As we close off on another financial year, the Cannings Purple’s Investor Insight team look back on some tends and observations from the period.
As we close off on another financial year, we look back on some tends and observations over a period where the S&P ASX200 fell just over 5%, but the resources sector finally got some much needed headroom and access to capital.
1. The resources sector is not dead after all
After a few years of declining commodity prices, share prices and investor interest, the resources sector has started to see some green shoots, the first of which started to appear in February this year.
Gold recently hit an all time high in Australian dollar terms, which has seen those producers that have spent years focusing on cost reductions now reaping the benefits through significantly improved margins.
Lithium has also caught the eye of many investors, with just about every West Perth junior rushing out to sample the pegmatites that they have ignored in the past.
2. Oil and gas companies still facing a tough time
The Brent crude price started the financial year in the high $60s per barrel and then spent the first half drifting continually downwards until it landed in the low $30s at the start of 2016. From there, it has staged a mini comeback, clawing its way above $50/barrel.
Despite the mini rally, energy stocks have been hit pretty badly over the course of the year. Origin Energy is off ~40%, Santos ~30% and Woodside ~24%. At the junior end of the spectrum, drilling activity has been limited, with focus on lower cost seismic and desktop studies.
3. Not a tech boom for all companies
This time last year, there seemed to be a tech company backdoor listing into a clapped out resources shell every week, providing some glimmer of hope for long suffering shareholders. With the re-emergence of interest in the resources sector, the trend has slowed considerably.
Of the performers, Atlassian by-passed the ASX with a strong debut in the US during the year, while market darling 1-Page came back to the pack with its share price dropping more than 70% over the financial year.
4. Iron ore not a dirty word
Iron ore started and ended the financial year in the low $50s per tonne, although there was a fair amount of price volatility through the year to give some players the yips. A drop below $40/t was too much for BC Iron, while Atlas Iron had a near death experience that sees it still recovering in casualty.
At the larger end of town, Roy Hill commenced production, CITIC has all its production trains online and Fortescue impressed the market with solid debt repayments ahead of schedule resulting in its share price gaining more than 75% during the financial year.
5. Quality companies get quality valuations and lots of placement interest
This statement should be true in all market conditions. Unfortunately, or fortunately depending on your viewpoint, in boom times, a rising tides seems to float all boats. In tougher market conditions, it is companies with clear development plans, strong management teams and unique investment characteristics that attract the most interest.
Blackmores, Cochlear and Vocus Communications have all been rewarded by investors for defining exciting growth potential and then delivering on it.
