Newcrest shines with strong production update (NCM)
WHAT MATTERED TODAY
A mixed day for stocks with much of the focus being targeted towards the mini-budget – in the media at least. In reality, the situation is still so fluid and will be very dependent on what happens in Victoria, however the key takeaway for us was that the economy has performed better than expected, and throwing money at the problem has worked so far – more thoughts on this below.
Around the region today, Asian stocks were mixed, Japan and China down, Hong Kong up while US Futures during our time zone were very muted for most of the day, although have now ticked higher.
Overall, the ASX 200 added +19pts / 0.32% to close at 6094. Dow Futures are trading up +54pts / +0.20%
ASX 200 Chart
ASX 200 Chart
CATCHING MY EYE:
Budget Update: I watched the Treasurer and Finance Minister outline the state of the economy today and a few obvious aspects stood out:
- The budget numbers are a best guess in a very fluid situation. What happens next will depend on what happens in Victoria and whether or not the virus leaches further into NSW.
- The numbers today were predicated on 4 more weeks of Victorian lockdowns doing the trick, but that remains to be seen, an importantly, no lockdowns in NSW.
- While the economy has slowed, the outcomes have been a lot better than first thought, largely on the back of the consumer continuing to consume.
- GDP will contract 3.75% this calendar year, however when I look back at the RBA’s assessment as recently as May, they were forecasting a 6% contraction = big beat
- While consumers have held up okay, business investment hasn’t. Business investment / capex is when businesses spend money today on the expectation of earning more from the investment in the future. Right now, that’s not happening and it’s a major issue. I can tell you from my own experience running a business that carrying higher cash balances has certainly been a focus. The key for the economy now is getting businesses to spend – to take a risk – to be confident enough to have a crack.
- While the headlines are about debts, deficits, serviceability and the like, and the numbers are staggering, the key to all of this is about stimulating growth, an economy growing can pay the debt off, an economy contracting, can’t.
- As we’ve suggested for a while now, the better health outcomes have dropped down to better economic outcomes while the stimulus has been significant. More to do however todays update does show that Australia is fairing pretty well, despite the headlines implying otherwise.
Newcrest Mining (NCM) +1.93%: Out with their FY20 and June Quarter production and sales scorecard today and the numbers were good. While they didn’t announce FY21 guidance (they will do at FY results next month), todays result showed that NCM, like OZL yesterday has turned the corner in terms of operational issues and can now focus on ramping up for growth. They’ve previously said they want 5 tier 1 assets and they have a few credible options already on the books to complement Cadia & Lihir. Expect more growth through drilling from NCM as they work through their “organic growth journey” over and above any M & A. We like Gold, and NCM, I’m starting to get frustrated with not owning it (yet), however the selloff into morning highs on the back of a very good production update shows it’s a well owned stock ATM.
Newcrest Mining (NCM) Chart
BROKER MOVES:
· Damstra Holdings Pty Ltd Cut to Hold at Moelis & Company
· AP Eagers Rated New Buy at UBS; PT A$7.90
· Stockland Raised to Neutral at Citi; PT A$3.16
· QBE Insurance Cut to Underperform at Macquarie; PT A$8.20
· Magellan Financial Cut to Underperform at Macquarie; PT A$57.50
· Aurizon Raised to Hold at Morningstar
· Resolute Mining Raised to Outperform at Macquarie; PT A$1.05
· Newcrest PT Raised to A$34 from A$30 at CIBC
· OZ Minerals Cut to Hold at Morgans Financial Limited
· QBE Insurance Cut to Hold at Bell Potter; PT A$10.60
· Resolute Mining Cut to Hold at EL & C Baillieu; PT A$1.34
OUR CALLS
No changes today
Major Movers Today
Have a great night
James, Harry & the Market Matters Team
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