Alpine Capital says there\u2019s a caldera forming where cash-strapped ASX traders seeking liquidity used to be.<\/p>\n
The 2023 flight to safety has left many leading ASX micro-and-small caps names undervalued and primed to erupt.<\/p>\n
Launched earlier this month and servicing emerging co\u2019s and their investors is the new wealth management platform Alpine Capital.<\/p>\n
Spun out of Wentworth Securities and RE Capital, Stockhead cornered a few of the executive team \u2013 a combo of big name blue chip standard advisors and brokers including Thomas Schoemaker (Head of Wealth Management), Phil Cawood (Head of Institutional Sales), Malcolm Nutt (Director), Charlie Reed and RE Capital founder James Emonson.<\/p>\n
With the Israel\/Hamas conflict in full spiral and with global markets looking visibly rattled, Stockhead asked the Alpine team for a rundown on where they see the trajectory for the local benchmark.<\/p>\n
With the ASX now in deeply in the negative for 2023 and facing down a fresh surge in US bond yields, Alpine\u2019s Charlie Reed and Phil Cawood say the small cap sell off over 2023 is creating a bit of a small cap caldera and it\u2019ll be worth sticking around to see when it blows.<\/p>\n
But before Phil picks 2x small caps Alpine is backing for the big one \u2013\u00a0 here\u2019s their rather comprehensive in-situ take as the final quarter of another volatile year looms upon us.<\/p>\n
I find sometimes \u2013 perhaps more so during these exciting days of macro economic uncertainty \u2013 that everyone likes to get straight to which stocks everyone else is shorting.<\/p>\n
Today, we can do that.<\/p>\n
Via Alpine<\/em><\/p>\n \u00a0<\/p>\n But why is that so satisfying to look at? Are we all closet contrarians? And Pilbara Minerals?<\/p>\n The ASX short of the decade remains way out in front on its eternal highway to hell\u2026<\/p>\n Via Shortman<\/em><\/p>\n September saw the S&P 500 finish down 4.9%, the NASDAQ decline 5.8% and Australia\u2019s All Ordinaries Index finish 3.57% lower.<\/p>\n Oil prices are set to remain high for the rest of 2023 having increased 25% since June to $US91 a barrel.<\/p>\n Saudi Arabia and Russia pledged to cut oil production by 1.15 million barrels per day until the end of the year, adding to inflationary pressure as fuel prices continue to climb.<\/p>\n Recent conflict between Israeli and Hamas may lead to further supply-side constraints for oil in the event of the US enforcing sanctions against Hamas-ally Iran.<\/p>\n \u00a0<\/p>\n Alpine\u2019s Charles Reed, the former head of Corporate Finance at PAC Capital, says September\u2019s flat Consumer Price Index (CPI) reading highlights the current challenges in the US economy.<\/p>\n \u201cThe US Federal Reserve is taking a cautious approach to monetary policy indicating rates are expected to remain higher for longer as stronger than expected economic growth and employment, coupled with rising oil prices puts pressure on achieving the 2.0% long run inflationary target in a timely manner.<\/p>\n \u201cThe increase in the US Federal Reserve Rate has contributed to the AUD coming under significant pressure in recent weeks reaching lows of US$0.618, as volatility surrounding Asia\u2019s growth and the robust nature of the US economy continue to weigh heavily on the short-term performance.\u201d<\/p>\n \u00a0<\/p>\n The S&P\/ ASX 100 Resources index and the ASX All Resource Index have led resource focused indices to date since the start of 2022 with gains of 8.5% and Take a look.<\/p>\n \u00a0<\/p>\n Via Alpine<\/p>\n Charles says this is in-line with the view that many investors continue to seek a safe harbour in larger capitalisation stocks with higher liquidity as uncertainty around the current interest rate and inflationary environment poses a risk to growth focused stocks.<\/p>\n \u201cSuch growth in the larger resources space has been helped by higher-than-expected commodity prices with a falling AUD, with producers such as the mining majors BHP (ASX:BHP)<\/strong><\/a> , Fortescue Metals Group (ASX:FMG)<\/strong><\/a> and Rio Tinto (ASX:RIO)<\/strong><\/a> seeing similar share price growth to the ASX All Resources index over the measured period.