Overseas Market Report – U.S. Stocks End Higher on Solid Earnings
U.S. stocks closed higher Thursday, boosted by a jump in oil prices along with strong earnings-driven gains in Facebook and Under Armour.
Stocks rallied early as crude oil futures leapt more than 7% following unconfirmed reports that Russia and the Organization of the Petroleum Exporting Countries may cut output. But after a news report said OPEC officials denied plans for a meeting with Russia over potential output cuts, those gains shrunk.
Initial U.S. unemployment claims fell by 16,000 to 278,000 last week, below the 280,000 claims expected by economists. The less volatile four-week moving average fell by 2,250 to 283,000.
Durable U.S. goods orders were down a larger-than-expected 5.1% in December. A 12.4% fall in transportation orders was a big driver of the decline, as orders were off only 1.2% excluding that category.
The pending home sales index inched up 0.1% last month. Economists had expected a more robust 0.6% increase in the index.
At the close, the Dow was up 0.8%, the S&P 500 was up 0.5%, while the NASDAQ was up 0.9%.
For Australian ADRs listed on the NYSE, BHP Billiton rose 44 cents (2.06%) to $21.79, ResMed fell 132 cents (-2.29%) to $56.25, Telstra Corporation gained 44 cents (2.30%) to $19.80, Spark New Zealand lifted 7 cents (0.66%) to $10.63 and Westpac rose 28 cents (1.32%) to $21.51.
At 7:45 AM (AEDT), the 10-year Treasury note yield was 1.99% and the 5-year yield was 1.40%.
Shares of Facebook (FB) surged after the firm reported upbeat results. Revenues were up 52% in the fourth quarter year-over-year and quarterly profit rose to over US$1 billion for the first time.
Under Armour (UA) reported a solid fourth quarter, sending shares soaring. In the fourth quarter, revenue increased 31% to US$1.17 billion. Operating income lagged the top-line growth a bit, as did net income, both up 21% to US$178 million and US$148 million, respectively. Gross margins fell to 48.0% from 49.9%.
EBay's (EBAY) fourth-quarter update had a familiar ring, as structured listing data progress, solid StubHub and classified segment revenue growth, and share-repurchase activity were drowned out by stagnant active user and GMV trends, additional processing costs stemming from the PayPal separation, and concerns about longer-term customer acquisition costs. Shares plunged on the report.
Narrow-moat PayPal (PYPL) continued to ride the wave of digital payment growth in the fourth quarter. Total payment volume processed rose 23% as reported from the fourth quarter of 2014 and 29% as adjusted for foreign currency. Net revenue grew at a slower pace–up 17%.
Ford (F) said it earned 47 cents per share in the fourth quarter, or 58 cents per share on an adjusted basis. Analysts were looking for earnings of 51 cents per share. The firm saw strength in North America, while Europe returned to profitability in the quarter.
European markets were lower after a choppy trading day.
The FTSE 100, French CAC 40 and Germany's DAX were down 1%, 1.3% and 2.4%, respectively.
Asian shares were mostly lower on the day.
The Shanghai Composite dropped 2.9%, while the Nikkei 225 was off 0.7% and the Hang Seng was up 0.8%. India's Sensex fell 0.1%.
Australian Market Report – Local Market Expected To Open Higher
Ahead of the local open, SPI futures were 14 points higher at 4,939.
Thursday 28 January – close. The local market dropped sharply after open following losses on Wall Street overnight after the release of the Fed statement. However, the negativity was short-lived as stocks rose above the red-line shortly after midday and closed higher, underpinned by resource stocks. Most sectors ended higher, with only consumer discretionary closing in the red. The Australian dollar gained against most major currencies.
The All Ordinaries rose 27.30 points to 5,028.10 while the S&P/ASX 200 rose 29.80 points to 4,976.20
In This Issue
Veda Group (VED)
Veda Group announced that the New Zealand Overseas Investment Office (NZ OIO) has provided notification that it consents to Equifax Inc's proposed acquisition of 100% of the shares in the Company via a scheme of arrangement. As announced in the 23 November 2015 ASX release outlining the proposed Scheme, the implementation of the Scheme was conditional on the receipt of NZ OIO approval. This means that the condition precedent in clause 3.1(a)(2) of the Scheme Implementation Deed is satisfied. Consent from the NZ OIO was the final regulatory approval required under the Scheme. The Directors of the Company continue to unanimously recommend that the Company shareholders vote in favour of the Scheme, in the absence of a superior proposal. The Scheme remains subject to a number of customary conditions. VED added 1 cent to $2.81.
