AWE Limited (AWE) Company Announcement

AWE Limited (AWE) is a small oil and gas explorer and producer. The majority of its operations are located in Australia and New Zealand, though the company is becoming increasingly interested in international operations.

The company’s major projects are the onshore Casino gas field (Otway Basin, SA), Cliff Head project (Perth Basin, WA) and the BassGas project (VIC & TAS) and now, in the Perth Shale Gas Basin. AWE is listed on the Australian Stock Exchange and is a member of the S&P/ASX 200.

AWE announced that it has it has been advised that the Western Australian Minister of Environment has dismissed the states EPA appeal against its operations in the Perth Basin.

The company said that based on current availability of equipment, it expects that the hydraulic stimulation activities on all three wells will commence during the second quarter of 2012.

Managing Director Bruce Clement said that he is pleased with the decision, and looks forward to test the potential of the wells.

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Shares To Buy: The Reject Shop (TRS)

The Reject Shop (TRS) is a discount variety retail company, targeting Australian consumers through low price points, bargain-purchasing and convenient shopping locations.

TRS offers a wide variety of general consumer merchandise, with a focus on everyday needs, such as toiletries, cosmetics, homewares, personal care products, hardware, basic furniture, household cleaning products, kitchenware, confectionery and snack food.

The company has two key advantages that many of its mid-to-upper market rivals don’t – a strong Australian Dollar benefits earnings due to lower import costs, whilst the substitute nature of its products can appeal to cost-conscious consumers.

After a disappointing finish to FY11, TRS got itself back on track in 1H12, with net profit and sales rising on the back of a resumption in operations at its Ipswich Distribution Centre.

1H12 results

TRS grew its 1H12 net profit 4% on-year to $16.6 million.

New store openings helped sales climb 6.1% to $292.8 million, but this could have been higher had TRS not face capacity constraints in the early part of the half.

These capacity constraints were due to the early-2011 Queensland floods, which impacted operations at the Ipswich Distribution Centre.

TRS was able to generate sales momentum in the second quarter, helped by improved seasonable trade and the reinstatement of the Ipswich Distribution Centre.

A strong AUD combined with a reduction in shipping costs saw the company’s underlying gross margin rise from 44% in 1H11, to 45.4% in 1H12.

This was particularly impressive considering TRS faced price deflation over the period. It also illustrates how for TRS a high AUD can provide a hedge against price deflation, unlike many other retailers.

Outlook

With the Ipswich Distribution Centre now fully functional, TRS can focus on continuing the sales momentum generated in the second quarter.

Furthermore, with inventory management back to normal, we expect TRS to further improve margins (via less stock markdowns) and build on 1H12’s strong operating cash flow performance (via better working capital management).

Although it expects a tough trading environment to persist into 2012, TRS said second half comparable sales to date were positive. We expect TRS’ new store rollout to continue to underpin sales growth into this year.

The group forecast FY12 net profit to be between 27% and 36% higher than FY11. Even taking this strong growth into account, TRS is trading on reasonable multiples and we expect this to translate into further gains in its share price.

Seven Group Holdings (SVW) 1H FY12 profit of $52.1 million

Seven Group Holdings (SVW) is a diversified operating and investment group listed on the Australian Stock Exchange. The operating business encompasses WesTrac, a global top five Caterpillar dealership. It also is a minority holder in Seven West media and major shareholder National Hire.

Seven Group Holdings announced a 1H FY12 profit of $52.1 million, a 57.8% fall on the previous corresponding period.  The result was better than the market expected.

Despite the fall in profit, revenue grew 29.3% to $2 billion over the same period.

The result was spoiled by $165.2 million impairment charge on the carrying value of its investment in Seven West Media.

The company will pay an interim dividend of 18 cents a share, fully franked.

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Artistocrat Leisure Limited (ALL) FY11 $66.7m profit

Aristocrat Leisure Limited manufactures and sells gaming machines in Australia and internationally.  The Company also supplies gaming systems, software, table gaming equipment and other gaming related products and services to casinos, clubs and hotels.

Industrial stock Aristocrat Leisure posted its FY11 earnings, showing a net profit of $66.1 million, a 14% fall compared to FY10.  The result was better than the market expected.

