Overseas Market Report – U.S. Stocks End Lower after Fed Statement
U.S. stocks finished sharply lower Wednesday after the Federal Reserve left interest rates unchanged and said "economic growth slowed" since its last meeting in December, but was seen leaving the door open to a rate hike in March.
The Dow, which had turned a 150-point drop to a modest gain earlier in the session, declined again after the announcement. Large losses from corporate heavyweights Apple Inc. and Boeing Company after disappointing earnings accounted for much of the drop in the Dow.
New U.S. home sales rose in December to an annualised rate of 544,000, well above the 506,000 pace expected by economists. For all of 2015, new home sales were up 14.5% from the previous year.
At the close, the Dow and S&P 500 were down 1.4% and 1.1% respectively, while the NASDAQ was off 2.2%.
For Australian ADRs listed on the NYSE, BHP Billiton slipped 66 cents (-3.00%) to $21.35, ResMed fell 145 cents (-2.46%) to $57.57, Telstra Corporation lost 22 cents (-1.10%) to $19.35, Spark New Zealand gained 3 cents (0.28%) to $10.56 and Westpac declined 38 cents (-1.76%) to $21.22.
At 7:45 AM (AEDT), the 10-year Treasury note yield was 2% and the 5-year yield was 1.42%.
Shares of Apple (AAPL) sank after the firm's first-quarter results and second-quarter outlook painted a gloomy picture in terms of currency headwinds and sluggish macroeconomic conditions. Apple's total revenue in the December quarter was US$75.9 billion, up 2% year over year but at the low end of the firm's previously forecast range, a rare miss by the firm. Revenue would have been up to US$80.8 billion, up 8% year over year, on a constant currency basis. Apple sold 74.8 million iPhones in the December quarter, up by only 311,000 units or 0.4% year over year, with sales actually down on a sell-through basis to end customers. On the bright side, iPhone average selling prices were still spectacular at US$691 per phone, up 3% sequentially, despite US$49 of negative currency effects.
AT&T's (T) fourth-quarter results don't change Morningstar's view that the DirecTV acquisition will do little to improve the firm's competitive position over the long run. AT&T has highlighted the combined performance of its retail postpaid and prepaid wireless businesses recently, a shift that paints its performance in a favourable light. While the solid performance of the prepaid business, Cricket in particular, is nice, the core AT&T postpaid brand is far more important to the firm. AT&T has now lost postpaid phone customers during each of the past five quarters, with a total of about 1.5 million net losses during 2015.
Boeing's (BA) disappointing outlook sent shares of the aerospace giant lower. Management expects to earn between US$8.45 and US$8.65 per share in 2016, well below the US$9.41 a share analysts were expecting. For the fourth quarter, revenue was below consensus while profit came in ahead of expectations.
European markets were higher.
The FTSE 100, French CAC 40 and Germany's DAX were up 1.3%, 0.5% and 0.6%, respectively.
Asian shares finished mixed, with the Shanghai Composite down 0.5%, the Nikkei 225 up 2.7% and the Hang Seng up 1%. India's Sensex finished flat.
Australian Market Report – Local Market Expected To Open Lower
Ahead of the local open, SPI futures were 30 points lower at 4,885.
Wednesday 27 January – close. The Australian market opened just below the flat-line today on the back of gains on Wall Street overnight in line with a surge in crude oil prices and the Federal Reserve's first policy meeting. Stocks continued to fall throughout the day to well below the flat-line at close, weighed down by heavy falls in the big banks. All sectors ended lower, with health care and energy the worst performers. The Australian dollar gained against most major currencies.
The All Ordinaries fell 56.30 points to 5,000.80 while the S&P/ASX 200 dropped 60.20 points to 4,946.40.
In This Issue
Vicinity Centres (VCX)
Vicinity Centres announced that as at 31 December 2015, 59 of its 85 directly-owned retail properties (62% by value) have been independently valued and the remaining properties have been subject to internal valuations resulting in a net valuation gain for the 6 month period of $422m or a 3.0% increase. The valuations are subject to final audit and will be confirmed in its FY16 interim results to be announced on 17 February 2016. At 31 December 2015, Net Tangible Asset backing per stapled security is estimated to be $2.54, subject to final audit, which is up 9c or an increase of 3.7% compared to $2.45 reported at 30 June 2015. Gearing is estimated to be 29.5% as at 31 December 2015, up from 28.0% at 30 June 2015. VCX added 3 cents to $2.90.
