in Henderson. Whilst some early success has been had, in particular with Matrix LGS (the Company’s low drag buoyancy products), we believe it will take time to penetrate new markets. Given a high level of uncertainty and a likely very soft FY18 we maintain our HOLD call on a revised DCF valuation of $0.38/share (previously $0.43/share).
OZ Minerals (OZL) | H1 FY17 Financials and Carrapateena Update | HOLD
Market Cap $2,613m | Current Price $8.97 | Target Price $8.95
OZ Minerals (OZL) release H1 financial results with revenue of $446m, underlying EBITDA of $39m and NPAT of $80m. Underlying NPAT of $81m was up $26m on the corresponding period in H1 2016. The Company retains a strong balance sheet with $625m cash and no debt. OZL has made a decision to progress the Carrapateena project through to development with commissioning forecast for Q4 CY19. The updated Feasibility Study (FS) highlights production of 65kt Cu and 67Koz gold at all-in sustaining costs (AISC) of US$0.99/lb, with $916m pre-production capex. While we regard the project as marginal on an IRR and NPV10 basis (15% and $595m respectively, Argonaut est.), OZL has significantly de-risked the technical aspects of the project and can fully fund development from existing cash and future cashflows from Prominent Hill. Argonaut downgrades OZL to a HOLD recommendation with a revised target price of $8.95 (from BUY at $8.20).
Recent Contacts & Presentations
Minotaur Exploration Ltd (MEP), Ausdrill Ltd (ASL), Neometals Ltd (NMT), PNX Metals Ltd (PNX), Northern Minerals Ltd (NTU), New Century Zinc Ltd (NCZ), Metal Bank Ltd (MBK), Rift Valley Resources Ltd (RVY), Panoramic Resources Ltd (PAN), Doray Minerals Ltd (DRM), Wellard Limited (WLD), Bryah Resources Ltd (BYH), Auris Minerals Ltd (AUR), Gage Roads Brewing Co Ltd (GRB), Stavely Minerals Ltd (SVY), Orbital Corporation Ltd (OEC), 4DS Memory Ltd (4DS), Kin Mining NL (KIN), Pharmaust Limited (PAA), Botanix Pharmaceuticals Ltd (BOT), Dimerix Ltd (DXB), Metro Mining Ltd (MMI), Paringa Resources Ltd (PNL), Independence Group NL (IGO), MZI Resources Ltd (MZI), Transerv Energy Ltd (TSV), Emmerson Resources Ltd (ERM)