The week in Small Caps: Keytone Dairy shines on debut, Afterpay continues retail penetration, Carnarvon finds oil
WEEKLY MARKET REPORT
It might be nice for a week to go by without US President Donald Trump roiling markets but yet again he has been pushing the Australian bourse in both directions.
His extraordinary outburst complaining about the US Federal Reserve raising interest rates is yet another break from the convention that politicians don’t comment on the decisions of independent bodies and it also injected plenty of uncertainty into currency and share markets.
Combined with existing uncertainties around trade frictions, controversy about Trump’s meeting with Russian leader Vladimir Putin and a plunging Chinese yuan and you have plenty of volatility to deal with.
Property developers hate interest rate rises
With President Trump’s real estate background it is no surprise that he opposes interest rate rises – you will never find a property developer argue for higher rates, no matter what – but his complaint that he was “not happy” about rising US interest rates certainly put a halt to the falling Australian dollar.
After initially surging higher on the back of a stellar Australian jobs report for June, the Jumbuck had reversed and was falling fast and looked set to hit multi-year lows below US73c as the Chinese Yuan plunged but it was resurrected by President Trump’s claims.
It was a different story on the Australian share market which once again managed to eke out a weekly gain of 23 points on the ASX 200, or 0.3 per cent, to 6285 on Friday.
Afterpay Touch has an amazing week
The absolute hero of the Australian market was Afterpay Touch (ASX: APT) which had a stellar run all week, particularly after it reported impressive sales growth on Thursday.
The payment services company surged more than 30 per cent during the week to close at $14.36 after a bullish shareholder update on earnings and sales on Thursday.
In simple terms Afterpay is like a modern version of the old lay-by system with customers able to buy and take home goods now and pay for them later.
That is a retailers dream because it removes the immediate pain of paying for purchases and unsurprisingly Afterpay has been growing fast in Australia and has also got a nice beachhead in the US market.
Other tech companies were caught in the updraft with Technology One (ASX: TNE) another strong technology-sector performer, jumping more than 15 per cent during the week to $5.05 after it reaffirmed its fiscal-year net profit growth target.
Industrials were also higher during the week and even the out of favour banks managed to put on a late spurt on Friday, with CBA shares up 0.7 per cent to $75.90, Westpac up the same percentage to $29.90, NAB up 0.6 per cent to $28.30 and ANZ rising 0.5 per cent to $29.36.
It was a rugged week for the miners though as commodity prices fell hard on the back of the fractured trading relationship between the US and China.
Copper was particularly hard hit.
Energy stocks were down 2.2 per cent for the week and materials shed 1.2 per cent.
Gold miner Evolution Mining (ASX: EVN) was hit hard after it forecast lower production and higher costs this financial year, closing down 9.7 per cent to end the week at $2.99.
Lithium exporter Galaxy Resources (ASX: GXY) was down 6.7 per cent for the week to $3.06 after it declared that prices for lithium carbonate sold into China had fallen by 18 per cent in the second quarter of 2018.
Small cap stock action
This week the Small Cap index rose 0.50% to reach 2,858.3, beating the marginal gains in the ASX 200 and All Ords, which rose 0.28% and 0.40%, respectively.
One stock that finished the week deep in the green was Carnarvon Petroleum on its oil discovery news, which saw the company’s share price rise 88% to end Friday at A$0.33 as one of the week’s biggest gainers.
Other small caps with notable news out during the week included:
Poseidon Nickel (ASX: POS)
Poseidon Nickel was reinstated to official quotation and hit the ground running after a favourable Federal Court ruling on Thursday.
The company released a positive feasibility that evaluated the restart of its Silver Swan and Black Swan nickel operations in WA.
Capital expenditure is estimated at A$56.7 million to get the assets up and running, with revenues of A$288.6 million projected.
Poseidon is currently negotiating financing options with several parties and has mandated Petra Capital to head up a potential capital raising.
The company hopes to begin producing to gain exposure to the rising nickel price within 12-months of locking-in funding.
Lithium Australia (ASX: LIT)
Lithium Australia produced its first lithium-ion cathode commercial samples for the battery market from its VSPC pilot plant this week.
Unlike many current cathode formulations that comprise nickel, manganese and cobalt, Lithium Australia has generated its proprietary lithium-ion-phosphate samples which will be tested in batteries.
According to Lithium Australia managing director Adrian Griffin, the company’s lithium-iron-phosphate material could attract a lower production cost compared to current processes.
He explained the VSPC technology was less energy intensive.
Lithium Australia is developing a vertically integrated business that leverages its various technologies to produce lithium chemicals on a commercial scale with competitive operating costs in the “lowest quartile”.
Envirosuite (ASX: EVS)
It was a big news week for Envirosuite, which attained its largest ever subscription deal after Chilean agricultural major Agrosuper signed on to use Evirosuite’s software-as-a-service platform for an initial six months.
Envirosuite’s platform enables Agrosuper to monitor environmental conditions and mitigate any potential impact on its breeding operations.
Agrosuper is one of the world’s largest agricultural groups and Chile’s biggest pork product producer. The deal follows Envirosuite’s announced subscription win with Chile poultry producer Sopraval last month.
