Analysts Eye

March 12th, 20100

Plenty to Smile About

Investors have plenty to smile about as the reporting season winds down.

This week was the anniversary of the market turnaround from the worst destruction of shareholder wealth in living memory. In Australia we have seen our market up 55% on the ASX200 from its March lows. Overseas market turnarounds have been even more impressive with the Unites States seeing the S&P 500 up 70% and the NASDAQ up a staggering 75% while in the UK and Europe, markets are up around 60%. China has seen its market recover over 80% from its market lows.

The recent reporting season has given us pause for thought, with 7% of companies outperforming, 8% underperforming forecasts and the remaining 85% reporting inline (according to Credit Suisse). One key measure of corporate performance is the debt to equity ratio (D/E) and this has seen an impressive turnaround with the market average now 23% compared to over 30% in the previous corresponding period.

A raft of capital raisings to the tune of $100 billion in the past year has offered support to corporate balance sheets; however this has come at the cost of the dilution of shareholder equity. Earnings have fallen 13.7% due to this dilution (according to Macquarie). Corporates have been keen to hold on to cash, as evidenced by dividend payouts falling around 6% (according to JBWere) however this is a significant turnaround from the previous corresponding period where there were cuts to dividends of 22%.

It pays to be vigilant during the reporting season as traders can attest in the recent company performances. Those stocks that reported outperformance have in turn outperformed the share market benchmark by around 8.5% and on the flip side the underperformers have underperformed the index by 8.4%.

A quick synopsis of the results saw:

- Big four banks – upside surprise with the bad debt provisions falling more than expected, the sector is still a key driver for performance on the ASX.

- Insurers – were a mixed bag. Generally margins improved significantly, but Suncorps banking arm disappointed and QBE missed forecasts.

- Miners – profits were hit by a rising Aussie dollar and falling commodity prices over the reporting period. However the focus is still firmly on the strong Chinese and Indian demand which continues to underpin the outperformance of the materials sector in the ASX. Capital expenditure (Capex) will remain subdued for the remainder of the year, as miners still focus on cost cutting.

- Misses – those that disappointed saw their share price punished as was evidenced by: Gunns (GNS), Toll (TOL), Worley (WOR) and QBE.

What Now?

Brokers estimate in the 2010 forecast that earnings will rise for 6% and looking into the crystal ball, earnings are forecast to continue to rise in subsequent years, 27% in 2011 and 15% in 2012. If these forecasts hold true then they will underpin continuing recovery in the share market performance. 2010 dividend growth will lag earnings growth as corporates continue to place a high emphasis on the health of their balance sheet, this will impact those investors chasing yield.

Tempering these forecasts is the RBA’s determination to restore interest rates to normal (around 4.5% to 4.75%). This will mean that interest rates will no longer be benign and will start to actively drag on corporate EPS.

China is still outperforming world economies and so long as this continues our share market should continue to be in high demand.

Michael Hevern
Head of Research

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US Markets Higher Yet Again On 11/3/2010

March 12th, 20100

The US markets closed higher once again.    The Dow closed  up 44 points  at 10,611, the  S&P500 was up 4 points or 0.4%  at 1150 and the Nasdaq was up 9 points or 0.4% at 2368.

Gold and oil were virtually unchanged.    Gold settled even at $1108.10/oz  and crude oil was  up $0.21  at $82.30/bbl.

JeffMarket Wrap , , , , ,

Emerald Acquires US Gas And Oil Assets

March 12th, 20100

Emerald (EMR) is pleased to advise it has executed a Memorandum of Understanding securing an option to acquire 31.5% foundation equity interest in a newly formed company, NOXXE LLC, which holds interests in producing oil and gas leases in Harris and Galveston counties, Texas USA.

NOXXE LLC is a company formed specifically to acquire and develop oil and gas assets purchased from the bankruptcy of Daystar Oil & Gas Corp. Emerald’s total equity contribution will be $US1,000,000, consisting of $US750,000 in cash and the remaining $US250,000 in Emerald ordinary fully paid shares, based on the volume weighted average price of EMR shares in the week immediately prior to and after the date of this announcement.

Emerald’s has paid refundable cash deposits totalling $US400,000 over Q4 2009 and Q1 2010. The remaining $US350,000 required for Emerald’s final equity contribution will be funded from Emerald’s cash reserves.  Final completion, subject to the execution of the NOXXE Company Agreement, is expected by end March 2010. Under the Company arrangements, Emerald will not assume operating responsibilities, but expects to provide sub-surface technical advice and to hold an appropriate level of influence regarding company decisions.

The Daystar assets consist of interests in the Humble Field (Harris Co.), Dickinson Field (Galveston Co.) and North Dyersdale Field (Harris Co.), all located within a 50 kilometre radius of Houston, Texas.

