Weekly Reports | Mar 15 2024
Discounted gold miners; building products & services with US exposures; online classifieds; and improving conditions for milk producers and Australian farmers.
-Discounted gold miners
-US exposures for building products & services
-Jarden’s favourites among online classifieds businesses
-Improving conditions for Australian farmers
By Mark Woodruff
The opportunity for gold investors
Canaccord Genuity points to the incongruity of recent record highs for both Australian dollar and US dollar gold prices and the ASX Gold Index which is currently around -13% below the 52-week high.
In a similar vein, gold companies under research coverage by the broker are all trading below their respective 52-week highs at an average discount of around -18%.
Taking into account the potential for central bank rate cuts, the US debt pile and geopolitical instability, Canaccord notes both the favourable outlook for gold and the opportunity for gold investors on the ASX.
In selecting appropriate company exposures, the broker prefers those either in, or entering a free cash flow (FCF) harvest period. In the screening process, favourable mining jurisdictions and reasonable liquidity/market capitalisation were also looked upon favourably.
Coming up trumps were Buy-rated Perseus Mining ((PRU)), Regis Resources ((RRL)) and Ramelius Resources ((RMS)). Bellevue Gold ((BGL)), which is on the cusp of commercial production, is also recommended as a Speculative Buy.
The focus turns to the US for building-related companies
Following the reporting season for the Building Products & Services sector in Australia, Macquarie turns its focus to the US and the prospect of stability in new construction activity and the timing of the repair and remodel (R&R) recovery.
Judging by US reporting season commentary, the broker remains relatively optimistic as confidence levels seem to be gaining momentum.
The industry backdrop for R&R remains very favourable in the US, suggests the analyst, with aging stock and pre-GFC builds now turning 20 years old. Additionally, there have been positive impacts from borrowers locking-in mortgage rates and more people preferring to age in the family home.
While early days, Citi is starting to see evidence R&R activity in the US has bottomed after examining existing home sales figures in January that show single-family property sales are on the rise.
It appears last-October was the nadir for existing home sales across the Northeast and South, while the West and Midwest bottomed in November and December, respectively, observes the broker.
An increase in the median price of existing single-family homes and increasing momentum for new listings, along with active inventory of homes-for-sale, suggests to Citi the traditionally busy spring home buying season should present higher turnover and greater R&R activity.
Pricing is also holding up for value-added products in the face of moderating inflation, observe the analysts.
Citi notes only a modest improvement is being factored into share prices for James Hardie Industries ((JHX)) and Reliance Worldwide ((RWC)). The industry backdrop in the UK appears to still be a risk and will need to be monitored, acknowledges the broker.
Citi has Buy ratings for both James Hardie and Reliance, while Macquarie also has two Outperform recommendations.
Macquarie likes James Hardie’s exposure to recovering US end-markets. It’s felt volumes are supported by new residential markets, while a cyclical R&R recovery is close at hand. Reliance appeals for its operational efficiency gains, strong execution in a down-cycle, and the successful roll-out of SharkBite Max.
Macquarie also has an Outperform rating for GWA Group ((GWA)) due to its high level of exposure to the R&R market and an attractive dividend yield, while Reece ((REH)) is rated Underperform on valuation and soft A&NZ commentary by management at recent first half results.
Jarden’s favourites from among classified’s businesses
Jarden highlights ongoing strength for yields, well ahead of inflation, across all online classified’s businesses under research coverage.
Seek ((SEK)) remains the broker’s top pick given the market is not currently allowing for management’s $2bn revenue aspiration across A&NZ and Asia. It’s also felt consensus should be looking through near-term uncertainty around listing volumes.
Ultimately, second half volumes are the key swing factor to Jarden’s FY24 forecasts for REA Group ((REA)), Domain Holdings Australia ((DHG)) and CAR Group ((CAR)), but particularly for Seek as employment is the most volatile classifieds vertical and the margin for error is higher.
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