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Top gainers

Market action – or the wild price swings of stocks accelerating up the charts – 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.

In a week that saw the Aussie market drop 3.9% and hit an 11-month low (and in striking distance of 2-year lows) the top gainers had mild wins compared to the rocketing share prices of last week that saw several takeover bids announced. That said they all finished the week higher, no mean feat in a jittery sharemarket.

Lynas Corporation started and ended the week in style as the top gainer, and the rare earths miner was 8% higher over the week and is now up 14% in less than two weeks.

Broker favourite Ausdrill had the biggest daily gain for the week with a 8.3% jump on Tuesday, although these gains all but evaporated over the course of the week as the wider market came under pressure due to ongoing issues with US debt. Meanwhile REIT Commonwealth Property Office Fund has been fingered as a potential takeover target and its share price pushed higher through the week, and Murchison Metals had strong gains on Wednesday on news that it is actively searching for a white knight, approaching the Foreign Investment Review Board to see if it can drum up a Chinese buyer for its troubled business.

Monday

Top Gainer – Lynas Corporation, +3.8%

Tuesday

Top Gainer – Ausdrill, +8.3%

Wednesday

Top Gainer – Murchison Metals, +7.4%

Thursday

Top Gainer – Commonwealth Property Office Fund, +3.8%

Friday

Top Gainer – Lynas Corporation, +2.9%

 

Lynas (LYC)

 Closing price
 $2.15
 Change +0.16
 % change +8.0%

 

After falling 15% in a day just a few weeks ago to $1.75 on a string of bad news, rare earths supplier Lynas (LYC) has made up lost ground and then some, as it has rallied to $2.15 – a 23% gain in just over three weeks. This week, it was in the winner’s circle again, taking out the top gainer’s spot twice during the week in a market that tumbled 3.9% on continuing US default fears.

When it comes to commodity investing, most of us are familiar with the different types of commodities that we can invest in. Popular choices are energy commodities, such as oil and natural gas, or the agricultural or “soft” commodities like corn, wheat and cotton. Metals are also popular investments, and many people use gold as a type of currency in times of economic uncertainty. Another group of less recognisable metals has also joined the investment conversation as the latest hot commodities – the rare earth metals (REM). Lynas is one of Australia’s leading rare earths producer, and as such it is in a strong position to capitalise on the current boom.

The rare earths story embraces potentially big windfalls laced with plenty of risk. Listed Australian rare earths companies aren’t for conservative investors, as explorers without earningsdominate the landscape. Nevertheless, that doesn’t stop share prices rockting as the market looks forward, factoring in what tomorrow can potentially bring in an industry dominated by China.

The share price of Lynas Corporation, which is among the best known Australian rare earths companies, soared from 37.5 cents in early May last year to a 12-month high of $2.70 on April 12, 2011. However until the surge over the past month shares had been steadily sliding as the company denied reports that a planned Malaysian plant could be delayed by one to two years.

The denials followed a favourable report from the International Atomic Energy Agency (IAEA) about the company’s controversial proposed rare earth refinery in Kuantan after public protests had been growing about the risk of radioactive waste from the planned plant in eastern Malaysia. The IAEA report found that the plant was safe and fully compliant with international standards, however it said that Lynas should provide a long-term waste management plan and improve its communication about the plant with the Malaysian community before a pre-operational licence was granted.

Lynas released two statements on the back of this report from teh IAEA, denying media reports that the project would be delayed and that engineers were worried about construction problems at the Lynas Advanced Materials Plant. “We have received confirmation from the Malaysian government that no spokesperson for the government stated a one to two-year delay as quoted by some media articles,” Lynas said in a statement. “Neither Lynas, nor our construction team, are facing any unusual construction difficulties. We acknowledge that not enough has been done to engage with the community and we will correct that now.”

Despite Lynas’s statement, the media reports spooked investors, sending the company’s share price tumbling. It appears the message has sunk in, with investors jumping back into the stock despite the weakness in the broader market..

Mine Life senior resources analyst Gavin Wendt resources consultant said the market was surprised and concerned about the prospect of delays in Malaysia. “When you’re talking about environmental considerations and local populations, these things can drag on,” Wendt said. “The market wasn’t expecting this delay, that’s why the market is right to be concerned about the timing.”

A few weeks ago saw some better news, with Lynas announcing that it had teamed up with German giant Siemens to produce magnets for use at wind farms. The two companies have signed a letter of intent to establish a joint venture to produce neodymium-based rare earths magnets for Siemens’ energy-efficient drive applications and wind-turbine generators.

Siemens views the joint venture as providing security of supply for the rare earths they require. “This planned joint venture would be an important strategic pillar for us to pursue a long-term and stable supply with high performance magnets,” said Ralf-Michael Franke, chief executive at Siemens drive technologies division. The companies have not said if the magnets would be produced at Lynas’s controversial proposed rare earth refinery in Malaysia.

