Market action – or the wild price swings of stocks accelerating up the charts or plummeting back down them – happens in the list of the top gaining stocks. These are the stocks that have risen the most over a single day.
Many traders like to check out the top gainers for ideas on where the activity centres – analysing the sectors, or any key themes that emerge from the list. Others, like pure technical analysts or chartists, like to plug these stocks into their trading systems to see if there’s any momentum left or trends that they may capitalise on. Either way, it can offer an interesting insight into the beat of the market.
This week was an exciting week on the market, filled with takeover bids that sent shares soaring, the Greek debt crisis solved, Rupert in all sorts of trouble and the Aussie market 2.9% higher. It all began with no less than two takeover bids on Monday, Oil Search’s $739 million bid for Eastern Star Gas (ESG) which sent ESG soaring 41.2%, and a Chinese company’s bid for Sundance Resources (SDL), which saw SDL’s share price 22.5% stronger. Come Friday it was ConnectEast’s turn to be courted, with Australian infrastructure investment manager and 35% shareholder CP2 putting in a bid for the toll road operator, pushing the share price up by 20.0%. And something must be in the air for clean coal producer White Energy, with it share price up a whopping 26.9% on…well, no news. Either it has worked out the operational issues in Indonesia and is set to ramp up production or we have yet another takeover in the air.
Top Gainer – Eastern Star Gas, +41.2%
Top Gainer – Envestra, +6.3%
Top Gainer – Kagara Zinc, +7.9%
Top Gainer – White Energy, +11.7%
Top Gainer – ConnectEast, +20.0%
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Stock code: CEU
Charts: ConnectEast Limited
More news: ConnectEast Limited
Investor Centre: ConnectEast Limited
After surging 15.1% over the two days to Thursday, White Energy soared a further 14.6% on Friday. But it wasn’t enough to take the top gainer’s spot, which went to struggling toll road operator and now takeover target ConnectEast (CEU). CEU shares shot up 20.0% after the toll road operator recommended a takeover proposal from Horizon Roads, a new investment vehicle managed by CP2, an Australian infrastructure investment manager which already owns 35% of the company. The takeover bid is 55 cents per share, valuing ConnectEast at $2.17 billion.
ConnectEast said that it had entered into an implementation deed with Horizon Roads under which Horizon would acquire 100 per cent of the group. CP2 managing director Syd Bone said the CP2 proposal was highly attractive for ConnectEast security holders. “ConnectEast is a good asset for patient, long-term investors,” Mr Bone said. “Following a lengthy process, we have assembled a diverse group of high-quality institutional investors to support our offer for the 65 per cent of ConnectEast not already owned or controlled by CP2-managed funds.”
ConnectEast chairman Tony Shepherd said the cash option provided certain and compelling value for ConnectEast security holders. Shepherd added that the company would be unlikely to attain a level of 55 cents per security within the next three years. “So we felt a 55 cents (per security) cash offer now was a good offer and offered greater certainty,” he told reporters.
ConnectEast said all its directors, except one, recommended the offer and would take the cash consideration in return for their own holdings. The lone director who has not recommended the offer is John Collier, who was nominated to the ConnectEast board by CP2, and who had not taken part in board consideration of the offer.
In February, ConnectEast posted a 14.4 per cent lift in first half revenue and said traffic volumes on EastLink continued to improve. The group reduced its net loss for the six months to December 31 to $2.7 million, from $43.3 million a year earlier, on revenue of $108.4 million.
With the takeover a near certainty, investors are probably wondering where to from here for ConnectEast? CP2 managing director Syd Bone says that from a customer, management and employee perspective, “the operations of EastLink will be business as usual”. Brokers aren’t so sure that business as usual is such a good thing.
Simon Bond, RBS Morgans has a hold on the stock, even though there has been an increase in daily revenue from growth of 8.3% in average daily trips down its Melbourne toll way road. Sean Conlan, Macquarie Private Wealth also has a hold on Melbourne’s EastLink tollway operator. “The focus will shift to refinancing November 2012 debt in the coming nine months,” he says. “Expect it to provide steady growth over the medium term, and once the refinancing is complete, there’s scope for a special dividend.” Meanwhile Steve Collette from Calibre Investments has a sell on the stock, saying that he can’t see much upside or yield in this single asset infrastructure fund. “Investment capital can be allocated more effectively elsewhere,” he says.
