♦ UK Equities research launched
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There has been plenty going on in financial markets lately, and not least of which has been the precious metals markets with gold prices hitting new highs in Australian dollar terms, and rallying almost 20% in the last few months to above US$1500. Other precious metals have also been similarly strong.
However, another metal that has been going gangbusters is nickel, with prices recently surging to five-year highs, and coming to within striking distance of US$19000 a tonne for the first time since 2014.
Against this backdrop there is a nickel stock we think you should consider owning…..
Nickel has broken above a major downward trend in recent weeks after a ten-year bear market.
What’s been happening, and why the surge?
Supply has been delivered a major shock, with Indonesia, which accounts for almost a quarter of global output, saying it will ban exports from December. This is set to create a major supply deficit next year, against the backdrop of strong demand due to the rising demand for electric vehicles.
Falling nickel stocks in LME-registered warehouses at 109,950 tonnes, down 20% so far this year, have fuelled supply concerns. This can be seen in the premium for the LME’s cash nickel over the three-month contract, which has risen above US$100 a tonne – its highest in more than a decade. The global nickel market is estimated at 14 million tonnes, and has been in deficit for some years now, and expectations were for a more balanced market next year. So prices could go a lot, lot higher.
It is estimated that the average EV could contain up to 70 kilograms of nickel per vehicle (the following image shows the commodity content of new model EVs by battery type). Nickel is also used in the steel industry, and this traditional market could also assert pressure on the nickel price over the next few years.Source: Reuters
On the other side there are these clear supply constraints, which will see nickel move toward a supply deficit in 2020, with recent draws on the London Metal Exchange inventories a telltale sign. The move by the Indonesian Government to ban exports two years ahead of the original timetable is significant – Indonesia produced 560 million tonnes of nickel ore in 2018 and accounts for around a quarter of global supply.
One correlation that not often discussed, is the one that exists between nickel and platinum. As can be seen on the chart below, both nickel (purple line) and platinum (orange line) have moved together in recent years – right up to the point where “both staged major multiyear decade long breakouts” within a week of each other!
How to play the bull market in nickel???
So, if you are a believer that the demand for electric vehicles will only increase, one way to play it is by having exposure to a high-class nickel miner, and one that is going to make money, the same of which might not be said of Tesla!
We have identified a strong play on the sector. The company is a high quality, pure play, nickel miner, with a strong operational track record, which was further evidenced by recent FY19 results. Brokers are also sitting up and taking notice and raising their price targets.
The company in 2019 produced nearly 18,000 tonnes of nickel at a cash price of A$2.98 per pound. With nickel currently trading at over US$5 per pound (circa A$7.50 per pound), operating margins will be significant. Any weakness in the A$ will add to the positive mix.
Robust margins are set to persist (and grow) for some time to come, based on our long-term view on the nickel market and developments in the auto industry.
This company is guiding for 2020 nickel output in the range of 21,000 to 22,000 tonnes and the unit cash cost of production to be in the range of A$2.90 to $3.30 per pound. The company has also recently delivered a very positive update on the exploration front.
What to know the name of this stock, and a way to benefit from the surging demand for electric vehicles and nickel?
Fresh out of the bursting of the dotcom bubble, one of Fat Prophets’ early calls was to buy gold at around US$262 an ounce. This was on the basis that the ensuing monetary easing by the Fed would erode the intrinsic value of the US$. Such was to prove correct, with the precious metals sector surging, as gold surged in the ensuing years to reach a peak of almost $1900 in 2011.
While not predicting the full extent of the Global Financial crisis, Fat Prophets’ was very vocal that the level of housing market write-offs was set to accelerate for the US banking sector. We said that the banking sector globally should be avoided and was a ‘no-go.’ The sub-prime disaster was of course what ultimately brought down a number of banks, and also ushered in the GFC.
Going back to 2014, and Qantas was the stock that the market loved to ‘hate’ with intense price competition, rising costs, and overcapacity. Fat Prophets however believed that a number of tailwinds were emerging with an ending of the domestic price war, and with a credible turnaround program under CEO Alan Joyce. After the airline turned a billion-dollar loss into a billion-dollar profit, the market started to agree. Brokers have subsequently started putting buys on QAN around the $6 mark. Fat Prophets has taken the exit for a gain of over 300%.
Not many were giving Donald Trump much of a chance of securing the Republican nomination let alone the US Presidency. Fat Prophets believed that a backlash against the establishment would see Donald Trump go onto be the 45th President of the United States. We all know what happened next.
