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Issue 150 | November 2015
Welcome to the 150th edition of the Deloitte WA Index, a monthly review of Western Australian stocks and indices.
- Download WA's Top 100 listed companies
- Commodity Review
- Performance of WA Index and global indices
- WA Index movement
- Australia’s uranium potential
Download the list of WA’s top 100 listed companies, as of 31 October, explore the sections below and if you don’t currently receive our WA Index, please register to be added to our distribution list.
- Commodity review
- Performance of WA Index and global indices
- WA Index movement
- Australia’s Potential - Uranium in the Rough
- Top performers of the month
- Building the Lucky Country 2015
If you have any questions in relation to the Deloitte WA Index please contact Angela McIlroy.
In a month where China cut interest rates for the sixth time in twelve months and the US Federal Reserve (“FED”) maintained rates at near zero although strongly hinting at an increase in December; we also saw platinum emerge as our best performer, up 7.9%, while iron ore was again hit hard, falling 10.8%.
Platinum recovered to finish the month up 7.9% at US$989 per ounce. The metal was hit hard last month by the Volkswagen “Dieselgate” emissions scandal which broke on 23 September, resulting in the metal hitting a seven year low of US$893 per ounce. Volkswagen has not been so fortunate, posting its first quarterly loss in 15 years as a result of their deception. Palladium prices are still benefiting from this scandal, up 2.4% to US$677 per ounce. Palladium is used in petrol cars to perform the function that platinum delivers in diesel cars. With demand for petrol powered cars set to gain at the expense of diesel, palladium looks to be on the rise.
Gold was boosted this month on the back of soft economic data from around the globe, reaching a high of US$1,187 in mid-October, until it was brought back down to earth by the FED who indicated that they are likely to increase interest rates in December. The precious metal finished the month almost back where it started, up just 2.4% at US$1,141 per ounce.
Silver was up 7.0% to US$15.57 per ounce with virtually all of these gains coming in the first week of the month, however this comes off the back of a four month decline that came to an end in September. Many investors are of the opinion that the precious metal has bottomed out and will continue this recovery, with many dealers around the world struggling to find enough silver coins to meet demand.
Aluminium has been the second worst performer on the commodities front this month, down 7.6% in a continuation of its yearlong decline. Despite many Chinese smelters running at a loss, this decline does not look like halting anytime soon, and may lead to reduced production, especially in the United States.
Tin declined 4.4% to US$15,018 per tonne during October despite the Indonesian government’s new tin export rules impending implementation in November. The new rules require tin miners and exporters to obtain ‘Clean and Clear’ certification before they can export tin. The certification means companies must prove that the tin has not been mined illegally, that they use environmentally friendly mining practices and that no taxes or royalties are outstanding. At the end of October, only three companies met the requirements and as such, a dwindling supply is anticipated going forward. Exports were stepped up in the run up to implementation of the new rules, depressing the price for the month.
Iron ore has had a rough month dropping 10.8% to finish the month on US$49.50 per tonne, being below the key psychological barrier of US$50 per tonne. With demand contracting and production cuts not materialising as expected - in part due to the weakening of the Australian Dollar against the US Dollar and the successful cost cutting of producers in Western Australia - a price rally looks unlikely.
Copper continued its sustained decline this month, down 0.9%, with the slowdown in Chinese growth (contributing up to half the world’s copper demand) it looks likely that this decline will continue in earnest. Both lead and zinc, up 1.3% and 1.1% respectively, are still enjoying boosts from last month’s news that Glencore are cutting production and selling down stockpiles in order to reduce debt.
Performance of WA Index and global indices
The Deloitte WA Index decreased during the month of November, with the market capitalisation of Western Australian listed companies declining by 4.4% to close at AU$118.4bn.
Deloitte Clients & Markets Partner Western Australia, Tim Richards, said this decrease reversed the 4.5% increase experienced in October, which was primarily lead by the major mining companies after the release of positive September quarter results.
“November saw dismal performance by mining stocks as key commodities endured a further slump in prices, driven primarily by China’s economic slowdown and the continued strengthening of the US dollar,” he said.
