Morning Notes

13/04/2017 Argonaut Morning Note

Market Update & Important Indicators:

Shares of financial companies declined Wednesday, a day before Citigroup and J.P. Morgan Chase kick off earnings reporting season. The U.S. gold price was again a big gainer for the day rising 1.0% at 1,286.60 US$/oz. Big banks dragged on the broader market, underperformance that has become common in recent weeks. Over the past month, the KBW Nasdaq Bank index, a benchmark of 24 of the biggest U.S. lenders, dropped 7.5%, far exceeding the S&P 500's 1.1% decline during the same period. During this earnings season, U.S. companies were expected to report their strongest quarterly earnings since 2011, as of March 31, according to FactSet. Solid first-quarter results are needed to support the post-election stocks rally, some analysts say, noting that bets on soaring U.S. corporate profits led to the run-up in stock prices since early November. If stocks are to remain at these levels, earnings must live up to expectations, they say. "The market has priced in this earnings recovery," said Andrew Slimmon, portfolio manager with Morgan Stanley Investment Management. In the interim, investors have parsed political worries, from questions about the timing and likelihood of President Donald Trump's tax reforms to the French presidential election later this month to a spate of geopolitical worries from the Middle East to the Korean Peninsula.

European stocks moved toward their first day of gains in three sessions Wednesday, with shares of car makers driving higher, as investor appeared, for now, to set aside the geopolitical worries emanating from Syria. The Stoxx Europe 600 index picked up 0.5% to 383.08, led by consumer goods, utility and industrial shares, putting the index in line for its highest close since December 2015, FactSet data showed. The regional benchmark in the past two sessions have finished fractionally lower, in part as investors have flocked to so-called haven assets such as gold and bonds.

Markets across Asia were mostly lower Wednesday, with Tokyo shares dropping 1%. Geopolitical worries from the Middle East to the Korean Peninsula increased investor nervousness at a time when markets continue to search for direction. After reaching record highs last month, U.S. stocks have been stuck in a wait-and-see mode as investors assess the prospects of President Donald Trump's tax reform plans. Raising the stakes in the Middle East, senior White House officials on Tuesday accused Russia of trying to cover up the suspected Syrian chemical attack last week. Asian equities were dragged down by geopolitical concerns and gold, a traditional safe haven, rose 0.2%. The Shanghai Composite was down 0.5% while in Japan, the Nikkei 225 index ended down 1%, also pressured by a stronger yen earlier in the day.

Further gains by the major banks helped lifted Australia's share market for a fourth session running. Supported by modest strength in resources stocks, it was enough to leave the broader market in positive territory for the day and offset a slump in Telstra after a rival communications company unveiled plans to build a rival mobile network in the country. The S&P/ASX 200 edged up 4.7 points, or 0.1%, to 5934.0--its highest close since late April 2015. The four biggest banks continued to regain ground lost last week.

The London Metal Exchange's three-month copper contract closed down 2.41% at $5,628/t. All other base metals finished mostly lower Wednesday. Aluminium prices fell 1.1% at 1,884/t, nickel prices fell 1.1% at 9,680/t, lead prices fell 0.1% to 2,247/t, whilst tin prices fell 3.1% at 19,398/t. Zinc prices bucked the trend rising 1.7% at 2,589/t.

In this Issue:

Global Construction (GCS) | Cementing East Coast Presence | BUY
Market Cap $123m | Current Price $0.59 | Valuation $0.80

GCS’s recently announced acquisition of Melbourne-based Summit Formwork Pty Ltd continues the Company’s strategy of diversifying and expanding outside of WA. The acquisition price of approximately 3-times EBITDA is reasonable and, according to our forecasts, the acquisition should be value accretive to GCS shareholders. We have increased our valuation to $0.80 (previously $0.75) and subsequently maintain our buy recommendation.

Recent Contacts & Presentations:

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) Doray Minerals Limited (DRM), Capricorn Metals Ltd (CMM) Independence Group (IGO), Cardinal Resources Limited (CDV), Metal Bank Ltd (MBK), MOD Resources Ltd (MOD) Quintis Ltd (QIN), Regis Resources Ltd (RRL), Apollo Minerals Ltd (AON), Ironbark Zinc Ltd (IBG), Sovereign Metals Ltd (SVM), Pilbara Minerals Ltd (PLS), Laconia Resources Ltd (LCR), Hazer Group Ltd (HZR), Transerv Energy Ltd (TSV), Ausquest Ltd (AQD), Quintis Ltd (QIN), Paradigm Biopharma Ltd (PAR)

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