The Match Out: ASX back to 7000, NAB result was solid, Coal stocks feel the heat from Europe!

The ASX200 nudged above 7000 again today, only to close a whisker below as we continued to outperform the Asian region. More weakness in the $US overnight underpinned buying amongst the resources sector with Gold finally bouncing (hard) from the naughty corner. Standing back for a moment & reiterating our comments from this morning, the $US has appreciated over +28% in less than 18 months against a wide basket of currencies as the Fed has hiked interest rates at a more aggressive pace than others, while some such as the BOJ have simply sat on their hands hoping that inflation resurfaces – another demonstration that not all markets/economies move as one. So far the $US pullback has amounted to less than 20% of the strong bull run, more weakness would be enough to ignite a number of sectors including gold, oil and resources in general….we are positioned for such a move.

• The ASX 200 finished up +40pts/ +0.58% at 6999.
• The Material sector was best on ground (+2.47%) while Property (+1.38%) & Utilities were also strong.
• Communications (-1.41%), Staples (-0.39%) & IT (-0.39%) the weakest links.
• Lead Portfolio Manager James Gerrish was on Ausbiz this morning covering REA, NAB & GOLD – Watch Here
• Gold stocks on fire today led by St Barbara (ASX: SBM) +13% while Newcrest (ASX: NCM) +6.88% mirrored the rally in Barrick Gold (NYSE: GOLD) in the US. We own these 3 gold names.
• Coal on the other hand was weak, Whitehaven (ASX: WHC) -8.5% on a production downgrade although New Hope (ASX: NHC) was also down 6.39% - Coal Futures trading at $US320/tonne today.
• We penned a recent note titled…. Dare we say it’s time to buy gold & sell coal? Read it Here
• REA Group (ASX: REA) -4.27% reported softer than expected quarterly revenue.
• NAB -0.91% released a solid FY result with cash earnings & dividend both a very slight beat – costs were up which has been a theme right across the board.
• James Hardie (ASX: JHX) -1.11% down again today following yesterday’s downgrade, however buyers into new lows mid-afternoon popped up – looks to MM like selling pressure is subsiding.
• Oz Minerals (ASX: OZL) +1.74% and Sandfire (ASX: SFR) +2.83% up today on Copper strength – we own both.
• BHP Group(ASX: BHP) +2.06% holds its AGM tomorrow and once done there it would make sense that they re-visit the OZL deal – at least increase the bid to get a look under the hood.
• Iron Ore was ~2% higher in Asia supporting Fortescue (ASX: FMG) +2.95% & RIO +2.37%
• Gold stormed higher overnight to ~US$1711 before tracking down -US$2 in Asian trade, settled around $US1709 at our close.
• Asian stocks were lower, Hong Kong down -1.59%, Japan -0.61% while China was off -0.47%
• US Futures are largely flat.

ASX 200 Chart

REA Group (ASX: REA) $114.11

REA -4.27%: A slightly weaker quarterly update today saw shares trade lower, revenue for 1Q23 of $305m was up 16% YoY but around ~4% below expectations while EBITDA of $174m was +141% YoY and inline which implies they are managing costs well and have some room to tweak the cost base when needed. They did sight cost growth for the remainder of the year would be in the high single-digit/low double-digit range however went on to say they still expect revenue growth to exceed cost growth, and given current consensus for revenue growth of +9.7%, this guidance is not a red flag. In terms of property trends, October buy listings were down -18% YoY with Sydney -31% and Melbourne -29% due to the rush of listings this time last year post lockdowns. They have managed to push through higher prices with a national price rise of 6% and this is providing support during a challenging period. We own REA, having bought it for ~$120 in September and while today’s result was a touch soft, we remain positive.

Whitehaven Coal (ASX: WHC) $8.60

WHC –8.5%: the coal giant struggled today after downgrading production guidance on the back of persistent wet weather. Their main asset, Maules Creek, has been heavily impacted by rain, seeing guidance dropped 1.5Mt, or 12% at the midpoint. A slight downgrade at their Gunnedah operation was offset by a small upgrade to Narrabri, though the group guidance was lowered by 8% to 19-20.4Mt. The company had flagged the likelihood of a downgrade at their quarterly update and AGM however it’s still a disappointing outcome, particularly given the high coal prices. Cost guidance was also pushed around 6% higher on the back of lower production while Coal prices have come off the boil as we flagged yesterday… Coal prices are down with Newcastle Futures (Dec) trading at $US$334, down from a $US450 September high due to unseasonal (high) temperatures in Europe, Gas reservoirs at capacity ahead of winter & LNG cargoes waiting to unload i.e., in short, a market that is not tight for energy units (for now at least).

NAB $31.66

NAB –0.91%: the last of the banks to report this period, NAB shares fell today despite a slight beat to expectations. Cash NPAT came in at $3.6b and the bank will pay a final dividend of 78cps, both small beats to consensus numbers. Net Interest Margin (NIM) was a little light at 167bps, however, the exit run rate of 172bps shows the improvement coming through as rates rise. As with all the banks this period, NAB reported Bad Debts and Non-Performing Loans at historically low levels with credit quality remaining robust. Costs were higher and this is a trend right across the board, however, the bank is aiming for $400m in cost savings into FY23 with an additional $100m of investment forecast.

Broker Moves

• Aristocrat Cut to Neutral at Credit Suisse; PT A$37.20
• James Hardie GDRs Cut to Accumulate at CLSA; PT A$34
• Computershare Raised to Outperform at Credit Suisse; PT A$29
• Sims Cut to Neutral at Credit Suisse; PT A$12.20
• Suncorp Raised to Equal-Weight at Morgan Stanley; PT A$11.30
• Silver Lake Cut to Sector Perform at RBC; PT A$1.50James Hardie GDRs Cut to Sector Perform at RBC; PT A$34City Chic Raised to Buy at Citi; PT A$1.74
• Charter Hall Retail Raised to Buy at Citi; PT A$4.30

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