Among the major Index players:
- Wesfarmers Limited’s market capitalisation fell by AU$1,393m (-3.1%) during the month. With a diversified portfolio, its resources business continues to be burdened by low export coal prices, although the diversity of the group continues to act as a cushion in these turbulent times.
- South32 Limited’s market capitalisation fell by AU$1,464m (-18.8%) in response to poor market sentiment in the mining industry and key commodity price declines, including, alumina, silver, nickel and coking coal. The company's manganese business also moved towards cutting production during the month, with the closure of several manganese mines in South Africa.
- Northern Star Resources Limited’s market capitalisation declined by AU$198m (-12.0%) on the back of the drop in the gold price to a five year low amidst talk of the US Federal Reserve raising interest rates.
All equity markets surveyed posted rather stagnant results for the month of November. The All Ordinaries, FTSE 100 and S&P 500 all dipped mid-month on the back of reports of an oil glut and speculation over rising US interest rates . This then improved throughout the second half of November to finish relatively unchanged from the previous month end.
- The All Ordinaries lost 1.3%, with banks Westpac and Commonwealth emerging winners with a combined market capital increase of AUD$11.5bn, while BHP contributed the biggest market capital loss of AUD 26.2bn
- The FTSE 100 remained largely unchanged, decreasing by 0.1% with Healthcare company AstraZeneca PLC experiencing a rise in market capital of GBP 4.5bn, and BHP mirroring it’s All Ord’s performance, falling by GBP 13.0bn
- The S&P 500 rose marginally by 0.5%, helped by a combined increase from Google, Amazon and Microsoft to the tune of USD 51.6bn
- The Nikkei posted the most positive movement, with an increase of 3.5% spurred by a strong increase in manufacturing and export activity.
Life after mining; W.A.’s tech future
Zero-emission cars, next-generation robotics, and precise genetic-engineering techniques are just some of the cutting edge examples at the forefront of our emerging technologies. Desire to innovate and challenge the status quo has resulted in people, businesses and global economies investing heavily in pursuit of technological advancements to improve our day-to-day lives, including thinking differently about productivity and efficiency in our workplaces. Without a doubt, Western Australia (“WA”) can play a significant role in many of these new technological frontiers.
The resources boom over the last two decades has been the main driver of WA’s economic growth, with the state being a leader in the global resources sector. This performance has been underpinned by a significant increase in operational scale, and a wealth of natural resources, but has also been assisted by cutting edge technical solutions developed through continuously refining business and production processes, a factor that has often been overlooked.
As the dust settles on the mining boom, technology companies have the opportunity to leverage their existing expertise and talent in this local market, and access risk capital which may have previously found its way to junior explorers, to lead the next wave of technological innovation.
In recognising the important role technology has placed in the Australian business landscape Deloitte established the Deloitte Technology Fast 50 to recognise and profile the fastest growing tech companies in Australia. In its 15th edition, the Deloitte Technology Fast 50 noted that six of the fastest growing companies (based on revenue growth from 2013 to 2015) in Australia hail from Western Australia. Two of these companies, Cirrus Networks and Empired Ltd, are making waves in their respective industries
Cirrus Networks is an Australian IT solutions integrator headquartered in Perth, providing an independent, flexible approach to designing, building, and managing IT infrastructure and offering tailored solutions that help achieve a business’s objectives in the most cost effective way. Cirrus has seen revenue grown of 5,571% from 2013 to 2015 which has not only resulted in it being ranked as the 2nd fastest growing technology company in Australia, but also the 4th fastest growing technology company in Asia.
Empired Ltd specialises in the design, development and integration of business knowledge and information technology. The business focus centres around developing technological solutions founded on the objectives of the client in application development, business and productivity and the cloud and infrastructure. Empired Limited has experienced revenue growth of 176% from 2013 to 2015 making it the 30th fastest growing technology company in Australia, and placing it at number 68 in the Deloitte WA Index. Empired have secured two significant contracts as the 2015 financial year comes to a close, giving the company great momentum going into 2016. The first being a $12m contract to provide managed services for all of Western Power's corporate information technology networks across Western Australia, and the second being a $10m contract with the Victorian Department of Education and Training valued at $10m.
