Tag Archives: Weekly Reports

article 3 months old

Weekly Broker Wrap: Equity And Bond Strategies

Outlook for equities and key stock picks; Bell Potter reviews Helloworld; Canaccord Genuity initiates on Appen; the global bond outlook.

-Lack of conviction noted amount equity analysts and "Buy" ratings at record lows
-Whether Clinton or Trump the impact on Australian stocks likely to be minor
-Volatility over the next few months may provide trading opportunities
-Probability of substantial bear market in bonds remains low
 

By Eva Brocklehurst

Equity Strategy

Deutsche Bank observes a lack of conviction among analysts, with the number of “Buy” ratings at record lows. The broker notes high price/earnings stocks have softened, yet several health care names such as Cochlear ((COH)), Healthscope ((HSO)) and Ramsay Health ((RHC)) have been upgraded and may be at risk of becoming crowded trades.

Among housing stocks, Fletcher Building ((FBU)) and Harvey Norman ((HVN)) have done well, with a risk they are peaking. The broker believes the cycle will continue for a little longer and Stockland ((SGP)) may potentially benefit, although acknowledges this is the contrarian choice.

Deutsche Bank envisages value on offer in mining services names Aurizon ((AZJ)) and Incitec Pivot ((IPL)) which have lagged the sector's outperformance. Despite the fact analysts have become more upbeat about Vocus Communications ((VOC)) and TPG Telecom ((TPM)), Deutsche Bank prefers Telstra ((TLS)) for now.

In terms of yield stocks the broker likes Sydney Airport ((SYD)) while noting analysts have upgraded ratings for Spark Infrastructure ((SKI)) and GPT Group ((GPT)) as well. Despite the bounce in several UK exposed stocks – Computershare ((CPU)), Iress ((IRE)), Treasury Wine ((TWE)) and Ansell ((ANN)) - the broker is concerned about currency and capex weakness.

Regardless of whether Hillary Clinton or Donald Trump win the US presidential election, Macquarie suspects both represent a shift from the current political consensus of austerity and globalisation, with Trump a little more dramatic and with less qualification.

The effect on Australia is likely to be relatively minor as the US accounts for less than 10% of exports. US infrastructure spending may drag Australia's US-exposed building and construction names higher, such as Boral ((BLD)), James Hardie ((JHX)) and Reliance Worldwide ((RWC)) but, outside of a growth slowdown which produces a legislated response, the broker suspects little impact.

The potential repeal of “Obamacare” by Trump adds downside risk to Sonic Healthcare ((SHL)) and Sirtex Medical ((SRX)) while the creation of free market drug pricing could drive upside for CSL ((CSL)), the broker believes.

Stock Picks

Severe swings over the next few months in the market could be trading opportunities for companies with sound fundamentals in otherwise subdued economic conditions, Morgans believes. The broker does not under-rate the implications of a medium-term shift in interest rate markets but expects this to occur gradually.

The stocks with the right qualities include Evolution Mining ((EVN)), which the broker observes has potential from the Ernest Henry deal while being favourably placed against the current spot price of gold and the global cost curve.

Others on the high conviction list include Orora ((ORA)), Westpac ((WBC)), Healthscope, Sydney Airport, Corporate Travel ((CTD)), GBST ((GBT)), Catapult ((CAT)), Ardent Leisure ((AAD)), Bellamy's ((BAL)), Impedimed ((IPD)), Kina Securities ((KSL)) and PWR Holdings ((PWH)).

Morgans removes BHP Billiton ((BHP)) from its high conviction list as, while still attractive value, the easy gains have been made. The broker also takes profit in Megaport ((MP1)), which has rallied strongly and now exceeds the price target.

Helloworld

Bell Potter has reviewed its investment thesis on Helloworld ((HLO)) and believes the company is on track to deliver $17.1m per annum in synergy and cost savings by June 30 2017 and this should be the driver of short-term earnings growth.

The AOT business also appears to add a growth element in the inbound component of the business. Revenue margin improvement is likely to be an important feature of future results as some commercial contracts are re-based. While agent numbers in the retail network are showing some stabilisation this is an ongoing challenge in the broker's view, given the level of competition.

Bell Potter maintains a Buy rating and the target is raised to $5.00 from $4.60 to incorporate an upgrade to earnings per share estimates of 7% for FY17 and 1% for FY18.

Appen

Appen ((APX)), a specialist in language technology, has delivered consistent earnings upgrades during its period as a listed company. The development of conversational user interfaces, particularly on mobiles, is considered a strong driver of future growth.

Canaccord Genuity estimates that, on average, consensus forecasts have increased by 10% following the release of either half or full year earnings results since the IPO almost two years ago. This has sustained a strong share price performance and the broker initiates coverage with a Hold rating and $3.50 target.

While the elevated valuation and low forward revenue visibility means the price looks full, for those seeking exposure to a key trend in technology the broker considers the stock worthy of attention.

Bonds

The probability of a substantial bear market in bonds is low, global asset manager AllianceBernstein contends. Bond investors are nervous as they sense the fact that central banks have run out of fire power in monetary policy to boost growth. Yet the analysts envisage there is some chance that fiscal policy will revive activity.

With negative interest rates in some countries it was hoped that liquidity would be diverted into the productive economy where it would create jobs and stimulate growth. Instead this has found its way into non-productive assets such as housing, equities and bonds, creating potential bubbles in those markets.

AllianceBernstein does not expect any move towards aggressive fiscal policy expansion in Europe until after 2017 elections in France and Germany. Moreover, one thing investors are advised not to expect is further significant easing of monetary policy, as its impact to date had been negligible and further easing might have adverse consequences, especially for weaker European banks.

At the same time the analysts do not envisage a significant rise in US rates believing the Federal Reserve is likely to wait a long time before making a substantial move.

In sum, AllianceBernstein believes it is more important than ever for bond investors to take an active approach to portfolio returns. The analysts consider emerging market currencies attractive for the short and medium term, amid the potential for higher inflation in the US and Japan, with attractive yield spreads on corporate bonds where central banks are protecting the downside.

