Breaking free



The resources sector was down around 0.5% yesterday with a rising US dollar a near term headwind. The RBA may be of the view that iron ore (and China) has peaked, but is not the picture being painted by underlying economic forces. The recent pullback that we have seen in iron ore this week as I wrote yesterday also needs to be put in context of the recent run, and is more likely a normal correction.

Demand is strong around the world, and likely to get stronger, while supply is being constrained. And this is not just an iron ore story. Copper (a key barometer of global economic well-being) has pushed to three year highs, while aluminium has hit five year highs after concerns that an environmental crackdown by China will exacerbate shortages. Aluminium has pushed to levels not seen since 2012, and prices are up almost 30% this year.

Nickel joined the other base metals and broke out on the upside last month.

International companies in the news

Spanish pizza company Telepizza announced a net profit of €15.4 million in the first half of 2017 versus a net loss of €19.3 million in the first half of 2016. The initial public offering in the first half of last year generated significant one-off listing costs. Core operating profit (EBITDA) fell by 3.5 percent in the first half to €34.7 million due to higher operating costs. Total costs rose 12.1% in the first half with this driven by a 27% jump in the cost of goods sold.

Like-for-like sales in Spain rose 4.2% in the first half and core International like-for-like sales rose by 6.7%. Group core geographies like-for-like sales came in at 4.9% in the period with the growth weighted towards the second quarter. Total sales growth in Spain are expected to come in at 5-6 percent in 2017 versus the previous 4-6 percent target. Core International sales are expected to increase by 12-14 percent versus the previous 9-11 percent target.

The Spanish pizza delivery group raised its full year outlook for 2017 with cash earnings per share expected to hit 0.32-0.35 euros. This was an increase of 2 cents and comes despite cost pressure in the first half. Earnings per share forecasts for Telepizza in 2017 declined from over €0.40 to less than €0.35, which placed downward pressure on the IPO price of €7.50, with the stock selling for just above €5.  The positive trading update could mark a shift in the earnings cycle following a period of earnings downgrades. The Fat Prophets Global Contrarian Fund holds a position in Telepizza, as do the European and Global Managed Account portfolios. KKR, the global private equity firm, sold out of Telepizza via the 2016 IPO but have since bought back in and currently hold a 19% stake.

Disclosure: The Fat Prophets Global Contrarian Fund declares a holding in BHP,  South32, and Telepizza.

Carpe Diem!

CEO | Fat Prophets
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