Good Evening,

Welcome to Equity Espresso. We’re here to catch you up on the day’s important stock market news in Australia and abroad. Here’s a sample of today’s top stories:

1. 🪙 Gold Rush

2. ✈️ Qantas Shakeup Continues

3. 💉 CSL Downplays Ozempic Impact

4. ❌ Liontown Takeover Bid Abandoned

5. ⚔️ ASX Companies In The Defence Sector

The Recap

ASX Falls As Investors
Turn to Gold

The ASX200 index traded in the red all day, finishing the start of the week down 24.5 points or 0.35% to 7,026.5. The Energy (+0.63%) sector was one of only two sectors to finish higher, as Woodside Energy rose by 0.87%.

Investors appear to be moving into safe havens of bonds and gold as tensions heighten in the Middle East. The price of Gold has increased almost 6% since the conflict broke out last week. Aussie gold miners Newcrest (+3.3%), Northern Star (+3.1%) and Evolution Mining (+1.4%) finished higher today.

The long-running Liontown takeover saga appears to be over after Albemarle withdrew its $3.00 bid, citing “growing complexities associated with executing the transaction.” The withdrawal comes following Gina Rinehart’s increased stake in the miner to 19.90% as of last week. Liontown went into a trading halt today pending the finalisation of funding related to its Kathleen Valley Project, which is expected to be made up of debt and equity. The AFR reported today that Liontown has engaged UBS to complete an equity raising.

Fletcher Building was one the worst performers on the ASX200 today as it came out of a trading halt amid a dispute with BGC Australia. Fletcher has dismissed claims it is to blame for faulty pipe leaks in 11% of new houses built in Western Australia between 2017 and 2022.

Outlook

Locally, the RBA Minutes will be released tomorrow from the September meeting, while new governor Michelle Bullock will speak on Wednesday. Job data will be released on Thursday, with unemployment expected to remain steady at 3.7%.

Overseas, quarterly earnings ramp up this week with many big names reporting, including ASML, Bank of America, Johnson & Johnson, Procter and Gamble, Tesla, TSMC and Netflix.

Economic Data

• Preliminary Consumer Sentiment estimates in the U.S. fell to 63 in October 2023 from 68.1 in September, the lowest in five months, missing market estimates of 67.2.

Wall Street

The S&P 500 (-0.50%) and Nasdaq (-1.23%) closed lower on Friday as falling consumer sentiment data and the Middle East conflict soured investors. This overshadowed better-than-expected quarterly earnings from some of the banks. U.S. Treasury prices rose as investors looked for safety, while the price of U.S. crude oil settled up 5.8% on Friday. However, it was a positive week for the S&P 500, registering a 0.45% gain, while the Nasdaq fell 0.18%.

Shares in JPMorgan Chase, Wells Fargo and Citigroup rose after their quarterly profits beat analysts' estimates with help from higher interest rates.

Dollar General's former CEO, Todd Vasos, will replace Chief Executive Jeff Owen, which led to a 9% stock increase.

Delta Air Lines' Q3 profit increased 59% YoY to $1.11B, exceeding expectations due to a boost in summer travel demand, particularly for international flights.

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Quick Singles

🪃 Local News

• The Australian federal government launched a new bond that will be in circulation for the next 31 years. The triple-A rated bond is the longest-dated bond to date and will pay a coupon of 4.75%.

• Australia's online safety regulator is taking a tougher approach to global tech giants' management of child sexual exploitation material on their platforms. Google has received an official warning, while X has been fined $610,500 for failing to provide responses to questions posed regarding the management of child sexual exploitation material on its platform.

🌏 Around The Globe

• The U.S. government will tighten on measures it announced last October to restrict China’s access to advanced semiconductors and chipmaking gear.

• Microsoft's $69 billion acquisition of Activision Blizzard has been approved by the U.K. competition watchdog, paving the way for the deal to be finalised.

• Chipotle announced plans to increase prices again - marking the 4th such increase in the last two years.