Fortescue Metals Group (FMG)
Fortescue Metals Group provided quarterly production report for the period December 2015. The Company shipped 42.1mt of iron ore at a record low cash production cost of US$15.80 per wet metric tonne (wmt) for the December 2015 quarter. Early repayment of US$750m of debt was completed during the quarter. The Company's rolling 12 month total recordable injury frequency rate was 4.8 at the end of the December 2015 quarter. The Company mined 44.8mt of ore in line with the previous quarter. Cost performance is well ahead of guidance with the targeted FY16 exit rate of US$15/wmt achieved in December 2015. The Iron Bridge Stage 1 test work continues with future development subject to successful completion of ongoing trials, market conditions and JV approval. FMG added 6 cents to $1.52.
Argonaut Research – Empire & Gas Nl (EGO)
EGO released its December Q report achieving 1) a gas discovery at Red Gully North-1 (RGN) with a 53m net gas column, 2) a quarterly average gas production increase of 13% with a flow rate at 9.4 TJ/d during December, 3) the Black Swan geophysical survey identifying large interpreted structural leads and trends in EP 389 and EP 432 and 4) a 1:100 share consolidation. In addition, EGO implemented a new operations and maintenance contract at the Red Gully north facility reducing opex by 13%. For the Q, EGO had revenue A$5.4m, Cash at A$6.8m and debt holding with ERM of A$14.9m. According to quarterly cashflow, A$3.3m was spent on the RGN drilling campaign with ~A$7.7m slated for next quarter. We have revised our assumed gas price to A$5.90/GJ, condensate/gas ratio (~300 bbl/d) and cash assumptions. This reduces our target price from A$0.64/ps to A$0.57/ps. Buy maintained.
Argonaut Research – OBJ Limited (OBJ)
OBJ’s technology has attracted considerable interest from global players. Commentary with the latest quarterly highlights continued progression toward commercialisation and, with $6.7m raised during the quarter, the Company is well funded to do so.
Argonaut Research – Northern Star (NST)
Northern Star (NST) delivered a solid Q, producing of 145koz @ AISC A$1,040/oz (previously announced). Normalised FCF is estimated at A$50m, or ~A$340/oz, post adjustment for working capital inflow, M&A, Tanami spending, dividend, debt repayment and investments. The Company is expected to increase momentum on the exploration front heading into H2. With an ambitious A$35m campaign underway, further results are expected from Jundee, Kalgoorlie operations and Tanami, which will likely translate to Resource / Reserve upgrades. Successful drilling (e.g. Velvet) will underpin NST’s organic growth to 700koz pa. The stock offers size, liquidity, solid balance sheet, diversified operations and quality management. However, the recent share price appreciation has seen the stock trading at ~40% above Argonaut’s valuation. We revise our recommendation to SELL (was HOLD).
Argonaut Research – Sandfire Resources (SFR)
Sandfire Resources (SFR) release December Q results with 17.6kt Cu and 9.4koz Au in concentrate at C1 costs of US$1.02/lb, beating Argonaut’s forecast of 16kt Cu and 8koz Au at US$1.04/lb. This result reflected higher mined and milled grades than our predictions. Cash outflow for the Q was $14m, resulting from lower revenue on the back of declining Cu prices, further investment in Canadian listed Tintina Resources (TSX:TAU) and continued exploration on the Doolgunna Project. At December 31 SFR had $46m cash and $75m debt. The Monty prospect continues to return impressive intercepts, however the limits of mineralisation appear well defined.
Argonaut Research – Independence Group (IGO)
Independence Group (IGO) released December Q results. Tropicana (30% IGO, 70% Anlgo Gold) was the standout producing second highest quarterly production with 134koz Au (100% basis) at $796/oz AISC. Jaguar achieved record milling rates, well above the targeted 500ktpa rate, however Zn production was down 18% Q-on-Q to 9.3kt on lower head grades. Long produced a steady Q with 2.2kt Ni in concentrate at $3.68/lb cash costs. Due to declining base metal prices, Long and Jaguar contributed just $2m free cash flow. At December 31, IGO had $59m cash, $200m debt and $350m undrawn debt (vs $131.8 cash and $200m debt at September 30).
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)