<\/p>\n \u201cAs with most established global markets ASX investors were buffeted by the headwinds of unanticipated rate rises through FY23.\u201d<\/p>\n Via Getty<\/p>\n According to Alpine Capital, the August 2023 reporting season (for June 2023 full financial year results) was the third worst this century, with ASX 200 companies reporting a 2.6% EPS downgrade for the 12 months to June, significantly below the median reporting month downgrade of 0.7%.<\/p>\n The RBA expects inflation to decline to 3.25% by the end of 2024 and subsequently dropping further to the 2.0%-3.0% target range in late 2025, although there remains uncertainty around this outlook. Economists believe inflation in Australia could persist for longer than anticipated due to large increases in wage levels despite weak productivity growth, global supply chain disruptions related to the Russia-Ukraine war and rising oil and electricity prices staying firm.<\/p>\n Charlie says local equity capital markets \u2013 like many others \u2013 have done their best to shift capital through a challenging 2023.<\/p>\n \u201cHere we\u2019ve seen its led to a sell-off of names in growth sectors including Technology, Health Care and Consumer Discretionary that had experienced strong performance in the preceding two years.<\/p>\n \u201cWhilst FY23 results saw many companies outperform revenue estimates off the back of resilient nominal GDP growth and consumers with excess savings, profit margins were significantly impacted as a result of increased interest rates and higher wages.<\/p>\n \u201cHowever, despite the sell-off of listed equities in select sectors there\u2019s been support for larger, more liquid names with the ASX All-Ordinaries Index +8.7% for the 12 months to 30 September and the S&P 500 Index +4.8% respectively.<\/p>\n \u201cHighlighting the juxtaposition between larger, liquid stocks and lower liquidity names the S&P\/ASX Emerging Index underperformed the market falling 3.2% on a 12-month rolling basis,\u201d Charles adds.<\/p>\n Via Alpine<\/p>\n Charlie explains the obvious underperformance across the local smaller cap companies appeared to impact stocks \u201cirrespective of sector\u201d with companies with a market capitalisation of $20.0m-<$100.0m down 16.7% for FY23 and companies with market capitalisation of <$20.0m shedding 37.5% during FY23.<\/p>\n \u201cIn short, the premature end to \u2018easier money\u2019 saw investors return to a defensive positioning away from the growth stocks that had outperformed the market through FY21 and FY22 and instead sought a safe harbour in larger cap companies (>$1.0Bn) which tend to offer higher levels of liquidity and the ability to exit underperforming positions if required.\u201d<\/p>\n The not-so-liquid corners of\u00a0 the ASX Tech, Health Care and Consumer Discretionary sectors were among the first sold and hardest hit as investors looked to reverse their risk-on positioning adopted through and inspired by the flood of cheap money circa COVID-19.<\/p>\n Alpine Capital believes this turnaround is beginning to offer cyclical and valuation advantages for the less-liquid and recently less-loved ASX Small Ords (XSO) and ASX Emerging Companies (XEC) names.<\/p>\n \u201cWith larger capitalisation stocks becoming crowded we expect investors to embrace smaller companies to achieve outperformance through FY24 once central banks indicate a less hawkish stance than currently foreshadowed.<\/p>\n \u201cShould US Federal Reserve continue their hawkish stance on the Federal Funds Rate, remaining higher than the RBA\u2019s cash rate will prompt foreign investors to flock to the US, potentially pushing the Australian dollar further down below the 50-day EMA of $0.6460 into the $0.6300 level or threat of breaking open the $0.6200 level over the long-term.\u201d<\/p>\n Via Alpine Capital<\/em><\/p>\n By the numbers, the S&P\/ASX 200 Utilities and IT indices have led ASX performance over the 12 months to date with gains of 32.0% and 28.1% respectively, followed by Consumer Discretionary up 14.8%.