Favourable Prospects for Select Industries Amid Raised Employment Activities – 3 Stocks to Watch Out

Labor Force Data Showcasing Favourable Employment Statistics

Employment Data on Select Industries

Gold and Copper Commodities Riding on Raised Demand Prospects

Key Risks and Challenges

Outlook

Considering the positive developments in the employment situation, 3 ASX stocks from select industries are identified to showcase the momentum.

(1) Newcrest Mining Limited (Recommendation: ‘Buy’ at AUD 19.280, Potential Upside: Low Double-Digit)

(M-cap: AUD 17.20 bn, Annual Dividend Yield: 3.40%)

Company Overview: Newcrest Mining Limited (ASX: NCM) owns exploration assets such as Cadia, Telfer, Lihir, Havieron, etc., in Australia, Papua New Guinea, and Canada.

Expanding Margins Raising Cash Flow: In FY22, NCM embarked upon gold production and 1,956.2 ounces (FY21: 2,093.3 ounces) and copper production of 120,650 tonnes (FY21: 142,724 tonnes). The marginal production decline was attributed to lockdown events during the end of 2021. All-In Sustaining Cost increased marginally to USD1,044/ounce from USD911/ounce in FY21.

Business Update: On 25th July 2022, GQG Partners LLC ceased to be a substantial shareholder, with 10,988,083 securities affected.

Outlook: The two-stage Cadia Expansion Project remains on track for completion by September 2022, with the first production expected in 1HFY23. Cadia has commenced the planning of its long-term continuation of mining operations.

(2) Sims Limited (Recommendation: ‘Buy’ at AUD 14.210, Potential Upside: Low Double-Digit)

(M-cap: AUD 2.77bn, Annual Dividend Yield: 4.95%)

Company Overview: Sims Limited (ASX: SGM) is engaged in buying, processing, and selling ferrous and non-ferrous recycled metals.

Raised Pricing Impact Favouring Fundamentals: On 17th July 2022, SGM released a daily buy-back notification with repurchased securities amounting to 70k. In FY21, SGM experienced material developments in market prices and an increase in proprietary sales volumes by 8.0%, with proprietary intake volumes increasing by 7.1% PcP.

Raised Price and Volume Metrics Surging Top-Line: In H1FY22, SGM registered sales revenue of AUD 4,265.0mn, up by 73.9% PcP and statutory EBIT was inked at AUD 341.4mn, up by a significant 334.9% PcP. The earnings grew due to increased sales volumes and higher material prices, alongside disciplined margin management. Trading margin expanded by 45% via disciplined management of bid-ask spread as selling price improved.

Outlook:  Momentum has continued to H2FY22 in the metal business. Intake volumes have increased, as non-ferrous commodity prices increased relative to the HY22 average while ferrous prices remained elevated, despite high volatility.

(3) Lifestyle Communities Limited (Recommendation: ‘Hold’ at AUD 15.830, Potential Upside: High Single-Digit)

(M-cap: AUD 1.66bn, Annual Dividend Yield: 0.59%)

Company Overview: Lifestyle Communities Limited (ASX: LIC) is involved in Australia's property development and management company.

Momentum in Residential Property Market Raising Settlements: In FY22, new home settlements of 401 (FY21: 255) and 143 counts of resale settlements attracted a deferred management fee. Momentum in the residential property market and continued compression in capitalisation rates for land lease assets have resulted in an uplift of AUD 92.6mn in the value of the property portfolio. LIC expects reported NPAT in the range of AUD 88.4 – 89.4mn.

Outlook: LIC plans to deliver 1,400 – 1,700 new home settlements from FY23 to FY25. Settlements for FY23 are expected to be consistent with FY22 as new projects come online at Phillip Island, Woodlea, Clyde, St. Leonards, Pakenham, Leopold, Merrifield, and Ocean Grove.

Comparative Price Chart

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is not a reliable indicator of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 25^th July 2022. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above.

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