In late 2014, early 2015, the majority of the investment community were bearish on iron ore, with a wide expectation that China was about to implode, and iron ore was going to US$20. Fat Prophets’ was on the contrarian side, calling a bottom around US$60, on the basis of a still strong Chinese economy, supported by stimulus, urbanisation, and with supply constraints emerging. Iron prices ultimately bottomed around US$50 and went onto surge past the US$120 mark.
With the trade war raging on and concerns over a global recession, oil prices plummeted in the fourth quarter of 2018. Fat Prophets took the view that OPEC would act to stabilise pricing by agreeing an output cut. Such was to prove the case, and with the cartel extending, and complying, with supply curbs well into 2019.
The fourth quarter of 2018 saw a traumatic sell-off, the likes of which had not been seen before, even in the GFC. An ongoing trade war and the prospect of Fed rate rises, had the markets fearing the worst. Fat Prophets took the opposing view and believed that investors would recalibrate their pessimistic expectations as 2019 got underway. The S&P500 did indeed stage a powerful rally in the first half of the year.
With the trade war weighing on sentiment, the Chinese stock market had a tough time in 2018. Fat Prophets however believed that both sides (the US/China) were motivated to ‘do a deal’ and saw the selling in China as excessive, given the market (CSI300 above) was trading on a PE of around 7 times. With China appearing to seize the upper hand in negotiations, the Chinese stock market has since gone onto perform strongly.
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As contrarian investors, we examine company fundamentals to find those rare opportunities so often overlooked by other investors. We then use technical analysis to sharpen our timing.
Whilst you will receive recommendations across the industrial sector and also select financial stocks, key macro themes driving our stock selections include bullish views on both gold and energy stocks.
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CEO and Founder
He has a wealth of experience acquired over more than two decades in both domestic and international financial markets. Aside from running the Fat Prophets group. Angus has broad investment responsibilities within the Funds Management division, which manages close to $100 million.
Angus’s investment track record began in 1982 at the young age of 13. In 1986 he received a “highly commended“ award from the New Zealand Chamber of Commerce for increasing an initial investment of $200 to $35,000 on the world stock markets.
During his career, Angus has worked as a money market dealer in New Zealand, a financial consultant in the United Kingdom and the United States. Moving to Australia in 1996, Angus worked for five years as a stockbroker at Bankers Trust and JB Were before co-founding Fat Prophets in June 2000.
Majoring in Economics, Angus completed a Bachelor of Commerce degree at Otago University, New Zealand in1990. He is also a member of the Securities Institute of Australia having qualified for a Graduate Diploma in Applied Finance and Investment in 1999.
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As at the date at the top of this page, Directors and/or associates of the Fat Prophets Group of Companies currently hold positions in: ASX-listed Australian stocks: ASX-listed Australian stocks: AAC, AAD, AGO, AJA, AMP, ANZ, APA, APG, AVG, BCI, BHP, BKN, BOQ, BRL, BRU, BTR, BWP, CBA, CCL, CDD, CFE, CGL, CKF, CNQ, CVO, CWN, DLS, DNX, DUE, ELD, ENV, EVN, FID, FMG, FXJ, GJT, GMG, GNS, GOR, GPT, GXL, HUB, IAU, IFL, ILU, IMF, JHX, MFG, MGR, MML, MMS, MND, MNF, MPL, MTR, MTU, NAB, NCM, NMG, NUF, OBS, ORE, OSH, OVH, POS, PPS, PRG, PRT, PXG, QAN,QBE, RIO, RXL, RRS, S32,SDG, SFR, SGP, SIV, SLR, SPK, STO, SUN, SYD, TAM, TEN, TLS, TME, TTN, WBC, WFD, WES, WHC, WOW, WPL, WSA. International stocks 3i Group, Acacia Mining, Amec Foster Wheeler, Anglo American, Archipelago Resources, Arian Silver Corp, Aviva, Avocet Mining, Bank of China, Barratt Developments, BMW, Berkeley Energy, BG Group, BOLSAS Y MERCADOS ESPANOLES,SOCIEDAD, Bovis