Market Update & Important Indicators:
U.S. stocks vaulted higher Monday as investor jitters over restrictive trade policies around the world moderated. The Dow Jones Industrial Average gained 2.8%. The Nasdaq Composite added 3.3% and S&P 500 rose 2.7%. The reprieve for U.S. stocks comes after the worst week in more than two years. Shares of financial and technology companies within the S&P 500 were some of the biggest winners Monday after investors dumped them in prior sessions, though all sectors got a lift. A reassessment of trade policy rhetoric between the U.S. and China after the weekend helped push stock indexes higher Monday, analysts said. The Wall Street Journal reported Sunday that China and the U.S. have started negotiating to improve U.S. access to mainland Chinese markets. The behind-the-scenes discussions came after announcements of U.S. plans to hit China with tariffs on as much as $60 billion in imports and other restrictions — and the immediate threat of Chinese retaliation — sent U.S. stock prices into their sharpest decline in more than two years last week. The Trump administration sent a letter to Chinese officials late last week, setting out requests that include a reduction of Chinese tariffs on U.S. automobiles and greater access to China's financial sector by American companies, the Journal reported. The U.S. gold price continued its upward movement over night as it increased by 0.5% to 1,353.20 US$/oz.
European shares closed lower, with the Stoxx Europe 600 down 0.7% at 363.18, turning down late in the session as the euro rose to a 5-week high against a weak U.S. dollar. Investors remained wary of trade tensions despite reports of talks between the U.S. and China. The U.K.'s FTSE 100 ended down 0.5%, Germany's DAX down 0.8% and France's CAC 40 down 0.6%. Italy underperformed, with the FTSE MIB ending down 1.2%, while Spanish stocks performed better, ending down 0.1% after S&P upgraded Spain's sovereign rating late on Friday.
In Asia, markets staged a late rebound. The Wall Street Journal reported late on Sunday that China and the U.S. have quietly started negotiating to improve American access to mainland markets. The behind-the-scenes discussions came after announcements of U.S. plans to hit China with tariffs on as much as $60 billion in imports and other restrictions. Japan's Nikkei Stock Average finished up 0.7%, having earlier declined as much as 1.3%. Hong Kong's Hang Seng Index rose 0.6%, while the Shenzhen ‘A’ Share index advanced 1.4%.
Fresh declines in Australian stocks left the country's benchmark below February's worst finish and at its lowest level since mid-October as the market was hit further by weakness in financials. The S&P/ASX 200 dropped 0.5% to 59790.5, a 3rd-straight decline. Gains by gold producers with a jump in the metal price Friday and a slight tick higher by the energy sector weren't enough to counter broad weakness. Financial stocks were among the big drags, with that sector hitting 16-month lows.
The London Metal Exchange’s 3-month copper contract declined overnight, falling 0.87% at 6,602/t. The other base metals experienced mixed sessions. Zinc prices continued to rise, jumping 1.6% to 3,266/t, whilst tin prices edged 0.4% higher at 20,920/t. Aluminium prices and nickel prices both remained unchanged at 2,206/t and 12,904/t respectively. Lead prices were the biggest base metal gainer, rising 2.1% to finish at 2,389/t.
In this issue:
Pacific Energy (PEA) | Contract Power acquisition | BUY
Market Cap $226m | Current Price $0.535 | Valuation $0.80
PEA has acquired Contract Power, one of its key competitors in remote power supply. The $90m acquisition ($85m cash and $5m scrip) will be debt funded with the acquisition price implying a 6x EV to FY19f EBITDA multiple which, in our view, is fair for a business with the sort of long term earnings visibility that Contract Power offers. On our numbers we forecast the deal will be ~10% EPS accretive in FY19. We believe PEA is now very well positioned to capitalise on a strong growth pipeline and maintain our BUY recommendation on a revised $0.80 valuation (previously $0.70).
Recent Contacts & Presentations:
Vital Metals Ltd (VML), Todd River Resources Ltd (TRT), Pacific Energy Ltd (PEA), Carnarvon Petroleum Ltd (CVN), Australian Mines Ltd (AUZ), Australian Finance Group (AFG), Paladin Energy Ltd (PDN), Cooper Energy Ltd (COE), Medibio Ltd (MEB), Botanix Pharmaceuticals Ltd (BOT), Salt Lake Potash Ltd (SO4), Golden Mile Resources Ltd (G88), NTM Gold Ltd (NTM), Ausmex Mining Group Ltd (AMG), Matrix C&E Ltd (MCE), Austal Ltd (ASB), Decmil Group Ltd (DCG), Ventnor Resources Ltd, Ausdrill Ltd (ASL), Alice Queen Ltd (AQX), PNX Metals Ltd (PNX), Alliance Resources Ltd (AGS), Myanmar Metals Ltd (MYL), Primary Gold Ltd (PGO), Sino Gas & Energy Holdings Ltd (SEH)