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Global Equities Roundup: Market Talk

29 Jan 2017 11:24 pm

2324 GMT [Dow Jones] Could less be more for Australian gold miner Doray Minerals (DRM.AU)? Macquarie says the bad news of a production downgrade at its Andy Well mine in Western Australia is offset by the promise shown by its Gnaweeda project. Doray is targeting FY17 output at Andy Well of 50,000-55,000 oz., below Macquarie's 68,000 oz. forecast. But that's a more achievable and sustainable target for small, narrow-vein mine, Macquarie says. Doray wants to spend less at the existing Andy Well mine so it can advance studies at Gnaweeda, which currently has a 266,000 oz. resource. Success at Gnaweeda could lift overall Andy Well output to 100,000 oz./year in around 18 months. "Progress at Gnaweeda looks encouraging and a positive study outcome could result in a significantly improved longer-term outlook," Macquarie says. It retains a neutral call. DRM last traded at A$0.455, below Macquarie's A$0.50/share target. (david.winning@wsj.com; @dwinningWSJ)

2323 GMT [Dow Jones] Z Energy (ZEL.NZ) has the potential to beat consensus earnings forecasts over the near- to medium-term as it benefits from its dominance of the country's jet fuel market and its acquisition of Caltex petrol stations, says Macquarie. Z Energy signaled last week it's reviewing its dividend distribution policy after achieving better-than-expected progress with debt reduction. The dividend policy is currently 10% annual growth in dividends per share. Macquarie says a reversion to the historical payout ratio level would underpin a 25 Australian cents/share lift in the annual dividend to 60 Australian cents/share. Jet fuel volumes grew strongly in the third quarter reflecting increased aircraft movements through Auckland Airport and the company has signaled its intention to invest further in the jet fuel supply chain to capacity at the airport. (rebecca.thurlow@wsj.com)

2319 GMT - There may be some investor disappointment with Australia's coming F1H reports, but that's likely to be a valuation matter and not due to earnings, suggests Macquarie. It expects results to show broad improvement in profit growth and strong sequential improvement. But stocks have been strong since the US election, top-line growth--rather than margin improvement--looks set to be the biggest driver of profits. The investment bank anticipates margins likely being flat among large industrial companies. (robb.stewart@wsj.com; @RobbMStewart)

2319 GMT [Dow Jones] For Australia's Newcrest Mining Ltd. (NCM.AU), the production of more byproducts such as copper at its mines resulted in a "material beat" on quarterly costs, says RBC Capital Markets. Newcrest reported an all-in sustaining cost of US$751 an ounce, versus RBC's estimate of US$817. Still, there "are additional indications that operating costs (outside of copper credits) were slightly lower than our estimates, showing continued progress on cost-out programs," it says, adding that investors should feel more comfortable about the reliability of Newcrest's operations than in recent times. (rhiannon.hoyle@wsj.com; Twitter: @RhiannonHoyle)
 

2311 GMT [Dow Jones] Australia's Treasurer Scott Morrison has rejected calls from conservative government lawmakers to wind back generous tax breaks on investment properties, which have been blamed by some analysts for driving up home prices to some of the world's highest levels. Morrison, who last week travelled to the U.K. to examine housing policies, said Britain had higher home prices than Australia. "They have never had negative gearing, yet they have the same affordability problems than Australia has," Morrison says. Under Australian tax law, negative gearing is available to anyone who owns an investment property. Property owners can deduct losses on their investment properties from their annual income to provide tax savings. Morrison says the biggest issue facing Australia was property supply rather than investor tax arrangements. "It really is about how you can effectively get more housing into the system," he says. (rob.taylor@wsj.com; @WSJRobTaylor)

2257 GMT [Dow Jones] Heading into corporate reporting season Down Under, Morgan Stanley notes that valuation multiples remain at peak levels and earnings growth remains low outside the resources sectors. Among emerging companies, it sees particular near-term risk in the share prices of Automotive Holdings (AHG.AU), Estia Health (EHE.AU), SMS Management & Technology (SMX.AU) and CSG (CSV.AU). The bank reckons each is at high risk of disappointing with their half-year numbers. (robb.stewart@wsj.com; Twitter: @RobbMStewart)

