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Strong start to the financial year for the WA Index


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4 September 2013: The Deloitte WA Index has finally shaken the downward trend of the past few months, with the market capitalisation of WA listed companies comprising the Deloitte WA Index rising by 9.0% during the month of July, and a further 4.0% during the month of August, to close at AU$142.9bn.

Fortescue Metals Group Limited was a key contributor to the growth experienced in the Deloitte WA Index, experiencing a 42.4% increase in its market capitalisation over the course of July and August as its share price soared on the back of a much-needed increase in iron ore prices of 6.8% in August, which followed on from the commodity’s price rise of 10.9% in July.

Deloitte Perth Lead Audit Partner Tim Richards said the increase was driven largely by recoveries in commodity prices as a result of positive Chinese economic data.

“The Chinese economy is transitioning to an economy that is driven by domestic consumption, as local demand in China increases rapidly,” Mr Richards said.

“WA’s economic growth is highly dependent on the resources sector as well as the Chinese economy, with an expected growth rate of 4.3% in FY2014 – which is considered a strong growth rate for a developed economy, despite being lower than what we have seen in WA in recent years.”

Australian consumer sentiment increased by 3.5% during August, closing the month 9.4% higher than it was 12 months ago. Consumer sentiment was buoyed by the improved Chinese economic data and the latest RBA rate cut, where the cash rate was reduced by 25 basis points to a record low of 2.5%.

Commodity prices were buoyed by the release of Chinese trade data which showed a stronger than expected rebound in exports and imports in July suggesting the Chinese economy may be stabilising following the slowdown experienced during the first half of the calendar year. Exports increased by 5.1% while imports increased by 10.9%, generating a trade surplus of US$17.8 bn. Overall, Chinese economic data over recent weeks has been more robust than expected.

August was a solid month for gold and silver, experiencing price increases of 6.7% and 18.6% respectively.  With both precious metals closing the month at their highest level for approximately 4 months. The flight by investors back to safe haven metals was fuelled by the unrest in Syria and the uncertainty regarding whether the United States and its allies will respond with military strikes.

Similarly, crude oil (Brent) prices rose 8.6% to end the month at US$117.32, on the back of concerns over supply disruptions. A number of events occurred which triggered the supply concerns, starting with the effects of strikes in Libya closing export terminals, possible supply disruptions in Iraq and Egypt due to continued political unrest and finally ending the month with Syria’s alleged use of chemical weapons.

The majority of base metals and industrial commodities surveyed continue to record firm price growth as the modest economic growth experienced by the Asian markets continues. After the lacklustre performance and cyclical lows experienced towards the end of the 2013 financial year, investors have reacted positively, with share prices in WA resource companies surging during the month.

News the recession which has plagued the European economy for the past few years has officially ended was however not enough to improve investor confidence, with the FTSE 100 and the US S&P 500 both falling 3.1% during the month. The Eurozone Gross Domestic Product expanded by 0.3% quarter on quarter in Q2, 2013 signalling the end of the recession; however, the positive news was dampened by the uncertainty of the events in Syria, as the investors hold their breath to see how the United States and its allies will react to the alleged use of chemical weapons. The Nikkei 225 did not fare much better, falling for the fourth consecutive month, with a 2.0% decrease in August. Meanwhile, the All Ordinaries was boosted by the positive outlook for resource companies, rising 1.8% during the month of August.

The Movers and Shakers for the month of August include Saracen Mineral Holdings Limited (Saracen), Lonestar Resources Limited (Lonestar) and Calibre Group Limited (Calibre), with increases in market capitalisation of  71.9%, 47.1% and 45.1% respectively.

Gold producer Saracen, which has its operations in the Kalgoorlie Goldfields, saw its market capitalisation surge to AU$164m, from AU$95m at the end of July, a 71.9% increase. Despite delivering a AU$63.1m loss in FY2013 due to impairment write downs, Saracen’s market capitalisation increased by 71.9% due to upgraded gold production guidance, increasing by 10koz from 110-120koz to 120-130koz. In addition, Saracen has seen outstanding results in the recently discovered Blue Manna Project, which is located 8km from its wholly-owned Carosue processing plant.

Texas-based oil & gas company Lonestar has increased its market capitalisation by 267.0% in the past 12 months, with an increase of AU$56m in August to close the month at AU$174m. The company’s share price rose 45.1% during the month, driven largely by significantly increasing its proved reserves at the company’s Asherton property in the Eagle Ford Shale. In addition, half year results for the six months ended 30 June 2013 released in August showed an increase in production of 44.0% compared to the previous six month period.

During the month of August, diversified engineering services firm Calibre increased its market capitalisation by AU$49m to close at AU$158m. At the end of July 2013, Calibre acquired E-Tec Consultants, a WA-based structural and civil engineering firm. The acquisition provides geographical expansion of Calibre’s existing urban development business and increases its exposure to the resources sector. Secondly, at end August 2013, Calibre was awarded a AU$23m contract by Samsung C&T Corp for the detailed design of approximately 330km of heavy haul main-line railway for the Roy Hill Project in Pilbara, WA.

Table: WA’s Top 100 Listed Companies as at 31 August 2013 (see the table in the downloadable version of media release - Pages 4-5)

NB: See our media releases and research at www.deloitte.com.au.

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Contacts

Name:
Casey Hockey
Company:
Cannings Purple
Job Title:
Consultant
Phone:
Tel: +61 8 6314 6369
Email
chockey@canningspurple.com.au
Name:
Tim Richards
Company:
Deloitte Australia
Job Title:
Partner, Clients & Markets
Phone:
Tel: +61 8 9365 7248
Email
atrichards@deloitte.com.au

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