Argonaut Research -AWE (AWE)
AWE announced the sale of its 10% working interest in US shale assets (Sugarloaf) for US$190m (~A$271 pre-tax) to US based Carrier Energy Partners II. Tax on the transaction is estimated at US$35m, (~A$50m), payable in the June quarter. We view the price received, A$271 with an additional A$13m for past drilling costs, as fair and generally in line with our valuation (A$289m base asset & A$14m Austin Chalk upside). AWE stated that sale proceeds will be used to repay all debt, resulting in an Argonaut estimated pro forma net cash position of A$58.6m. The sale of the Sugarloaf asset will reduce AWE’s production, sales revenue and development expenditure guidance for FY16, to be restated at its half year results on 24 February 2016. On the back of the sales announcement, we have updated our model by removing the Sugarloaf production case and Austin chalk upside, factored in the debt repayment and taxation payment of ~A$220m and A$50m respectively. This has the net effect of reducing our valuation to A$1.11/ps (from A$1.35/ps). Buy maintained.
Argonaut Research – Evolution Mining (EVN)
Evolution Mining (EVN) delivered record production of 203.7koz @ “all-in” cost of A$1,164/oz (v Argonaut forecast 200koz @ AIC A$1,114/oz. Normalised FCF, adjusted for interest and transaction costs, was estimated at A$82.7m, or A$406/oz. As anticipated, strong H1 performance resulted in a guidance upgrade (see below). recent successful acquisition of Phoenix Gold (PXG) is likely to prove accretive with further exploration and evaluation work. Whilst the stock is trading in-line with Argonaut’s valuation, we remain attracted to EVN’s scale, liquidity, FCF generation and quality management. HOLD maintained with A$1.40 valuation (was A$1.35).
Argonaut Research – Troy Resources (TRY)
Troy Resources (TRY) provided the following positive updates in its December Q report: Karouni update, including significant outperformance against the Reserve model to date (see below). CY16 Karouni guidance of 100-120koz @ AISC US$525-550/oz, above LOM parameters. Casposo will be on care and maintenance once underground and stockpile ore finishes (expecting to be largely complete by March Q). Group production (excluding Karouni) during the December Q was 19.8koz @ AISC US$1,022/oz (v Argonaut expectation of 19koz @ AISC US$1,242/oz)
Argonaut Research – Panoramic Resources (PAN)
Panoramic Resources (PAN) announced a decision to put its Savannah operation on care and maintenance (C&A) as a result of the prevailing low nickel price. Last sales are expected in April 2016. This announcement coincides with the release of a Scoping Study on the Savannah North deposit which outlines an eight year operation producing 9.5kt Ni and 5.3kt Cu in concentrate per annum. Development capex was estimated at $42m with payable cash costs of $5.29/lb. At December 31, PAN had $25m cash and no debt, however Argonaut estimate this will be eroded to ~$15m by financial year end after ongoing exploration, C&A and restructuring costs. Downgraded to HOLD with a $0.12 target price (previously BUY with a $0.35 target price).
Argonaut Research – Western Areas (WSA)
Western Areas (WSA) reported December Q results with 6.3kt Ni in concentrate at C1 costs of $3.11/lb (assuming 72% payability) beating Argonaut’s forecast of 6.1kt at $3.30/lb. As anticipated, the Company incurred high cash outflow ($29.1m) incorporating a final payment for the Cosmos acquisition and long lead items for the Mill Recovery Enhancement Project. The Company’s cash balance now stands at $29.9m.Argonaut maintains a BUY recommendation with a $3.00 target price.
Recent Contacts & Presentations
Empire Oil & Gas (EGO), Millennium Minerals (MOY), Geopacific Resources (GPR), Saracen (SAR), Agrimin (AMN), Salt Lake Potash (SO4), Reward Minerals (RWD), Transerv Energy (TSV), Carnarvon Petroleum (CVN), Success Resources (SGU), High Peak Royalties (HPR), Heron Resources (HRR), OBJ (OBJ), Goldfields Money (GMY), Hazer (HZR), MZI Resources (MZI), Apollo Minerals (AON), Otto Energy (OEL), Sino Gas & Energy Holdings (SEH)