AllianceBernstein is underweight on commodity related developed market currencies and the analysts are also capturing high real yields in select emerging market government bonds and securitised assets.
 

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article 3 months old

The Short Report

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending September 22, 2016

Last week saw the ASX200 rally back from Fed-related selling as the Fed meeting brought no change to policy.

While there are quite a few movements in short positions on the 5% plus table below, all relate to bracket creep and not to any movements in excess of one percentage point. We might only note that suddenly, the 7-8% bracket has become very popular.

The only movements in excess of 1ppt occurred amongst the elite 10% plus shorted club.

Shorts in oil services provider WorleyParsons ((WOR)) do tend to move around a lot, typically on oil price fluctuations, and last week saw Worley shorts fall 1.5ppt to 14.9% to reinstate Myer ((MYR)) at the top of the table.

I reported at length in last week’s Report on the current state of the nickel market. With the Philippines government set to close further nickel mines on an environmental basis, the nickel price has been rallying, albeit not spectacularly as is often the case for this most volatile of base metals. Last week saw shorts in nickel miner Western Areas ((WSA)) increase by 1.2ppt to 13.8%.

It appears the shorters are not expecting nickel price strength to be maintained.

As there is nothing new of interest to report, there are no Movers & Shakers this week.


Weekly short positions as a percentage of market cap:

10%+

MYR   15.7
WOR   14.9
WSA   13.8
MTS    12.1
BAL    11.5
MND   11.1
FLT     10.3

Out: CVO

9.0-9.9%

CVO, AWC
 
In: CVO                                 

8.0-8.9%

EHE, TFC, ORI  

In: TFC           Out: IFL, MYO, BKL

7.0-7.9%

IFL, BKL, IGO, WOW, SGM, MYO, NEC, BEN, DOW, CAB, SYR, GEM, IVC

In: IFL, MYO, BKL, SYR, GEM, IVC                    Out: TFC

6.0-6.9%

AWE, SGH, PRY

Out: SYR, GEM, IVC

5.0-5.9%

NWS, SEK, OSH, MSB, PDN, UGL, JHC, CTD, KAR, ACX

In: ACX                      Out: GTY


Movers and Shakers

See above.
 

ASX20 Short Positions (%)




IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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article 3 months old

Share Buybacks – Who’s Doing It?

International research suggests shares in companies that buy in their own equities are more likely to respond positively through share price appreciation. Investors should note, however, buying back own stock is not a guarantee for significant share price gains ahead.

For local research about investor benefits from capital management, including companies buying in their own shares, FNArena subscribers can read "Buy Capital Management"

Below is an incomplete overview of companies buying in their own shares this year. We very much appreciate all feedback, contributions and suggestions at info@fnarena.com

See attached excel file for more details (paying subscribers only)

8IH 8I Holdings 21/09/2016
ABW Aurora Absolute Return 24/08/2016
ACQ Acorn Capital Inv Fund 24/09/2015
ACQ Acorn Capital Inv Fund 10/10/2016
AFA ASF Group 26/04/2016
AFR African Energy Resources 23/11/2015
AHY Asaleo Care 01/10/2015
AIB Aurora Global Income 14/12/2015
ALR Aberdeen Leaders Ltd 27/02/2015
APW AIMS Property Securities Fund 07/09/2016
AQF Australian Governance Masters 23/11/2015
ARA Ariadne Australia 21/08/2014
ARG Argo Investments 01/01/2016
AUF Asian Masters Fund 23/11/2015
AUI Australian United Investments 14/05/2015
AUP Aurora Property Buy-Write Trust 14/12/2015
BWF Blackwall Property Fund 15/03/2016
BWR Blackwall Property Trust 07/07/715
CAM Clime Capital. 21/12/2015
CAMPA Clime Capital Preference 15/08/2016
CGO CPT Global 27/08/2015
CHN Chalice Gold Mines 30/06/2016
CIM Cimic Group 29/12/2015
CIN Carlton Investments 29/11/2015
CIW Clime Investment Management 16/12/2015
CLT Cellnet Group 09/09/2015
CMC China Magnesium Corp 28/10/2014
CNI Centuria Capital 24/12/2015
CSR CSR Ltd 21/03/2016
CSV CSG Ltd 12/03/2016
CVC CVC Ltd 07/12/2015
CVW ClearView Wealth 19/12/2013
CYG Coventry Group 23/11/2015
DXS Dexus Property Group 01/09/2015
DUI Diversified United Investments 15/05/2015
EMF Emerging Markets Masters Fund 21/12/2015
EZL Euroz Ltd 14/01/2016
FID Fiducian Group 03/03/2015
FRI. Finbar Group 08/12/2014
GOW Gowing Bros 20/06/2012
HHY HHY Fund 24/08/2016
ICN Icon Energy 26/02/2015
IPE IPE Ltd 16/11/2015
ISU iSelect 30/03/2016
ITD ITL Ltd 11/12/2015
JBH JB Hi-Fi 12/09/2016
JHX James Hardie Industries 01/08/2016
KAT Katana Capital 30/12/2014
KAR Karoon Gas Aust 17/09/2015
KBC Keybridge Capital 07/12/2015
KKT Konekt 18/11/2015
LGD Legend Corp 24/12/2015
LLC Lend Lease Corp 28/08/2015
MAH Macmahon Holdings 21/10/2015
MEL Metgasco 04/02/2016
MFF Magellan Flagship Fund 13/08/2015
MGP Managed Accounts Holdings 14/08/2015
MHM MHM Metals 17/02/16
MIN Mineral Resources 04/12/2015
NEC Nine Entertainment 25/02/2016
NVT Navitas 16/02/2016
OCL Objective Corp 26/02/2016
ORL Oroton Group 26/04/2016
OZG Ozgrowth Ltd 30/12/2015
OZL OZ Minerals 14/03/2016
PME Pro Medicus 01/04/2016
PTM Platinum Asset Management 04/10/2016
QAN Qantas 08/09/2016
RCR RCR Tomlinson 21/12/2015
RND Rand Mining 12/12/2015
RRL Regis Resources 25/08/2015
RUL RungePincockMinarco 07/12/2015
SGM Sims Metal Management 07/12/2015
SIP Sigma Pharmaceuticals 13/10/2014
SMX SMS Management & Tech 15/06/2015
SVW Seven Group Holdings 12/03/2016
SVW Seven Group Holdings 17/08/2016
SWK Swick Mining Services 14/12/2015
SWM Seven West Media 29/09/2015
TBR Tribune Resources 28/09/2015
TGG Templeton Global Growth Fund 26/02/2016
TOF 360 Capital Office Fund 02/05/2016
TOT 360 Capital Total Return 28/03/2016
TSM Thinksmart 06/09/2016
VSC Vita Life Sciences 13/05/2016
WAT Waterco 07/04/2016
WIC Westoz Investment Co 30/12/2015
WMK Watermark Market Neutral Fund 29/09/2016
XPD XPD Soccer Gear Group 20/09/2016
YBR Yellow Brick Road Holdings 20/11/2015

