Australian Stock Market Report – Afternoon 12/4/13

Commsec Afternoon Report
(17:00 AEDT)

The ASX200 shrugged off a 3 day losing streak even though third quarter GDP figures were below expectations. The market recovered initial losses driven by the notion that the slower rate of growth meant that whilst interest rates might not be cut any time soon, the risk is that they will remain at historically low levels for a longer period.

Electronics store Dick Smith (DSH) listed at $2.20 and traded as high as $2.32 thereafter. The price fell below its listing price before recovering to close at $2.20. Dick Smith´s initial public offer (IPO) comes from the sale by private equity firm Anchorage who bought Dick Smith for $94 million from Woolworths in November last year. Dick Smith is forecasting sales revenue of $1.2 billion for fiscal 2014 and EBITDA of $71.8 million. In the event the targets are met Anchorage has an option of spinning out the 20 per cent of the company it still own.

Iron ore miners were well supported as the price of the ore continues to consolidate at elevated levels. Rio Tinto (RIO) was one of the better improvers on the heels of news that the group will slash its capital-expenditure budget to US$8 billion in 2015 from about $14 billion this year and $11 billion in 2014. CEO Sam Walsh has highlighted that the company´s 2012 spending of more than $17 billion would now likely be a peak for all time

Amongst the junior iron ore producers, Atlas Iron (AGO) is close to completing contracts for around 60 per cent of next year's production. AGO has been negotiating with Chinese steel mills and trading houses following heavily oversubscribed requests for new production. The company said it had completed a number of new sales contracts for its Pilbara Direct Shipping Iron Ore. Atlas said it had received attractive terms for its product. AGO shares rose 7.7% today

The AUD slumped today after the softer than expected GDP figures were released. Growth of 0.6% QoQ was recorded, against expectations of 0.7% growth. The previous quarter was revised up by the same amount, 0.1%. The 1% drop in AUD could appear to be a strong reaction, although the details of the growth were disappointing. The weaker than expected household spending growth and flat residential investment contribution did nothing to alleviate concerns about the ability of the non-mining part of the Australian economy to drive growth.

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