Patersons Securities analyst James Georges has a buy on the rare earths supplier. “Lynas will be the next rare earths oxide supplier outside China…record rare earths prices add to this company’s appeal,” says Georges. He notes that the company is fully funded to achieve forthcoming milestones and it has $220 million in cash plus further funds raised through a combination of issuing equity and debt. “Our valuation has risen and we have a price target of $2.95 a share.”

Deutsche Bank also has a buy on LYC, albeit with a lower price target of $2.60.

Goldman Sachs recently sold its LYC holdings from its Resources Fund, saying that LYC was sold out of the portfolio after a period of strong performance driven by the significant rise in the price of rare earth elements.

You can read the latest half-year report by clicking here.

CHART 

Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)

Stock code: LYC 

Charts: Lynas Rare Earths Limited

More news: Lynas Rare Earths Limited

Investor Centre: Lynas Rare Earths Limited

 

Commonwealth Property Office Fund (CPA)

 

 Closing price
 $0.95
 Change +0.025
 % change +2.7%

 

In an otherwise bad day for the Aussie market, Commonwealth Property Office Fund was one of the few stocks that managed to post some gains on Thursday, rising 3.8% to be the day’s top gainer and finishing the week 2.7% stronger. The property fund is now up 14% since mid-April and flat for the year, down just 1%.

The catalyst for Thursday’s gains was news that it had entered into an unconditional contract to sell its 259 George Street, Sydney asset for $395.0 million, a 15.3% premium to the asset’s 30 June 2011 independent valuation of $342.5 million.

CPA says that the sale proceeds will initially be used to retire debt, and is expected to reduce the Fund’s gearing by approximately 9%. “In the near term, we are considering a range of capital management initiatives for the best use of the sale proceeds including the potential payment of a special distribution, reinvestment into the Fund’s development pipeline or potential acquisition opportunities.” Charles Moore, Fund Manager of CPA said.

Today’s gains aside, at face value it’s hard to be bullish about listed property trusts (LPTs) – also known as REITs – within a rising interest rate environment that grants investors relatively risk-free returns of 7 per cent-plus on term deposits. With distributions still at the lower end of the range, REITs – expected to deliver an average gross return of around 9 per cent this year – have struggled to attract the sort of new money they did pre-GFC when returns were 20 per cent-plus.

But according to Winston Sammut managing director of Maxim Asset Management Ltd, there are sufficient drivers at play in 2011 to reward investors – who back the right stocks – with attractive double-digit returns.

Since exiting the GFC in considerably better shape, most stocks within the sector now have the ability to increase yields – nudging distributions back towards historical highs of between 80 to 90 per cent. They’re also better positioned to deploy buy backs to help close lingering discounts to NTA – indicatively between 10 and 33 per cent. REITs that have already flagged their interest in on-market unit buy backs include Commonwealth Property Office Fund (CPA), GPT Group (GPT), Mirvac (MGR), and Charter Hall Retail (CQR).

Among the REITs most likely to deliver double-digit returns will be those primed for takeover within this year’s expectant flurry of corporate activity, according to Sammut. Having repaired their balance sheets, and refocused on the core business of collecting rent, conditions are now considerably more favourable for corporate activity this year.

Ratings agency Moody’s has also upgraded its outlook for REITs this year, and expects M&A activity to be a ‘net-positive’ as long as acquisitions aren’t disproportionately funded by debt. Gearings levels for the sector are back around 30 per cent, and excluding Westfield Group (WDC) would be considerably lower.

Based on substantial discounts to underlying net tangible asset base (NTA), plus a myriad of attractive metrics – including stable/secure yields, more contentious management, and better constructed balance sheets – David Curtis director with Reliance Investment management says many REITs now look like prime contenders for takeover.

Curtis  questions how long high quality stable REITs like CFS Retail Property Trust (CFX) and Commonwealth Property Office Fund (CPA) can continue trading at discounts of 14 and 11 per cent respectively before they too are either taken out or consolidated by current owners. “I suspect there is sufficient M&A activity in store to provide a much needed re-rating to the sector at large,” says Curtis.

Based on Thomson Reuters data only one analyst has a buy on CPA, eight have holds and four have sells. 

CHART

Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)

Stock code: CPA

Charts: Commonwealth Property Office Fund Limited

More news: Commonwealth Property Office Fund Limited

Investor Centre: Commonwealth Property Office Fund Limited

 

Murchison Metals (MMX)

 

 Closing price
 $0.78
 Change +0.055
 % change +7.6%

 

Despite Wednesday’s 7.6% gain over the week Murchison Metals (MMX) has been punished by investors in recent times, dropping 66% over the past 12 months as the company has been in turmoil with management changes, cost blowouts and a cloud hanging over not only its Oakajee Port and Rail project, but the viability of the entire business. Brokers have been quickly shifting their recommendations on the stock to a sell, with Citi downgrading MMX to a sell following the release of a feasibility study for the Oakajee project. UBS joined in the party, slashing its target price by 77% to just 70 cents.

The biggest news is the cost blow-out and funding issues, which is leading MMX to consider all options to survive. The Perth-based miner admitted that it faced serious financing challenges to meet its funding commitments, and is struggling to secure loans. It will even consider selling its flagship iron ore mine to pay for the over-budget and late Oakajee port and rail development.