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article 3 months old

Uranium Week: Buyers Having No Impact

Spot uranium demand from utilities has picked up of late but sellers are the more urgent party, leading to further price falls.


By Greg Peel

Last week the International Atomic Energy Agency released its latest projections suggesting global nuclear power supply could grow by as much as 56% to 2030, which would represent an unchanged level within the energy mix. Asia is the critical centre of growth. China plans to build sixty new reactors in the next ten years.

There will be no contribution to growth from the US. Last week the US Energy Information Agency released its own projections to 2040 suggesting the number of new reactor start-ups and extended licences for existing reactors over the period will be more than offset by the number of reactor retirements. Competition from cheap gas-fired electricity generation and subsidised renewable power sources will make a number of older reactors commercially unviable.

In the more immediate future, there is still an expectation demand from utilities for medium and long term delivery contracts is set to increase and at present, spot market demand has clearly ticked up as utilities look to exploit historically low prices. The spot uranium price is at its lowest level since 2005 and for a longer period in real price terms. Yet increased demand is only serving to spark uranium producers and intermediaries into a race to unload product at whatever price.

“The explanation for this can be attributed to a number of factors,” industry consultant TradeTech said last week, “as varied as the sellers in the market. Increasing financial pressure and the need to generate cash, year-end sales objectives, and utilities that are generally well covered in the near term, have left sellers scrambling to lock in business. Sellers acknowledge that while significant demand is expected to emerge shortly in the mid- and longer-term markets, they see little spot demand and must capture sales opportunities as they arise”.

The result is one of increased demand forcing prices lower. Five transactions were concluded in the spot market last week, totalling less than 500,000lbs U3O8 equivalent. Desperate sellers drove TradeTech’s weekly spot price indicator another US50c lower to US$24.25/lb.

One transaction was reported in term markets last week, for 1mlbs U3O8 over a five-year period. TradeTech’s term price indicators remain unchanged at US$26.70/lb (mid) and US$38.00/lb (long).
 

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article 3 months old

Weekly Recommendation, Target Price, Earnings Forecast Changes

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday September 19 to Friday September 23, 2016
Total Upgrades: 21
Total Downgrades: 6
Net Ratings Breakdown: Buy 40.73%; Hold 44.10%; Sell 15.18%

Last week, the Australian share market finally broke its losing streak, having closed lower at week's end for five weeks in a row. Due to the lagging response from stockbrokers, last week's bounce thus coincided with 21 recommendation upgrades for individual stocks offset by six downgrades for the week ending Friday, 23rd September 2016.

Iluka and Nufarm stand out with two upgrades for the week that also saw BHP Billiton, Boral, Brickworks, Carsales.com, Fortescue and Sydney Airport receive an upgrade. New Hope and South32 received both one upgrade and downgrade. The remaining four that received one downgrade for the week are OzForex, ResMed, Sandfire Resources and TPG Telecom.

Nufarm and South32 also feature at the top of the week's table for positive adjustments to price targets, beating Perseus Mining, Alacer Gold and BHP Billiton. The negative side sees Estia Health and Japara Healthcare on top, followed by Seven West Media, ResMed and Santos.

Overall, positive amendments outweigh reductions and this also applies for changes to earnings forecasts, with lithium producer Orocobre enjoying a 153% increase, followed by Perseus (+57%) and Nufarm (+57%). Showcasing the fact commodities analysts are still in catch-up mode is BHP Billiton on spot number four, enjoying a 22% boost to estimates for the present financial year.

Reductions to forecasts are a lot milder, but remain sizeable nevertheless with Myer suffering a -10% cut, Iluka -9.4%,  Oil Search -7.6% and ResMed -6.2%.

Five weeks of falling share prices, triggering more upgrades than downgrades in individual stock recommendations, have significantly improved the balance between brokers' Buy, Hold and Sell ratings. Total Buy (or equivalent) ratings for the eight stockbrokers monitored daily by FNArena have now risen to 40.73% versus 44.10% in Neutral territory and 15.18% Sells. Three out of the eight stockbrokers now carry more Buy than Neutral ratings with Morgans joining Macquarie and Morgan Stanley.

The calendar for the week ahead locally is predominantly populated with stocks going ex-dividend, with the first AGMs on Wednesday and an investor briefing by Aristocrat Leisure on Thursday.

Upgrade

ADELAIDE BRIGHTON LIMITED ((ABC)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/4/1

Macquarie observes the transition to infrastructure from residential building is now smoother and there is also less downside risk in the near term from residential activity.

The better outlook combined with more attractive valuations post August reporting has led to the broker upgrading to Outperform from Neutral. Target rises to $6.00 from $5.50.

ALACER GOLD CORP ((AQG)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 3/2/0

The maiden reserve for the Gediktepe project in western Turkey, which is 50% owned by Alacer Gold, has been released along with the pre-feasibility.

