The Match Out: ASX bounces back, WiseTech (WTC) delivers outstanding result & rallies

James Gerrish

Market Matters

The market recouped almost 50% of yesterday’s losses today thanks largely to companies reporting stronger earnings. Some big beats played out which helped to improve the overall tone of the market, the Energy sector once again leading the way although support also came from the IT and Material names.

  • The ASX 200 finished up +36pts/ +0.52% at 6998
  • The Energy sector was best on ground (+2.84%) while IT (+2.18%) & Materials (+1.09%) were also strong.
  • Consumer Staples (-1.31%) and Communications (-1.04%) the weakest links.
  • Wisetech (WTC) +12.38% the best of them beating on earnings and guiding for a stronger FY23 – a great result.
  • Dominoes (DMP) +7.57% was better than feared, and while FY22 was a tough year, they talked a better game for the year ahead – they may just have bottomed.
  • Coles (COL) -4.76% on the other hand was soft as inflation right across their business continues to bite – we saw the same trend yesterday from Endeavour (EDV).
  • G8 Education (GEM) +2.06% reported a soft 1H22 result, although slightly better than low expectations + the 2H is looking a lot better
  • Reece (REH) +5.56% rallied after beating on profit, although guidance was ‘cautious’.
  • APA Group (APA) -2.08% had a good FY22 however the distribution guidance for FY23 was a touch light while the CEO departure was a surprise.
  • EML Payments (EML) -10.55% can’t take a trick, now news of fraud losses that could total $7.9m.
  • Calix (CXL) +4.85% higher following FY22 results, more about the compelling story than the financial metrics. We continue to like CXL.
  • Telstra (TLS) ex divi today for 8.5c fully franked – stock fell 10c.
  • Paladin (PDN) +8.09% is now on the up after a healthy pullback – we remain bullish.
  • Service Stream (SSM) -3.55% fell for the 2nd day following yesterday’s results. Huge volume through in the last 2 sessions – going out on a limb, this should be up tomorrow all things being equal. Capitulation has happened.
  • Netwealth (NWL) +7.02% rallied on a strong FUA forecast for FY23 or $11-13bn. This is also positive for HUB which rallied +5.56%.
  • Iron Ore was ~1% higher in Asia today
  • Gold was down $2 to $1746 at our close.
  • Asian stocks were lower, Hong Kong down -1.21%, Japan -0.28% while China was off -1.61%
  • US Futures are all down, around -0.10%  

ASX 200 chart

G8 Education (GEM) $1.00

GEM +2.06%: 1H22 results out this morning for the Childcare operator and they were as weak as we had expected, however, there are tangible signs of improvement that bodes well for the 2H. Operating revenue of $416.7m was around 5% above expectations while underlying earnings before interest & tax (EBIT) of $21m was also a slight beat to low expectations. They have guided to a strong 2H22 driven by better occupancy meeting higher prices, partially offset by the continuing impost of wage inflation and absenteeism. In the first half, occupancy was running at 67.1% however they have experienced a strong rebound from the low in early March to be sitting at 73.8% as at 21st August. They are continuing to work on their cost base, have a strong balance sheet and continue to buy back shares on market. While the dividend was low (1c), this is expected to increase to 4.5c at the FY result.

Reece (REH) $16.15

REH +5.56%: Reported a solid FY22 result after close yesterday, particularly given the backdrop of the share price being down ~50% from its highs. Revenue of $7.65bn was up 22% YoY while Net Profit After Tax (NPAT) of $392.5m was up a more impressive +37%, and above $361.8m consensus. The final dividend of 15cps also helps after a tough 12 months for the bathroom supply business that is now plastered on our screens thanks to their sponsorship of the Block. Looking ahead, they believe it is ‘past peak cycle’ on the demand side and they are preparing for weaker conditions moving forward i.e. a cautious outlook.

WiseTech Global (WTC) $59.77

WTC +12.38%: A very strong result today from the logistics technology business which is propelling the stock rapidly towards all-time highs above $60. Revenue of $632.2 million was up +25% YoY and above consensus of $626.2 million while EBITDA of $319m was a 3% beat , plus they forecast FY23 earnings growth of at least 21% which was above the 19% currently tipped. This was a very strong result and deserved the strong bump in share price. It feels like only yesterday that J Cap released its ‘scathing’ short report when WTC was trading at ~$30!