2253 GMT [Dow Jones] Morgan Stanley adds Northern Star Resources (NST.AU) to its list of preferred miners, anticipating the Australian gold producer's momentum will continue. Morgan Stanley lifts Northern Star to overweight from equal-weight on valuation grounds, while predicting its FY17 output will be at the top end of the company's 485,000-515,000 oz. guidance. "We see the equity pricing in only known reserve and little more for the expansion and exploration potential," Morgan Stanley says. It expects Northern Star to produce 505,000 oz of gold in FY17 at an all-in cost of A$999/oz. NST last traded at A$3.75. (david.winning@wsj.com; @dwinningWSJ)

2246 GMT [Dow Jones] Mount Gibson Iron (MGX.AU) has had its share of disappointments in recent years, notably when the pit wall at its Koolan Island operation in Australia collapsed in late 2014. But a strong 2Q result from Mount Gibson has prompted Macquarie to raise its profit outlook and price target on the stock. Macquarie adds A$12 million to its FY17 earnings projection, also because Mount Gibson hedged 360,000 tons of iron ore at prices well above its base-case forecast. Mount Gibson, which had A$447 million in net cash at end-December, aims to decide on a restart of Koolan Island in 3Q as well as start the development at nearby Iron Hill. "Approvals for Iron Hill appear to be progressing and we believe there is upside risk to our FY17 forecasts should the approvals be secured in the next few weeks," Macquarie says. MGX last traded at A$0.38, below Macquarie's new A$0.53/share target. (david.winning@wsj.com; @dwinningWSJ)

2237 GMT [Dow Jones] At residential aged care provider Estia Health (EHE.AU), incoming residents are increasingly choosing daily payments instead of lump-sum payments, says Macquarie. Over the three months to the end of October, 45% of incoming residents paid a deposit on a weighted average basis, a significant reduction on the 70% that had paid a deposit on a weighted basis at the end of October. "We have carried out sensitivity analysis on this change, and conclude that the deposit cash flows will significantly reduce, and may even go slightly negative, if 55% of incoming residents continue to opt for daily payments but the company can comfortably accommodate this change in preferences," the broker says. Macquarie reinstates coverage of Estia with a neutral recommendation and A$2.75/share price target after the company's A$137 million share offer. (rebecca.thurlow@wsj.com)

2233 GMT [Dow Jones] Aconex's (ACX.AU) 1H results are highly likely to be the spark for the share price to rise in absolute terms over the next 30 days, Morgan Stanley suggests. It was expecting strong sales momentum and for the technology company to provide more detail on cash flows. Morgan Stanley has a A$9.30 target on the stock, which has risen 11% so far in January to A$5.65. (robb.stewart@wsj.com; Twitter: @RobbMStewart)

2229 GMT [Dow Jones] Corporate Australia is now forecast to show strong earnings growth in FY17 after two consecutive years of declines, although even after easing back a little on its post-U.S.-election rally the market is looking overpriced, UBS says. Aggregate earnings growth for the market is set to hit 18% in FY17, although that's overwhelmingly driven by resources companies, the bank says. Companies outside resources should see 6% growth in each of FY17 and FY18, although that doesn't offer sufficient domestic momentum to drive a broad upgrade cycle, UBS says. It estimates the broader market is trading on a 15.2 times P/E multiple. (robb.stewart@wsj.com; Twitter: @RobbMStewart)

2142 GMT [Dow Jones] Australian shares look set to begin the week on the back foot, with futures pointing to an opening drop of about 11 points for the ASX 200. U.S. stocks edged lower Friday, although the Dow industrials and S&P 500 notched gains for the week, and oil futures eased amid signs of strong drilling activity around the world. IG chief market strategist Chris Weston expects the ASX 200 to start the session around 5700, after rising 42.5 points Friday to 5714, but adds the open of the futures market will be of interest as moves in the S&P 500 and U.S. crude futures could dictate sentiment, especially as parts of Asia are closed for the Lunar New Year. Oz Minerals (OZL.AU) is in the spotlight after reporting 4Q production figures. (robb.stewart@wsj.com; Twitter: @RobbMStewart)

(END) Dow Jones Newswires

January 29, 2017 18:24 ET (23:24 GMT)

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