Revenue grew 11.4% to $762.7 million over the same period on a constant currency basis.

CEO Same Odell said that the company was targeting the most profitable segments, and this action drove share gains in major markets like the U.S. and Australia.

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Mining Shares News: BlueScope Steel (BSL) announced a 1H FY12 loss of $530 million

BlueScope Steel Ltd (BSL) is a major steel company in Australia and New Zealand, supplying flat steel products to the building, construction, manufacturing, automotive and packaging industries.

BlueScope Steel announced a 1H FY12 loss of $530 million, widening sharply from the $55 million loss from same period a year earlier. The result was worse than analysts expected.

The company said that a majority of its loss was made of two main costs; the restructuring of the business cost $260 million, while there was an impairment charge of $184 million on its Australian assets.

BlueScope said that trading conditions were improving, with the U.S. economy showing signs of recovery, but that its performance was not translating due to the high Australian dollar

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Atlas Iron (ASX:AGO) is an emerging iron ore producer and explorer.

With a growing number of high quality iron ore projects and one of the largest landholdings in the lucrative Pilbara region, AGO is now one of the area’s largest iron ore producers.

The company has a significant number of direct shipping ore (DSO) projects in WA. DSO projects are those that are in close proximity to ports, which helps to significantly lower capital costs.

One of the more recent ones, the Mount Dove DSO Project, is expected to contribute to AGO’s shipping tonnes later this calendar year.

Iron ore in spotlight

Iron ore miners have been in focus over the past few weeks due to a combination of factors. Among these is the improving prospect for iron ore.

We don’t believe the current spot price around $142 a tonne reflects what is still a favourable supply/demand dynamic for Aussie miners.

The European debt crisis forced some of the higher cost iron ore miners to cut back production last year.

This is likely to ensure the iron market remains in a supply deficit for a few more years yet, which not only supports prices but provides an opportunity for low-cost producers like AGO to fill the breach.

Also, the Glencore/Xstrata merger proposal has thrown the spotlight on pure play iron ore miners. Given the commodities giants’ lack of iron ore assets, the merger may encourage existing iron ore companies to either consolidate or potentially be the subject to an offer.

Output hit by cyclone

For the December quarter, Atlas Iron reported an 11% quarter-on-quarter fall in iron ore mined.  This was due to Tropical Cyclone Heidi, which impacted mining operations and damaged the Utah Point ship loading facility at Port Hedland.

As a result, AGO downgraded its FY12 production target to 5.5 – 5.7 million tonnes, from the previous 6 million tonnes.  However cash costs were within AGO’s targeted $42/ton-$45/ton range for FY12.

AGO, like other iron ore miners, suffered from a fall in iron ore prices during the quarter. However it also positioned itself to take advantage of a recovery in prices.

The company moved from quarterly pricing of its contracts towards shorter term reference points. This means it is more directly exposed to spot prices, which have trended higher in recent months.

Outlook

Despite last quarter’s operational issues, AGO managed to grow its cash pile from $373 million to $380 million.

With strong operating cash flows and competitive cost of production, AGO has significant capacity to fund development projects such as the Mt. Dove mine.

Although AGO faced a number of headwinds in the December quarter, we think it is well placed to take advantage of a recovery in iron ore prices. Atlas Iron (AGO) is an emerging iron ore producer and explorer.

With a growing number of high quality iron ore projects and one of the largest landholdings in the lucrative Pilbara region, AGO is now one of the area’s largest iron ore producers.

The company has a significant number of direct shipping ore (DSO) projects in WA. DSO projects are those that are in close proximity to ports, which helps to significantly lower capital costs.

One of the more recent ones, the Mount Dove DSO Project, is expected to contribute to AGO’s shipping tonnes later this calendar year.

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At the start of a new year traders and investors alike invariably look to the potential that the new horizon brings.

After a tumultuous 2011, this year that sentiment is even more pronounced as market participants put the last 12-months in their rear-view and look to better times ahead.

At Australian Stock Report we don’t particularly care for long dated predictions about the market as a whole – too much can change too quickly.

We are prepared however, to outline a few stocks that will make for interesting reading in 2012.

