The week in Small Caps: CCP Technologies increases IoT reach, Lucapa diamond haul, Australian Dairy Farms expansion
WEEKLY MARKET REPORT
As Australians recovered from last week’s Federal Government leadership spill that propelled the country on to the world stage, investors were able to return their attention back to the markets this week.
After falling last week, both the ASX 200 and All Ords recovered to end Friday in the green.
The ASX 200 put on 1.20% to close the week at 6,319.5, while the All Ords gained 1.06% to end at 6,427.8.
It was a mixed news week across the sectors, with banking leading the charge in the public eye after Westpac Banking Corporation (ASX: WBC) revealed an out of cycle interest rate lift.
Westpac’s rate hike raises hackles
Westpac’s 14 basis point rate hike stirred up ire among its borrowers, with the rise estimated to add about $30 a month to an average $300,000 mortgage.
The bank claims the hike was necessary to cover increased borrowing costs with the standard variable rate for principal and interest borrowers to increase from 5.24% to 5.38%.
Westpac’s subsidiary bank customers will also be affected. Experts have indicated this move will open the floodgates for other banks to follow.
Although Westpac’s customers will be hurting, their customers can spare a thought for Argentinians, who are about to suffer a lot more, with the country’s central bank raising the cost of borrowing by 15 percentage points – a whopping 60% rate hike.
Transurban Group adds another Sydney motorway to its cap
In the infrastructure space, toll road major Transurban Group (ASX: TCL) lobbed a bid for 51% of the WestConnex motorway, which is currently under construction.
WestConnex is a 33km new or improved motorway that will link Sydney’s west and south-west suburbs with the central business district.
The motorway is being developed in three stages with the final third stage pencilled for completion by 2025.
Transurban is part of a consortium that will acquire a combined 51% interest in WestConnex from the New South Wales Government for $9.3 billion.
The acquisition would give Transurban a 25.5% interest in the infrastructure. The company plans to it fund its share of the acquisition via a whopping $4.2 billion fully underwritten entitlement offer.
Transurban estimates its equity contribution to finalising the motorway’s construction will amount to $350 million.
WestConnex will be another feather in Transurban’s cap with the company already holding an interest seven of the city’s nine toll roads.
Vodafone, TPG merger to grab market share from Telstra and Optus
The telecommunications industry status quo was shaken up a little this week after Vodafone owner Hutchinson Telecommunications Australia (ASX: HTA) and TPG Telecom (ASX: TPM) confirmed a “merger of equals” would occur.
According to TPG, the merged entity will create a “more effective challenger” to industry dominants Telstra and Optus.
The final entity will be renamed TPG Telecom and have a value of around $15 billion and draw in anticipated annual revenues of around $6 billion.
Existing TPG shareholders will own 49.9% of the entity, while Hutchison Telecommunications will hold the remaining 50.1%.
Retailer doldrums
The retail sector didn’t have such a positive week, with a spokesperson from national retail giant Myer Holdings (ASX: MYR) confirming the company had cut 30 executive and senior roles from its ranks in an attempt to get on top of its costs.
The spokesperson said the decision was made after a “thorough review” of its operations and is designed to enhance efficiencies and streamline the business.
Meanwhile, another giant Harvey Norman (ASX: HVN) hopes to raise $163.85 million after reporting a 17.1% fall to $530.17 million in net profit before tax for the 2018 financial year. The fall was blamed on a reduction in the net property revaluation increment.
The $163.85 million entitlement offer proceeds will be used to reduce debt and fund its foray into overseas markets after the retail behemoth reported the segment accounted for 22% of the company’s before tax consolidated profit.
Small cap stock action
In the small cap space, the Small Cap index slipped further into the red, with the index shaving off 0.84% to end the week at 2,890.2.
Despite the overall downward trend, numerous small cap stocks had strong news out this week, including:
MGC Pharmaceuticals (ASX: MXC)
MGC Pharmaceuticals has received ethics approval to carry out its phase two clinical trial evaluating the impact of its medicinal cannabis product CogniCann on patients with mild dementia and Alzheimer’s disease.
The pharmaceutical grade CogniCann will be trialled on 50 patients aged 65 years or over. A series of pre and post-treatment surveys will be used to assess patients’ responses and the effects of the drug.
