Weekly review: confidence returning to market as volatility falls

Despite a flat end to the week on Friday, a solid 0.7% rise for the week and low volatility readings out of the US show that the market is getting closer to more settled trading conditions.

The volatility index known as VIX (the Chicago Board Options Exchange’s CBOE Volatility Index) fell all week and shows that conditions are normalising.

Here in Australia the ASX200 ended at 7415.5 points, with lower prices for iron ore and oil pulling down the resources sector even as other shares such as investment bank Macquarie (ASX: MQG) hit a record of $199.06, just a whisker below the $200 mark.

Evergrande fears ease

While the continuing uncertainty surrounding the Chinese Evergrande property group continued to be a worry, by the end of the week reports that Evegrande had come up with cash to pay a bond interest payment that was due this weekend put some investors at ease.

As you would expect with lower iron ore prices, BHP (ASX: BHP) shares fell 2.2% to $37.65, while Pilbara neighbour Rio Tinto (ASX: RIO) saw its shares ease by 1.8% to $95.03.

Some other miners were lower including oil and gas company Santos (ASX: STO) which fell 2.2% to $7.04 and investors in Lynas Rare Earths (ASX: LYC) reacted to a drop in quarterly sales, sending the shares down 8.1% to $6.84.

Shares in freight transport company Aurizon (ASX: AZG) slumped by 6.2% to $3.65 on news that the company was shelling out $2.35 billion to buy One Rail Australia from Macquarie.

Travel stocks were fairly mixed after news that Qantas (ASX: QAN) was restarting flights faster than expected.

That news saw Qantas shares finish 0.2% higher to $5.70 while Flight Centre (ASX: FLT) shares fell 0.5% to $20.29 while Webjet shares (ASX: WEB) rose 0.2% to $6.32.

Perpetual increases assets under management

In more stock specific news, value focussed fund manager Perpetual (ASX: PPT) rose by 7.8% after it reported increasing assets under management.

Construction, mining and services company CIMIC (ASX: CIM) saw its shares rise by 5.85% after the group stuck with its profit guidance of between $400-$430m this year, with $16 million in new work added over the past nine months, adding to the $35 billion of work-in-hand.

Imaging and pathology company Healius (ASX: HLS) benefitted with a positive trading update with revenues lifted by 44% between July and September as it processed many COVID tests.

Healius shares rose 4% to $4.94.

Another company to hit a price record was Aristocrat Leisure (ASX: ALL), with shares up by 3.3% after it came out of a trading halt after announcing the purchase of UK online gambling software group Playtech for $4 billion.

The acquisition is designed to kick the company into a higher gear over the medium term and institutional investors responded well to a capital raising.

Investors seemed fairly sanguine about toll road company Transurban (ASX: TCL) with shares up almost 1% to $13.75 even after the group reported a significant adverse impact from lockdowns, with traffic on its Sydney and Melbourne toll roads down by more than 40% between July and September.

Small cap stock action

The Small Ords index gained 0.67% for the week to close on 3550.0 points.

Small cap companies making headlines this week were:

Montem Resources (ASX: MR1)

In a bid to de-risk its Tent Mountain coal project in Canada, Montem Resources has revealed positive results from a study on converting the project into a renewable energy hub in Alberta.

Independent expert studies have confirmed the technical and economic viability of establishing Canada’s first large-scale hydrogen operation at the project.

In establishing the project, Montem aspires to meet the region’s growing requirement for clean, dispatchable renewable energy and take advantage of the significant policy support.

Montem engaged GHD to define a development pathway through feasibility studies and eventual commercial production.

EP&T Global (ASX: EPX)

Developer of energy efficient smart technology for buildings, EP&T Global has increased its ARR expectations for the FY2022 financial year.

The company forecasts its ARR will reach $9.8 million in FY2022, which is up 85% on FY2021.

Since its ASX listing in May, EP&T has won more than $3 million in customer contracts, with this number anticipated to continue growing as the world reopens from COVID, and the company’s sales initiatives bear fruit.