White Energy (WEC)
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Stock code: WEC
Charts: White Energy Limited
More news: White Energy Limited
Investor Centre: White Energy Limited
After hitting an all-time high of $4.16 nine months ago on 11th October 2010, WEC had been in freefall, and early in the week it was sitting at less than half that amount – a paltry $1.79. It was the failed A$486m Cascade coal transaction that had been the catalyst for the share price decline, with many investors jumping ship. But they jumped ship a little early, it seems, with WEC shares rocketing 31.8% since Tuesday to be 26.9% higher for the week. Is that the smell of another takeover in the air?
It should make investors confident that one of WEC’s directors John Kinghorn has recently doubled his stake in the company, spending $19.2 million to become a substantial shareholder with 6.3 per cent of WEC.
WEC is the exclusive worldwide licensee of the Binderless Coal Briquetting (BCB), which is clean coal technology developed by the CSIRO. According to WEC, BCB is “a low cost mechanical process that upgrades high moisture, low value sub-bituminous and lignite coals through a process of dehydration and compaction. The resultant product is a dense, physically and chemically stable briquette with higher energy content and value which can be handled like normal coal.”
Although the share price has been hammered in recent times and there is a cloud over the future for this clean coal company, the 26.9% jump in just three days suggests that things are improving or that there is the possibilty that the company could be subject to a takeover bid. Knight Capital’s report on Emerging Australian Coal Producers says that it believes that coal sector consolidation will continue. “We are bullish on the overall coal sector consolidation theme,” it says. “Over the last 3 years, most of the listed independent larger and medium sized coal companies have been taken out or are already in play,” it notes. It lists White Energy as one its preferred plays in the coal space, even in the absence of M&A activity. You can read the full report here.
There are plenty of brokers bullish on the stock with price targets ranging from $3.50-$4.25, still a significant premium to the current share price despite the strong rebound this week. However each of them place a caveat that the operational issues in Indonesia need to be resolved.
Asit Sen, Madison Williams has a buy on WEC with a price target of A$4.25. “We see underlying value in White Energy’s franchise, particularly given the track record of the ex-Felix senior management team,” Sen writes. “However, the next six months are key, particularly with respect to progress in resolving operational issues at the Tabang facility in Indonesia.” Sen has a fair-value range of A$3.00-A$5.50 but notes that the valuation is sensitive to production ramp up, the discount rate, and margins.
Fleur Grose, Southern Cross Equities also has a buy, with a lower price target of $3.50. “We believe the technology works and success at the first plant will result in the approval of others,” writes Grose. “An upgrade of the coal drying system, the dust extraction system, and the briquette handling and stockpiling systems is due to be completed by September which will allow ramp-up thereafter.” You can read the full report here.
Meanwhile David Haddad from Citigroup, lists WEC as a high-risk buy, with a price target of $4.10, down from its previous price target of $5.55. Haddad notes that the failed A$486m Cascade coal transaction has flattened the share price because many saw this “as proof that the binderless briquetting technology did not work and traditional coal assets were needed to fill the gap.” You can read the full report here.
Based on Thomson Reuters data, three analysts have a buy on the stock, one has a hold, none have a sell.
Kagara Zinc (KZL)
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Stock code: KZL
Charts: Kagara Zinc Limited
More news: Kagara Zinc Limited
Investor Centre: Kagara Zinc Limited
Zinc, copper and nickel miner Kagara had been sliding for 18 months before the gains it has seen in recent weeks. At last there has been some good news for investors with the stock jumping 31% since June 28th on the back of a 121% jump in zinc production for the June quarter on a reduced cash cost of 74 US cents per pound. Perhaps the change in strategy from new MD Geoff Day is starting to bear fruit. The share price continued northwards this week, with it grabbing the title of the day’s biggest gainer on Wednesday, when it jumped 7.9%. It held onto the gains, finishing the week 12.9% higher.
Back in the boom days of 2006, Kagara was a favourite with speculative investors as the miner soared from $1.20 in July 2005 to an all-time high of $7.72 in November 2006, a 700% gain in just 16 months. Fast forward two years to 2008 and the stock had nosedived to just 50 cents, and has never recovered.