<\/p>\n Via Alpine<\/p>\n Alpine says that despite Australia showing promising early signs of a slowdown in inflation and economic activity, we\u2019ve still got a tight labour market, rising wages, lower productivity and higher energy prices which to place cost pressure on Australia\u2019s economy.<\/p>\n \u201cSo, Australia\u2019s CPI coming back to the target 2.0%-3.0% range is likely to remain the focus of Australia\u2019s central back for the balance of 2023 and into 2024.\u201d<\/p>\n \u201cAs interest rates remain higher in the US the lower Aussie dollar and the higher USD should continue to drive competitive demand for Australia\u2019s resource exports including coal and iron ore.\u201d<\/p>\n Via Alpine Capital<\/p>\n Charlie says that in the face of higher interest rates, a lower AUD and weaker domestic spending, it\u2019ll be more of exactly what happened last week \u2013 Consumer Discretionary, Technology and Health Care equities \u201care expected to remain challenged.\u201d<\/p>\n \u201cRoll-off of fixed mortgages will impact on consumer spending with an estimated 13% of variable rate mortgage holders now being unable to cover household expenses, up from just 3% in April 2022.\u201d<\/p>\n Via Alpine<\/p>\n Phil Cawood, Alpine Capital\u2019s co-founder & head of institutional sales,\u00a0 says almost two years into the global critical minerals arms race and it\u2019s becoming clearer which local firms and sectors are best placed coming round the turn. Ever since the US President Joe Biden won support for his $560bn Inflation Reduction Act (IRA), select Australian companies have \u2018hit the accelerator.\u2019<\/p>\n \u201cBiden\u2019s IRA deal which Australian Prime Minister Anthony Albanese signed up to in May is very much a defence initiative within a cost-cutting\/energy transition legislation.<\/p>\n \u201cAt the very centre of it all is Australia and Australian companies \u2013 there\u2019s a footrace to secure and develop critical minerals as an increasingly urgent diversification of the new energies supply chain away from China.<\/p>\n Phil says the greater bulk of the globe\u2019s separated rare earths (REEs) and almost three-quarters of Australia\u2019s lithium sales end up inside China.<\/p>\n \u201cBeijing dominates the manufacturing of solar cells, rechargeable batteries and also motors, and \u2013 with the kind of political tension and economic division we\u2019re seeing right now \u2013 it\u2019s mathematical that the US and it\u2019s partners are looking for sustainable paths to unwind that level of concentration.<\/p>\n \u201cSo there are many rich opportunities within the local emerging market segment which we see as attractive.\u201d<\/p>\n Under the shifting geopolitical sands, 3DA just moved their flagship titanium, refractory, and specialty alloy-powder production ops, and applied research and development endeavours to the US.<\/p>\n \u201cSince Hank Holland has taken the reins as executive chairman in August 2022, Hank and his team have done substantial work to position Amaero as a key beneficiary of US critical minerals on-shoring as Biden\u2019s IRA plans come to fruition.<\/p>\n \u201cAmaero is positioned to leverage the resurgence of the US manufacturing sector and proximity to a more robust regional ecosystem.\u201d<\/p>\n 3DA is strategically establishing a vital cog in the industrial capability that aligns with what are now \u2018paramount initiatives\u2019 in advanced key materials and manufacturing, \u2018while bolstering supply chain resilience\u2019 for critical minerals and aerospace and defence production.<\/p>\n Via 3DA<\/em><\/p>\n Phil says the announcement marks a significant milestone and step-change for Amaero.<\/p>\n \u201cAmaero is pretty ideally-positioned to become a primary supplier of titanium, refractory and specialty alloy powder \u2013 and, just one example \u2013 these materials are the building blocks of hypersonic weaponry.