WA’s technological innovation has been continuously developed and channelled through various parts of our community and a wide range of organisations, not always directly associated with the resources industry. A report released by Perth consultancy firm Knowledge Society and the University of Western Australia found that WA was among the research leaders in eight of the 12 technologies identified as paramount to the global economy over the next ten years. Universities are heavily involved in this space with examples as below:
- University of Western Australia
- Offshore Foundation Systems: Deep-water engineering technology which allows offshore oil and gas exploration in increasingly deep waters.
- Renewable Energy Vehicle Project: Australia’s first commercial fast-charging station for electric cars, potentially making car-charging networks profitable.
- Curtin University
- Fuel and Energy Technology: Research to convert biomass such as agricultural waste into clean fuel which can in turn generate electricity.
- Intelligent Robots: Develop robots that can independently perform tasks, convey information, explain and justify their decisions.
WA has a pipeline of technology projects, driving both resource and mine development. Examples include Rio Tinto Limited’s Remote Operations Centre which will manage Rio’s automated haulage trucks, drilling operations and train system. Similarly, the Jimblebar mines in the Pilbara region are currently hosting trials of BHP Limited’s automated fleet. Not to be overshadowed by the big miners, Chevron’s Wheatstone LNG project has deployed WA-developed robotics to monitor real-time water data and the impact on ocean water quality.
Interestingly, the WA technology sector has recently capitalised on a depressed mining environment through an increased number of reverse acquisitions, which involves a private technology company acquiring a public mining company (usually a junior explorer), which can often shortcut the prolonged and complex process of going public. Moreover, such reverse acquisitions provide technology companies access to both the liquidity and investor capital which enables scaling-up and commercialisation of operations. Successful WA technology companies that have used this “back-door listing” method include:
- Norwood Systems Limited (NOR) – a cloud based system with the aim of reducing mobile phone roaming charges by using a mix of fixed networks, VOIP networks and other voice technology. The Perth-based company began trading on the ASX following a reverse take-over of Monteray Mining Group Limited which was finalised in May 2015 and led to a big jump in its share price. Norwood confirmed its entry into the North American and European markets mid-November, with 60% of its revenues in the prior week coming from iTunes account holders in those continents downloading the World Phone app. Since launching on 31 July 2015, over 1,000,000 users have downloaded the app worldwide by mid- November with annualised revenue run rate over $1,300,000 per annum.
- XTV Networks Limited (XTV) – a platform on which companies can set up multi-channel online networks that integrate their own videos and user-generated content with other real-time feeds. XTV underwent a significant increase in market capitalisation in February 2015 after signing two significant contracts with Innovative Health Incorporation and UST Global Incorporation.
- Spookfish Limited (SFI) – has developed futuristic imaging techniques in the area of “geospatial imagery” (which enables imagery of large urban areas to be captured at a superior resolution in just a matter of hours) at a fraction of the cost of traditional geospatial imagery. In February 2015, White Star Resources Limited completed the transaction and changed the direction of its operations from copper-gold exploration to focus on the development and commercialisation of the geospatial imagery technology. Spookfish’s market capitalisation is AU$47m as at 30 November 2015.
- Dubber Corporation Limited (DUB) – operates call recordings, management and access functionality operating in the cloud, meaning it can be managed immediately from anywhere in the world. In July 2014, Cruciable Gold Ltd exercised its option to acquire 100% of the shares in Medulla Group Pty Ltd, with the prospectus being released in January 2015 and then finally reinstated on the ASX in March 2015. In November 2015, Dubber announced binding commitments with institutions for approximately $5.7mil in a placement of 12.6mil new shares in order to bring forward its growth plans. The capital raising and recent announcements in relation to new projects will position the Company for significant short term growth. Dubber Corporation’s market capitalisation increased rapidly throughout the month of November ending at AU$46m as a result of announcing the firm’s engagement by one of Australia’s Big 4 banks and launching in North America at the Broadsoft Connections 2015 conference with its first US telco customer, BluIP, Inc.
