Like a beaten down prize fighter, the Australian share market this week managed to crawl off the mat and recover some of the territory it lost so suddenly after only briefly glorying in forging to a new record high on 30 July.
It was the usual story of down the elevator followed by slowly up the stairs as the ASX 200 gradually added 1.8% for the week to reach 6523.1, with that 117.6-point gain slowly chipping away at the hefty fall from that 6875.5 record.
That’s the first weekly gain since the market really caught a cold and it would be nice to think that the rise was based on a solid set of Australian profit results.
However, as usual our market was held captive to global changes that had a lot more to do with sentiment rather than improving fundamentals.
Global markets also slowly reeled in some of their losses as a temporary reprieve for Chinese telco Huawei and an improvement in trade talks allowed a bit of optimism back into an environment that had been soured by the debate over whether the US bond yield curve inversion made a US recession a certainty.
Offshore sentiment improvements help
Talk of a bit more stimulus in Germany and the US and some better earnings reports from US retailers also helped improve sentiment and probably had a bigger impact than the busiest week of the Australian profit reporting season with more than 60 companies unveiling their results.
So far, the fundamental picture that is emerging from the profits we have seen is probably best described as choppy and soft in parts, which is in line with expectations.
Results from resources stocks have on the whole been quite positive with plenty of cash flowing through the door, particularly for those companies supplying iron ore into the Chinese market while prices remain high due to concerns about supply issues in Brazil.
That unusual situation may not persist for too much longer which probably explains the slide in the materials sector which is now sitting at a 14-week low after sliding another 2.5% over the week.
Beaten down sectors on the improve
In the usual forward looking way that markets work, some of the more beaten down sectors are now on the up as investors search out value – with property trusts and healthcare both on the mend as well as telcos, banks and some consumer discretionary stocks.
One of the inspirations for the property trust renaissance was a strong result from Goodman Group (ASX: GMG) which put on an upward spurt of 4% or 65c to $15.50.
Goodman’s full year net profit was up by 48% to $1.63 billion, helped along by $872 million in positive property valuation gains.
Goodman is a global player in warehouse and industrial property development, so there is a very large pipeline of developments which can add some growth and fizz to the company as well as increasing profits on properties that are already being used.
Goodman’s positive forecasts helped to propel the entire property trust sector higher, along with the fact that running yields on the sector are still much higher than fixed interest yields.
Energy and information technology companies were also among the bigger improvers.
Sukin adds some shine
Skincare company BWX Limited (ASX: BWX), enjoyed a 28% jump in its share price to $3.00 after putting out a more positive forecast and reporting earnings that were not as bad as anticipated.
The producer of the Sukin range of skin care had a 50% fall in full year profit to $9.5 million, but is anticipating sales growth of up to 20% in the second half of the year.
Not all companies got a good market reaction to their results with shares in food grower Costa Group (ASX: CGC) slashed after it reported a $7.2 million fall in net profit to $41 million.
Costa’s shares fell 16% or 62c to $3.17.
Small cap stock action
The Small Ords index posted a 1.6% recovery this week to close at 2813.5 points.
Small cap companies making headlines this week included:
Cazaly Resources (ASX: CAZ) and Mineral Resources (ASX: MIN)
Miner Mineral Resources will be the new owner of Cazaly Resources’ Parker Range iron ore project after it made a superior $20 million bid for the asset – pipping Gold Valley which agreed to pay $13 million for the project in June.
In addition to the $20 million, Mineral Resources will pay Cazaly a $0.50/t royalty for iron ore produced after the first 10Mt.
Parker Range is about 85km from Mineral Resources’ Koolyanobbing iron ore mine that produces 6Mtpa of ore.
When iron ore prices began to climb earlier this year, Cazaly completed an updated definitive feasibility study for the project and ensured there was sufficient capacity to ship the product out of Esperance Port.
Alliance Resources (ASX: AGS)
Mining entrepreneur Ian Gandel made a bold bid for Alliance Resources this week, which owns the Wilcherry gold project in South Australia’s Gawler Craton.
Via his private entity Gandel Metals Pty Ltd, Mr Gandel offered Alliance shareholders $0.14 per share for their Alliance stock, which was a 27% premium to the closing price of $0.11 the day before.
Mr Gandel already owns more than 32% of Alliance and is also the company’s chairman.
Alliance’s board responded with a statement saying “take no action” claiming it was commissioning an independent expert report.
Venture Minerals (ASX: VMS)
Explorer Venture Minerals is about to resume mining at its Riley direct shipping ore iron ore project in Tasmania’s north-west after a feasibility study revealed the operation could deliver “strong returns”.
The study estimates capital expenditure of $3.6 million to generate post tax revenue of $31 million based on an average spot iron ore price of US$90.35/t of iron ore.
Venture initially began mining Riley in 2014, but operations ceased a few months later due to the prevailing low iron ore price at the time.
Prosperity Steel has agreed to purchase 100% of the iron ore produced at Riley over at least two years.
