S&P 500was up by 8.18 points or 0.44% to 1865.62 on Tuesday. U.S. stocks advanced for the first time in three days as commodity and health-care shares rallied and economic data showed consumer confidence at a six year high. The Conference Board’s index of U.S. consumer confidence rose to 82.3 in March from 78.3 a month earlier, the New York-based private research group said today.

Data showed consumer confidence rose more than expected in March, climbing to its highest level since January 2008. The report was the latest in a string of positive reads on the U.S. economy that supported theories that softness early this year was related to bad weather and not weakening fundamentals. In the latest on the housing market, U.S. single-family home prices rose slightly more than expected in January, according to the S&P/Case-Shiller composite index of 20 metropolitan areas, while new home sales fell more than expected in February.


S&P 500 Daily Chart   (Source – Thomson Reuters)

S&P ASX 200 was down 10.3 points or 0.19% and closed at 5336.60 points on Tuesday. Myer is considering ways to sweeten its $3 billion ‘‘merger of equals” proposal for David Jones by taking on debt so it can offer cash as well as shares. National Australia Bank is merging its two main investment divisions to boost the strength of its advice and product teams in the face of increasing competition.

Rio Tinto is facing fresh problems in Mongolia, with one of its subsidiaries warning that it could default on its debts if a cash injection cannot be found. Telstra has opened its new Canberra headquarters after a $20 million upgrade to the Investa Office Fund property. Rupert Murdoch-backed youth media company Vice Media says it could be end up valued as much as Twitter, and is considering an initial public offering amid heady company valuations.


S&P ASX 200 Daily Chart (Source – Thomson Reuters)

The top gainers on ASX 200 were:-

Code	Name	Price	Change	%Change
PMV	PREMIER INVESTMENTS LIMITED	$8.95	$0.90	11.18%
TPM	TPG TELECOM LIMITED	$6.18	$0.42	7.29%
IIN	IINET LIMITED	$7.97	$0.40	5.28%
DJS	DAVID JONES LIMITED	$3.17	$0.08	2.59%
ALL	ARISTOCRAT LEISURE LIMITED	$5.34	$0.13	2.50%
PPT	PERPETUAL LIMITED	$50.72	$1.10	2.22%
MTU	M2 GROUP LTD	$6.20	$0.11	1.81%

 

 
Stock of the Day – Arrium (ARI)

Arrium is a tiny global steelmaker and a modest iron ore miner, producing about 1% of seaborne traded volumes. Low barriers to entry and low shipping rate means the traditional steel manufacturing, recycling and distribution business are highly competitive. Arrium added mining consumables exposure and iron ore resources through acquisitions in 2010 and 2011.

Arrium reported a stronger than expected first half, thanks to the high iron ore price and mildly better than expected volumes. Iron ore production was the main bright spot for Arrium with earnings before interest and tax or EBIT more than tripling compared the first half fiscal 2013 result. We expect it to account for more than 80% of group EBIT in fiscal 2014 but declining to approximately one third of group EBIT by fiscal 2018.


Source - Arrium
 
As a relatively high cost, short life miner with high debt levels, Arrium has significant leverage to the iron ore price. Arrium remains overvalued due to the unsustainability of the company’s iron ore earnings which dominate the company’s returns. 


ArriumDaily Chart  (Source - Thomson Reuters)

With fiscal 2014 set to be a bumper year, the forecast high single digit return is still below the cost of capital. With the key iron ore division facing meaningful headwinds, we expect Arrium’s returns to decline to mid-single digits. Iron Ore prices are likely to fall due to slowing Chinese steel consumption growth and increasing iron ore supply. Arrium’s short reserve life of just five years dictates meaningful reinvestment in exploration and development to maintain output. We find Arrium too expensive at its current price and would review the stock at a later date.

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