• According to Standard Chartered’s newly published Future of Trade, Africa’s exports could jump from $645 billion to $952 billion by 2035 under a new free-trade agreement.

• Argentina's central bank increased the country's benchmark interest rate from 118% to 133% on Thursday following the release of inflation data that was worse than anticipated. This move comes just ten days before the presidential elections amidst a severe economic crisis.

• European regulators sent a stern letter to TikTok CEO Shou Zi Chew on Thursday, urging the platform to step up its efforts to remove graphic content and misinformation about the Israel-Hamas war.

• Cocaine production in Colombia is set to surpass oil exports as the company’s main export as the government adopts a more lenient drug policy, according to Bloomberg Economics.

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Markets

ASX200 Company Movers

Index & Commodity Prices

Sector

Bond Prices

ETF Watch

ASX News

🗞️ Company Announcements

Albemarle has withdrawn its proposed takeover offer of Liontown Resources (LTR) due to the growing complexities of executing the transaction. There had been growing doubts that Albemarle’s takeover would be successful as Gina Rinehart’s Hancock Prospecting increased their stake to 19.90%, allowing them to block the deal.

COG Financial Services (COG) reported a 19% performance improvement during Q1 in a trading update today, with NPATA of $6.2 million. The largest increase came from the company’s Novated Leasing segment.

CSL (CSL) has attempted to quell concerns about the impact of GLP-1 drugs like Ozempic on the company’s kidney disease business. “There’s been a lot of talk about GLP-1s…To give you the punchline, based on the high-level results, we do not see GLP-1s as having a material impact on the business,” CSL CEO Paul McKenzie said at the company’s Capital Markets Day.

DropSuite (DSE) reported positive cash flow for Q3 as it increased Annual Recurring Revenue (ARR) by 44% YoY to $33.4 million.

Genesis Minerals (GMD) wants to acquire the remaining stake it doesn’t own in Dacian Gold (~20%) for $0.27 per share. Daicon shareholders will receive 0.1685 in Genesis shares for every 1 Daicon share held.

Qantas (QAN) Loyalty Chief Executive Olivia Wirth has resigned after five years in the role; she will leave the company in February 2024.

Siteminder (SDR) reiterated its growth guidance at an investor presentation today, stating a target of 30% organic revenue growth in the medium term. Siteminder expects to be underlying EBITDA profitable and underlying FCF positive for H2FY24.

SkyCity Entertainment (SKC) Chief Executive Michael Aherne will resign at the end of March 2024.

Treasury Wines (TWE) said today that trading conditions in Q1 have seen continued strong demand for Luxury wine. In the company AGM, Treasury Wines faced a significant protest vote of 46% due to an executive pay dispute. The board had granted share-based incentives to the CEO, Tim Ford, saying the heavy drop in profits due to the wine tariffs imposed by China was unforeseen.

Westpac (WBC) has appointed Steven Gregg as its chairman, succeeding John McFarlane, who has been chairman since 2020.

Post of The Day

Deep Dive

ASX Companies With
Defence Exposure

Given the recent conflict escalation in the Middle East, we look at three ASX companies that may see increased demand due to their exposure to the Defence / Military sector.

1. Droneshield (DSO) - Market Cap - $158 million. Droneshield develops hardware and software technology for drone detection security with customers in Australia and the U.S. Their key customers include the military, intelligence community, Homeland Security, law enforcement, critical infrastructure, prisons and airports. Financials: Droneshield reported half-year revenue as at June 30 of $11.5m – up 214% from the pcp. while cash receipts were $15.2 million, up 192%, with losses of ($2,935m). On the positive, the company reported a record $62 million contracted order backlog, with over $200 million in its sales pipeline. After its half-year report, Droneshield announced it had been awarded a $33 million contract from a U.S. Government Agency, which it expects to receive the payment for before the end of the calendar year. Bell Direct interviewed CEO Oleg Vornik back in July, which you can watch here.

