Market Update & Important Indicators
U.S. stocks gained strongly after the Federal Reserve signalled a more cautious approach to raising interest rates than investors had expected. While the Fed dropped an assurance it would be "patient" before raising rates, a step seen by investors as laying the groundwork for a rate rise later this year, the central bank also pared back its expectations for how much it will be raising rates and downgraded its forecasts for economic growth and inflation. Stocks leaped, with the Dow Jones Industrial Average gaining nearly 200 points in the minutes following the Fed's release of its post-meeting statement. The Dow Jones Industrial Average finished up 227 points, or 1.3%, at 18,076. The S&P 500 was up 25 points, or 1.2%, to 2,100.
Investors saw the Fed's statement Wednesday as a signal that the central bank would take its time in raising borrowing costs for the U.S. economy amid a surge in the U.S. dollar, concerns about economic growth around the world and fresh signs that the U.S. expansion is slowing. The dollar weakened against the euro and the yen on Wednesday as the Federal Reserve's policy committee pushed back market expectations for higher U.S. interest rates. The euro briefly hit a one-week high of $1.08 as traders digested the Federal Open Market Committee's moves.
Stocks in Europe pulled out a win Wednesday, aided by gains for energy shares ahead of a U.S. Federal Reserve statement that may signal policy makers will soon begin raising interest rates. The Stoxx Europe 600 rose 0.3% to 399, topped by more than 1% rise for oil and gas group. Support for the pan-European index came in part from U.K. stocks, which surged following a budget outline by the U.K.'s coalition government. Energy shares climbed after Chancellor of the Exchequer George Osborne discussed investment and tax cuts for the North Sea oil industry, which has been hurt by the slide in oil prices. British oil majors Royal Dutch Shell PLC (RDSB) and BP PLC (BP) each bounced up 2.4%, and BG Group PLC turned higher by 1%. The U.K.'s FTSE 100 ended up 1.6% at 6,945.
The bulls are back in China with the stock market rallying for a sixth straight day Wednesday to the highest level since the global financial crisis in 2008, on hopes of further stimulus measures from Beijing to rejuvenate the sluggish economy. The Shanghai Composite Index finished up 2.1% at 3,577 Wednesday, taking gains this year to 10.6% and adding to its 53% surge last year when it ranked as one of the world's top performers. Elsewhere in Asia, some markets struggled to shake off concerns ahead of an announcement by the U.S. Federal Reserve Wednesday on its interest-rate outlook. Stocks in Singapore, Korea and the Philippines were slightly off.
Base metals were largely weaker, with copper off 1.9% on the LME overnight. Crude oil climbed however, with WTI up 2.8%, and Brent up 5.2% to $56.30/bbl. Gold also gained, up 1.6% overnight to $1,167/oz.
Thought for the day
Rewardle (RXH) | Gaining momentum
Current Price $0.41
Market Capitalisation $47m
Recommendation SPEC BUY
Summary
Network growth momentum continues for RXH with the announcement of service agreements with Goodlife Health Clubs and Ezymart, a large convenience store chain. Since listing, RXH has announced agreements with a variety of chains and channel partners spanning a wide range of industries. As we have noted previously, strong growth requires funding and RXH is likely to require a cash injection if it continues at a similar run rate. Although the technology is pre-commercialisation, a growing network and recent developments in mobile payments position the Company for a bright future. Argonaut rates RXH a Speculative Buy.
Goodlife and Ezymart on board
RXH has continued its momentum in merchant network growth, having recently announced service agreements with well-known chains, Goodlife and Ezymart. Both agreements include an initial pilot period at a limited number of locations, with a broader roll-out if successful. Key takeaways include:
• Ezymart is the largest chain RXH has signed to date with around 200 stores on the East Coast and South Australia, representing 7% growth on the existing member network as at December 2014.
• Goodlife is also a large chain with 150 locations, including 75 health clubs plus theme parks, bowling centres, family entertainment centres and marinas.
• Signing large chains with high customer traffic (Ezymart serves over 80,000 customers per week) will improve brand awareness and continue to drive growth through network effects.
• The RXH technology is applicable to a wide range of sectors, as evidenced by chain announcements. In additional to the chains in the table below, RXH has also signed a number of channel partnership agreements, including Toby’s Estate coffee roasters which offers a potential 700 café distribution channel.
Kounta integration
RXH has also announced integration with Kounta, a cloud based Point of Sale (POS) system for customer transactions. The RXH technology is an add-on to the Kounta system, creating a new distribution channel which may involve joint marketing and business development initiatives. Merchants benefit from increased data capture that can be used for targeted marketing to customers.
Accelerated growth requires funding
RXH has demonstrated strong growth in merchant and member networks. As we pointed out in our research note Where loyalty lies (2 March 2015), growth comes at a cost. Accelerating scale in the merchant network has resulted in increased cash outflows as working capital requirements are higher and greater capital is required to fund growth. RXH’s largest cash outflows relate to employee costs and the purchase of tablets. If operations continue at a similar rate, we believe RXH will require a cash injection sooner rather than later. Potential sources include a federal government R&D rebate, brand partnership or enterprise edition revenue, exercise of management options, a strategic investor or capital raising.
Value in a growing pool of data
While RXH is yet to generate meaningful revenue, we highlight the value in a growing database. A large pool of member data may be valued highly by a corporate looking to engage with the member database via brand partnerships or it could make RXH an attractive takeover target itself in the future. Many of the largest social media transactions have involved companies that have little in the way of revenue but a large pool of unique member data. For example, Instagram was not generating revenue when acquired by Facebook for $1bil and WhatsApp generated $10.2m revenue in the year prior to being acquired by Facebook for $22bil.
Recommendation
Argonaut rates RXH a Speculative Buy, noting the early stage nature of the Company’s development and the higher risk profile that comes with it.
Important Disclosures
Argonaut participated in the IPO in October 2014 and received fees commensurate with this service.
The analyst has an interest in RXH shares.
In This Issue
Beadell (BDR) | SPEC BUY
Argonaut upgrades Beadell Resources (BDR) to SEPCULATIVE BUY (was HOLD) on the back of improved near to medium term outlook and recent share price pull back. Although the market is awaiting the Company to demonstrate better mine performance, the recent appointment of Maca (MLD) should further improve material movement rates. Given Tucano’s costs are predominantly denominated in the Brazilian real (~90% of site costs), the deterioration of the currency, which has depreciated more than the AUD against the USD, will provide strong tailwind for BDR. The upcoming Reserve update could feature higher grade / margin ounces, albeit potentially with a reduced overall inventory. Argonaut maintains its target price of $0.45.
Recent Contacts & Presentations
Beadell (BDR), Pacifico (PMY), Fertoz (FTZ), Atrum (ATU), Doray (DRM), Helix Resources (HLX), Rift Valley Resources (RVY), West African Resources (WAF), Commodities Group (COZ), Pioneer Credit (PNC), Matrix (MCE), Austal (ASB), Ausdrill (ASL), TFS Corporation (TFC), Gage Roads (GRB), Austin Engineering (ANG), Buru Energy (BRU), OBJ Limited (OBJ)
Please read Argonaut's Important Disclaimers & disclosures
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