The Match Out: ASX disappoints with small gain, China stimulus supports resources, Elders (ELD) beats 1H

James Gerrish

Market Matters

The ASX200 tried hard early to deliver a post-election rally for local investors but a 1% pop by the S&P500 futures wasn’t enough to instil lasting confidence locally and after a 50-point advance by 11am we drifted lower throughout the day to close only 3-points higher. The selling felt more akin to a lack of interest as opposed to meaningful negativity with a drop by the banks & healthcare names largely offsetting gains in the Resources Sector.

  • The ASX200 finished up just 3-points / +0.05% at 7149 with just over 60% of mainboard stocks closing up on the day.
  • The Energy +0.3%, IT +0.4% and Materials +0.8% Sectors were the best on ground.
  • Conversely the weakest links were the Utilities -0.9% , and Financials and Consumer Staples both -0.4%.
  • The iron ore stocks benefited from the news that China’s stimulus has topped $5 Trillion as Beijing’s “COVID Zero” target continues to suffocate their economy e.g. BHP Group (BHP) +1.4% and Fortescue Metals (FMG) +2.8%.
  • Building stocks also benefitted from the stimulatory news out of China with CSR (CSR) +2.8% and Boral (BLD) +1.7% recovering some of their recent weakness.
  • The AUD was another who embraced the positive growth news but as has been the sector rotational nature of our market it wasn’t enough to lift broad-based equities in a meaningful manner.
  • Incitec Pivot (IPL) -3.74%, delivered a disappointing set of numbers in their 1H. They also announced plans to split the explosives (Dyno Nobel) and Fertiliser (Incitec Pivot Fertilisers) into separate listings with an initial ~$100m cost.
  • Elders (ELD) +8.91%, rallied on a strong 1H and upgrade to guidance – more on that below
  • Codan (CDA) +14.52%, provided positive guidance 6 weeks out from their FY results with a strong swing in cash flow. This is also covered below.
  • Iron rallied over 4% in Asia to ~860 CNY/MT.
  • Gold rallied over $US10/oz to ~$US1,855 although the gold stocks paid little interest.
  • Asian stocks were mostly lower with the Hang Seng -1.3%, China -0.1% but Japan bucked the trend rallying 1%.
  • US S&P Futures we trading up 1.2% as the ASX200 closed its session, NASDAQ futures up +1.6%.

ASX200

Codan (CDA) $7.73

CDA +14.52%: The communications and metal detection business saw shares jump to 3-month highs today after providing guidance for performance in the second half. The company expects net profit for the second half to be in line with the record $50 million posted in the first half, in line with consensus expectations. Cashflow for the period has also been strong, banking $41 million so far, bouncing back from the -$13 million achieved in the 1H. Demand has remained strong across the board, and management said the inventory investment in the first 6 months of the year is now contributing to strong performance in the back end of the year.

Elders (ELD) $14.92

ELD +8.91%: The agricultural services company was out with 1H numbers for the 6 months to March, coming in 5-10% ahead of consensus and upgrading guidance to help shares trade to new long term highs. Revenue climbed 38% to $1.5 billion, and EBIT jumped 80% to $132.8 million in a strong start to the year. Conditions were buoyant across the board with fertiliser and crop protection products seeing higher prices and strong demand as well as high livestock prices supporting earnings. Costs were also up however Elders was able to maintain margins. Cashflow was weak however this was attributed to increasing inventories which they expect to benefit from with a positive outlook for winter crops. With the outlook remaining positive, Elders upgraded guidance for EBIT growth of 30-40%, previously 20-30%.

Broker Moves

  • Tabcorp Rated New Hold at Jefferies; PT A$5.38
  • a2 Milk Raised to Neutral at Citi; PT A$4.64
  • Charter Hall Group Cut to Hold at Jefferies; PT A$15.05

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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