Morning Notes

21/03/2017 Argonaut Morning Note

Market Update & Important Indicators:

Energy stocks fell Monday, dragging U.S. stocks lower. Shares of energy companies in the S&P 500 slipped 0.7% as oil prices extended losses today, trading near a four-month low. Stock moves were muted Monday as investors analysed developments from a meeting of the Group of 20 industrialized and developing nations over the weekend.. Many investors have been concerned in recent months that changes to U.S. trade policy under the new administration could hamper growth and hurt major U.S. trading partners. Still, stock markets globally showed limited reactions to the developments on Monday. Political uncertainty has been breeding a "wait-and-see approach" in equity markets, said Yana Barton, a portfolio manager at Eaton Vance. "The geopolitical backdrop is going to be driving a lot of the market for the rest of the year."  The U.S. administration's plans for trade and broader policy agenda have been a major source of focus for investors this year. Mr. Trump's first major priority – replacing the Affordable Care Act with a new health system -- is on a bumpy path, while progress on a major tax bill also has dragged. Many expect the new administration to unveil policies that will ultimately boost corporate profits, keeping stock markets calm. On a positive note, the U.S. gold price continued its movement upwards increasing 0.4% to 1,233.9 US$/oz.

European stocks finished lower Monday, with the week starting on a downbeat note in the wake of a Group of 20 meeting that stoked tensions about global trade. The Stoxx Europe 600 gave up 0.2% to end at 377.68. The pan-European index on Friday rose 0.2% and logged its strongest closing since December 2015. The benchmark last week gained 1.4%.  The FTSE 100 rose 1.0% whilst the French CAC 40 and Germany’s DAX both shed around 0.3%.

Asian shares closed mixed, after a day of directionless trading. Among the losers, South Korea's Kospi was down 0.4% and India’s Sensex fell 0.4%. Among the gainers, Hong Kong's Hang Seng Index added 0.8% and the Shanghai Composite Index was up 0.4%. The Taiex in Taiwan ended flat, whilst Japan was offline for a public holiday.

Australian shares fell Monday, reflecting widespread skittishness of the possible impact that trade barriers could play in putting a brake on global growth. The S&P/ASX 200 index closed down 0.4%, or 20.7 points, at 5778.9 as investors responded to the Group of 20 communique over the weekend that replaced a pledge to avoid all forms of protectionism with a commitment to work toward strengthening the contribution of trade to economies. Economists at Australia & New Zealand Banking Group said deleting the language on protectionism signalled that anything is now possible as the trade rule book gets rewritten.

The London Metal Exchange's three-month copper contract closed down 0.93% at $5,880/t. The other base metals finished mixed on Monday. Aluminium prices rose 0.4% at 1,910/t, and tin prices rose 0.2% at 20,495/t. Falling for the day, lead prices dropped 0.7% at 2,266/t, nickel prices fell 1.0% at 10,104/t and zinc prices fell 0.7% at 2,844/t.

In this Issue:

GR Engineering (GNG) | Building the Order Book | HOLD

Market Cap $231.6m | Current Price $1.52 | Valuation $1.56

Recent EPC contract wins for Dacian’s (ASX:DCN) Mt Morgans gold project and Gascoyne’s (ASX:GCY) Dalgaranga gold project have added significant weight to GNG’s FY18 order book. According to our estimates, GNG now has approximately $110m contracted revenue in FY18 through its minerals engineering business, with an additional $70m contribution expected from UPS. Based on GNG’s strong order book we have upgraded our FY18 forecasts, increasing our blended valuation to $1.56 (previously $1.50). However, we still believe that GNG’s current share price accurately reflects the Company’s quality and positive outlook. Hold call maintained.

Recent Contacts & Presentations:

Hazer Group Ltd (HZR), Berkeley Energia Ltd (BKY), Sovereign Metals Ltd (SVM), Kin Mining (KIN), Vital Metals Ltd (VML), Mincor Resources (MCR), Dacian Gold (DCN), Leaf Resources Ltd (LER), Alchemy Resources Ltd (ALY), MZI Resources Ltd (MZI), Seafarms Group Ltd (SFG), Marindi Metals Ltd (MZN), Rift Valley Resources Ltd (RVY), Botanix Pharmaceuticals Ltd (BOT), Thundelarra Ltd (THX), DTI Group Ltd (DTI) OpenDNA Limited (OPN), Metro Mining Ltd (MMI), Tox Free Solutions Ltd (TOX), St George Mining Ltd (SGQ), Venturex Resources Ltd (VXR), Creso Pharma Limited (CPH), Sino Gas & Energy Holdings Ltd (SEH), Orecorp Limited (ORR)

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