Investment Matters

Company News

Reliance Worldwide (positive impact) provided a trading update this week.

The company has seen a significant growth in sales, primarily due to the freeze event experienced in southern US states during February (such as Texas). Sales in the Third Quarter of FY-21 are now expected to grow by 14%, or 27% when taking into account the difference in exchange rates between periods.

These freeze events often result in the bursting of plumbing which is routed/designed for warmer climates, with Reliance’s products, such as its push to connect fittings, providing a quick and convenient repair solution.

Core growth driven by repair and remodelling activity by a booming US housing sector has also continued.

Offsetting this somewhat, the company noted that input costs, primarily brass fittings (copper and zinc) continue to rise, which it will look to pass onto its customers.


Emeco (negative impact) announced it expects its operating profits to be marginally lower than previously expected.

The company’s core rental fleet business is performing as expected. The market was already wary of an update from Emeco regarding operations in their Eastern division but that proved unfounded. Hence, despite the downgrade, the stock is trading at a higher price than at the start of the month.

The reduction in expectations has been driven by its newly acquired underground mining business – Pit N Portal - which has experienced commissioning issues in early stage works.

The company has also flagged additional capital expenditure of $14 m to acquire additional second-hand underground mining equipment.

We continue to look forward to seeing the incremental investments Emeco has made translate to cash flow over the coming years.


Woolworths (neutral impact) announced its 3rd quarter sales results.

Woolworths is amongst the first companies to report sales growth that laps the impact of COVID in 2020. As we all remember (from toilet paper fights!) the landscape for supermarket sales changed dramatically between January and the end of March 2020.

Understandably, we saw Woolworths in the past 13 weeks:

  • growing strongly through January and February compared to pre-COVID last year through (sales +8.2% this year vs last)
  • exhibit sales in late February and March that were substantially below last year‘s frenzy (sales –9.6% this year vs last)

The nuance of positive and negative in the same announcement, and the reminder that all businesses are going to face disjointed comparison saw the stock sold off 3%. That’s as crazy as toilet paper fights.

We were much more interested in the huge ongoing and sustainable growth in online shopping, as Woolworths further enhances its status as Australia’s Amazon for food. We were also exceptionally pleased with the continued improvement in Net Promoter Score. As we first mentioned during the COVID panic, Woolworths is proving itself a company that will grow better through the adversity of 2020.

In addition, the repositioning of Big W remains a spectacular success (sales +18% both pre and post COVID comparisons) and the growth in online (7.5% of sales) now represents a source of revenue that once may have been thought lost to the discount department store sector.

Of interest to some, the pre and post COVID impact to Woolworths Drinks (read alcohol) division was also stark – there was a lot of alcohol consumed in lockdown. The Endeavour Group business as it is now known is expected to be spun-out (demerged) or sold in the coming 6 months.


Carbon Revolution (neutral impact) is looking to raise $95m through a placement and entitlement offer. Proceeds will be used to fund the building of its mega line technology, which combines its existing processes with automated part handling.

The investment is being made in advance of five new wheel programs which are under a detailed design agreement and will represent substantial growth in production of approximately 75k wheels per annum (the company currently produces a run rate of approximately 12 thousand wheels per annum).

We participated in the placement on behalf of clients, which was conducted at a substantial discount and took the opportunity to purchase additional shares at this price (note: these purchases are yet to be reflected in client accounts).

While these new agreements are promising, the company will need to prove up its value with additional contract wins and growth in production volumes to achieve scale.


Sandfire resources’ (positive impact) quarterly activity report was a reminder that the company is producing considerable cash flow in a favourable pricing environment.

Sandfire produced $127.8 of cash over the quarter, which was driven by the price of copper which has continued to rise over the quarter. We were pleased to see the company’s share price rise by 14% over the week – having risen by 42% over the financial year.

Critically, the company continues to advance its T3 project in Botswana, commencing land clearing for camp, road access and establishing a boundary fence. Orders have been placed for key equipment and tenders for key contracts (mining, village construction) are close to award.

We are of the view that the market is quick to discount growth projects such as these until they are closer to fruition, however we expect the company’s share price to reflect the value of T3 and Black Butte as the projects continue to progress.

As the graph below shows there have been periods over the past year (First Samuel average price around $4.20 in March) over which the share price failed to reflect the rise in copper. Periods included the ban in Chinese copper trade in November and a weak quarterly update in September 2020. Sandfire’s share price has recently begun to close this gap.


Source: First Samuel, IRESS


TZ limited (positive impact)

TZ Limited announced both the completion of a placement of new shares and notification of a rights issue (one share per 2 existing shares).

TZ Limited completed the $2.5m placement of new shares to “a number of sophisticated and professional investors”. First Samuel did not take part in this placement. The company expects to raise up to $7m from the rights issue.

The company's announcement noted that the funds were expected to be used to “repay debt, pay the costs of the Placement and Rights Issue and for general working capital purposes”. The debt mentioned in the announcement is the TZ Debenture Deeds (1st and 2nd) owned by First Samuel investors.

We continue to work closely with TZ Limited as our debt instruments move towards maturity. In coming weeks, we expect to be able provide more information to investors.


Aurelia Metals (neutral impact)

Aurelia released its 3Q operating results. For most mining companies the operating results are more important than subsequent detailed financial results. Investors are far more interested in seeing how much ore you mined (tonnes), how much valuable minerals were contained in it (grade), how much it cost to mine (all in sustaining cost (AISC)), how much ore you processed (throughput) and what you sold the ore for (selling value).

In the case of Aurelia, the complicated nature of its operations, its multiple locations and diverse outputs (gold, lead, silver and zinc all combined), culminate in a huge amount of focus being placed on such results.

On balance we were pleased with the core operations - the company did what they expected to at Hera and Peak mines. However, upside from the development of Lower Kairos, a particularly rich vein of ore at the Peak Mine, has been delayed a further 2 months. The ore is still there! The market will have to wait a little longer.

The recent Dargues acquisitions (gold mine situated halfway between Canberra ACT and Batemans Bay NSW) were understood to be only fair value by First Samuel. The optimal operating conditions of the relatively newly established mine were and still are in ramp-up. Hence establishing the merit of the acquisitions to the market is also taking time. These quarterly results showed the progress the company expected, and we will sound a sigh of relief in coming quarters when the full value of the plan is executed.

And finally looking towards the next 5 years, the results highlight the ongoing development of future value at the companies Federation and Great Cobar deposits.


The above market commentary represents the views and opinions of First Samuel Pty Ltd. Such market commentary contains information of a general nature only. Such market commentary is not intended to provide a sufficient basis on which to make any investment decision and should not be taken as such. It has not taken into consideration your objectives, needs or financial situation. Before making decisions in relation to any financial product, you should always obtain and read any relevant Product Disclosure Statement or information statement and seek personal financial advice.