The earnings downgrades keep coming (except for one company)

The Morning Wrap

Livewire Markets

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.


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Dividends were the real story of yesterday's reports - but not necessarily all going in the right direction. Carsales (ASX: CAR), JB Hi-Fi (ASX: JBH), and GWA Group (ASX: GWA) all found room to increase their final payouts. The middle of this trio is seeing revenues knock on the door of $10 billion, even in a climate where consumer spending on non-essentials is likely to fade (or at least not be at the same level as it once was). 

Bluescope Steel (ASX: BSL) didn't go for a higher dividend but an expansion to its ongoing share buyback scheme. And Nearmap (ASX: NEA) received a $1 billion takeover offer from Thomas Bravo's PE Fund. Cue the soaring share price!

In contrast, GPT Group (ASX: GPT) had to cut its dividend dramatically after a big slide in profits. Finally, the shares of Bendigo and Adelaide Bank (ASX: BEN) were hammered after management admitted the outlook for smaller players like it will be "bumpy". Even a $500 million cash earnings year was not enough to impress shareholders.

Today - you'll need a seatbelt. It's Seek (ASX: SEK), BHP (ASX: BHP), Goodman Group (ASX: GMG), James Hardie (ASX: JHX), and media titan Seven West Media (ASX: SWM).

Finally, a quick shout out to Ray David at Schroders for this chart from his LinkedIn. For any investor, reporting season is an opportunity to glean new insights into the companies they hold. More importantly, investors can benchmark management’s performance against the objectives they set. It's that latter half that will be of most interest this time given how challenging the macro outlook is. It's also this latter point that is the subject of his chart:

Margins, margins, margins.
Margins, margins, margins.


It's not exactly quiet on the macro front either. Today is RBA Meeting Minutes day. Last month's minutes shocked the markets by revealing the Board actually considered a hike larger than the 50 basis points it delivered. They also discussed the prospect of "neutral" - that is, the rate where full employment and maximum output collide (think of it as economic nirvana). The only problem? It's likely higher than where everyone thought it would be at first.

So watch out for that.

Also on the docket - Canadian inflation. Median inflation (headline) was very close to 5% last month. But as has become the case in markets over recent months, the month-to-month rate of change will be the market mover. It's this period-to-period change that will define where central banks move. 


The recent easing in financial conditions may be premature given that central banks have yet to achieve anything close to policy objectives on their inflation targets. If conditions do tighten again, this would put significant pressure on equities and bonds. It is these conditions that are the subject of the first chart.

And when you speak of conditions, you can bet that a conversation on sentiment and confidence is not far behind. Enter this next chart from Bank of America, which argues that the exit of big money should be the next cue if the equity market is to take another step lower. The only problem for equity bears? That does not appear to have happened yet. 


Today's stock to watch is Resmed (ASX: RMD). Following its results late last week, I couldn't help but notice all the downgrades that were made to the company's stock. As my own financial adviser pointed out, it turns out that in-line results are no longer good enough.

And it would seem the brokers agreed with him, because all but one of the research houses I came across downgraded the stock.

Citi downgraded the stock for valuation reasons, but that didn't stop them increasing their expectations for revenues and earnings next year. There was a similar theme at CLSA. In both cases, the price targets were raised. Ord Minnett had a different approach, arguing there is now little room for error. The company's acquisition of Medifox (a German health-tech) also sets its timeline for buybacks and shareholder returns back some years as well. 

Then, there's Wilsons Advisory and they took the opposite approach. The stock is now overweight at the research house with analyst Shane Storey upgrading the price target by more than $8. 

It seems that they can agree on the trajectory but can't agree on what to do with the actual stock!


Saudi prince made $500mn Russia bet as Ukraine war started (Financial Times): This article is not as sinister as it seems. No, the Saudi prince didn't bet $500 million on a bet with the Russian government on them taking over Ukraine by force. But the Kingdom Holding company did invest hundreds of millions in Russian energy firms before and after the start of the war.

It's not just what you know, but who you know, and how you apply both what and who you know that makes you rich. For better or far, far worse.


Reports surfaced yesterday over claims former prime minister Scott Morrison secretly gave himself powers to jointly run the health, finance, and resources ministries during the height of the pandemic. Luckily, his successor already has another job in mind. Will someone tell him? 

Reports surfaced yesterday over claims former prime minister Scott Morrison secretly gave himself powers to jointly run the health, finance, and resources ministries during the height of the pandemic. Luckily, his successor already has another job in mind. Will someone tell him? 

Today's report was written by Hans Lee.


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The Morning Wrap
Markets Wrap
Livewire Markets

Livewire and Market Index's pre-opening bell news and analysis wrap. Available weekday mornings and written by Kerry Sun.

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