The project de-risks long-term earnings but how it will be funded is the key question for Macquarie. The broker values Alacer's share at $226m.  Rating is upgraded to Neutral from Underperform. Target rises to $3.70 from $3.30.

ALUMINA LIMITED ((AWC)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/4/1

With the share price correction and potential for upside surprise on the growth front in China Credit Suisse upgrades to Neutral from Underperform.

With reasonable valuation support the broker does not want to be short the sector and does not believe this is the time to be underweight on the miners.  $1.30 target retained.

BHP BILLITON LIMITED ((BHP)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 5/3/0

With stronger demand and the impact of supply-side reforms in China, Macquarie makes upward adjustments to its forecasts for bulk commodities, with substantial upgrades to coking coal, thermal coal and manganese.

BHP's rating is upgraded to Outperform from Neutral on the back of the improved outlook, with the broker calculating it now offers a superior free cash flow to Rio Tinto ((RIO)). Target is raised to $24 from $20.

BRICKWORKS LIMITED ((BKW)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 1/3/0

FY16 results were ahead of expectations. Macquarie expects housing activity to slow over 2017 and weigh on demand in FY18. The negative impact is expected to amplify rising energy costs, for bricks in particular.

Still, the broker believes the current discount in the stock adequately reflects future earnings risk. Rating is upgraded to Neutral from Underperform and the target is reduced to $14.50 from $15.35.

BORAL LIMITED ((BLD)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/2/1

Macquarie observes the transition to infrastructure from residential building is now smoother and there is also less downside risk in the near term from residential activity.

The better outlook combined with more attractive valuations post August reporting has led to the broker upgrading to Outperform from Neutral. Target rises to $7.10 from $6.60.

CARSALES.COM LIMITED ((CAR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 3/3/1

The company continues to innovate and improve monetisation, Credit Suisse observes. The broker considers the offshore opportunity is long term and does not factor in significant upside in valuation.

The stock is upgraded to Outperform from Neutral, given the pull back in the share price. Target is steady at $12.50.

FORTESCUE METALS GROUP LTD ((FMG)) Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 2/4/1

Credit Suisse upgrades iron ore forecasts modestly and, in conjunction with the company's US$700m repayment of a portion of a term loan, revises FY17 EBITDA up 16%.

The broker expects cash flow will be strong enough to mean net debt falls to $3.6bn at the end of FY18. Rating is upgraded to Neutral from Underperform. Target is raised to $4.65 from $4.50.

GPT ((GPT)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/4/2

The result of Macquarie's attendance at a breakfast hosted by GPT is an upgrade to Neutral. However it's not about the Eggs Benedict.

GPT shares fell 10% in the June quarter when the REIT sector fell 2.5%, Macquarie notes. While the growth profile is still expected to slow in FY17, the stock is now offering an 11% total shareholder return on the broker's numbers. Hence the upgrade. Target unchanged at $5.16.

ILUKA RESOURCES LIMITED ((ILU)) Upgrade to Buy from Neutral by UBS and Upgrade to Neutral from Underperform by Credit Suisse .B/H/S: 3/2/2

The share price has declined around 18% since the interim results but UBS believes much of the bad news should have been known and/or has subsequently reversed.

The broker believes both zircon and titanium dioxide feedstock prices will start rising over the next couple of years and upgrades to Buy from Neutral. Target rises to $7.50 from $6.80.

With the share price correction and potential for upside surprise on the growth front in China Credit Suisse upgrades to Neutral from Underperform.

With reasonable valuation support the broker does not want to be short the sector and does not believe this is the time to be underweight on the miners. Target is reduced to $6.40 from $6.70.

NEW HOPE CORPORATION LIMITED ((NHC)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 1/2/0

The FY16 loss was worse than Macquarie expected. Impairments continue and Queensland oil and coal were unprofitable.

Nevertheless, with thermal coal prices expected to average 25% higher in the first half of FY17, the broker expects Acland can return to profitability and Bengalla will obtain even greater benefit.

With stronger demand and the impact of supply-side reforms in China, Macquarie upgrades to Outperform from Underperform. Target slips to $1.70 from $1.80.

See also NHC downgrade.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/2

Macquarie continues to favour nickel and gold in metals and upgrades Northern Star to Outperform from Neutral on the back of recent share price weakness.

The $5.00 target is retained.

NUFARM LIMITED ((NUF)) Upgrade to Outperform from Neutral by Credit Suisse and Upgrade to Add from Hold by Morgans .B/H/S: 4/2/1

FY16 results surpassed expectations with cost savings ahead of schedule. Credit Suisse upgrades earnings estimates and believes the stock's growth profile now supports an upgrade in rating to Outperform from Neutral.

Industry consolidation is also expected to create an opportunity for Nufarm. The broker adds $1 a share of value and assumes Nufarm can acquire an asset at good value, with management expecting a deal could take 12-18 months. Target rises to $9.70 from $8.20.

FY16 results were ahead of estimates but the Australian result disappointed Morgans. The broker expects the company will benefit from the first decent summer cropping season in Australia for four years and South America is set for a bigger season.

The broker believes the stock now has a much stronger growth profile and through internal improvements is intent on lifting returns to shareholders over time.

The broker considers the stock attractively priced for its growth profile and upgrades to Add from Hold. Target rises to $9.65 from $8.60.

PERSEUS MINING LIMITED ((PRU)) Upgrade to Overweight from Equal-weight by Morgan Stanley .B/H/S: 3/2/0

Morgan Stanley believes it is now time to focus on the events that will cause the stock to re-rate over the next 12 months including falling costs, project construction and a definitive feasibility study.

With operational issues now passing the broker considers it timely to upgrade to Overweight from Equal-weight. Target is raised to 80c from 70c. Industry view: In-Line.

QUBE HOLDINGS LIMITED ((QUB)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 3/3/0

Patrick has lost the contract with the Asia Australia consortium (A3). While the contract is not material to Qube in FY17 Macquarie suspects this is not the case with Patrick. The broker attributes the contract loss to the prioritisation of the Asciano sale process.