Homes, BP, Braemar Shipping Group, British American Tobacco, BT Group, Cairn Energy, Centamin Egypt, China Life Insurance, China Mobile, China Overseas, China Taiping, China Vanke, Country Garden, Daejan Holdings, Development Securities, Dragon, Enquest, Esure, Euronext, FedEx, Fresnillo, Ibiden, Infosys, Glaxosmithkline, Glencore International, Goldbridges Global Resources, Google (Alphabet), Grainger, Gulf Keystone Petroleum, Highland Gold Mining, HSBC,ICICI Bank, Ironveld, iShares Physical Metals, J Sainsbury, JKX Oil & Gas, John Wood Group, Kazakhmys, Legal & General, Lloyds, Low and Bonar, Market Vectors Junior Gold Miners, Market Vectors Oil Services, Market Vectors Vietnam, Marstons, Medusa Mining, Mitchells & Butlers, Mitsubishi Tokyo Financial, Mitsubishi UFJ, National Grid, Nippon Telegraph and Telephone, Panasonic, Paragon Group of Companies, Petra Diamonds, Petrofac, Petropavlovsk, PICC Property & Casualty, PPHE Hotel Group, Randgold Resources, Rank Group, Reckitt Benckiser, Royal Dutch Shell, Solgold, Sony Corporation, Standard Chartered, STV Group, Sylvania Platinum, Tata Motors, Tencent, Tertiary Minerals, Teva Pharamaceutical, Toyota Motor, Tullow Oil, Unilever, Vedanta Resources, Vodafone, Walt Disney, Zillow. These may change without notice and should not be taken as recommendations.
♦ Fat Prophets was founded in Australia by Angus Geddes, Chief Executive Officer Headquarters in Sydney, Australia ♦ Employees 2
♦ Flagship Fat Prophets Australasian research commences ♦ Subscribers exceed 1,000 for first time
♦ Greg Smith UK Managing Director joins ♦ Patrick Ganley, Chief Operating Officer joins ♦ Fat Prophets Mining launches ♦ Subscribers exceed 2000 ♦ Employees 5
♦ UK office opens at Fleet Street, London – Greg Smith appointed managing director ♦ Patrick Ganley, Chief Operating Officer joins ♦ Subscribers exceed 3000 ♦ Employees 7
♦ UK Equities research launched ♦ Subscribers exceed 5000 ♦ Employees 9
♦ Fat Prophets Funds Management Ltd launches with a $33m float of on the ASX ♦ Subscribers exceed 6000 ♦ Employees 18
♦ Australasian Investment Review (AIR) an online business magazine launched in Australia ♦ US website launched ♦ Subscribers exceed 10,000 for the first time ♦ Funds under management & advice…
♦ Euro Mining research commences ♦ Separately Managed Accounts funds management business launched ♦ Company reorganised and restructured into one holding company, Fat Prophets Pty Ltd ♦ 50% of Marcus…
♦ US office opens ♦ Global Trading report commences ♦ Funds under management & advice exceed $85m ♦ Employees 35
♦ UK Funds Management opens doors ♦ Funds under management & advice exceed $100m ♦ Employees 40
♦ British Investment Digest (BID) online business magazine launches ♦ Subscribers exceed 16,000 for the first time ♦ Funds under management & advice exceed $150m ♦ Employees 50
♦ Wealth Management launches in Australia ♦ Managed Discretionary Accounts offered for the first time on Australian equities ♦ AFSL License varied and stockbroking service launched in Australia ♦ Fat…
♦ Office opened in Auckland, New Zealand ♦ The ‘Daily Fat Chat’ email launched ♦ Weekly Fat Wrap launched ♦ Income Portfolio initiated by Australian research team ♦ Subscribers exceed…
♦ Global Opportunities Model launched by wealth management in Australia ♦ Fat Prophets Member area upgraded ♦ Subscribers exceed 20,000 ♦ Income Portfolio initiated by UK research team ♦ Subscribers…
♦ Weekly research webinars introduced for Australasian and UK Members ♦ Wealth Management offering launched in New Zealand ♦ Subscribers exceed 22,000 ♦ Employees 70
♦ Fat Prophets Global Funds product launched ♦ Fat Prophets Asia research product launched ♦ Global Mining product created with the merger of Australasian and European Mining ♦ Subscribers exceed…
♦ Fat Prophets European Equities report launched
♦ Fat Prophets Global Contrarian Fund (ASX: FPC) launched on the Australian Securities Exchange having raised $48m.
♦ Fat Prophets Public website updated ♦ Fat Prophets videoUPDATE series is launched ♦ Fat Prophets webCAST series gets rebranded
Fat Prophets holds their 2019 roadshow
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