Market Update & Important Indicators
The S&P 500 booked its first weekly gain in three weeks, as broad advances across sectors helped offset a slide in retail stocks. Major indexes' moves were muted most of the week – mostly attributed to the dearth of major economic reports on the calendar and a lull in trading toward the end of August. The number of shares changing hands over a full session of trade on exchanges owned by the New York Stock Exchange and the Nasdaq fell to their lowest level of 2017 on Wednesday, and hovered below average levels the rest of the week. Still, while major indexes largely trudged along, corporate news continued to drive swings in individual sectors. The Dow Jones Industrial Average rose 30 points, or 0.1%, to 21814, logging a 0.6% weekly gain. The S&P 500 inched up 0.2%, or a 0.7% weekly gain, and the Nasdaq Composite slipped less than 0.1%, but ended the week 0.8% higher. The U.S. gold price gained overnight, adding 0.4% to close at 1,290.80 US$/oz.
European stock markets finished the session by swinging into the red, pulling back as Federal Reserve Chairwoman Janet Yellen gave nothing away about the path forward for monetary policy in the world's largest economy. The Stoxx Europe 600 index wrapped up a choppy session by losing 0.1% to 374.07. That move was led by declines for consumer services and telecom shares. But gains for commodity stocks softened a bigger blow for the pan-European benchmark. Still, the index gave up potential gains for the week, ending down by less than 0.1%. Stocks declined while the euro charged higher, toward $1.19 against the dollar. Shares of European exporters can be hurt by euro strength as it can erode revenue made overseas by European companies and can make their products more expensive to buy for international clients. Germany's DAX 30 index flipped down to close 0.1% lower at 12,167.94. France's CAC 30 index shed 0.2% to 5,104.33, while the U.K.'s FTSE 100 index lost 0.1% to end at 7,401.46.
Asian stocks picked up momentum after a muted start to trading. Chinese equities led the way as shares rebounded on gains in the banking sector ahead of first-half reports. The Shanghai Composite was up 1.8% in its best day of the year, with Hong Kong's Hang Seng Index climbing 1.2%, helped by better-than-expected results. Japan's Nikkei rose 0.5% as the dollar strengthened against the yen, but logged a sixth-straight weekly drop despite gains overseas, its longest losing streak since the start of 2014. Gains in South Korea's Kospi index were muted with the overall index up just 0.1%.
Stock weakness in Australia big banks and REITs nullified gains by companies reporting strong earnings, resulting in the S&P/ASX 200 falling 1.6 points to 5743.9. After morning weakness, the index pushed through the flat line at mid-afternoon before late selling resulted in the lower finish. Most of the major lenders fell, led by Westpac's 1.1% drop. Meanwhile, the REIT sector slid 1.2%, doubling the week's decline. They came as Qantas and Sims Metals each jumped 3.8% following their fiscal year reports.
The London Metal Exchange's three-month copper contract lost some ground overnight, trading 0.3% lower at $6,666/t. The other base metals all finished lower. Aluminium prices lost 1.9% to $2,066/t, whilst lead prices fell another 1.3% to $2,300/t. Tin prices shed 0.8% to $20,455/t, whilst zinc prices closed 1.8% lower at $3,055/t. Nickel prices pulled back 2.2% to finish at 11,426/t.
In this issue
Global Construction (GCS) | Building a national footprint | BUY
Market Cap $120m | Current Price $0.57 | Valuation $0.80
GCS successfully diversified its business onto the East Coast and continued to strengthen its balance sheet in FY17 (currently $3.8m net cash). Whilst FY17 results were softer than we forecast, we expect significant growth opportunities in the future for the commercial sector in particular. We believe execution of the East Coast expansion strategy and balance sheet strength warrant multiple expansion; we now value GCS on 8.0x P/E (previously 7.5x). GCS trades on undemanding multiples and offers value as well as growth. BUY call maintained on a blended $0.80 valuation.
GR Engineering (GNG) | Short-term pain, long-term gain | BUY
Market Cap $199m | Current Price $1.30 | Valuation $1.55
Whilst GNG heads into FY18 with a record order book, recent news on client disputes has spurred negative sentiment. Whilst cash may be stretched by Wolf’s call on the performance bond, we are comfortable with the balance sheet given likely strong cash generation in 1H18 on significant locked in work. Our valuation has decreased to $1.55 (previously $1.70), based on the worst-case scenario that the Wolf bond is called and not recovered. However, given recent share price movements we maintain a BUY call.
Peet (PPC) | Reaping the benefits | BUY
Market Cap $593m | Current Price $1.21 | Valuation $1.50
The FY17 results showed PPC is reaping the benefits of prior year restructuring. NPAT of $44.8m was up 5% on FY16 and ahead of our forecast, while an ongoing focus on capital management and a disciplined approach to new investment delivered strong cash flow and reduced gearing to 21%. PPC is well positioned for growth in FY18 and beyond, with more than 80% of the diversified land bank expected to be in development by 2019. The >50k lots on hand would sustain PPC for the next 17 years at current sales rates. Our upgraded valuation of $1.50 (prior $1.40) underpins our maintained buy call.
Recent Contacts & Presentations
Draig Resources Ltd (DRG), 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)
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