Market Update & Important Indicators:
Shares of utilities companies and other dividend stocks pulled back Monday, keeping gains in check for major U.S. indexes. The utilities sector of the S&P 500 shed 0.6%, while telecom and consumer-staples stocks also fell. Utilities led last week's gains, rallying alongside U.S. government bonds as investors pulled back on some popular post-election trades. "We're really trying to discern the magnitude of policy and timing," said Eric Wiegand, senior portfolio manager at the Private Client Reserve at U.S. Bank. "We've had a lot of posturing from the new administration without getting the particulars." President Donald Trump is set to deliver a speech to Congress Tuesday, where he is expected to outline his policy priorities, including simplifying the tax code and dismantling the Affordable Care Act, White House officials said Sunday. The S&P 500 has risen more than 10% since the November election, while the Dow has risen over 13%, partly driven by hopes that Mr. Trump's policies will boost corporate earnings.
European stocks closed with a small loss Monday as investors appeared to avoid big bets ahead of a key speech Tuesday by U.S. President Donald Trump, who has been credited with sparking a global rally but hasn't yet detailed his plans for boosting the world's largest economy. The Stoxx Europe 600 dipped by 0.1% to end at 369.52, adding to last week's retreat. The index last week rose to its strongest level since December 2015, but then finished the week down by 0.1%.
The bourse in Hong Kong ended the day slightly lower, while investors in mainland Chinese markets became more cautious after a speech by Liu Shiyu, China's top securities regulator, confirmed hard-line policies against market manipulation, prompting some speculative funds to exit equities. The Shanghai Composite fell 0.8%. Japan's Nikkei Stock Average ended down 0.9%. Shares in Japanese financial stocks moved lower as 10-year Japanese government bond yields hit their lowest level in a month.
Australian shares fell Monday, signalling caution among investors ahead of a major speech by U.S. President Donald Trump that aims to map out an overhaul of taxation and defence spending. The S&P/ASX 200 index closed down 0.3% or 15 points at 5724.2, even as the latest batch of earnings reports from companies filtered through, Australian shares rose strongly at the start of the February corporate earnings season before skittishness took hold. Recent weakness has reflected offshore concerns, including the White House's ability to implement campaign promises such as unlocking US$1 trillion in infrastructure spending. That makes Mr. Trump's first budget on Tuesday a major focus for investors, with a sizable increase in military funding likely to feature. The president's budget proposal marks the opening of the months-long process to set funding levels for the following year.
The London Metal Exchange's three-month copper contract closed up 0.1% at $5,934/t. Other base metals ended the day mixed. Aluminium prices rose 0.7% to $1,900/t whilst nickel prices rose 1.7% to $10,993/t. Zinc prices fell 0.9% to $2,801/t, tin fell 1.2% to $18,950/t. Lead prices finished flat for the day at 2,252/t.
In this Issue:
Pacific Energy (PEA) | Charging forward | BUY
Market Cap $263m | Current Price $0.71 | Valuation $0.82
We are typically confident when waiting for PEA’s results, given past consistency and earnings visibility. The 1H17 did not disappoint, and underlying EBITDA of $20.4m was ahead of the $20.0m we had penciled in. Current contracted capacity is a record 258MW, with potential to grow if a portion of a 125MW+ pipeline is converted. Given PEA’s well-regarded capabilities we believe there is good chance of tender success and upgrade our forecasts accordingly. PEA is a standout performer in the typically volatile resource services space and we maintain a buy call on a revised valuation of $0.82 (prior $0.72).
CTI Logistics (CLX) | Off the lows | BUY
Market Cap $65m | Current Price $0.91 | Valuation $1.50
Seasonality notwithstanding, we are encouraged by an improved 1H17 performance, which saw underlying earnings (PBT of $4.0m) rebound off the 2H16 lows. To offset the pressures dictated by a weak WA economy, CLX has cut costs, enhanced productivity, and diversified such that the business is well placed to benefit from a pick-up in economic activity. A dividend declaration suggests directors agree. We now look to the longer term upside (our valuation is up from $1.20 to $1.50) and upgrade from hold to buy.
GR Engineering (GNG) | Near term opportunities | HOLD
Market Cap $252m | Current Price $1.65 | Valuation $1.50
There were no surprises in GNG’s 1H17 result, with margin (10%) and NPAT ($7.9m) in line with our expectations. The Company anticipates FY17 results similar to FY16, consistent with prior indications and our forecasts. Conversion of potential near-term opportunities would underpin $250m revenue in FY17, and begin to build the FY18 order book. GNG is a highly regarded EPC contractor, evidenced by a solid track record. The share price is a fair reflection of this positive view and we maintain a hold call on a $1.50 valuation.
Recent Contacts & Presentations:
The Gruden Group Ltd (GGL), Primary Gold Ltd (PGO), Vault Intelligence Ltd (VLT), Orthocell Ltd (OCC), Strandline Resources Ltd (STA) Dragontail Systems Ltd (DTS), ABM Resources Ltd (ABU), Acacia Coal Ltd (AJC), Troy Resources Ltd (TRY), Hazer Group Ltd (HZR), Berkeley Energia Ltd (BKY), Sino Gas & Energy Holdings Ltd (SEH), 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), OpenDNA Limited (OPN), MZI Resources Ltd (MZI), Seafarms Group Ltd (SFG), Marindi Metals Ltd (MZN), Rift Valley Resources Ltd (RVY), Botanix Pharmaceuticals Ltd (BOT)
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