Subject to securing Therapeutic Goods Administration approval, MGC has scheduled the trial to begin in early 2019 and run for 16 weeks.
MGC says CogniCann is “specifically formulated for the treatment of key dementia symptoms and improving specific cognitive functions”.
Authorised Investment Fund (ASX: AIY)
Authorised Investment Fund is entering the programmatic digital advertising sector through its 25% stake in Asian Integrated Media (AIM).
Programmatic advertising in digital marketing refers to automated buying, selling placement and optimisation of digital advertising using software to purchase adverts.
AIM has created a programmatic advertising company called Travel Elite to tap into the world’s leading airlines and its passengers.
Travel Elite is looking to engage passengers via digital platforms rather than traditional media such as in-flight magazines.
CCP Technologies (ASX: CT1)
It was a big week for CCP Technologies, with the company reporting it had signed a memorandum of understanding with Sydney-based Eposode Data Solution and a joint venture agreement with Koolmax Monitoring Technology.
Eposode has developed mobile and wireless scanning solutions and the agreement with CCP allows Eposode to assist CCP with business development to push its sales prospects to realised revenue.
CCP will also look at integrating Eposode’s solutions into its platform.
Meanwhile, the deal with Koolmax was executed via CCP’s US-based subsidiary CCP Network North America.
The joint venture with Koolmax is expected to provide CCP with new market and distribution channels.
Lucapa Diamond Company (ASX: LOM)
Lucapa Diamond Company has recovered 1,100 diamonds from a 178kg sample of drill core from an ongoing drilling program at its Brooking project in Western Australia.
The hole was drilled about 30m from the initial discovery hole and intersected lamproite from near surface to a 70m depth.
Lucapa managing director Stephen Wetherall said it was “remarkable” to have recovered so many diamonds from a single hole.
The 1,100 diamonds comprised 18 macro diamonds in excess of 0.5mm and 1,082 micro diamonds.
Ausmex Mining Group (ASX: AMG)
Ausmex Mining Group has unearthed bonanza gold grades and high-grade copper and cobalt while drilling at The Trump prospect in Queensland.
The results included a 153m intersection grading 1.02% copper and 1.43g/t gold from surface. The intersection comprised higher grade mineralised zones with up to 172g/t gold recovered.
Other notable intervals within the hole were 6m at 32.9g/t gold and 7m at 1,555ppm cobalt, 1.02% copper and 0.32g/t gold.
A second drill hole uncovered 157m at 0.67% copper and had three higher-grade mineralised zones that amounted to 77m averaging 1.03% copper.
Drilling at Ausmex’s nearby Golden Mile project also returned positive gold results with the company reporting 8m at 6.32g/t gold and 12m at 2g/t gold from drilling at the Comstock gold prospect. Several higher-grade intervals were present with up to 15g/t gold recorded.
Australian Dairy Farms Group (ASX: AHF)
Australian Dairy Farms Group has moved to acquire organic infant formula producer Flahey’s Nutritionals for $1.5 million.
The acquisition was part of Australian Dairy Farm’s strategy to make a mark in the organic formula industry and boost its overall exposure to organic dairy products.
Australian Dairy Farms operates six farms and produces about 17 million litres of conventional milk a year.
The company has also secured a 332.97ha dairy farm in Victoria’s south west, which is scheduled to receive fully organic certification in October next year.
Australian Vanadium (ASX: AVL)
Australian Vanadium and its wholly-owned subsidiary VSUN Energy have both executed non-binding agreements with German vanadium redox flow battery (VRFB) manufacturer SCHMID.
Under Australian Vanadium’s letter of intent with SCHMID, the company will evaluate the viability of supplying SCHMID with vanadium pentoxide, vanadium electrolyte, or both, from its flagship Gabanintha vanadium project in WA.
Meanwhile, VSUN’s agreement with SCMID paves the way for VSUN to offer its potential clients SCHMID’s EverFlow large scale and telecom VRFBs.
“Having the relationship as a two-way partnership with VSUN Energy promoting the EverFlow systems provides a collaborative space for us to do business,” Australian Vanadium managing director Vince Algar noted.