Despite its recent woes, KZL is known as one of Australia’s lower cost producers of zinc, copper, lead and nickel. Based in Queensland, it has three underground mines, one open pit mine and three processing facilities with copper production of 23,000 tonnes in FY2011. It is targeting zinc production of 100,000 tonnes in FY2012. Production has commenced at its Lounge Lizard Nickel Project in Western Australia where it has a targeted nickel ore production rate of 50,000 tonnes per annum.
It is looking to expand via acquisition as well. Having been unsuccessful with its $14.3 million takeover bid for Copper Strike (CSE) earlier this year, it has now offered to buy CSE’s Einasleigh Copper Project in Queensland for $19 million. According to KZL, the project contains 15 million tonnes of 0.84% copper at Kaiser Bill and 1.1 million tonnes of 2.9% copper at Einsasleigh. Kagara said the planned acquisition would provide ore feed to complement production from its Balcooma operations to the south of Einasleigh.
KZL itself could be a takover target. According to Peter O’Connor resources analyst with Merrill Lynch, mid-tier and third-tier miners with strategically important assets – particularly those whose share prices have recently declined alongside commodity prices – are likely to attract big-end mining stocks that have exceptionally deep pockets. KZL is one such company, with a high internal rate of return.
However with the recent run in the share price, KZL is starting to hit broker’s price targets. Bell Potter had a buy on the stock only just last week when the stock was sitting at 61 cents with a price target of 71 cents. At 68 cents it is just about there. Bell Potter’s report also paints a far from rosy picture. “KZL has reported zinc production of 40.1kt and copper production of 22.5kt for FY11…both were below their targets of 42kt and 23kt respectively which was disappointing,” it says. “However we are starting to see signs that the business improvement activities initiated by new MD Geoff Day are starting to work, with costs decreasing to US$0.74/lb for zinc (from US$0.81/lb) and to US$1.79/lb for copper (from US$1.85/lb).
Southern Cross Equities also had a buy on KZL on May 17th when it was trading at 57 cents with a price target of 68 cents – which was the closing price on Wednesday. Southern Cross refers to MD Geoff Dayemphasising that he wants to grow copper production from 23kt in 2011 to 30kt in 2015 and extend mine life to at least 10 years. “Our valuation for Mt Garnet Copper already includes life of 7 years which assumes further resource growth at Balcooma,” it says. “Extending this to 10 years, which would require further success at Griffiths Hill and Maitland, could add another 5cps to our valuation.” Southern Cross also points to several risks that could affect KZL, from commodity price and exchange rate fluctuations to wet weather and discovery rates. “The Queensland operations have an average four year mine life,” it says. “While the targets to develop new sources are extensive, any delay puts pressure on life extension aspirations.” You can read the full research report here.
Meanwhile Maquarie has the highest 12-month price target at 88 cents, but has only a NEUTRAL rating. “KZL has flagged an increased focus on exploration, with Red Dome copper zone and further nickel upside at Lounge Lizard looking promising,” it wrote.
Based on Thomson Reuters data, two analysts have a buy on the stock, four have a hold, none have a sell.
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Stock code: ENV
Charts: Envestra Limited
More news: Envestra Limited
Investor Centre: Envestra Limited
Gas stocks are on the move. After ESG rocketed 41.2% on Monday and another 4.2% Tuesday on Santos’ takeover bid, Investra (ENV) joined in on the action on Tuesday as it jumped 6.3% to be the day’s biggest gainer. It continued to rise through the week to end 7.7% stronger in a great week for gas stocks.
Now up 32% over the past year, ENV has been a solid performer for investors in recent times – hitting its highest point since December 2008 on July 7th this year. However even with today’s gains it’s a far cry from the level it was at before the GFC, when it was trading around the $1.20.
ENV is one of Australia’s largest natural gas distribution companies, and according to its website it owns 21,000 kms of natural gas distribution networks and 1,000 kilometres of pipelines, with more than one million customers Australia-wide. It then generates its revenue by charging retailers to transport natural gas through its networks.
ENV was listed on the ASX in 1997, then it acquired part of the former Gas and Fuel Corporation’s distribution network in Victoria for $1.2 billion bringing the total value of the Company’s assets to $2.1 billion. Envestra claims that it has strong and predictable cash flows from a natural monopoly business, infrastructure assets that can reliably supply gas to consumers for over 100 years or more and solid growth prospects in an expanding natural gas market.