Macquarie believes the growth potential for Qube is substantial with longer term upside arising from Moorebank and, with the stock having fallen significantly, believes this negates further downside risk. Rating is upgraded to Outperform from Neutral. Target falls to $2.74 from $2.82.

SOUTH32 LIMITED ((S32)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 3/4/1

With stronger demand and the impact of supply-side reforms in China, the outlook for most bulk commodities has improved, Macquarie observes. The broker substantially upgrades forecasts for coking coal, thermal coal and manganese.

Macquarie believes the earnings outlook for South32 has been transformed, given it has exposure to all three of these commodities. The broker upgrades to Outperform from Underperform and raises the target to $2.70 from $1.50.

See also S32 downgrade.

ST BARBARA LIMITED ((SBM)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 1/2/0

Macquarie continues to favour nickel and gold in metals and upgrades St Barbara to Outperform from Neutral on the back of recent share price weakness.

Target is raised to $3.70 from $3.50.

SANTOS LIMITED ((STO)) Upgrade to Buy from Neutral by UBS .B/H/S: 5/2/0

The share price has significantly underperformed the oil price and peers since the results.

UBS attributes this to a lack of firm guidance on cost reductions, concerns around GLNG and reserves as well as disclosure by the company's largest shareholder that it has been asked by the Shanghai Stock Exchange to justify its investment.

The broker's analysis downgrades the value of GLNG on risks around reserves and notes the credit rating is in the spotlight. UBS believes Santos will fall short of the multiples needed to justify an investment grade credit rating.

The stock remains one of the most leveraged to the oil price movement and, after the recent share price decline, the broker upgrades to Buy from Neutral. Target falls to $4.50 from $4.90.

SYDNEY AIRPORT HOLDINGS LIMITED ((SYD)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/2/1

August traffic revealed total passenger growth of 4.5% and international up 7.6%. Macquarie believes the stock now provides value to investors, with the recent fall in the share price.

Moreover, Sydney's growth outlook is strengthening with opportunities to develop and creating a growth path which should last 10-15 years.

Macquarie upgrades to Outperform from Neutral. Target rises to $7.45 from $7.41.

Downgrade

NEW HOPE CORPORATION LIMITED ((NHC)) Downgrade to Hold from Add by Morgans .B/H/S: 1/2/0

Morgans revises forecasts slightly to account for higher coal prices ahead of the results. Uncertainty around Acland stage 3 is the main sticking point for investors, the broker observes.

Rating is downgraded to Hold from Add rating, given the uncertainty and the potential valuation impact should approval not be secured. Target is reduced to $1.60 from $1.68.

See also NHC upgrade.

OZFOREX GROUP LIMITED ((OFX)) Downgrade to Neutral from Outperform by Macquarie .B/H/S: 1/1/0

Macquarie still sees Ozforex' "Accelerate" target of doubling revenues by 2019 as ambitious and offering risk, while offering significant upside if achieved. The problem is that outside of GBP, volatility has been subsiding in currency markets, the broker notes, and this will make the job more difficult.

On that basis Macquarie has cut its target to $2.30 from $2.60 and downgraded to Neutral.

RESMED INC ((RMD)) Downgrade to Hold from Accumulate by Ord Minnett .B/H/S: 5/3/0

Ord Minnett’s analysis of the latest competitive bidding rates in the US market indicates cuts in FY17 will be greater than those implemented in FY14 and for ResMed this means a tough year lays ahead.

The stockbroker lowers its rating to Hold from Accumulate while reducing its price target to $8.65 from $9.40. The analysts do add current integration of health IT group Brightree provides a potential bright spot. Estimates have been lowered implying no growth is on the horizon.

SOUTH32 LIMITED ((S32)) Downgrade to Hold from Add by Morgans .B/H/S: 3/4/1

The stock is leveraged to rising coal and manganese prices which support estimates and Morgans increases forecasts but considers the upside for the stock is reduced because of the surge in the share price.

Morgans downgrades to Hold from Add and lifts the target to $2.52 from $2.42, preferring to wait to accumulate on weakness.

See also S32 upgrade.

SANDFIRE RESOURCES NL ((SFR)) Downgrade to Hold from Add by Morgans .B/H/S: 2/5/1

Higher long-term gold prices have partly offset lower near-term copper price assumptions, resulting in a slight reduction in  the valuation and this forces Morgans to downgrade to Hold from Add.

The broker prefers to sit out any volatility in US dollar commodities post the upcoming US Federal Reserve decision on rates on September 21. Target is reduced to $5.91 from $6.05.

TPG TELECOM LIMITED ((TPM)) Downgrade to Reduce from Hold by Morgans .B/H/S: 3/2/2

Morgans was impressed by TPG's FY16 result despite it hitting only the lower end of guidance, but FY17 guidance came in lower 7% than forecast, reflecting the reality of the NBN becoming a material part of earnings and margin pressure now being applied.

The headwinds can no longer be ignored and hence Morgans has cut its FY17 earnings forecast by 11% to the midpoint of guidance, and downgraded its rating to Reduce. Target falls to $7.49 from $11.79 as the broker cuts its enterprise multiple to 10x from 12x, noting five years ago telcos traded on 6x.

Hence there is further downside risk if interest rates rise, the broker warns.