- Velpic Limited (VPC) – a cloud based, e-learning platform that enables companies to develop a mobile induction and training tool. The Company officially started trading on 12 November 2015 through the shell of exploration company International Coal Limited and experienced a 188% jump in this first day to 7.2 cents, finishing the month at 6.3 cents.
Other WA companies at the forefront of research and innovation in what some may deem disruptive technology are:
- Carnegie Wave Energy Limited (CWE) - utilises wave energy technology, converting ocean swell into zero-emission renewable power and desalinated freshwater. The Garden Island wave energy project which is in partnership with Western Power Corporation, is aiming to develop a micro power grid on Garden Island. CWE’s market capitalisation is AU$96m as at 30 November 2015.
- Anaeco Limited (ANQ) – uses an internally developed system to recycle household waste into organic fertiliser, renewable energy, recyclable plastic, metals and glass. Anaeco’s market capitalisation stands at AU$5m as at 30 November 2015.
Automation of knowledge work:
- Structural Monitoring Systems Ltd (SMN) – developed an inflight structural health monitoring system capable of monitoring the initiation and propagation of cracks in real time on aircraft. Since last year, SMN’s market capitalisation stands at AU$64m as at 30 November 2015.
- Rewardle Holdings Limited (RXH) – a cloud based marketing a transactional platform with the purpose of connecting consumers to their favourite places, via points, rewards, mobile ordering and payments, integrated with social media powered by big data. As at 30 November 2015, Rewardle’s market capitalisation is AU$26m.
- Smart Parking Limited (SPZ) – provides a range of design, development and the management of parking technology services, ranging from application services to full integrated parking management systems. SPZ’s market capitalisation is AU$67m as at 30 November 2015.
The prospective benefits from technology are without boundaries but limited by availability of R&D funding, and conventional thinking.
Countries such as Japan and Germany have emerged as stable, efficient, financially strong economies, and have established themselves as leaders in technology due to a relentless focus on efficiency, innovation, and process engineering.
Innovation in the resources sector, and the ability to effectively concentrate resource allocation on stimulating technological advancements could potentially grow high-tech industries in WA to stand our economy in good stead and in part, begin to deleverage our reliance on the success of the mining and oil and gas sectors.
The technology footprint in the Deloitte WA Index as it currently stands is minimal, with for example the majority of companies above not currently sitting within the Top 100 WA listed companies by market capitalisation.
One thing is clear though, given the growing number of micro-cap listed technology companies, this is likely to change. However, only time will tell which of these start-ups will succeed, and from that perspective there are direct similarities between junior explorers in West Perth or Subiaco, or technology start-ups in Nedlands or Fremantle.
Top performers of the month
The top Deloitte WA Index Movers and Shakers in November included:
Norwood Systems Limited (NOR). The mobile telecommunications application provider posted a 260% increase in market capitalisation from AU$36m to AU$131m. Norwood confirmed its entry into the North American and European markets mid-month, announcing that 60% of its revenues in the week ended 8th November were from account holders located on those continents downloading the World Phone app. Since launching on 31 July 2015, over one million users have downloaded the app worldwide by mid-November, delivering a revenue run rate of over AUD$1.3m per annum.
Dacian Gold Limited (DCN), which posted a 41% increase in market capitalisation, from AU$69m to AU$98m. The company launched a fully underwritten AU$25million equity raising in early November, issuing more than 26 million fully paid ordinary shares for $0.69 per share.
Zipmoney Ltd (ZML), posted a 38% increase in market capitalisation, from AU$57m to AU$78m. The company announced the successful closing of an AU$108 million asset-backed securitisation warehouse with U.S. asset manager Victory Park Capital (VPC), enabling ZipMoney to significantly increase its growth in the retail finance sector.
Our fifth report urges a reconsideration of the purpose of place, and the importance of creating flourishing and productive communities.
Many believe that technology has trumped the tyranny of distance – and that place no longer matters. We believe the opposite is occurring, with place becoming more important as economies are transformed by knowledge-intensive activities.