Animoca Brands (ASX: AB1)
Animoca Brands announced it plans to acquire independent mobile gaming company Pixowl for US$4.875 million (A$6.65 million).
Pixowl develops “world builder” games, with its most valuable game being The Sandbox, which has had 40 million downloads and more than one million active users each month.
The company is looking to develop a version of The Sandbox for blockchain, with new version described as one of the world’s top 10 most anticipated blockchain games.
Pixowl is cash flow positive and generated US$1.8 million in revenue during the first half of 2018.
Animoca anticipates the acquisition will enhance its operational base and mobile development proficiency.
Bryah Resources (ASX: BYH)
Bryah Resources’ maiden drilling campaign got off to a good start this week with the company reporting it had struck visible sulphide mineralisation in its first drill hole at the Bryah Basin project in WA.
The sulphide-rich zone was found 224m below surface and was previously identified via an airborne electromagnetic survey, confirming the viability of other anomalies detected by the survey.
Bryah said the massive sulphide pyrite in the drill core made up about 30% of the rock mass, with samples sent to a Perth laboratory for priority analysis.
“With the success of this first hole, we feel a lot more confident about drilling further targets that are also based on the same survey work,” Bryah managing director Neil Marston said.
Weebit Nano (ASX: WBT)
Weebit Nano has produced its first packaged silicon oxide resistive random access memory (ReRAM) chips for shipping to its partners for evaluation.
The milestone moves Weebit closer to commercialising its ReRAM technology.
According to Weebit, the next generation chips will be sent to universities where they will research the use of ReRAM in neuromorphic computing, which is used in developing artificial intelligence.
Additionally, chips will also be shipped to commercial partners which will work with the technology.
Weebit says its ReRAM technology is faster and more efficient than flash memory and is easier to manufacture with higher endurance.
Paradigm Biopharmaceuticals (ASX: PAR)
Paradigm Biopharmaceuticals has recruited all the participants it requires for its phase 2a clinical trial using its injectable pentosan polysulfate sodium on Ross River virus sufferers with induced arthralgia.
Ross River induced arthralgia is a non-inflammatory joint pain that is caused by the mosquito-borne virus.
The trial will be carried out in Victoria and will involve 20 participants after a slow recruitment process due to a lack of rainfall in the region.
Paradigm hopes to finish the trial before the end of the year.
The week in IPOs
For readers interested in the latest ASX debutants and upcoming IPOs, Small Caps has you covered.
The latest stocks to make their way onto the ASX this week include:
Black Dragon Gold (ASX: BDG)
Black Dragon started life on the ASX on Wednesday after an oversubscribed IPO that raised it $6 million before costs.
The company is focused on advancing its wholly-owned Salave gold project in Spain’s north, which has a resource of 6.52Mt grading 4.51g/t gold for 944,000oz of the precious metal.
Investors reacted positively to the company’s ASX debut, pushing the share price up gradually during the week to end Friday at $0.23 – up 15%.
IPO proceeds will fund a resource update at the project, as well as finalising a preliminary economic assessment and advance project permitting.
Coolgardie Minerals (ASX: CM1)
Coolgardie Minerals successfully debuted on the ASX on Thursday 30 August after raising $4.25 million in its IPO.
The company is focused on advancing the Geko gold project near Coolgardie in WA, where mining has also started.
Geko has 136,000oz of gold in mineral resources including 91,900oz of gold in reserves.
The company closed its first day of trade at $0.185 after falling to $0.165 during the day. By the end of its maiden week on the ASX, Coolgardie’s share price had slipped to $0.18 – down 10%.
The week ahead
Retail sales numbers for July are out on Monday with 0.3% growth forecast.
On Tuesday the RBA is expected to announce that rate will remain on hold at 1.50%, regardless, eyes will be on the other big banks and lenders to see if they follow Westpac’s move to raise rates.
GDP figures are due out on Wednesday with 0.2% growth tipped for the quarter and year-on-year growth of 2.8%, down from the previous period of 3.1%.
Other news to look for next week is Australia’s current account deficit set to be around $11.5 billion for the quarter and later in the week we will see trade balance numbers, plus housing and home loan data.