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating
 
Order Company New Rating Old Rating Broker
Upgrade
1 ADELAIDE BRIGHTON LIMITED Buy Neutral Macquarie
2 ALACER GOLD CORP Neutral Sell Macquarie
3 ALUMINA LIMITED Neutral Sell Credit Suisse
4 BHP BILLITON LIMITED Buy Neutral Macquarie
5 BORAL LIMITED Buy Neutral Macquarie
6 BRICKWORKS LIMITED Neutral Sell Macquarie
7 CARSALES.COM LIMITED Buy Neutral Credit Suisse
8 FORTESCUE METALS GROUP LTD Neutral Sell Credit Suisse
9 GPT Neutral Sell Macquarie
10 ILUKA RESOURCES LIMITED Buy Neutral UBS
11 ILUKA RESOURCES LIMITED Neutral Sell Credit Suisse
12 NEW HOPE CORPORATION LIMITED Buy Sell Macquarie
13 NORTHERN STAR RESOURCES LTD Buy Neutral Macquarie
14 NUFARM LIMITED Buy Neutral Morgans
15 NUFARM LIMITED Buy Neutral Credit Suisse
16 PERSEUS MINING LIMITED Buy Neutral Morgan Stanley
17 QUBE HOLDINGS LIMITED Buy Neutral Macquarie
18 SANTOS LIMITED Buy Neutral UBS
19 SOUTH32 LIMITED Buy Sell Macquarie
20 ST BARBARA LIMITED Buy Neutral Macquarie
21 SYDNEY AIRPORT HOLDINGS LIMITED Buy Neutral Macquarie
Downgrade
22 NEW HOPE CORPORATION LIMITED Neutral Buy Morgans
23 OZFOREX GROUP LIMITED Neutral Buy Macquarie
24 RESMED INC Neutral Buy Ord Minnett
25 SANDFIRE RESOURCES NL Neutral Buy Morgans
26 SOUTH32 LIMITED Neutral Buy Morgans
27 TPG TELECOM LIMITED Sell Neutral Morgans

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 NUF NUFARM LIMITED 43.0% 14.0% 29.0% 7
2 ILU ILUKA RESOURCES LIMITED 14.0% -14.0% 28.0% 7
3 NST NORTHERN STAR RESOURCES LTD -20.0% -40.0% 20.0% 5
4 PRU PERSEUS MINING LIMITED 60.0% 40.0% 20.0% 5
5 AQG ALACER GOLD CORP 60.0% 40.0% 20.0% 5
6 NCM NEWCREST MINING LIMITED -31.0% -50.0% 19.0% 8
7 QUB QUBE HOLDINGS LIMITED 50.0% 33.0% 17.0% 6
8 GPT GPT -33.0% -50.0% 17.0% 6
9 BLD BORAL LIMITED 33.0% 17.0% 16.0% 6
10 CAR CARSALES.COM LIMITED 29.0% 14.0% 15.0% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 SPK SPARK NEW ZEALAND LIMITED -50.0% -20.0% -30.0% 4
2 SWM SEVEN WEST MEDIA LIMITED -40.0% -17.0% -23.0% 5
3 EHE ESTIA HEALTH LIMITED 33.0% 50.0% -17.0% 3
4 MYR MYER HOLDINGS LIMITED 29.0% 43.0% -14.0% 7
5 SFR SANDFIRE RESOURCES NL 13.0% 25.0% -12.0% 8
6 TTS TATTS GROUP LIMITED 29.0% 38.0% -9.0% 7
7 VCX VICINITY CENTRES -40.0% -33.0% -7.0% 5
8 RMD RESMED INC 63.0% 69.0% -6.0% 8
9 BXB BRAMBLES LIMITED 14.0% 19.0% -5.0% 7
10 TPM TPG TELECOM LIMITED 14.0% 17.0% -3.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 NUF NUFARM LIMITED 9.021 7.879 14.49% 7
2 S32 SOUTH32 LIMITED 2.240 2.065 8.47% 8
3 PRU PERSEUS MINING LIMITED 0.732 0.680 7.65% 5
4 AQG ALACER GOLD CORP 4.600 4.320 6.48% 5
5 BHP BHP BILLITON LIMITED 23.038 22.250 3.54% 8
6 NCM NEWCREST MINING LIMITED 20.541 19.901 3.22% 8
7 SGR THE STAR ENTERTAINMENT GROUP LIMITED 6.703 6.534 2.59% 7
8 MYR MYER HOLDINGS LIMITED 1.356 1.331 1.88% 7
9 ABC ADELAIDE BRIGHTON LIMITED 5.146 5.074 1.42% 7
10 FMG FORTESCUE METALS GROUP LTD 4.679 4.614 1.41% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 EHE ESTIA HEALTH LIMITED 4.817 5.263 -8.47% 3
2 JHC JAPARA HEALTHCARE LIMITED 2.418 2.554 -5.32% 4
3 SWM SEVEN WEST MEDIA LIMITED 0.820 0.850 -3.53% 5
4 RMD RESMED INC 9.708 9.918 -2.12% 8
5 STO SANTOS LIMITED 5.124 5.219 -1.82% 8
6 QUB QUBE HOLDINGS LIMITED 2.647 2.680 -1.23% 6
7 SFR SANDFIRE RESOURCES NL 5.705 5.773 -1.18% 8
8 TTS TATTS GROUP LIMITED 4.077 4.105 -0.68% 7

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 ORE OROCOBRE LIMITED 11.200 -21.075 153.14% 4
2 PRU PERSEUS MINING LIMITED -0.248 -0.582 57.39% 5
3 NUF NUFARM LIMITED 49.204 31.274 57.33% 7
4 BHP BHP BILLITON LIMITED 80.207 65.564 22.33% 8
5 S32 SOUTH32 LIMITED 9.529 7.844 21.48% 8
6 WHC WHITEHAVEN COAL LIMITED 11.814 9.776 20.85% 8
7 PMV PREMIER INVESTMENTS LIMITED 75.500 68.074 10.91% 6
8 KMD KATHMANDU HOLDINGS LIMITED 16.772 15.126 10.88% 5
9 EVN EVOLUTION MINING LIMITED 22.104 20.390 8.41% 7
10 TPM TPG TELECOM LIMITED 45.031 42.472 6.03% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 MYR MYER HOLDINGS LIMITED 9.080 10.098 -10.08% 7
2 ILU ILUKA RESOURCES LIMITED 10.763 11.888 -9.46% 7
3 OSH OIL SEARCH LIMITED 11.441 12.391 -7.67% 8
4 RMD RESMED INC 36.310 38.731 -6.25% 8
5 STO SANTOS LIMITED -6.064 -5.780 -4.91% 8
6 IGO INDEPENDENCE GROUP NL 7.558 7.907 -4.41% 6
7 AQG ALACER GOLD CORP 15.706 16.404 -4.26% 5
8 NCM NEWCREST MINING LIMITED 96.397 99.453 -3.07% 8
9 WPL WOODSIDE PETROLEUM LIMITED 137.379 140.952 -2.53% 8
10 APA APA GROUP 22.101 22.601 -2.21% 8

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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article 3 months old

Uranium Week: And Then There Were Three

The Ikata unit 3 reactor was restarted last week, bringing the number of currently operational reactors in Japan to three.