\u201d<\/p>\n The company also boasts an entirely unique, next-generation atomiser, the first of its kind in the US (and the second globally), which produces \u2018a world-leading yield of the highest-value powder spectrum.\u2019<\/p>\n \u201cThe production of C-103 (Niobium) from the company\u2019s new facility in Tennessee has it well placed to leverage on-shore US aerospace and defence demand in coming years,\u201d he adds.<\/p>\n Amaero plans to dedicate the first atomiser\u2019s production to C-103, with high-performance, heat-resistant properties critical to areopsace and defence applications.<\/p>\n Last week A3D told the ASX that within the refractory and specialty alloys market, Amaero distinguishes production by ensuring very high-temperature alloys, such as C-103, are produced without contamination.<\/p>\n \u201cResulting in the purest powder that can be produced today.\u201d<\/p>\n Phil says that in the current target rich environment the Alpine team has collection of preferred themes and sectors.<\/p>\n \u201cBut, at this stage the team continues to look at companies with a focus on the thematics which have proven experienced Australian early-stage investors want to back: leaning on the FX outlook, the geopolitical landscape and the risk appetite \u2013 we\u2019re particularly encouraged by some of the ASX gold companies.<\/p>\n \u201cMatsa Resources is one to look out for with 926K Oz at 2.5g\/t and under exclusivity with AngloGold Ashanti.<\/p>\n \u00a0<\/p>\n Via Matsa Resources<\/em><\/p>\n Last month, Matsa Resources (ASX:MAT)<\/strong><\/a> secured further capital via an oversubscribed placement from major shareholders, including Deutsche Balaton and a number of new investors as the diversified digger fast tracks its lithium assets in Thailand and eyes the\u00a0potential sale of its 936,000oz Lake Carey gold project to AngloGold.<\/strong><\/a><\/p>\n Matsa is progressing its Thailand lithium ambitions, closing in on a maiden drilling program, says Phil.<\/p>\n Via Matsa Resources<\/em><\/p>\n \u00a0<\/p>\n Charles says Alpine Capital<\/a>\u2018s goal is to provide full service advisor, stockbroker and wealth management platforms for Aussie emerging companies and their investors.<\/p>\n \u201cIt\u2019s an experienced and well regarded team with significant experience in capital markets, emerging equities, corporate advisory and wealth management, boasting Corporate Finance, Institutional Sales and Wealth Management divisions.\u201d<\/p>\n Charlie says Alpine formed with clients seeking deals to launch before Christmas.<\/p>\n \u201cIn our experience completing a transaction is only the start of the client journey.<\/p>\n \u201cThrough the addition of Institutional Sales and Wealth Management to our service capability we will work with companies and investors on private and public market opportunities across technology, natural resources and general industrials. I am excited by the initial interest, including a range of transactions prior to Christmas.\u201d<\/p>\n At Stockhead we tell it like it is. While Matsa Resources is a Stockhead advertiser, they did not sponsor this article.<\/strong><\/em><\/p>\n <\/span><\/p>\n The post Alpine Capital: There\u2019s a small cap caldera forming where cash-strapped ASX traders used to be. And it\u2019s just a matter of time\u2026<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"ALPINE: THE SITUATION ROOM<\/h2>\n
US equities<\/h2>\n\n
<\/h2>\n
US thematics<\/h2>\n\n
LET\u2019S TALK ROCKS<\/h2>\n
\n4.7% respectively, outperforming the mid cap and small cap resources sector.<\/p>\nALPINE CAPITAL: BIG vs LITTLE ROCKS<\/h2>\n
CASH RATE FORECASTS<\/h2>\n
ALPINE CAPITAL: KEY ASX INDICES (12 MONTHS)<\/h2>\n
ALPINE: ASX PERFORMANCE by SECTOR & MARKET CAP<\/h2>\n
ALPINE: THE MOVING RBA INFLATION TARGET<\/h2>\n
Amaero International (ASX:3DA)<\/strong><\/a><\/h2>\n
Titanium Powder Market Growth
\nGlobal Demand \u2013 By End Use Segment, 2022-32<\/h2>\nMatsa Resources (ASX:MAT)<\/strong><\/a><\/h2>\n
Matsa Re-rating timeline<\/h2>\n
ALPINE HOPING FOR A WHITE XMAS<\/h2>\n