2. Austral (ASB) - Market Cap - $647 million. The largest company in this space, Austral, designs and builds large vessels for commercial and defence customers in Australia and the U.S. A recent cost blowout of its U.S. Towing, Salvage and Rescue Ship (T-ATS) program has seen its share price pull back from recent highs of $2.80. Austral blamed the cost increase on changes in the program specifications and general cost inflation pressures. Financials: Austral delivered full-year revenue of $1.59 billion – an 11% increase from the pcp. with $1.23 billion coming from its U.S. segment, where the T-ATS program affected its EBIT margins. In September, Austal announced it had been awarded a $143.4 million fixed-price incentive and firm-fixed-price type contract to construct three Landing Craft Utility (LCU) 1700 class craft.

3. Electro Optic Systems (EOS) Market Cap – $176 million. EOS designs and develops products for the communications, space, and defence markets, including global satellite communications products. More recently, EOS finds itself in a commercial dispute with Washington Sol Pattinson (WHSP), who is demanding payment of a $4.5 million fee within a week. EOS has a $70 million debt facility with WHSP, which it secured in October 2022. Financials: EOS reported half-year results in June with revenue from ongoing activities of $74.3m – up 38%, with losses of $31million during the period. EOS said the higher revenue from its Defence segment came after delivering on a contract to a customer in the Middle East. As of June 30, 2023, EOS had a backlog order book of over $450m of contracted work.

Newsletter Reccomendation

Analyst Report

Argosy Minerals - Speculative Buy

Code: AGY | | Market Cap: $260m | Current Price: $0.185 | Price Target: $0.70
Sector: Mining | Analyst: Canaccord Genuity Group 

The research firm recently visited Argosy’s Rincon Lithium project in Argentina, where it walked away with four key takeaways:

1. The Rincon project is different from other operations in Argentina due to its characteristics as a fractured halite deposit.

2. The processing plant has successfully demonstrated that the initial chemical process is effective and can produce lithium carbonate that meets battery specifications at the final stages.

3. Argosy has started the development of infrastructure at the site. Modern and well-equipped camp facilities are critical, especially considering that attracting and retaining staff can be challenging in the region.

4. The project will likely be able to use the existing power infrastructure at a nearby solar farm to access high-voltage transmission lines that pass nearby.

Argosy has started preparing for the pre-development phase to speed up the 10ktpa development process once the necessary approvals are granted. These approvals include planning and scheduling, engineering and design, procurement, contractor selection, and water drilling. The analyst believes obtaining the required permits may also trigger strategic discussions, where getting the necessary approvals may be a precedent condition.

Argosy recently completed resource drilling at the Rincon project, with holes drilled to 427 meters below the surface (mbs) and brine samples collected from 386 mbs.

The current lithium carbonate equivalent (LCE) resource, which stands at 245 kilotons (kt), is limited to a vertical depth of 103 mbs.

Argosy plans to release an update on the resource by the end of the calendar year 2023.

A link to the full report is here.

Daily Quiz

Test Your Knowledge

Last week’s Daily Quiz Question. One-time BNPL market darling Zip Co. had a Market Cap of over $7bn in 2021. What's the market cap today?

Answer: $250 million. Quite the fall. Yes, Zip’s share price reached $12.50 during the BNPL frenzy in 2021 to now trade at $0.29. Zip isn’t the only company in this sector to see such falls. Openpay (-95%), Splitit (-97%) and Sezzle (-95%) have all seen dramatic drops from their all-time highs.
Well done to the 35% who got that question correct.

A Little Extra

📉 Going Down?

Top-10 shorted stocks on the ASX - as of October 10

📊 Broker Ratings

What do the brokers have to say?'

1. Paladin Energy (PDN) - Rated as a Sell (Citi). Target Price of $0.90.

2. Perpetual (PPT) - Updated broker commentary here

👨‍💼 Director Transactions

What are the insiders doing? (On-market trade only)

💲Dividends

Companies trading ex-dividend today

1. Cadence Capital (CDM)

DISCLAIMER: None of the information provided in this newsletter should be constituted as financial advice. This newsletter is strictly for educational purposes only. It should not be taken as investment advice or a solicitation to buy or sell assets or make financial decisions. Please do your research.