The Match Out: ASX down a touch, the turnaround continues for Treasury Wines

James Gerrish

Market Matters

A weaker session today for the ASX with some hits and misses from companies that reported. Energy stocks were strong, Coal names continuing their recent momentum while IT fell on higher bond yields and some weaker commentary from heavyweight Xero (ASX:XRO).
  • The S&P/ASX 200 fell -14 points / -0.21% to close at 7112
  • Energy (+1.37%) & Healthcare (+1.11%) the clear standouts on the upside.
  • IT (-2.43%) and Utilities (-1.55%) the weakest links.
  • Jobs data out this morning was weaker than thought even though the unemployment rate fell to a 48-year low of 3.4% in July. Economists predicted a gain of +25k jobs but we lost -40k instead. The participation rate fell which led to the drop in the headline unemployment rate. The AUD fell on the thinking that the RBA could pause, or at least be less aggressive in raising rates from here.
  • Transurban (ASX:TCL)  -3.41% fell on a weaker FY23 outlook and lower forecasted dividend.
  • Medibank (ASX:MPL)  +0.85% missed FY22 earnings due to investment losses but the underlying result was solid and guidance was good.
  • Treasury Wines (ASX:TWE)  +4.04% had a volatile day, it was weak early which was very surprising given a good result particularly around margins and guidance for more of the same.
  • Xero (ASX:XRO)  -7.11% fell due to comments at their AGM that subscriber growth in the UK was weaker than hoped.
  • Super Retail (ASX:SUL)  -5.89% dropped on universal broker downgrades – the first reaction to the result yesterday was the wrong one.
  • Origin Energy (ASX:ORG)  -2.64% weaker on a messy FY22 result and an overall miss.
  • Whitehaven Coal (ASX:WHC)  +2.21% hit an 11-year today trading above $7 for the first time since 2011. The momentum continues right across the coal sector.
  • Myer (ASX:MYR)  +3.09% higher as it looks like things are hotting up with Solomon Lew seeking a board seat at his long-time takeover target.
  • Austal (ASX:ASB)  -1.09% weaker despite increasing FY22 EBIT guidance by ~12% on the back of the OPC contract that was recently awarded. The announcement noted the incumbent manufacturer has appealed the decision, however, it is unlikely to impact the deal.
  • Iron ore futures lower in Asia, off 1.77%
  • Gold was weaker overnight but stable through the Asian session trading US$1763/oz at our close.
  • Asian markets were soft, the Nikkei in Japan fell -0.8%, while Hong Kong was off -0.82% and China fell -1%.
  • US Futures are lower, but not by a lot ~0.20 across the board.

ASX 200 Chart

Weekly Video Update

This week James & Harry cover reporting season to date, key trends, where opportunities are, and what this says about the broader economic picture.

Xero (XRO) $90.65

XRO -7.11%: The online accounting business held their AGM today and the commentary has prompted a decent sell-off in the shares. They said year-to-date UK subscriber growth was weaker than expected with net subscriber additions subdued amid a “less than buoyant macro environment”. While there was not a lot of detail provided, that part of the world is clearly still struggling as we highlighted in our Morning Note today and it’s a disappointment for Xero to see continued UK weakness, given this market is important for them (accounts for nearly 30% of revenue). We trimmed our position in XRO recently nearer ~$100 and we’ll be interested again if it falls back into new lows.

Transurban (TCL) $14.16

TCL – 3.41%: FY22 numbers were largely inline however their guidance was weaker than we thought and that has flowed through to a weaker than hoped likely dividend for the year ahead. It seems like less traffic has impacted assumptions, coupled with higher costs and a few other bits and pieces has led to distribution guidance of 53cps which is about 10% below where we thought it should/could be. We own TCL in the Income Portfolio and will continue to hold given we have recently sold our other infrastructure holding in APA Group (APA) for a strong profit.

Treasury Wine Estates (TWE) $13.14

TWE +4.04%: the wine producer posted a strong FY22, helping shares trade higher. Revenue was in line at $2.48b but margins came in better than expected leading to a small beat at the net profit line, up 4% to $323m. Premium wine sales account for 83% of global revenue and helped to boost earnings with net sales revenue per case up 16%. Guidance was a little messy but broadly positive. Cost of wine sold in the year ahead is expected to be higher as they sell wine from smaller yields however they expect to see $65m in savings on lower supply chain costs. Medium-term EBIT margin of 25% is on track according to management.

Origin Energy (ORG) $5.91

ORG -2.64%: a messy FY22 result and an overall miss from the energy provider today. EBITDA in the second half came in at a little over $1b, around 10% behind the market consensus for the period. The miss was driven by weaker than expected electricity earnings which came under pressure from higher energy purchase costs, squeezing margins by $6/Mwh. The poor electricity result was partly offset by better numbers from the gas unit, however, profit was also reduced by lower tax benefits. There was no guidance provided on the Energy Markets business, however, they provided inline production for APLNG, and lower than expected opex and capex which was a slight positive.

Medibank (MPL) $3.55

MPL +0.85%: Todays FY result missed profit expectations however that was a result of losses in their investment portfolio, the underlying result was solid with good volume and margin trends obvious. FY23 guidance and commentary was upbeat, with ongoing policy growth (+2.7%) and low claims inflation (2.3%). While we suspect the market will have ?? over the level of claims inflation and whether or not it’s sustainable, it was a decent result and they seem to be going okay in a challenging environment.

Broker Moves

  • Vicinity Centres Cut to Neutral at Macquarie; PT A$2.03
  • Downer EDI Raised to Outperform at Credit Suisse; PT A$5.75
  • Seek Raised to Buy at UBS; PT A$27.80
  • Challenger Cut to Neutral at UBS; PT A$6.80
  • Corporate Travel Cut to Hold at Ord Minnett; PT A$20.76
  • Bapcor Cut to Hold at Morgans Financial Limited; PT A$7.36
  • Carnarvon Energy Ltd Cut to Speculative Buy at Canaccord
  • Super Retail Cut to Neutral at Jarden Securities; PT A$10.75
  • Super Retail Cut to Neutral at JPMorgan; PT A$11
  • Domain Holdings Cut to Neutral at JPMorgan; PT A$4
  • Super Retail Cut to Underperform at Jefferies; PT A$9
  • Austal Cut to Underweight at JPMorgan; PT A$2.40
  • Vicinity Centres Cut to Neutral at Evans & Partners Pty Ltd

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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