Market Update & Important Indicators:
U.S. stocks slipped in quiet trade Wednesday, while the price of oil took a fresh fall. The slight pullback came a day after major stock indexes flirted with all-time highs. The S&P 500 has hit new records 11 times since early July. Still, investors remain cautious. Oil and metals prices both declined, weighing on mining companies. The S&P 500 materials sector fell 1%. With few major catalysts on the economic calendar, the bulk of market attention was focused on Friday's Jackson Hole conference, where U.S. Federal Reserve Chairwoman Janet Yellen is slated to speak. Any clues on the timing of the next interest-rate rise could steer the dollar and offer fresh direction for markets, analysts say. In European markets, the Stoxx Europe 600 rose 0.4% as advances in banks and media in the basic-resources sector.
A weaker yen helped nudge Japan's Nikkei higher on Wednesday, even as traders in Asia braced for a tightening tilt from the U.S. Federal Reserve, contributing to the mixed equities performance elsewhere. The Nikkei Stock Average rose 0.7%, moderating early gains made on the back of a weaker yen due to the U.S. dollar's broad strength. The South Korea Kospi was down 0.3%. Hong Kong's Hang Seng Index fell 0.7%, with the Shanghai Composite Index flat. Along with caution ahead of comments from Fed officials this week, trading volumes remain low across the region in the height of the summer holidays, analysts say. Market trading volumes in Hong Kong's stock market was at 60.76 billion Hong Kong dollars (US$7.84 billion) Tuesday, compared with an average of over HK$80 billion last week.
Australian shares ticked higher Wednesday, bolstered by a second session of strong gains by the country's major banks on a day of mixed earnings reports. A recovery by bank stocks in recent days follows underperformance against the broader market this year, as investor worries have built over earnings growth, the sustainability of dividends and capital requirements. The S&P/ASX 200 rose 7.9 points, or 0.1%, to 5561.7, its highest closing level since Aug. 1. The financials subindex has risen 1.4% so far this week, but is down 3.1% year to date, where the ASX 200 is up 5%.
Copper prices fell in London on Wednesday as lower oil prices hit sentiment across the commodities spectrum. The London Metal Exchange's three-month copper contract closed down 1.7% at $4,632/t. Other base metals were mixed. Aluminium fell 1.4% to $1,633/t, zinc fell 1.0% to $2,282/t, tin rose 0.7% to $18,859/t, nickel fell 2.7% to $9,941/t, and lead dropped 0.3% to $1,843/t.
In this Issue:
GR Engineering (GNG) | Looking for a repeat performance | HOLD
Market Cap $226m | Current Price $1.48 | Valuation $1.54
FY16 EBITDA of $26.1m was in the middle of the guidance range and GNG finished the financial year in a strong net cash position of $64.0m. Conversion of the large, near-term opportunity pipeline is key to FY17 performance and it is encouraging GNG sees potential to broadly match FY16’s revenue of $255m subject to meeting historic tender conversion rates. As a highly-regarded EPC contractor with a strong balance sheet we expect this caveat to be met. Our valuation climbs to $1.54 (prior $1.45). The current EV/EBITDA multiple of 6.5-7.0x is fair in our view and we maintain a hold call.
Evolution Mining (EVN) | Raising in Ernest | BUY
Market cap $4,361m | Current Price $2.42 | Valuation $2.52
Evolution Mining (EVN) has announced it has reached a binding agreement to purchase an economic interest in Glencore’s Ernest Henry operation in Queensland for A$880m. In addition, EVN has entered into a strategic alliance with Glencore for future acquisitions and exploration. Highlights of the transaction include low cost production AISC -A$59/oz and major capital recently completed supporting an 11-year mine life. The transaction will be funded via a 2 for 15 underwritten accelerated renounceable entitlement offer to raise $401m at $2.05ps plus an additional $500m in debt. We believe the combination high quality assets at Cowal and now Ernest Henry will drive the long term value. We upgrade to a BUY recommendation (from HOLD) and pro-forma target price of $2.52ps.
Recent Contacts & Presentations:
Lynas Corporation (LYC), Evolution Mining (EVN), Regis Resources (RRL), Xanadu Mines (XAM), Mincor Resources NL (MCR), Carbine Resources Ltd (CRB), Antipa Minerals (AZY), Energia Minerals Ltd (EMX), 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)
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