Stephen’s Word: Mining and Taxes
We are seeing some renewed pressure to bear from Major Mining Companies (BHP , RIO , FMG etc ) re Federal Govt 's looming Mining Tax .. and today ExxonMobil entered the fray , couple that with a looming skills shortage in the mining sector and the environment looks more challenging ... whether you are an Iron Ore , Gold or Oil & Gas producer etc - rising costs and the recent correction in commodity prices underline the flaccid nature of market sentiment at present / Also the recent fall in the A$ below to parity with the US$ should encourage a pick up in corporate activity.. (well , thats the hope !) , Mining Services companies (at least publicly) appear to be unmoved by the macro gloom as the future seems generallyl locked in short to medium term contracts ( eg . today Boart Longyear reiterated 29% lift in EBITDA for 2012 ) ... There are now a selection of mining services stocks backed by contracts that offer exceptional oportunnities as a result of the recent pull back ... some of which could be seen as defensive plays ( who would have thought ?) .
Stephen’s Word: Flight to Safety
The flight out of Resources / Oil & Gas sectors into cash or defensives continues .... worth taking note of some interesting comments from BHP Chairman Jac Nasser in Sydney today ...World Faces Increasing Volatility, Uncertainty / Shareholders Have Lost Confidence In Health Of World Economy / Tailwind Of Higher Commodity Prices Moderating - Commodity Price Tailwind To Ease Further / No Longer Expects $80B Investment Over Next 5 Yrs / Will Redirect Capital If Any Product, Geography Doesn't Suit .... Institutional shareholders appear to have taken the front foot on telling the major miners not to blow their large cash reserves at this stage of the cycle ...so the message seems to be spend wisely and BHP seems to be looking at sequencing their major initiatives rather than all at once ..... And further , the non mining part of Australia's 2 speed economy ... sees Transport & Logistics heavyweight Toll Holdings downgrade a timely reminder of how tough it is out there .... During the market correction keep looking for companies with good growth prospects , strong balance sheets great Management , the ability to make earnings accretive acquisitions on top of organic growth opportunities .
Stephen's Word: Money & Politics
Keep an eye on the A$ with 2 global investment banks lowering A$ targets to $$0.95 - $1.00 range .... This may be a catalyst for increased interest in the resources sector which has been marking time as the China led growth subsides for the time being and the Greek tragedy continues to play out on the European Union / A strong showing from opposition leader Tony Abbott in response to the govt's budget continues to pressure the minority led Gillard Labor Govt / If an election were held today ..the Liberals would likely win in a landslide and see the mining tax & carbon tax initiatives scrapped. The only problem is an election technically is still due between August-November in 2013 (unless independents cross the floor), and , the other factor is the liberal opposition have yet to be tied down on heavy policy detail & costings ( Where do you find $50 bill in savings ? ) .... So, in Resources - keep in mind low cost producers with scalable assets (or strategic assets eg. Coalworks) and strong management teams / Interestingly, talking with our Lead Resources Analyst Mike Harrowell who points out the amounts of production of resources which would be taken out of the supply chain if any meaningful price erosion were to occur (expensive producers) leads us to the conclusion that the significant price erosion scenario seems unlikely ( despite the increase in contrarian views that have been circulating of late) ..
Stephen's Word: Knee Jerks
Federal Budget .... promises on company tax reduction ( now broken ) = unhappy corp sector to see the AS&P All Ords broadly lower .... You are probably better to follow the RBA than a minority govt in survival mode and which seems prone to be back flips on previous policy/targets etc / Look for stocks with quality management teams and low exposure funding cuts ... felt like a flight to cash today as a knee jerk to government’s stance ..plenty of good names got hit , as did problem scenarios .
Stephen's Word: Cost Blowouts
We may be seeing a resources boom , but not at any price :BG PLC announced a 36% increase in cost estimate for its Qld LNG export project (Gladstone )to $20.4 bill which saw some pressure on Santos & Origin (who both say they are actually on time and on budget) , BG'revelation , follows RIO 's review of its Aust Coal expansion plans - choose wisely - amongst our favourites - Energy , we like AWE Limited (AWE) , Buru Energy (BRU) , New Standard Energy (NSE) - Resources ... Fortescue (FMG) , BC Iron (BCI) , Coalworks (CWK) - Gold ... Integra Mining (IGR) ,Kingsgate (KCN) & finally Mining Services ... Mastermyne (MYE) , NRW Holdings (NWH) ...have a great weekend !
ANZ: Profit Up, NIM Down
ANZ managed to inch their underlying NPAT along from 1Q12 to 2Q12. Net interest income didn't move over that period because loan growth was offset by NIM decline. The NIM declined from 2.42% to 2.35% from 1Q12 to 2Q12 but the company disclosed that the NIM at the end of 1H12 was 2.38%. The growth in profit during the period was due to a small decline in expenses and in increase in non interest income which offset the large increase in the bad debt charge. There were 2 large increases in revenue from divisions from 2H11 to 1H12 and they were APEA and institutional. ANZ suffered a large increase in new impaired loans from $1.8B in 2H11 to $2.4B in 1H12 which was similar to the level in 1H11. In spite of this move, the collective provision fell by $182M from 30/9/11 to 31/3/12. Summary: gains continue to be made in Asia. NIM decline and asset quality are the looming issues. BBY maintains its BUY recommendation.
Stephen Sees Opportunity in Adversity
Bradken (A$7.55, -10.8%) (a market favourite) stuns traders by lowering FY12 guidance - rail the culprit - would imagine more offshore sellers coming out of the woodwork on Monday as some funds are duty bound to effect sales even if they think the stock has bottomed, try to think of the current market as an opportunity to own a stock on further dips for a company that has a record order book, solid manufacturing operation & leverage to the mining-resources space.
Stephen Talks Australian Majors
What I am feeling ... Port Capacity/ Rail access may drive a new round of M&A activity amongst Australian Iron Ore miners / Expect RIO to arc up the development of Ivanhoe's Oyu Tolgoi Copper Project in Mongolia as RIO exercises control / Woodside ...news seems upbeat , with South Africa's Sasol buying 25% of the Pluto expansion permit and Pluto itself coming on line / Coalworks Board thinks replacing current members with Macquarie appointees ill timed and may affect the eventual price achieved for Coalworks , I agree ...its "show me the money" time ... good block interest today , risk seems to be to the upside .
CIMB: Thai Growth Flat, Thai Rates Flat
Our recent meetings in Bangkok have reaffirmed our belief that macro conditions are improving steadily and our real GDP growth estimate of 6% is achievable. Key takeaways are: 1) 63% of the flood-hit factories have resumed operations; 2) no let-up in FDI as special promotion packages have been rolled-out to retain and attract investors; and 3) flood mitigation plans are progressing, albeit a little slowly. Real GDP growth is likely to be flat in 1Q before accelerating in 2H. The BOT has hinted that there will be no rate action for now. We also discussed macro issues such as the minimum wage, public debt and household debt.
CIMB: Apple Crumble
Apple’s share price declined 4% yesterday after the stock’s support trendline at US$608 gave way. This is negative at least in the immediate term and probably in the medium term too. The support trendlines for the daily MACD and RSI caved in much earlier. After its rising wedge formation gave way last week, the S&P500 fell sharply and tested its immediate support at 1,360pts before rebounding. But the index is not out of danger as it could retest its support sometime this week. If it fails to hold above this trendline, the index could fall towards the key support level at 1,340pts.