Investors in today’s markets face end of the world predictions one day to soaring share prices the next. Anyone that relies on income from their investments to survive, such as retirees, must be finding these times especially taxing.
The one thing that investors should be fairly confident about is that a resolution to the European debt crisis will be solved, with much of these ‘end of the world’ predictions a product of political powers trying to get their own way. Investors should be focussing on the fundamentals – not the sensationalism.
This week the Aussie market ended 3% down, but will most likely head higher as a resolution to the ‘end of the euro’ is solved. In fact, there’s a real chance that we could see another bear market rally as the IMF and the World Bank come to the rescue by pumping more debt into countries that have to one day pay it back, plus interest.
There was plenty of activity surrounding copper play Oz Minerals this week. Deutsche Bank dropped its price target from $13.96 to $13.25 while maintaining its buy rating. This might come of a surprise to anyone familiar with copper’s drooping price chart.
Earlier this year Oz Minerals purchased the Carapateena copper and gold deposit in South Australia for $US250 million ($244.27m). Exploration of the mine is ramping up.
It’s hoped that the mine will be in production within seven to eight years, and on this basis Citigroup has revised up the company’s earnings estimates with a Buy recommendation on the stock. The mine life would be 15-20 years.
Chief Executive Terry Burgess is keen to stress his intentions to seek further acquisitions, which Deutsche argues is key to further share price appreciation, unless of course the company’s exploration activities are particularly successful.
The company announced this month that its annual copper production remained on target, although cost pressures are rising, Deutsche warns. Gold production in the September quarter dropped from 44,219 ounces to 36,064 ounces, which is something to note.
Gold miner Alacer Gold is a “clear standout,” according to Deutsche, who has a buy on the stock – citing successful gold production out of its Copler gold mine in Turkey. The mine produced some 53 200 oz of gold over the quarter, which is an impressive 29% increase over the previous quarter. What’s particularly noteworthy for investors is that mine grade at Copler rose by 66% to 2.07 g/t gold, which was much more than expected. Deutsche notes that Copler’s asset quality, scale, growth options and exploration potential are top rate, and has lifted its earnings forecasts and its target price from $13.60 to $13.65. Alacer CEO Edward Dowling says that Copler continues to exceed their expecations, particularly as the mined grade of the orebody was significantly more than modelled. “This bodes well for profits as the higher grades flow through to revenue and the bottom line,” he added.
Transfield Services is another stock of interest, particularly as its share price has been flattened lately. The stock has dropped some 35% since it reported. Although the company’s FY’12 outlook isn’t as bright as some might have hoped, the defensive nature of this stock is a plus in this environment. Austock’s Heath Andrews reckons that Transfield has been oversold. Austock has a buy on the stock with a target price of $2.75.
“While the market is volatile at the moment, we believe that in time, TSE will re-rate towards our price target,” he writes. Already the share price has been given a boost by its announcement to buyback some of its shares. Transfield’s board said the stock’s current market price does not reflect the company’s fundamental value.
CSL is another company with a share buyback in the wings worth some $900 million (around 6% of its issued capital). Since 2005, CSL has bought back almost 20% of its shares in five separate buybacks. The latest buyback should drive a 6% earnings per share accretion, according to analysts. Before you get too bullish on CSL, however, remember that CSL derives almost 90% of its profit overseas and makes all of its immunoglobulin products in Switzerland, where the rising franc has made production all that more expensive. Chairman Elizabeth Alexander recently noted at an AGM that CSL will book a $85 million hit to its bottom line due to the currency situation. This year CSL also recorded an expense of $25m on losses from the sale of Greek government bonds at a discount to their face value. Deutsche maintains a Buy on CSL with a target price of $30.20.
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