By Greg Peel

There have actually been five Japanese reactors restarted since the 2011 Fukushima disaster, but Takahama units 3 and 4 had to shut down again due to a court injunction issued against their operation. Sendai units 1 and 2 were the first to be restarted and remain in operation, while last week saw Shikoku Electric Co’s Ikata unit 3 restarted, bringing the current operating total to three.

To say the process of restart is painfully slow is more than an understatement. Most of the pain is being felt by the Japanese economy, given the high cost of importing fossil fuel alternatives for power generation. But the pain is being shared by global uranium producers, who never presumed it would take this long to get one of the world’s greatest consumers of uranium back up and running.

And still the count is three, out of a prior forty-odd.

In other incrementally good news last week, another major consumer of uranium – the US – is hopeful that the state of Illinois will follow in the footsteps of the state of New York in providing subsidy deals that will save the state’s struggling legacy reactors. The US federal government is eager to ensure nuclear energy remains a significant component of the push towards “greener” power generation, but the sheer cheapness of gas and a preference in subsidies for emission-free renewables has left older nuclear reactors out in the cold.

These demand-side developments did little to fire up the uranium market last week. The prior week saw market confusion as a US utility sought suppliers for the September delivery of anywhere between 100,000 and 1.2 million pounds of U3O8 equivalent, which hardly provides a clear picture on spot market demand. Last week saw that utility satisfied, but there is no word on the final volume.

Further utility demand is in the wings, but not yet prepared to step up to pay offer prices, industry consultant TradeTech notes. Nor are sellers too keen to hit lower bids. Hence only four transactions totalling 400,000lbs U3O8 equivalent were concluded in the spot market last week. Despite the stand-off, TradeTech’s weekly spot price indicator has fallen US65c to US$25.75/lb.

In the term market, a US utility selected a supplier for 800,000lbs U3O8 equivalent over 2018-20 last week and a small volume was contracted in the long term market. Another utility awaits offers for 2.6mlbs to be delivered over 2019-25 and further requests for term market contracts are expected to be made shortly.

TradeTech’s term market price indicators remain unchanged at US$27.40/lb (mid) and US$38.00/lb (long).
 

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article 3 months old

Uranium Week: Some US Reprieve

By Greg Peel

While the process of restarting Japan’s reactors drags on interminably, news of planned shut-downs of legacy US reactors over time has been the most disturbing news story in the uranium market these past few weeks. Last week there was finally some good news.

One by one US power companies have been announcing plans to close their reactors over the next few years, with more announcements expected, due to an inability to commercially compete with other power sources. The abundance of US shale gas is making gas-fired power generation a cheap alternative, while more expensive renewable energy power is enjoying the benefit of government subsidies based on zero emissions.

Once a nuclear plant is up and running it, too, is a zero-emitter, but to date US governments have not been forthcoming with subsidies, with which plant shutdowns could be avoided. Last week the State of New York enacted a new Clean Energy Standard that will indeed provide subsidies for nuclear power, on an upward sliding scale.

The subsidies will be provided for plants unable to cover costs at low electricity prices, which include older upstate plants for which shut-downs were otherwise deemed unavoidable.

The news from Japan is that Shikoku Power Co intends to restart its Ikata unit 3 plant on August 15. Ikata would represent only the third Japanese reactor restart. Other restarts remain planned but continue to be held up in court due to public protest.

Meanwhile, last week saw a US utility enter the spot market looking for anything between 100,000lbs and 1.2mlbs of U3O8 equivalent, industry consultant TradeTech reports. The uncertainty created by such a wide range of potential volume left the market unsure how to respond. Initially sellers backed right off, but by week’s end offer prices fell back again.

Four transactions were ultimately concluded totalling 500,000lbs U3O8 equivalent. TradeTech’s weekly spot price indicator has risen US50c to US$26.40/lb.

TradeTech’s term price indicators remain unchanged at US$27.40/lb (mid) and US$38.00/lb (long).
 

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article 3 months old

Uranium Week: Demand Spurt

The spot uranium price was boosted last week by some long-awaited utility demand.


By Greg Peel

Uranium industry consultant TradeTech noted a week ago the Nuclear Energy Institute’s Nuclear Supply Forum that week had been a less gloomy affair than those in recent times. There were indications long-awaited utility demand was set to enter the market.

Such demand did arrive last week from utilities, with traders hot on their tails. Sellers quickly backed off to send traded prices briefly surging to as high as US$26.75/lb before falling back toward the end of the week. By week’s end 1.1mlbs of U3O8 equivalent had changed hands in nine transactions. TradeTech’s spot price indicator closed the week, and the month, at US$25.90/lb, up US65c from the week before, but down US50c from end-June.

Over the month of July, 22 spot transactions were concluded representing 2.2mlbs U3O8 equivalent. Utilities may have made a welcome return toward month’s end but traders represented 80% of the buying over July, TradeTech notes.

Four transactions were reported in term markets last week, making seven for the month, all for mid-term delivery. Intermediaries were term market buyers alongside utilities. TradeTech’s term price indicators have fallen by US75c to US$27.40/lb (mid) and US$2.00 to US$38.00/lb (long).

July was a month featuring ups and downs in both prices and newsflow. Mid-month the spot prices traded to an eleven-year low of US$25.00/lb. Over the course of the month, the uranium market was heartened to learn 2015 had seen the highest growth in nuclear plant capacity in 25 years, but despondent to learn a number of legacy reactors in US are planning to shut down due to no longer being economic.

