Monday, December 14, 2009

Market Commentaries

Bank South Pacific
BSP continues to increase its exposure in the South Pacific region as it acquires Colonial National Bank in Fiji. The stock has been trading between 70t and 73t for some time but it is finding a new level around 75t. Trading has been quite active and the stock is rallying from its lows. A number of reports place the stock price at K1.00 in one year. We believe BSP will return around 30% over the next twelve months. Our price target is K0.95. Our recommendation is BUY.

Credit Corporation
Credit Corporation shares have traded between K1.75 and K1.80 in November. Trading was irregular apart from a 9,000,000 crossing by BSP Capital at K1.75. We have seen some additional buying interest, mostly due to a recent Nasfund report that valued CCP at around K2.40. As you know CCP is held tightly and it is hard to flush out any selling. We believe the stock will move in a range between K1.80 to k2.20 over the next 6 months. Our recommendation is BUY.

City Pharmacy Limited (CPL)
CPL opened new pharmacy outlets in Alotau and Kokopo and is supplying pharmacy products to four locations with properties leased by Post PNG. The company has other exciting projects coming up including a new pharmacy outlet at Vision City and a new supermarket at Badili in Port Moresby. Meanwhile the Kavieng pharmacy outlet will increase its floor space by three. Its hardware business adopted an exciting Kit Home concept from Europe to address the housing needs in PNG. The stock was trading fairly at K2.50 for all month round with light volumes changing hands. But we view the stock price is lagging behind its profit growth. The target price in one year is K3.20. It is with this in mind that we continue to recommend as a STRONG BUY.

Airlines PNG
Bid and offer remain fairly active, however no trading has occurred during the month. The market is bid 63t and offered 64t. We are hearing various views on APNG with the majority on the negative side. It has recently leased a Dash 8 aircraft to the Solomon Islands that leads us to believe aircraft are underutilized. Many employees have departed over the past 12 months which may lead to lower costs. Conversely, concerns may arise through maintenance and management issues. We are negative on the stock and the heavy selling pressure multiplied by a falling share price will do APNG no favors. Our recommendation is SELL.

New Britain Palm Oil
New Britain Palm Oil has released encouraging third quarter operating results and trading updates. Productions of crude palm and kernel oil increased by 14% to 273,354 tonnes compared to the same period last year. The stock has risen to K18.00 with solid buying support both locally and in the UK market. Prices in the first 9 months of the year for palm oil have ranged between US$530 to US$825 per tonne. NBPOL has averaged US$717 per tonne in the first three quarters for crude palm oil. The majority of the fourth quarter’s production of crude palm oil has been sold at an average price of US$694. The UK palm oil refinery will commence operations around April 2010. It will further consolidate NBPOL as a leader in the sector. We are happy to recommend the stock as a BUY.

Lihir Gold Limited
LGL released its third quarter production report at the end of October. It had quarterly gold production of 233,000 oz. Year to date production is 845,000 ozs and the company is on track to achieve record full year production of 1-1.2million ozs. Reserves increased by 7.5million ozs to 28.8million ozs. A maiden interim dividend of US1.5 cents per share was announced. The gold price rose 13.2% over the month to US$1177 and continues to rise. Quarterly production exceeded guidance for the quarter. The MOPU and Interim Power Station project is on schedule and on budget. The project will cost $315million and $142million has been outlaid so far. We have been advising investors to reduce 25% of their gold exposures and to book some profits. LGL is slightly different in that it is both increasing production and lowering costs substantially. We are going to stay the course for another three months before we take a further look at Lihir Gold. Our recommendation is HOLD.

Oil Search Limited
After the successful completion of the A$895million Institutional Placement, we believe OSH is well placed for its future cash requirements. PNG LNG project entered into a Heads of Agreement with Unipec Asia Co Ltd, a subsidiary of China Petroleum and Chemical Cooperation (Sinopec). It is for a long term supply of 2 million tonnes of liquefied natural gas (LNG). Oil Search as a major partner will directly benefit from the supply agreement. During the month the stock traded between A$5.52 and A$6.12 on the ASX and between K13.00 and K15.50 on POMSoX before closing at A$5.70 on the ASX and K. With the Benefits Sharing Agreement about to be completed and the Final Investments Decision (FID) scheduled for 8 December, the stock is expected to rally. OSH continues to represent a long term investment in to the PNG oil and gas industry. It is with this in mind that we maintain our recommendation as a BUY.