   

Calix (CXL) $6.92

CXL +4.85%%: full-year results out today were hardly about the numbers but more about the opportunity for environmental industrial solutions business Calix. They are developing technology that can reduce emissions and environmental impact across a range of sectors including biotech, minerals processing, cement & lime manufacturing and water treatment. They received 3 government grants in the year for partnerships with Pilbara (PLS), Adbri (ABC) and Boral (BLD) to further develop the technology and scale up operations. The opportunity is huge, and Calix continues to prove their offering. They have $25m of cash on the balance sheet providing plenty of flexibility as they grow earnings, posting an operating loss of $12.1m in FY22.

APA Group (APA) $11.30

APA -2.08%: FY22 results were inline with expectations today however this is a stock priced on distributions and the guidance for FY23 of 55c was around 3% below consensus, while the announced departure of CEO Rob Wheals was also a negative – it came from left field. While we view APA Group as a high-quality infrastructure company, we think their $1.4bn organic growth pipeline out to 2025 will become more challenging as rates rise, and the best in terms of APA’s share price may well be behind it. We recently sold out of APA Group in our Income Portfolio.

Coles (COL) $17.84

COL -4.60%: shares in the supermarket giant fell to 6-week lows today on soft outlook commentary. FY22 Net Income was $1.05b, up 4% and a slight beat to expectations, paying a 30c final dividend, largely as expected. The beat was driven by the core supermarkets business whereas Liquor and Express saw EBIT falls of 1.2% and 37.3% respectively. While no specific guidance was provided, the company talked about continued inflation pressure, particularly in wages, supply chain, weather impacts and energy. They will also be cycling strong sales seen in lockdowns this time last year so expect to see lower sales year on year early in FY23.

Domino’s Pizza (DMP) $72.15

DMP +7.57%: FY22 results were soft for the pizza chain today. Revenue was a slight miss at $2.3b, while Net income missed consensus by~5% at $158.7m. They continue to grow store numbers, up 10% organically in the period, however, same-store sales growth fell by -0.3%. The company said pricing initiatives have helped to offset food, labour and energy inflation, particularly across APAC. Also announced today was the purchase of minority shareholders of the Malaysia, Singapore and Cambodia Domino’s businesses, taking their share in these markets to 100% which is expected to be 5% EPS accretive, perhaps offsetting the disappointing numbers today. They’ve also reaffirmed 3-6% same-store sales growth and 8-10% of organic store additions as their medium-term target.

EML Payments (EML) 89cc

EML -10.55%: the embattled payments company took another hit today, disclosing that it had detected fraudulent transactions from its direct debit processing business. The European segment discovered a number of fraudulent merchants taking part in $7.9 worth of transactions through August. Steps to recover a portion of the money have been taken which may reduce losses however it is another stain on the business already struggling with compliance. The full potential loss is around 25% of FY22 earnings.

Broker Moves

  • Perenti Raised to Buy at Moelis & Company; PT A$1.21
  • Rio Tinto Cut to Neutral at Macquarie; PT A$100
  • Adairs Cut to Market-Weight at Wilsons; PT A$2.30
  • Ansell Cut to Equal-Weight at Morgan Stanley; PT A$28.77
  • Alumina Cut to Neutral at Citi; PT A$1.60
  • Kogan.com Raised to Neutral at Credit Suisse; PT A$3.66
  • Ansell Raised to Neutral at Credit Suisse; PT A$25.20
  • Monadelphous Raised to Outperform at Credit Suisse; PT A$14.10
  • Pilbara Minerals Cut to Underperform at Credit Suisse; PT A$2.30
  • Scentre Group Cut to Neutral at Credit Suisse; PT A$3.08
  • Mt Gibson Cut to Underperform at Macquarie
  • TPG Telecom Cut to Neutral at Macquarie; PT A$5.70
  • New Hope Cut to Sell at Citi; PT A$3
  • Pilbara Minerals Cut to Neutral at JPMorgan; PT A$3.50

Major Movers Today

Have a great night

The Market Matters Team

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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