In recent news, ENV jumped a regulatory hurdle with its plans to replace 1,300 km of ageing gas pipes across South Australia have been backed by the Australian Energy Regulator. The company also says that the carbon tax shouldn’t have a material impact on its bottom line, as it believes that it will be able to pass on the costs to consumers.
More significant may be the smell of takeovers in the air. APA Group (APA), which owns Australia’s largest natural gas distribution and storage infrastructure network, has interests in 12,700 kilometres of natural gas pipelines and also a minority interest in ENV. With takeovers all the rage at the moment and a depressed share price, it’s not impossible that APA – or another suitor – is weighing up a takeover bid.
Based on Thomson Reuters data, three analysts have a buy on the stock, three have a hold, two have a sell.
Eastern Star Gas (ESG)
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Stock code: ESG
Charts: Eastern Star Gas Limited
More news: Eastern Star Gas Limited
Investor Centre: Eastern Star Gas Limited
In a day of takeovers, Eastern Star Gas (ESG) pipped Sundance Resources to be the day’s biggest gainer on Monday. Although Sundance’s takeover bid from a Chinese company sent the share price rocketing 22.5%, this was half of the amount ESG shares jumped on its takeover bid. The shares found further strength throughout the week to end a massive 51.3% higher.
Two weeks ago we wrote that Santos was a potential buyer of ESG, and lo and behold the oil and gas giant put in a bid on Monday (we also wrote about SDL’s potential upside just last week). We highlighted that in July 2009, Santos had acquired Gastar Exploration’s 35% interest in its Narrabri CSG project and the Wilga Park Power Station, as well as buying Hillgrove’s 19.99% interest in ESG. In the article we also noted that total upfront consideration for the transaction was $476 million, but that it was the 20% interest in ESG that made STO a potential buyer.
And the takeover bid did in fact eventuate, sending ESG soaring 41.2% on Monday. After months of a sliding share price, Santos obviously saw it as an opportunity to grab the company cheaply. Eastern Star Gas’s shares had jumped two weeks ago, up a hefty 13.3% – it seems we weren’t the only ones who thought that something was in the air.
With its $739 million all-share bid Santos aims to control NSW’s largest coal seam gas reserve. “This transaction represents the next major step in Santos’ eastern Australia gas strategy and positions the company to meet the expected increase in demand for natural gas from both domestic power generation and export LNG (liquefied natural gas) markets,” Santos chief executive David Knox said.
If successful, the takeover will give Santos control of Eastern Star Gas’s coal seam gas exploration permit in the 15,000 square kilometre Gunnedah Basin. The addition of the project to Santos’ assets would make it the holder of the largest natural gas reserves in NSW.
According to the ESG website, ESG “was formed in August 2000 to explore, develop and produce both conventional natural gas and coal seam gas in eastern Australia”. When it listed in February 2001, ESG had interests in six exploration licences in Victoria and NSW and was focused on brown-coal gas plays in Victoria’s eastern Otway Basins. The company went on to shift its focus to exploration and development in NSW, acquiring numerous exploration licenses.
Paterson’s had a buy on the stock with a 1.02 valuation, also noting that it was a potential takeover target for Santos. You can see a previous broker report from Paterson’s by clicking here.
Roger Leaning, Head of Research with RBS Morgans also had a buy on ESG. “Ideally placed to feed gas into NSW and LNG export markets, Eastern announced plans to evaluate the feasibility of LNG exports from the Port of Newcastle,” says Leaning. Leaning sees Eastern’s uncontracted gas resource as a logical bolt-on acquisition for numerous companies looking for more gas, the most obvious being major shareholder, Santos. The stock is trading on a 50 per cent discount to Leaning’s $1.24 price target.
Many other analysts are also very bullish on ESG’s prospects. Based on Thomson Reuters data, 89% of analysts have a buy on MBN, 11% have a hold, 0% have a sell.
Each week we will look at the top gainers and biggest losers throughout the week. Note that these are not recommendations to buy or sell, although we do include broker views on these stocks in the article.
Please note that TheBull.com.au simply publishes broker views on this page. The publication of these views does not in any way constitute a recommendation on the part of TheBull.com.au. You should seek professional advice before making any investment decisions.