Education
James Gerrish

Reporting hit a peak today with around 35 companies out with results and once again, we’ve had some significant moves across the market. From what I can see 25 large cap stocks rallied more than 4% while 14 large caps fell by at least the same margin. We also has some big moves from companies that reported yesterday and over or undershot the tap  - a key example being Emeco (ASX:EHL), a stock we looked at this morning as a potential buy however they bounced hard and fast – closing up +13.62%  today. Cooler heads also prevailed in Bingo (ASX:BIN), a stock we added to the portfolio yesterday with the waste collection business adding 12.35% to close at $1.365.

We’ll dig into company results below, however at the sector level most buying was once again targeted towards resources thanks in part to good earnings but we also saw strong commodity prices overnight. BHP’s result (as we covered yesterday) was a miss at the earnings line and the first reaction was a SELL in London, however a big pop across base metals reignited buying and the stock put on another +2.51% today while Fortescue (ASX:FMG) added another 5.35% to close $6.69 following their results.

However, the market overall was less bullish today hitting an early high before selling off during the afternoon session – a pop higher in the match made things look a bit better. Perhaps the height of reporting is corresponding with a short term top in the mkt!!

The ASX 200 closed down  -10points or -0.17% to 6096. Dow Futures are currently trading down -32pts.

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Reporting today; I covered a number of reports in the Income Note today out around lunchtime including Woolies, (which Harry also covers in more detail below), Coles, Fortescue Metals, BHP, and Stockland   – click here – however there are a raft to get across.

The subject of a scathing short report recently from VGI partners that knocked the stock from a high of ~$34 to a recent low sub ~$20,  Corporate Travel (ASX:CTD) has today done a good job of silencing the doubters putting on +14.69%. The result was inline plus they said full year numbers would be at the top end of EBITDA guidance which was $144 to $150m. The market had already priced that in with consensus sitting at $149.6m however they used fairly conservative FX assumptions and from what I could tell, the US growth engine is starting to heat up. While todays move would be supported by short covering, and the stock is still some way off recent highs, I’m sure management will enjoy todays move…

Corporate Travel Management (ASX:CTD) Chart

In the smaller growth orientated area of the market, jewellery company Lovisa (ASX:LOV) put on more than 20% on a better outlook. These guys had been under a lot of pressure falling from ~$12.50 to below ~$6.00 highlighting how bearish the market had become. Today’s news went some way to allay those concerns even though they said that same store sales were tracking below their target range of 3-5%.

Arial imagery company NearMap (ASX:NEA) continued to kick today and is now up four fold in the past year. I’ve often listed to Hamish Douglas of Magellan fame talk about exponential growth that can be achieved through technology and NearMap is a clear example of how scaling technology globally can yield massive results. Well done NEA. Stock up another +7.53% on the session. 

While now a large cap company, A2 Milk (ASX: A2M) was also in vogue today putting on more than 10% following their results. They beat at the earnings line, they beat in terms of guidance and unlike Blackmores yesterday, they’re executing on their Asian growth ambitions. Hard to fault the result today – a likely decline in 2H EBITDA margins the only area to watch. We’d continue to hold if we had it.

On the other side of the ledger, much loved WiseTech (ASX:WTC) fell today after missing guidance – Harry covers this one below. My take on the result is lukewarm and while earnings are not really the play here – growth is – the result failed to excite.

We’ve been stalking Star Entertainment (ASX:SGR) for some time and they fell today to a low of $4.30, before closing at $4.40 down -3.72%. They report tomorrow however fell today following Crowns (ASX:CWN) -5.33% weak result which showed softness in VIP gaming revenue which caused them to miss earnings expectations by a decent margin. We’ll be watching SGR tomorrow with keen interest, targeting a buy below $4.20 depending on the result.

Western Areas (ASX:WSA) is  a stock we hold in the Platinum Portfolio that delivered a weak result today and the stock closed down by 2.47% at $2.37. While the medium term outlook appears fine, the 1H19 result was not an inspiring report card. They missed on profit by a decent margin and that means they’ll (probably) miss for the full year. These guys are coming off a low base and they’ll track Nickel which is doing well, however operationally the scorecard was not a great one today.