EP&T chief executive officer Trent Knox said the company was “determined” to become “the world’s most trusted brand” in building energy efficiency and was “well positioned” to take advantage of future sales opportunities.

Deep Yellow (ASX: DYL)

With Deep Yellow’s flagship Tumas uranium project rapidly progressing the company has also completed drilling at its Nova joint venture, which is also in Namibia.

Deep Yellow owns 39.5% of Nova where a drilling program comprising 14-holes for 3,561m has been completed over the Barking Gecko North prospect.

The program generated “encouraging results” with 13 of the holes hitting uranium mineralisation.

A previously announced standout hole was extended and contains 70m at 503ppm uranium across four intervals.

The joint venture plans to undertake a phase two drilling program at the prospect which will start early next year and comprise 3,500m.

TZ Limited (ASX: TZL)

Smart technology developer TZ Limited is making headway with its ambitious growth plans to broaden its technology offering and take advantage of the internet of things and cloud technology revolutions.

Chief executive officer Mario Vecchio came on board last month with numerous new plans to drive TZ to becoming cash flow positive in FY2022.

A major change will be moving the traditional smart lock hardware and technology business model to a cloud-based software and consumption business where revenue is generated through SaaS, subscriptions and service fees.

To expand its product offering, TZ will leverage its existing technology and capabilities to sell open platform software that can control third party devices, not just its own.

iTech Minerals (ASX: ITM)

This week’s newcomer to the ASX iTech Minerals made its debut with news its Eyre Peninsula kaolin project was also prospective for critical rare earth element mineralisation.

The REE mineralisation was identified after a review of historic drill and rock chip samples in the region.

Previous drilling at the Ethiopia prospect within the Eyre Peninsula project in 2007 had focused on uranium, but a review of the samples noted “significantly elevated” cerium grades.

With cerium being one of 17 REE, iTech has submitted the samples for reanalysis of the complete REE suite, with results due next month.

Centrex Metals (ASX: CXM)

Centrex Metals has secured one of the world’s largest fertiliser traders Samsung to sell some of the proposed phosphate production from its Ardmore project in Queensland’s north.

Samsung will market an annual amount equating to either 20% of the product generated from the mine or 160,000t (whichever is lesser).

The phosphate will be sold into Korea, Japan, Indonesia, India and Mexico over an initial three-year term.

Under the deal, Samsung may also assist with sales of additional phosphate quantities that have not been purchased by other offtake parties.

The week ahead

Inflation will once again be at the forefront of investor’s minds with the September quarter figures which are out on Wednesday sure to show evidence of rising prices for essentials such as food, petrol, furnishings and household equipment and less essential items such as alcohol and tobacco.

Headline inflation is set to rise by around 0.8%, which would see the annual growth rate moderate a little towards 3%, although obviously the result could move in either direction.

Underlying inflation is still expected to be under the Reserve Bank’s target of 2 to 3% at around 1.8%, with any variation from expectations obviously important.

Other things to watch out for include consumer confidence, which has been rising strongly as lockdowns end, credit and debit card numbers, international trade indices, producer price indices and private sector credit data.

Overseas, US economic growth figures will feature along with manufacturing figures, house prices, consumer confidence, mortgage applications, home sales and income and spending data.

One of the big drivers will be the continuing corporate profit reports from the September quarter which include companies such as Kimberly-Clark, Facebook, 3M, Alphabet (Google), Eli Lilly, Microsoft, Visa, Twitter, Apple, Boeing, Ford, Coca-Cola, McDonalds, Kraft Heinz, General Motors, eBay, Amazon, Atlassian, Merck, Caterpillar, Mastercard, Exxon Mobil, Colgate-Palmolive and Chevron, to name a few.

Positive earnings surprises will tend to pump up share prices while negative surprises could hit stocks hard.

In China, the main news will be industrial profits for September.

This week’s top stocks