Overseas Market Report – U.S. Stocks End Lower after Housing Data
U.S. stocks closed mostly lower on Monday after last week's gains and disappointing housing data.
New home sales fell 11.5% in September to an annual rate of 468,000, well below the 550,000 rate expected by economists. August's data was also revised lower. The data raised fears that the housing market may be slowing.At the close the Dow was down 0.1%, the S&P 500 was off 0.2%, while the NASDAQ was up 0.1%.
For Australian ADRs listed on the NYSE, BHP Billiton slipped 45 cents (1.26%) to $35.32, ResMed fell 1 cent (0.02%) to $56.24, Telstra Corporation lost 27 cents (1.34%) to $19.92, Spark New Zealand slipped 6 cents (0.58%) to $11.10 and Westpac added 14 cents (0.61%) to $23.14.
At 7:45 AM (AEDT), the 10-year Treasury note yield was 2.05% and the 5-year yield was 1.39%.
After reviewing Duke Energy's (DUK) all-cash offer of $4.9 billion, or $60 per share, for Piedmont Natural Gas (PNY), Morningstar plans to lower the fair value estimate to $81 per share from $83 and increase its Piedmont fair value estimate to $53 per share from $30. For Duke, Morningstar sees strong strategic rationale in acquiring a gas distribution with demographic overlap and strong potential for growth opportunities. These benefits come at a steep price for Duke shareholders. The 100% premium to our $30 fair value estimate, $6.7 billion enterprise value, 3.5 times book value, and 31 times earnings per share in current estimates are all well above an already pricey local gas distribution company's valuations.
Shares of Valeant (VRX) pared early losses after management held a conference call designed to ease fears over the firm's relationship with specialty pharmacy Philidor. The firm said they believe they are in compliance with all laws, but they are appointing a special board committee to fully review the situation. Concerns over drug pricing and questions about the pharmacies have sent shares down almost 42% over the last month.
European markets were mostly lower.
Germany's DAX was up 0.1%, the FTSE 100 was off 0.4% and the French CAC 40 dropped 0.5%.
Asian markets were mixed.
The Shanghai Composite and Nikkei 225 were up 0.5% and 0.7% respectively, while the Hang Seng was down 0.2%. India's Sensex fell 0.4%.
Australian Market Report – Local Market Expected To Open Higher
Ahead of the local open, SPI futures were 3 points higher at 5,335.
Monday 26 October – close. Local stocks started the week strong, boosted by Chinese monetary stimulus last Friday. However, the Australian market lost its momentum in afternoon trade to close slightly below the red line. Most sectors performed negatively, with the exception of health care and financials. The Australian dollar gained against most major currencies.
The All Ordinaries slid 1.80 points to 5,386.30 while the S&P/ASX 200 fell 3.60 points to 5,348.00.
BlueScope Steel (BSL)
BlueScope Steel announced that it has agreed to acquire Cargill's 50% share of North Star BlueScope Steel LLC for US$720m. The transaction will take the Company's ownership of North Star to 100%. The acquisition consideration, together with net debt to be assumed of US$40m as at 30 September 2015, implies a multiple of 7.1 times FY2015 EBITDA and pro-forma FY2015 cash flow per share accretion of 26%. The Company exercised its right of last refusal under the North Star shareholders' agreement, matching an offer received by Cargill from a third party. Completion is not subject to any regulatory approvals and is targeted for October 2015. Credit Suisse is acting as financial adviser and Vinson & Elkins are acting as legal advisers to the Company on the acquisition. BSL soared 43 cents to $4.50.
Bank of Queensland (BOQ)
Bank of Queensland announced that the Company has priced A$550m of 3.5 year floating rate Notes off its Australian Debt Instrument Programme at a margin of 115 basis points over the 3 month Bank Bill Swap Rate. There was strong investor interest in the Notes with over 42 investors participating in the trade. The pricing date of the floating rate notes will be 23 October 2015, Settlement date will be 29 October 2015 and Maturity date will be 29 April 2019. BOQ rose 15 cents to $13.70.
In This Issue
Argonaut Research | Western Areas (WSA) | BUY
Western Areas (WSA) released September Q results with 6.3kt Ni in concentrate, down 6% Q-on-Q, but slightly above Argonaut’s forecast of 6.2kt. Both the Spotted Quoll (SQ) and Flying Fox (FF) mines performed well with the highest contained Ni since the December Q 2013 (7.1kt Ni in ore). Cash cost of A$2.26/lb were below the lower end of guidance (A$2.30-2.50/lb before payability). The Company moved into a debt free position during the Q, the first time since 2004, with $59m cash in bank.
Argonaut Research | Northern Star (NST) | SELL
NST reported production of 140koz @ AISC A$1,083/oz, vs Argonaut forecast of 141koz @ AISC A$1,070/oz. Normalised FCF was A$46m, after adjusting for A$11m in M&A costs and A$14m in working capital (as part of the A$43m working capital debit made to NST in FY15). These figures imply a normalised FCF margin of ~A$330/oz during the September Q. The stock offers scale, liquidity, FCF, dividends, an outstanding balance sheet, seasoned Australian domiciled operations and significant exploration upside. However given the recent strong share price appreciation (~43% premium to Argonaut’s valuation), Argonaut downgrades the stock to a SELL. A$2.20 valuation maintained.
Recent Contacts & Presentations
Southern Cross Electrical (SXE), Tox Free Solutions (TOX), AWE Limited (AWE), Ausdrill (ASL), GR Engineering (GNG), Medusa (MML), Resolute (RSG), Kingsgate (KCN), Troy (TRY), Northern Star (NST), Sandfire (SFR), Regis (RRL), Saracen (SAR), Sino Gas & Energy (SEH), Dacian (DCN), Buru Energy (BRU), Carnarvon Petroleum (CVN), Otto Energy (OEL), Empire Oil & Gas (EGO), FAR Limited (FAR), Central Petroleum (CTP), Senex Energy (SXY)
Please read Argonaut's Important Disclaimers & disclosures
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