Last week brought news Electricite de France had approved an investment in a new reactor build at Hinkley Point in the UK and 24 hours later the UK government announced it would delay its own approval. The world’s biggest producer – Canada’s Cameco – last week reported a C$137m loss in the June quarter on a 37% fall in uranium sales and an 8% fall in realised prices.

For many a global producer it’s a case of hoping to ride out this period of low prices in the hope of higher prices sometime in the future. As far as the analysts at Macquarie are concerned, low prices may be the norm for a while yet.

2015 was a year in which uranium outperformed commodity peers simply by not falling. 2016 has featured substantial rebounds for many commodity prices, but the uranium spot price has fallen 27% year to date.

The spot uranium market has always been illiquid, Macquarie notes, leading to often sharp price fluctuations. The bulk of material is bought for stocking and forward coverage of reactor requirements, but having stocked up significantly in 2015, the buyers in the major demand centres of the US and China have eased off in 2016.

In the US it’s been a matter of planned reactor closures due to poor economics. The US nuclear power industry is suffering from a lack of recognition of being emission-free once operating, when it comes to government subsidies. Alternative energy sources are otherwise enjoying handsome subsidy incentives, and the abundance of shale gas has led to cheap gas-fired plants being a more viable alternative for electricity generation.

To date, nine US plants have expressed the intention to retire by 2024, representing over 4GW of power, and experts suggest another 4-5GW is also at risk. A net 9GW of closures would represent around 9% of current US annual uranium demand. There is some hope the industry can successfully lobby for a better subsidy outcome.

The good news is China is currently adding that potentially lost US capacity every one and half years. But capacity itself is not the issue in China, rather inventories. The bad news is China has already amassed 16 years’ worth of uranium consumption at current capacity or nine years’ worth at projected 2020 capacity. If China were to completely cease buying uranium tomorrow, notes Macquarie, it would still get to 2020 with five more years of material on hand.

No wonder Chinese buying has slowed in 2016.

The result is spot uranium pricing has now returned to being driven by the cost curve, Macquarie points out, rather than by utility demand. To that end, some 30% of global production is currently achieving prices below cost, the analysts estimate. This does mean the downside for uranium prices is limited, as such production can only hold on for so long.

But in an environment of falling utility demand, it is hard to see where uranium price upside might come from, Macquarie concludes.


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article 3 months old

Uranium Week: Some Hope

By Greg Peel

Uranium market participants gathered in Washington last week for the Nuclear Energy Institute’s Nuclear Supply Forum. Industry consultant TradeTech reports that while previous meetings have been gloomy affairs given concern over low uranium prices and planned plant closures, there was at least some glimmer of hope this time around.

Several utilities inside and outside the US have indicated they intend to issue requests by year-end for spot, medium and long term delivery contracts.

For quite a while now the market has been hanging on for an assumed increase in utility demand that has never come. While there remains no urgency in the uranium spot market, last week at least saw TradeTech’s weekly spot price tick up US25c to US$25.25/lb. Four transactions were concluded totalling 600,000lbs U3O8 equivalent.

TradeTech’s term price indicators remain unchanged at US$28.15/lb (mid) and US$40.00/lb (long).

Australia-listed Paladin Energy ((PDN)) has taken further steps to alleviate pending debt issues in the low price environment. The company will need to pay out a remaining US$212m of its convertible bond issue in April 2017 and will not be able to do so on current cash-burn at below-cost prices. Paladin took steps to alleviate the pressure when it sold a 25% stake of its flagship Langer Heinrich mine in Namibia a year ago to China’s CNNC.

Now the company has sold a further 24% stake in the mine to an as yet undisclosed party, leaving Paladin with 51%. The price implied was lower than the price of the 2014 stake, but not as low as the interim fall in the spot uranium price might imply. The sale is expected to raise US$175m in cash – representing a big chunk, but not all, of the bond obligation.

Paladin has also signed an agreement to sell a 30% stake in an undeveloped resource in Western Australia to MGT Resources ((MGT)) with a one-year option for a further 45% following field leach trial preparations. All up this will represent US$30m in cash.

Brokers are heartened by the sales and subsequent balance sheet boost, but remain cautious nonetheless. Paladin is still short of its obligation and still burning cash, suggesting a uranium price recovery is still required. Citi has again downgraded its uranium price forecasts, leading to a downgrade to its Paladin recommendation to Neutral. All four of the four FNArena database brokers covering Paladin now have Hold or equivalent ratings on the stock.


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article 3 months old

Uranium Week: New Low

By Greg Peel

Because almost all currently reported spot uranium demand is discretionary in nature, buyers are increasingly willing to postpone buying activity in hopes of securing the lowest price possible, industry consultant TradeTech noted at the end of last week. As a result, sellers are finding they must cut prices significantly in order to close transactions.

Demand is languishing, and dramatic price swings are resulting from a thin market. Five transactions were reported in the uranium spot market last week totalling 500,000lbs. Sellers became increasingly anxious as the week wore on, resulting in a US$1.40 slide in TradeTech’s weekly spot price indicator to US$25.00/lb.

That’s a fresh low for the year, and the lowest spot price since April 2005.

One of the swing factors on the sluggish demand-side is the speed of Japanese reactor restarts, which currently is moving at a glacial pace. The Abe government would dearly like to restart as many reactors as quickly as possible to relieve the Japanese budget of expensive power generation alternatives, in the form of imported LNG and other fossil substitutes. But the national government’s desires are being hamstrung by local government, and specifically the lingering fear of nuclear power in post-Fukushima Japan.

Last week the Otsu District Court upheld an order to keep Kansai Electric Power Co’s Takahama units 3 and 4 shut down. The decision supports a petition signed by nearby residents. Kansai Electric will now need to appeal to the Osaka High Court for restart approval in a process that could last a year.

Meanwhile the company is importing oil, natural gas and coal in order to keep the electricity flowing.

There was one transaction reported in the uranium term markets last week, involving delivery beginning in 2020. TradeTech’s term price indicators remain unchanged at US$28.15/lb (mid) and US$40.00/lb (long).


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