Western Areas (ASX:WSA) Chart

Anyone for a Pizza? Domino's (ASX:DMP) ended down 3.05% today which was probably a good result and shows that the market has now re-aligned their thinking towards to stock. The result was weak, they guided to the bottom end of the prior range, they reduced the number of new store openings and yet the stock was down ‘only’ ~3%. They’ll still do EBIT growth of ~13% and on a P/E of ~25x  its actually starting to look okay. The bears have already sold this stock  and a lack of follow through in the selling today is actually a bullish outcome.

Domino's (ASX:DMP) Chart

 

Wisetech (ASX: WTC) -10.09%; Shares in the logistic software company tumbled today on a soft half year report. The stock briefly traded back below $20 today, a fall of more than 15% on yesterday’s close before staging somewhat of a recovery. As a reminder, Wisetech’s main product is a logistics platform that allows management of complex logistics transactions across a number of clients and countries.

Revenue for the 6 months was a beat as the tech darling continues to find strong growth levels, however a miss at the EBITDA line has the market concerned which despite showing 52% growth to $48.5m it came in 1.5% below consensus. Guidance was also a big factor in the stocks sell off, with EBITDA guidance for the full year coming in at $102m-$107m, over 7% below the consensus estimates for FY19. The stock is highly valued, trading on an FY19 PE of around 100x and while earnings are not the driver here,  it’s surprising that the stock was only down ~10% on the miss. No doubt the business is doing well, growing organically and through strategic acquisitions, but clearly missing expectations at this stage can be extremely painful for such a high flyer. Wisetech is a good business in growing markets. We like the operation, but paying up here is only for the brave.

Wisetech (ASX: WTC) Chart

Woolworths (ASX: WOW) -5.16%; the stock slumped today on a soft 1H. Top line for WOW was ok with revenue coming in marginally ahead of consensus ($30.7b vs $30.6b consensus) with sales growth hitting the target, adding another 2.7% in the previous quarter. Profit was the issue here at $920m on continuing operations being around a 5% miss on the markets numbers.

Food sales remain solid while drinks took a hit in the half with the company blaming cooler weather for the lower than expected growth of Dan Murphy’s. A highlight of the result is the continued improvement of Big W which had second quarter sales growth of 5%. Once a huge drag on Woolworths it now seems to be turning around with the next step to turn sales in to profits. Here FY19 losses are expected to be less than FY18’s $110m loss.

Outlook statements for the company talked to continuing strong sales growth however did note that the operating environment is becoming tougher with soft consumer demand as well as higher input costs to weigh on profits. Investors now turn to the planned sale of Woolworth’s petrol business for $1.7b which is awaiting Foreign Investment Review Board (FIRB) approval with the company flagging the potential for an off-market buy-back similar to that of Rio and BHP. Woolies has a large franking balance it can work with, and being a long time loved stock of super funds the buyback would be lapped up by shareholders. Still, it doesn’t scream value with a tough operating environment, costs rising and further competition entering the market.

Woolworths (ASX: WOW) Chart

Broker Moves

  • Coles Group Downgraded to Neutral at Macquarie; PT A$12.19
  • Coles Group Cut to Negative at Evans and Partners; PT A$11.54
  • Coles Group Downgraded to Underweight at JPMorgan; PT A$11
  • Seven West Upgraded to Buy at UBS; PT A$0.60
  • Blackmores Downgraded to Neutral at Macquarie; PT A$95
  • Blackmores Upgraded to Hold at Morgans Financial; PT A$86
  • BHP Downgraded to Neutral at Goldman
  • GWA Group Downgraded to Hold at Wilsons; PT A$3.24
  • Cochlear Downgraded to Neutral at Citi; PT A$190.50
  • Cochlear Downgraded to Underperform at Credit Suisse; PT A$168
  • CSL Upgraded to Buy at Morningstar
  • Bank of Queensland Upgraded to Buy at Morningstar
  • ANZ Bank Downgraded to Hold at Morningstar
  • ANZ Bank Upgraded to Buy at Bell Potter; PT A$29.80
  • Sandfire Downgraded to Sell at Bell Potter; PT A$7.10
  • Sandfire Downgraded to Underperform at Credit Suisse; PT A$6.15
  • Virtus Health Upgraded to Add at Morgans Financial; PT A$4.60

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