Independent analyst Peter Strachan said Murchison would most likely reduce its 50 per cent interest in Oakajee Port and Rail (OPR), its joint venture company with Japan’s Mitsubishi. “The company has already moved down the path of selling some or all of its interest in OPR,” Strachan said. Strachan pointed out that Murchison was a small company and couldn’t finance half of a $6 billion project on its own.

The cost blowout was revealed in a feasibility study for the infrastructure development showing a 24 per cent cost increase to $5.9 billion, along with a blowout for its Jack Hills mine expansion in the Mid-West. This compares to an estimate of $5.24 billion in November and an original costing of $3 billion in March 2009. The combined projects will cost a whopping $10bn.

The future of Oakajee had already come under a cloud last month when state-owned Chinese group and would-be Oakajee customer Sinosteel mothballed its $2 billion Weld Range iron oreproject.

CEO Greg Martin told a teleconference that the miner would consider all options to fund the Oakajee project, north of Geraldton in Western Australia, including selling its $3.7 billion Jack Hills iron ore project. “There is no doubt that Murchison finds itself in a very challenging environment,” said Martin, a former AGL Energy chief. “All options are on the table for consideration as part of this process … nothing is sacred or sacrosanct.” 

It has been rumoured that MMX is now looking for a buyer, approaching the Foreign Investment Review Board for a briefing to try to push through approval for a takeover. China’s Sinosteel had attempted a takeover back in 2008, but Wayne Swan put a stop to that. It seems these truly are desperate times for MMX, and while a takeover from Sinosteel or another suitor would see the stock jump, the risk of another rebuttal from Swan means that there is still plenty of downside risk. Any investment in the stock is a pure gamble.

Although it made a massive gain on Wednesday, brokers warn investors to steer clear of the stock. Based on Thomson Reuters data, no analysts have a buy on MBN, two have a hold, four have a sell. Only a month ago there were no sells.

CHART 

Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)

Stock code: MMX 

Charts: Murchison Metals Limited

More news: Murchison Metals Limited

Investor Centre: Murchison Metals Limited

 

Ausdrill (ASL)

 

 Closing price
 $3.26
 Change +0.09
 % change +2.8%

 

A favourite with brokers, Wednesday’s top gainer Ausdrill (ASL) – as has been the case with many mining services stocks – has boomed over the past year, rising a whopping 107% for the past 12 months. Sure, the stock is down from its peak hit in April this year of $3.90, but the lineup of brokers with buys on the stock makes it worth another look.

As reported earlier this month on TheBull PREMIUM, and in an article “Mining Services Stocks Leveraged to the Mining Boom” in February on TheBull, and in 18 Share Tips on March 21st, brokers and funds have been jumping on board – which can’t have hurt the company’s share price.

On May 17, Invesco became a 5% shareholder of Ausdrill – the Invesco Smaller Companies Fund is overweight in a diverse pool of securities, led by mining services company Ausdrill Ltd (ASL). This appears to have been a good move, as JP Morgan and RBS Australia both initiated coverage of Ausdrill in May with buy ratings. The company is heavily focused on the gold and iron ore mining industries. JP Morgan, which expects a recent equity raising to enable additional capital investment, targeted the company’s share price at $4.17. This brings the consensus target up to $3.99. RBS noted that 65% of the company’s revenues come from customers at the production stage, protecting ASL against price volatility.

“Ausdrill’s business has experienced strong growth in recent years and, assuming continued strength in the resources sector, Ausdrill anticipates a high level of tender activity in the next 12 months,” the company said in April in anticipation of the equity raising. RBS forecasts 13-16% revenue growth across FY12-FY12; JP Morgan expects earnings per share to grow 20% in FY12.

Graeme Carson, Senior Industrial Analyst for Patersons, said that Ausdrill “expected to report a solid interim earnings result later this month following renegotiation of some key contracts previously operated by Brandrill as well as an earlier recommencement of exploration drilling operations in the New Year due to high demand.” Carson added, “The company is well and truly emerging as a dominant force in Australian and African contract mining services and the growth outlook is underpinned by the gold and iron ore-dominated order book.”.

Hamza Habib, Patersons Securities also has a BUY on ASL, pointing out that this diversified mining and services company reported a 71.7 per cent increase in interim 2011 earnings on the previous corresponding period. “Management has increased earnings guidance and expects to provide the market with positive news flow regarding new contract wins moving forward,” says Bigwood. “ASL’s African business exposure has been strengthened by its strategic alliance with Barminco, which is expected to grow the company’s revenue during the next two years.”

Based on Thomson Reuters data this is a favourite with brokers – 100% of analysts have a buy on ASL with a total of eight analysts covering the stock. 

CHART

Chart: Share price over the year to 29/07/2011 versus ASX200 (XJO)

Stock code: ASL

Charts: Ausdrill Limited

More news: Ausdrill Limited

Investor Centre: Ausdrill Limited

 

>>Back to the newsletter to view other articles – July 30th 2011

 

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.