The Reject Shop Ltd

TRS Details
·         Weak trading update dragged the stock lower: The Reject Shop Ltd (ASX: TRS) stock crashed over 35.5% on April 07, 2017 as the group released a weak third quarter of FY17 update. The group reported that their challenging retail trading conditions continued even in the third quarter of FY17 while all states witnessed negative comparable store growth in the third quarter of FY17 especially in Western Australia and the Australian Capital Territory. The group’s underlying customer numbers are lower than the prior corresponding period leading to negative underlying comparable sales of over 4% for the half year to date. TRS forecasts a net operating loss in the second half of FY17 of at least $5 million leading to a decrease in full year net profit to over $12.5 million. Management reported that while focusing on attempts to improve their new and fresh products, their focus on everyday value and bargains decreased. As a result, the in-store promotional program has been impacted, and has adversely affected their foot traffic. Volatile market conditions also added to this as customers were cutting their discretionary spend, while their promotional activity failed.
 
·         Recommendation: TRS stock lost over 22.88% in the last six months (as of April 06, 2017) and we believe this weakness would continue in the coming months. Looking at weakness in the stock, we give an “Expensive” recommendation on the stock at the current price of $ 5.11

South32 Ltd

S32 Details
·         Cannington mining extraction temporary impacted: South32 Ltd (ASX: S32) stock lost over 1.4% on April 07, 2017 as the group reported that their mining extraction at Cannington is temporarily impacted by an underground fire that damaged the load-out and shaft haulage infrastructure. The group reported that their remediation work would be undertaken over a four-week period and extraction of the higher grade (silver/lead) stope 60L would be delayed. Based upon the group’s initial assessment, payable silver, lead and zinc production of 16.5Moz, 135kt and 70kt, respectively, is forecasted to deliver a mill throughput of over 3.1Mt (previously 3.3Mt) in FY17. The group also paid its interim dividend on April 06, 2017.
 
·         Recommendation: Given the situation and trading scenario, we maintain a “Hold” recommendation on the stock at the current price of $ 2.91

Cannington Guidance (Source: Company Reports)

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