The positive news was boosted when on Friday the company reported a 100% increase in its annual run rate in the June 2018 quarter, compared to the previous corresponding period.
Investors bought in on the news, with Envirosuite’s share price closing Friday at A$0.10 – up almost 73% on the day and 92.3% on the week.
Keytone Dairy Corporation (ASX: KTD)
Keytone Dairy Corporation debuted on the ASX this week after the initial public offering closed oversubscribed and raised the company A$15 million.
The company began producing powdered milk in 2013 and now manufactures whole and skim milk powder products under its own brand and others.
New Zealand-based Keytone exports to global markets including China.
The ASX listing strategy was to accelerate Keytone’s growth, with a new plant purchased and expected to grow dairy manufacturing capacity from 1,500t to 5,000t to meet customer demand, particularly in China and other Asian countries.
ClearVue Technologies (ASX: CPV)
Another ASX newcomer ClearVue Technologies has received certification for its solar window technology, which the company describes as a “giant leap forward”.
The Australian Standard AS 2047 accreditation now allows ClearVue to incorporate its smart building material patented solar technology into glass and building surfaces to generate renewable energy.
ClearVue jointly developed the technology with experts from Edith Cowan University in Western Australia.
The company has also begun certification processes for its technology in European and US markets, which, once granted, will allow it to sell its products into those markets.
Real Energy (ASX: RLE)
Real Energy reported encouraging results from reservoir modelling at its Windorah gas project in Queensland.
The company stated the future flow testing at the Tamarama-3 well will “prove the commerciality of the gas field”.
Data and reservoir modelling have indicated initial production from the well could exceed 3 million cubic feet of gas a day.
“It is very much game on when the flow rates of Tamarama-3 eventuate as per the forecasts under reservoir modelling. It will prove the commerciality of the gas field,” Real Energy managing director Scott Brown said.
Next up for the company is fracture stimulation of the Tamrama-2 and Tamarama-3 wells, with initial pilot production targeted in 2019.
Select Harvests (ASX: SHV)
Select Harvests has shouldered into China’s market after inking a trademark and licence agreement with PepsiCo Foods.
As a result of the deal, PepsiCo will market Select’s Lucky-branded nuts and seeds across China for five years.
Both Select and PepsiCo will support the advertising and marketing of Lucky products into China during the first 18 months of the agreement.
PepsiCo claims its products are sold to consumers “one billion times a day in more than 200 countries and territories” worldwide.
Carnarvon Petroleum (ASX: CVN)
In joint venture with Quadrant Energy, Carnarvon Petroleum has confirmed an oil discovery at its Dorado-1 well off WA’s northern coast.
The oil was found in a reservoir containing a gross hydrocarbon package of 96.1m and a net pay thickness of 79.6m in porous and permeable sands.
Carnarvon managing director Adrian Cook said the discovery was “transformational” for the company.
“This is a significant discovery given the quantum of the net pay thickness, the quality of the oil and then extremely good reservoir characteristics,” Mr Cook added.
Osprey Medical (ASX: OSP)
Osprey Medical has revealed a decline in contrast induced acute kidney injuries within hospitals that have used its DyeVert Plus system.
The DyeVert Plus was used in patients with reduced kidney function, with the Houston Methodist Sugar Land Hospital in Texas recording a 22% fall in contract induced acute kidney injury, and St Mary’s Hospital in West Virginia posting a 25% decrease in the affliction.
According to Osprey, the DyeVert Plus system reduces the amount of contrast required while maintaining image quality. The company also says its system is easy-to-use and self-adjusting design.
Contrast induced acute kidney injury can become a “burdensome” cost to hospitals, with afflicted patients requiring an average of four extra days in hospital.
Swift Networks (ASX: SW1)
Telecommunications provider Swift Networks reported it had added new clients to its books this week.
The company will provide its suite of entertainment and connectivity services to an extra 1,336 rooms throughout Australian mine sites.
Clients signing up to the services including Ausco, NT Link, Anglo Gold, Iluka and Tronox.
Swift’s services are now available at more than 335 sites across the country and various industries including mining, oil, gas, aged care, retirement and hospitality.
Azumah Resources (ASX: AZM)
Azumah Resources made two new appointments to its board to broaden the company’s experience and assist with fast-tracking its Wa gold project in in Ghana.
Azumah managing director Stephen Stone said the appointments will assist the company with securing financing and making a final development decision, which is anticipated next year.
Debra Bakker has joined the board and brings her banking and project financing capabilities, while Linton Putland has stepped up with his 30-years’ experience as a mining consultant and private equity advisor.
Wa has a JORC resource of 2.1 million ounces of contained gold, with drilling at the Kunche target returning a thick intersection of 44m at 5.37g/t gold from 99m in May.
The Week Ahead
Other than keeping an eagle eye on US President Trump’s latest comments, there are some statistics out this week that are worth keeping an eye on.
In Australia there are some consumer and business inflation figure and some import and export prices will fill out the trade picture.
Job market numbers are likely to remain firm.
Offshore, it is a quieter week in China except for industrial profit data on Friday while in the US there will be housing market indicators and economic growth numbers.