Highlands Pacific Limited
Progress on Highlands Pacific Ltd’s (HIG) interests in Ramu Nickel, Frieda River and the Nong River projects have shown steady progress over the month. The Ramu Nickel project is fully funded and commissioning of various ancillary parts of the plant has already commenced. There is likely to be staged commissioning which will continue throughout the early part of 2010. Pre-feasibility studies on the Frieda River project continue to show impressive results with an upgraded resource model expected in December 2009. The pre-feasibility study is expected to be completed in mid 2010. HIG has renewed its Tifalmin exploration licence with funding of US$3.0m while HIG is in negotiation with Xstrata on a possible joint venture agreement on the Nong River exploration licence. Both licence areas are located 20km from the Ok Tedi Mine site. With expected resource upgrades in Frieda and the efficient progress in Ramu, we expect HIG to increase gradually with a rally in the second half of 2010. In November the stock closed at 36 cents on the ASX and 96t on the POMSOX after reaching a high of 45 cents on the ASX. Our recommendation is a BUY.

Westpac Banking Group
The Bank has released encouraging news on its second half yearly performances portraying 2% sequential rise in profit at the back of increased business loans and consumer’s credit as well as increases in bank fees and charges. Although the lending margin has been shrinking, housing loans are not suffering greatly. The global financial crisis will soon be history as banking stocks are performing well above the required level. The stock was trading on ASX between $23.03 and $26.78 and closed the month at A$24.14.
National Australia Bank
Trading was active on the market as substantial volumes changed hands. In November the stock traded between $30.39 and $26.81 and closed at $28.26 on ASX. The outlook is promising as business confidence edges higher led by construction activities. Long term lending rates set to be unchanged and this provides a unique opportunity for the bank to increase its lending margin. We anticipate the stock to perform better in the next 30 days.

Australia New Zealand Bank
The ANZ Bank has released its financial report for the year ending 2009 with profits tumbling 11% to $2,943 million, although and far better performance than the previous corresponding period. The shareholders who participated in a Share Purchase Plan initially issued at $14.40 per share in July to the retail shareholders have made 54% gains on investments in five months after ANZ’s share price closed in November at $22.15. ANZ has invested heavily into income generating assets in the last year and we expect profits to increase within the next 12 to 18 months. Our recommendation is a BUY.

Commonwealth Bank of Australia
Trading was active with substantial volumes changing hands during the month. Investors maintained the market price between $50 and $55 on ASX with the price closing at $52.80 at month end. The bank’s outlook is promising due to increased lending through offshore issuance and favorable domestic interest rates which are up by 25 basis points to 3.75%. We expect the stock to continue trading within this price range for remainder of the year. Our recommendation is HOLD.

Marengo Mining Ltd
The stock was on a down-turn trading between 18 cents and 16 cents on ASX and 50t and 56t on POMSoX as too many resources stocks has been grossly undersold. Marengo Gold announced the raising of A$421.7 million to fund the Yandera Copper Gold project. The details of the Yandera Copper Gold project are expected to be announced in December. We have a SPECULATIVE BUY recommendation on Marengo.

Ord River Resources Ltd
Trading was fairly active with a strong start early in the month at 7.1 cents, but the price tumbled toward the end to close at 5.2 cents on ASX. The price is anticipated to recede as Copper Flat Exploration in Western Australia has been delayed due to wet weather.

Allied Gold Ltd
Allied Gold (ALD) acquired Australian Solomon Gold (ASG) in November and has taken control of all its operations. Fears of lower earnings per share may have pushed the price lower to close at 39.5 cents as the company issued new shares to raise capital to complete the takeover. The stock opened high at 41 cents and steadied lower to 35 cents after reaching high to close at 48 cents. Probability of expansion and growth is high with number of projects ASG is embarking on including ALD own record gold production at Semberi. We recommend investors HOLD their shares.

New Guinea Energy Ltd
New Guinea Energy (NGE) has done a private placement with sophisticated investors to raise A$18.5 million to fund its exploration activities in the Western forelands of PNG. The stock performed with mixed results opening at 19 cents and increasing to 22.5 cents before closing lower at 15.5 cents. NGE has farmed out its PPL 267 and 268 to Talisman Energy Limited for US$55 million. The exploration areas are estimated to contain approximately 3 billion mmboe. We view this stock as a tool for growth and urge investors to be there early. Our recommendation is a BUY.

Call us on (+675) 321 4333 and speak to one of our client advisors