Market Update & Important Indicators:
U.S. stocks edged lower, as the dollar strengthened on expectations that the Federal Reserve was moving closer to raising interest rates. Stock-trading volumes have been below the 2016 average this month, with Monday's session the lightest of the year so far. U.S. monetary policy remains in sharp focus for investors. On Friday, Fed Chairwoman Janet Yellen and Vice Chairman Stanley Fischer said the economy was resilient enough to withstand an interest-rate rise this year. The dollar strengthened to its highest level in more than a month, while oil prices reversed gains. Expectations of U.S. interest rates remaining lower for longer have helped fuel a rally in riskier assets in recent months in everything from global stocks to emerging-market bonds. Still, some argue investors are reassured by signs that the world's largest economy is robust, particularly given further rate rises are expected to be gradual.
European stocks ended higher, with shares in exporters rising in response to a weaker euro as investors prepared for the possibility of a U.S. interest rate increase in September. The Stoxx Europe 600 index rose 0.5% to settle at 344.75. The index on Monday shed 0.2%. The German and French indexes outperformed the pan-European benchmark. Frankfurt's DAX 30 index closed 1.1% higher at 10,657.64, while the CAC 40 index in Paris rose 0.8% to 4,457.49. At the same time, the euro fell against the U.S. dollar.
Asian share markets were broadly higher on Tuesday, lifted by overnight advances on Wall Street and rising commodities prices, though volatility in the yen capped the Nikkei's gains. Brent, the global crude oil benchmark, was up to $49.27 a barrel in Asian trading, while copper prices rose to $4,617/t, supporting shares of commodities-related companies. Elsewhere in the region, Hong Kong's Hang Seng Index rose 1%, the Shanghai Composite Index was up 0.2 and Korea's Kospi closed 0.4% higher. The gains were boosted by Monday's strength in U.S. markets, with the Dow Jones Industrial Average ending up 0.6%. Meanwhile, Japanese stocks drifted up and down Tuesday in synch with yen moves. The Nikkei Stock Average opened lower amid a bout of yen strengthening against the U.S. dollar (a strong yen makes exporters less competitive). But the yen then slipped against the dollar later in the session, and the index subsequently recovered. In the end it was a draw–the Nikkei closed about flat, down 0.07% to 16,725.36 points.
Australian shares rebounded Tuesday following an overnight rally by U.S. stocks, only to fade through the afternoon to finish just modestly higher. Resources stocks helped drive the local market as crude oil, copper and other commodities perked up in Asia trade. After being as much as 0.6% higher early in the day, a last-minute drop left the S&P/ASX 200 hanging on to a closing gain of 9.1 points, or 0.2%, to 5478.3. It followed losses for the market in the previous three sessions. For the day, 5.6 billion shares were traded worth about 5.4 billion Australian dollars (US$4.1 billion), Commonwealth Securities said.
Copper prices fell for the second day in a row, hitting a new two-month low as a stronger dollar and oversupply continued to weigh on the commodity. The LME's three-month copper contract settled down 0.2% at $4,607/t on Tuesday. Other base metals were mixed overnight. Aluminium fell 1% to $1,612/t, zinc fell 0.2% to $2,315/t, tin fell 0.5% to $18,810/t, nickel was flat at $9,775/t, and lead rose 0.5% to $1,869/t.
In this Issue:
Sandfire Resources (SFR) | FY16 Financials – At a glance | BUY
Market Cap $836m | Current Price $5.38 | Valuation $6.05
Sandfire Resources (SRF) released FY16 results with sales revenue of $497m, profit before tax of $68m and a net profit of $48m, down 9%, 35% and 30% respectively on FY15. Revenue was impacted by a 13% year-on-year decline in the AUD copper price. Despite comparable copper and gold production and a 10% decline in C1 costs year-on-year, cash payments to employers and suppliers increased by 3%. This was partly the result of a $6.4m higher exploration expense. Sandfire’s balance sheet moved into a net cash position in Q4 FY16 with $66m group cash and $50m outstanding debt under the Revolver Facility.
Orbital (OEC) | Waiting on orders | HOLD
Market Cap $66m | Current Price $0.875 | Valuation $0.85
Although OEC’s results (an underlying loss of $6.4m) were below expectations, our focus is on the significant growth opportunities. Following a business and capital restructure during FY17, OEC’s solid net cash position puts it in a good position to deliver on this potential. The pace of growth is uncertain however, and we believe delivery of some of the earnings promise is required to support further share price gains. We have reviewed our forecasts (which still show strong growth) and valuation, which is reduced to $0.85 (from $1.10). We downgrade our recommendation from speculative buy to hold.
Recent Contacts & Presentations:
Pantoro Limited (PNR), Boss Resources Ltd (BOE), Metro Mining Ltd (MMI), Metal Bank Ltd (MBK), Actinogen Medical (ACW), St. George Mining Ltd (SGQ), Resapp Health Ltd (RAP), Orecorp Limited (ORR), Dimerix Limited (DXB), Genesis Minerals Ltd (GMD), Dakota Minerals Ltd (DKO), Breaker Resources NL (BRB), Bard1 Life Sciences Ltd (BD1), Alto Metals Ltd (AME), Birimian Limited (BGS), Antipa Minerals Ltd (AZY), Vault Intelligence Ltd (VLT), Noxopharm Ltd (NOX), Gage Roads Brewing Co. (GRB), West African Resources (WAF), Cedar Woods Properties Ltd (CWP), Sino Gas & Energy Holdings Ltd (SEH), Salt Lake Potash Ltd (SO4), Kalina Power Ltd (KPO)