Issue 154 | April 2016

Analysis

WA Index

Issue 154 | April 2016

Welcome to the 154th edition of the Deloitte WA Index, a monthly review of Western Australian stocks and indices.

Download the list of WA’s top 100 listed companies, as of 31st March, explore the sections below and if you don’t currently receive our WA Index, please register to be added to our distribution list.

Highlights

If you have any questions in relation to the Deloitte WA Index please contact Angela McIlroy.

As of 31 March 2016

Commodity review

Many commodity prices increased over the course of March; however it appears that the recovery may be a result of speculative factors rather than fundamental developments in the market. The month saw large increases in the price of palladium (up 15.2%), iron ore (up 10.9%) and crude oil (up 10.0%), whilst uranium decreased by 13.0%.

Palladium was the best performer this month, showing an increase of 15.2%, or US$75.00 per troy ounce. This rally comes as a result of positive vehicle sales throughout Europe and improving Chinese sentiment surrounding government intentions. Palladium is used in the manufacture of catalytic converters, and therefore demand is sensitive to fluctuations in demand within the automobile market. Furthermore, it seems that there is a global palladium supply deficit, which could potentially be intensified by the threat of further strikes in South Africa.

Iron ore performed strongly this month, increasing 10.9% from US$49.40 to US$54.80 per tonne. The 7 March saw the commodity’s biggest one day gain since daily pricing commenced in 2009, surging to US$62.60 a tonne after the Chinese Premier pledged to spend a combined 2.45 trillion yuan (US$378 billion) on road and railway construction to help China achieve a minimum GDP growth rate of 6.5% for the next 5 years. Many investors, including investment management giant Goldman Sachs, believe this increase is temporary, based on speculation and short-term factors such as seasonal restocking rather than actual improvements in underlying market fundamentals.

Crude oil posted the third largest increase for the month, up 10.0% to US$39.95 per barrel. The increase is due to declining US production as a result of a decrease in the number of active rigs, coupled with OPEC hinting that Iran may agree to cap production levels to support future prices when they meet in mid-April. The decrease in the number of active rigs in the US comes as a direct result of Saudi Arabia refusing to cut production bringing about an oversupply of crude oil to the market. The US Shale producers are unable to sustain profitable margins at such a low price, which has resulted in an increasing number of rigs ceasing production.

Tin saw a healthy 4.7% increase to US$16,729.00 per tonne. This recent spark is a result of the announcement from China stating they would be cutting tin production by 17,000 tonnes by the end of 2016. Furthermore, flooding on the Indonesian Island of Bangka saw a further decrease in tin exports. In spite of this recent growth, tin prices remain low compared to historic levels.

Uranium was the worst performer this month, down 13.0% to US$29.15 per pound. The decrease appears to be a result of a long running theme of oversupply to the market following the shutdown of all Japanese reactors post Fukushima in 2011. A large contributor of the problem is the sizeable store of global uranium inventories that utilities view as ‘in the market’, and consequently there isn’t a pressure to secure supply and instead consumers have been buying as needed. However, converse to recent performance, the long term outlook for uranium has improved considerably in light of China and India both foreseeing nuclear energy as an integral part of their energy makeup.

Aluminium saw a 5.4% decrease to $1,510.75 per tonne this month. The negative performance seemingly stems from a consistent abundant supply to the market. Although demand appears to be moving in a positive direction, it is the increased growth capacity of China and the Middle East that effectively is stalling any substantial price recovery. China's aluminium industry is the world's largest with alumina exports reaching a record high in 2015 flooding the global market.

Commodity and Precious Metal Prices

Select above image to enhance the Commodity and Precious Metal Prices
Select above image to enhance the Commodity and Precious Metal Prices

Performance of WA Index and global indices

Select above image to enhance the Performance of WA Index and global indices
Select above image to enhance the Performance of WA Index and global indices

WA Index movement

Select above image to enhance the WA Index movement
Select above image to enhance the WA Index movement

The Deloitte WA Index fell during March, with the market capitalisation of Western Australian listed companies increasing by 5.9% and closing the month at AU$125.0bn.

Significant movements in the Index during March:

  • Fortescue Metals Group Limited and South 32 Limited increased their market capitalisation by AU$1.6bn (25.0%) and AU$1.1bn (17.2%) respectively during the month following the rebound in commodity prices. The iron ore price in particular has enjoyed a positive month, helping Fortescue to regain 3rd place in the WA Index.
  • Tox Free Solutions Limited’s market capitalisation rose by AU$104m (31.3%) following the successful completion of a AU$20m fully underwritten placement to institutional investors to partially fund the AU$70m acquisition of Worth Corporation Pty Ltd. The company is also expected to issue new shares to a maximum value of AU$4m, via a share purchase plan.
  • Paladin Energy Limited’s market capitalisation increased by AU$94m (29.7%) despite the 13.0% drop in uranium prices during the month. The market capitalisation surge follows talk of recapitalisation plans, with the company rumoured to be in talks with Chinese and Russian interests regarding potential takeover bids.

Equity markets surveyed posted positive results for the month of March:

  • The All Ordinaries increased by 4.1% as the Australian market rebounded in response to positive movements on Wall Street. The big four banks also benefited as the financial sector climbed.
  • The FTSE 100 rose by 1.3%, after the US Federal Reserve confirmed that interest rates would remain stable. The increase is also in line with the positive movement in commodity prices during the month.
  • The S&P 500 increased by 6.6% on the back of the US interest rate hold. Optimism sparked a rally causing the majority of sectors to conclude the month in positive territory.  
  • The Nikkei rose by 4.6% on a weakened yen which improved sentiment as investors purchased stocks with high dividend yields, and improved the prospects for exporter focused sectors.                                                                                                                                                                                                                                                                                                                                                                       Back to top
LED board

Top performers of the month

Western Australian top performers over the past month by growth in market capitalisation

Select above image to enhance the Top performers of the month
Select above image to enhance the Top performers of the month

Top Deloitte WA Index Movers and Shakers in March included:

  • ResApp Health Limited (RAP) posted a 92.3% increase in market capitalisation from AU$75m to AU$145m. The company is currently developing smart phone medical applications for the diagnosis and management of respiratory disease. It announced the signing of a non-binding memorandum to enter into a partnership with UniQuest to field test the smartphone-based pneumonia diagnostic tool in the developing world.
  • Avenira Limited (AEV) posted a 77.1% increase in market capitalisation from AU$50m to AU$89m following the announcement that joint venture and placement transactions with Groupe Mimran companies had achieved financial close, raising approximately $28 million. Avenira is expected to enter the buoyant global nutrient and fertiliser sector, with first production set for 2016.
  • CV Check Ltd (CV1) posted a 63.5% increase in market capitalisation from AU$62m to AU$102m after releasing its half-year financial statements, highlighting 185.0% revenue growth in 1H FY2016 and a revision to revenue forecast, up 11.0% from the prospectus issued in July . The company processes more than 100,000 verification checks every year for private and government organisations, employers and individuals.
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If you have any questions in relation to the Deloitte WA Index please contact Angela McIlroy.

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