The interests in those three fields were projected to contain remaining proved reserves (NOXXE net interest) of 1,075,000 barrels of oil and of 335 MMscf of gas, with the majority of the oil and gas reserves located in the Humble and North Dyersdale fields, respectively. NOXXE’s net interests in these three fields, based on proved reserves only, has been independently valued at a Net Present Value (10% discount rate) of approximately $US 30 million (based on $US 60/bbl oil price and $US6.00/Mcf gas price).

In addition to the proved oil and gas reserves, the Daystar portfolio contains a number of untested and undrilled prospects which provide further upside to NOXXE.  These include additional (net to NOXXE) possible reserves of 1.2 Bcf gas and 14,000 barrels of condensate from a deep Wilcox gas location in the Humble field, potential structures in the North Dyersdale field based on planned interpretation of a new 3D seismic survey and various well deepening opportunities. Based on several deep Wilcox wells in the Humble field, the Wilcox gas well was estimated to result in a NPV10 of $US3.8million (NOXXE net interest, unrisked).

In addition to these interests, NOXXE is also pursuing a number of other assets and interests previously owned by Daystar through ongoing bankruptcy processes.

www.emeraldoilandgas.com

JeffASX Company News , , ,

CBio Achieves Arthritis Treatment Milestone

March 12th, 20100

Australian drug development company CBio Limited (CBZ) announced the achievement of a clinical trial milestone under its option agreement with global pharmaceutical leader Novo Nordisk A/S. The agreement relates to the development of XToll, the potential new-generation drug therapy which could provide safer and more effective treatment of autoimmune diseases such as rheumatoid arthritis (RA).

The clinical trial milestone was triggered by the recruitment of the 75th patient into the current 150 patient phase II clinical trial.  “We remain greatly encouraged by progress in the trial and feedback from clinical investigators, and are focussed on completing the trial and receiving the final results,” said CBio Managing Director Jason Yeates.

“We believe that CBio holds an attractive pharmaceutical asset in XToll and that the drug has the potential to address the unmet needs of patients and participate in what is currently a US$17 billion global market,” Mr Yeates said.  “Many patients are only partial responders to existing therapies and adverse effects from these therapies are a real issue being faced by RA patients every day. Safer and more effective treatments are needed,” he said.

Under the terms of the agreement, Novo Nordisk will make a milestone payment to CBio of US$1 million.  The agreement was signed in May 2008 and grants Novo Nordisk an exclusive option to negotiate an exclusive licence to CBio’s intellectual property surrounding XToll which is currently in phase II clinical trials at sites across Australia and New Zealand. Additional clinical trial sites in Serbia, Bosnia and Georgia are expected to commence recruitment this month.

www.cbio.com.au

JeffASX Company News , , , ,

MTR Corporation Awarded Rail Contract

March 12th, 20100

The MTR Corporation Limited (MTR Corporation) has awarded Leighton Asia (LEI) a contract worth A$463 million for the construction of the tunnels and ventilation buildings in the Tse Uk Tsuen to Shek Yam section of the Guangzhou – Shenzhen – Hong Kong Express Rail Link (XRL).

The Guangzhou – Shenzhen – Hong Kong Express Rail Link (XRL) is a cross boundary transport infrastructure project, which will provide high speed rail services between Hong Kong and mainland China. The Hong Kong SAR Government has entrusted the design and construction of the Guangzhou – Shenzhen – Hong Kong Express Rail Link Hong Kong Section to the MTR Corporation.

The Hong Kong section of the XRL will be underground for the 26 km from the terminus in West Kowloon to the boundary crossing point at Huanggang, Shenzhen. The awarded Contract 822 includes the construction of a 7.6 km twin-track tunnel between Tse Uk Tsuen and Shek Yam, ventilation and access adits, two ventilation buildings and a 90 m deep ventilation shaft. Drill and blast techniques will be used for the construction of the tunnels. The works will be undertaken in co-operation with Macmahon Holdings.

Hamish Tyrwhitt, Managing Director of Leighton Asia said “Leighton Asia is delighted to be selected to construct another part of Hong Kong’s rail network. The XRL will provide the strategic link for Hong Kong to the comprehensive high-speed rail network in Mainland China. Leighton is excited to play a key role in this effort to provide a fast and convenient railway service to the communities in Hong Kong that will connect to other mainland cities.”

Contract works start in March 2010 with scheduled completion in 2015.

www.leighton.com.au

JeffASX Company News , , , , ,

US Markets Higher Again On 10/3/2010

March 11th, 20100

The US markets closed higher once again, but did fall back from earlier highs.    The Dow closed  up 3 points  at 10,567, the  S&P500 was up 5 points or 0.4%  at 1145 and the Nasdaq was up 18 points or 0.8% at 2358.