Hammer Metals (ASX: HMX)
With an extra $1.76 million in the bank, Hammer Metals is poised to begin a maiden drilling program at its recently acquired Bronzewing South gold project in WA.
The reverse circulation program will comprise 2,500m and test anomalies Hammer identified along strike of the historic Bronzewing mine.
“This program represents Hammer’s first step towards testing a range of gold targets the company has started to generate, in what we consider a very prospective part of the Yandal Greenstone Belt,” Hammer chairman Russell Davis said.
Bronzewing South covers 111sq km and is along strike of Echo Resources’ (ASX: EAR) 4Moz Bronzewing mine and 1Moz Orelia deposit.
Authorised Investment Fund (ASX: AIY)
Authorised Investment Fund’s investee Asian Integrated Media (AIM) secured a contract with TD Link giving it responsibility for managing in-flight media sales for 10 Chinese airlines including the country’s three main international carriers: Air China, China Southern and China Eastern.
The deal is expected to give AIM access to the 40 million passenger per month in-flight audience.
AIM’s advertiser client base will now be able to promote their brands to this audience suing TD Link’s digital aviation platform.
AIM chief executive officer Peter Jeffery said the deal was a big win for the company and a “tremendous addition” to its existing portfolio.
Lithium Australia (ASX: LIT)
Integrated lithium explorer and technology company Lithium Australia unearthed up to 4.14% lithium in its latest drill results from its Youanmi lepidolite project in WA.
An inaugural drilling program started at the project in June and has since identified shallow mineralisation over 2,500m of strike.
In the latest assay batch, better results were: 6m at 1.61% lithium from 22m, including 1m at 4.14% lithium; 3m at 1.68% lithium from 32m; and 4m at 1.61% lithium from 21m.
The company followed up the positive exploration news with an announcement it has advanced its LieNA spodumene processing technology, which can treat small spodumene particles currently deemed waste.
Andromeda Metals (ASX: ADN)
South Australian explorer Andromeda Metals bagged another suite of offtake letter of intent (LoI) agreements for its halloysite-kaolin ore from its flagship Poochera project.
Combined, the agreements total 405,000tpa of DSO from the project with the three parties confirming they will pay between $115-140/t CIF for the material.
The agreements are with Longyan Kaolin China (200,000tpa), Beihai Kaolin (200,000tpa) and Japan-based Yamada Toshio Shoten (5,000tpa).
This week’s agreements follow on offtake agreements for 307,000tpa of dry-processed halloysite-kaolin from Poochera that were secured earlier this year.
ResApp Health (ASX: RAP)
ResApp Health has reached a big milestone after securing CE Mark certification for its ResAppDx-EU diagnostic test for respiratory diseases.
The approval paves the way for ResApp to sell the product throughout the European Economic Area.
ResApp’s product is a smart phone-based software solution that can accurately diagnose lower respiratory tract ailments including croup, pneumonia, asthma and bronchiolitis
It works by using machine learning algorithms to analysis a patient’s cough and has been tested in a variety of clinical trials.
ASX floats this week
The latest company to make its way onto the ASX this week was:
OptiComm (ASX: OPC)
Broadband network builder OptiComm made a splash with investors when it debuted on the ASX this week after raising $42.3 million via its IPO.
The Melbourne-based company issued 21.18 million shares at $2.00 each to pursue future growth opportunities.
One of OptiComm’s prime markets is working with developers to design and install fibre-based infrastructure in new estates, lifestyle villages and multi-dwelling unit blocks.
Revenue is generated from third party retailer recurring payments, property developers and one-off fees for first time connections.
At the end of its first week on the ASX, OptiComm closed at $3.16 – a 58% premium.
The week ahead
We have quite a busy week of announcements and news events coming up, with Reserve Bank governor Dr Philip Lowe getting in with an early start on Sunday local time with his speech from the Jackson Hole conference.
Reaction to the Jackson Hole meeting could also really set the tone for world markets next week as well, with plenty of influential central bankers speaking across the weekend, including US Federal Reserve chairman Jerome Powell.
Central bankers have become crucial players in markets and Jerome Powell is under incredible pressure to walk a tightrope between reassuring markets at the same time as getting the policy settings right to foster growth.
Unlike his predecessors, Jerome Powell also has to deal with a constant twitter barrage of criticism from the man who appointed him – US President Donald Trump.
Hopefully the usual combination of fly-fishing and hiking through the mountains will be the tonic all of those central bankers need to navigate one of the most extraordinary periods in economic history as interest rates continue to plumb new lows and bond yields on trillions of dollars of government bonds turn negative.
In Australia, there are also some new data releases coming up including business investment, construction work, building approvals, credit growth and another Reserve Bank speech – this one from Deputy Governor Guy Debelle.
There is a similar glut of releases in the US, including the second estimate of June quarter economic (GDP) growth, manufacturing, durable goods orders, house prices, consumer confidence, income and spending and house prices.
China is also releasing details industrial profits, manufacturing and services.