Below is a list of stocks to watch in 2012 and a brief outline as to why we think so.

QR National (ASX:QRN) / Asciano (ASX:AIO) – Both companies operate in the transportation industry and are highly leveraged to the mining sector. While they are in competition with each other, both can prosper with the mining boom likely to drive industry revenue. QRN and AIO are likely to experience strong growth from the Queensland area as the state’s coal output moves back into full swing after last year’s floods caused havoc with production.

ANZ (ASX:ANZ) – Our bank of choice is ANZ. While we can’t see an extreme decoupling in price between the big four over the next year, ANZ is our preferred exposure to this sector. ANZ has the second lowest P/E based on current earnings and has a dividend yield approaching 7%, which should provide some support for the stock at this level. The company also has the most exposure to the growing Asian region and one of the lowest exposures to the slowing domestic residential market.

BHP Billiton (ASX:BHP) / Rio Tinto (ASX:RIO) – These mining giants are poised for growth in 2012. Both companies were weighed down last year as the market factored in the effects of a possible hard landing in China. It is becoming more evident however, that any slowdown in the Chinese economy will be akin to a soft landing instead. The other factor that could buoy the mining giants is increased commodity prices due to the likely introduction of further monetary stimulus by the US Federal Reserve.

WorleyParsons (ASX:WOR) – Worley’s provides professional engineering and management services to the energy, resources and complex process industries. The company has significant leverage to the energy sector, specifically through its hydrocarbons (compounds founds in crude oil) division. The company will benefit from any oil supply/demand imbalance that drives up prices. Indeed, some analysts are predicting the price of oil will increase dramatically due to the political unrest in the Middle East. Higher oil prices will encourage the big oil companies to ramp up capital expenditure to the benefit of WOR. The company also has demonstrated an ability to land contracts with the major oil players, evidenced by its recent contract win for the Chevron project in Indonesia.

Saracen Mineral Holdings (ASX:SAR) – On the smaller side of the market, Saracen is a mid-tier WA gold producer that was added to the S&P/ASX 200 on the 28^th of December, 2011. This company has forecast gold production of between 120,000 -130,000 ounces of gold a year, which was reaffirmed in a recent update. Saracen is also trying to expand its business with $35 million of capital expenditure planned for the current financial year. The capital expenditure is substantial for a company of SAR’s size, but a strong net cash position of $58 million significantly reduces the funding risk.

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Westfield Group (ASX:WDC)  is the largest retail property group in the world by equity market capitalisation. It has investment interests in 126 shopping centres in Australia, New Zealand and the United States

Westfield, which is among the blue chip stocks, revealed a full year 2011 profit of $1.53 billion, a 37.5% rise on the previous corresponding period, slightly ahead of analyst expectations.

Full year revenue climbed 10.5% to $1.46 billion, year on year.

WDC declared a final distribution of 24.2 cents, in line with expectations.

The group also announced it would start an on-market buyback of securities for up to 10% of its issued capital.

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Western Areas NL (ASX:WSA) is an exploration company that is involved in the development of the Fox Nickel mine and the exploration of nickel sulfides, platinum group metals and gold.

Material stock Western Area reported a 1H FY12 net profit of $24.1 million, reflecting a 64% drop compared to same period a year earlier.

The company said the price of nickel averaged US$8.51/lb in the first half of its financial year compared to an average of US$ 11.61/lb a year earlier.

WSA slashed its interim dividend in half, declaring $0.05 dividend, unfranked.

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Leighton Holdings Ltd (ASX:LEI) offers a variety of project development and contracting services to public and private sector clients in the Asia-Pacific region. Leighton provides design management, civil engineering construction, building, mining, process engineering, telecommunications, waste management and infrastructure operation and maintenance and property development and management. Leighton is listed on the Australian Stock Exchange and is a member of the S&P/ASX 200.

Leighton announced a 1H FY12 NPAT of $340 million, a 57% jump on $216.7 million a year earlier.

Revenue jumped 25% to $12.2 billion compared to the same corresponding period in FY11.

LEI said in statement that the group is confident it is positioned in the best possible markets in the world for at lead the foreseeable future.

The company also said it will pay an interim dividend of 60 cents per share.

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