Gold and oil were mixed with gold lower and oil higher.    Gold settled down $14.10 at $1108.20/oz  and crude oil was  up $0.35  at $81.84/bbl.

JeffMarket Wrap , , , , ,

Petrtaherm Share Purchase Plan

March 11th, 20100

Petratherm (PTR) announced on the 10/3/2010 that they would be conducting a Share Purchase Plan to raise additional capital. The record date was the 9/3/2010 on which shareholders must own the share to participate in the SPP. The closing date is still to be announced.   A maximum of  $15,000 can be purchased by each shareholder at $0.24.

Discount : 5.9%  Liquidity : Poor Profitability : Ok  Stability : Poor

www.petratherm.com.au

* Note: Discount is based on the closing price on the 10 March 2010.

JeffShare Purchase Plan (SPP) , , ,

Sun Biomedical Share Purchase Plan

March 11th, 20100

Sun Biomedical (SBN) announced on the 10/3/2010 that they would be conducting a Share Purchase Plan to raise additional capital. The record date is the 10/3/2010 on which shareholders must own the share to participate in the SPP. The closing date is still to be announced.   A maximum of  $10,000 can be purchased by each shareholder at $0.0016.  The offer is fully underwritten.

Discount : 20.0%  Liquidity : Poor Profitability : Ok  Stability : Poor

www.sunbiomed.com

* Note: Discount is based on the closing price on the 10 March 2010.

JeffShare Purchase Plan (SPP) , , ,

Global Construction Services May Acquire Hire Company

March 11th, 20100

Construction services group Global Construction Services Limited (GCS) today announced that it has submitted a non-binding, indicative bid for a hire business in Western Australia. The target business currently generates revenue of approximately $9 million per annum and it fits with GCS’s stated strategy of growth through acquisition, acquiring businesses that are complementary to or enhance its existing suite of products and services. The negotiations are at a preliminary stage and remain incomplete. The transaction is subject to various approvals and if the bid is successful, it is expected that the acquisition will be EPS accretive.

GCS Group (GCS) is a diversified construction services company that supplies equipment to the construction and maintenance industries including hire and sales of scaffolding, formwork, material hoists, temporary accommodation, chemical toilets, temporary fencing and general plant hire together with a range of related labour and design services. GCS Group’s strategy for growth is to focus primarily on servicing the West Australian construction industry. In addition, the Company intends to explore opportunities in new markets, diversify into related industries and industry sectors and acquire selected new businesses that create value for shareholders.

www.gcs-group.com.au

JeffASX Company News , , , ,

Aurox Resources To Merge With Atlas Iron

March 11th, 20100

Pilbara iron ore developer Aurox Resources Limited (AXO) and Atlas Iron Limited (AGO)  today announced  they  had  entered  into  a  Scheme  Implementation  Agreement  to affect the merger of the two companies. Atlas will issue Aurox shareholders with one Atlas share for every three Aurox shares they hold upon implementation. Atlas will also make offers to Aurox option holders to issue Atlas shares to them on a ratio determined by reference to the respective exercise price and expiry date of their options. The  Board  of  Aurox  has  unanimously  recommended  that,  in  the  absence  of  a  superior  proposal,  all Aurox  security  holders  vote  in  favour  of  the  Scheme. The Aurox Board members  intend  to  vote  in favour of the Scheme in relation to their personal shareholdings in Aurox, in the absence of a superior proposal.

The merger provides for Aurox shareholders to participate  in  Atlas’  rapidly  growing  production profile,  which  will  position  the  company  as  a globally significant iron ore producer;  retain xposure to the world class Balla Balla Project but at the same time gain exposure to a large portfolio of quality iron ore projects throughout the Pilbara. The merged company will offer investors a substantial growth profile with a pipeline of assets and opportunities.

Managing  Director  of  Aurox,  Mr  Charles  Schaus,  said  the  proposed  merger  is  an  outstanding opportunity for the Aurox shareholders to join with and participate in an impressive diversified iron ore growth company. “The high premium offered by Atlas is a great deal for Aurox shareholders. It reflects the high potential of the Balla Balla project, Aurox’s access to infrastructure and regionally significant water resource.” Mr Schaus said. “With iron ore prices expected to increase significantly in the coming year, this merger will give Aurox shareholders the opportunity to share in the benefits from immediate cashflows,” he said.

Under the SIA Atlas will acquire all of the issued shares in Aurox. Aurox shareholders will receive one Atlas share for every three (3) Aurox shares they hold. As part of the SIA, Atlas has agreed to extend an unsecured, interest bearing loan of up $7.7million to Aurox in order to enable Aurox to redeem the outstanding convertible notes which are due to mature on 30 June 2010.  The loan will be repayable on the earlier of 4 months from the date of draw down and 20 business days after termination of the SIA.

www.aurox.com.au

www.atlasiron.com.au

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