The Match Out: ASX down, BHP beats but weighed by a near 10% drop in Iron Ore

James Gerrish

Market Matters

As Chris on the Insto Desk just over my shoulder said today, “it felt like the market was down a hundred, with some big moves on the stock level playing out and some decent divergence between sectors. By the close, the market held above 7200, not a bad effort considering that Iron Ore prices melted around 10% in Asia.

  • The ASX 200 finished down -37pts/-0.51% at 7206.
  • The IT stocks put in a good effort up +0.97% keying off positive leads in the US, the Nasdaq rallied after being sharply lower early on.
  • We think bond yields have overshot on the upside, some weakness here should support tech in the short term, we saw that locally today.
  • Energy was on the wrong side of the ledger down -3.10% even as Oil prices edged higher overnight – as discussed this morning, we think the easy money has gone here.
  • BHP Group (ASX: BHP) delivered a great first-half 2022 result this morning, which broke records on many fronts. If Iron Ore wasn’t down 10%, the stock would have rallied.
  • Property was interesting today as Dexus (ASX: DXS) +2.66%, the biggest Office landlord in the country reported decent results and rallied - that’s important – as covered below.
  • Resmed (ASX: RMD) -4.63% was knocked by the CFO selling a few shares. News from its struggling competitor Philips (Netherlands: PHIA) remains negative, although RMD is failing to take full advantage given supply chain issues.
  • Supply chain issues were a theme we discussed with Audinate (ASX: AD8) -0.40% management this morning. We left that meeting thinking that the issues are real and persistent, but when they ease, should see AD8 in a very strong position to bounce hard.
  • We also caught up with Praemium (ASX: PPS) -6.16% management today – its result was weak yesterday and the selling continued today, which is understandable. Price at around $1 PPS is a buy in MM’s view, remember Netwealth (ASX: NWL) bid $1.40 recently.
  • Elsewhere, Seek (ASX: SEK) +6.08% and Sims Group (ASX: SGM) +13.68% both beat, SEK also increased guidance
  • AFR StreetTalk reported today that Macquarie was in the market for around 10% of Genworth (ASX: GMA) – we like GMA, have held it in the past and can see the rationale for the buy, given its excess capital.
  • As flagged earlier, Iron Ore was weak in Asia today, down around 10%.
  • Gold was higher today, up around $US8 to $US1878 at our close.
  • Asian stocks turned negative in the afternoon having been up earlier, Hong Kong -1.17%, Japan -1.07% while China was (narrowly) holding onto gains.
  • US Futures have now turned lower.

ASX 200

BHP Group (ASX: BHP) $48.18

BHP -0.31%: It was a wild ride for BHP today after reporting a strong 1H22 result and bumper dividend, on a day where Iron Ore fell around 10% in Asia and Energy stocks pulled back from recent highs. In terms of the result, it was strong on most metrics – from NPAT to dividend – a first-half record. NPAT from total operations (including petroleum) of US$10.7 billion beat the prior 1H NPAT record ($6.1 billion in 1H21) by around 75%. 1H22 was also BHP’s second-highest half-year NPAT, falling just short of 2H21’s $11.1 billion. Clearly, with some headroom in earnings, BHP was able to deliver the highest first-half dividend ever at $1.50 a share, ahead of consensus at $1.24, which equates to around A$2.10. On first read this morning, we said that it was an 8% beat at the profit line. But that was driven by a lower tax rate at around 31% versus 37%. So, operationally it was more like more a 1-2% beat when tax adjusted. In any case, it was a solid result from BHP and the stock would have rallied had it not been for Iron Ore weakness. What’s next for the Big Australian? Commodity prices will now be a greater driver of its fortunes, given the unification has now been complete, while the demerger of BHP’s petroleum business will be wrapped up in the June quarter.

We remain bullish on BHP, although we have trimmed our position recently.

BHP Group

Seek (ASX: SEK) $29.47

SEK +6.08%: It was an impressive 1H22 result today from the online recruitment platform with revenue of $517 million, 3% ahead of consensus while EBITDA was a beat of around 10%, highlighting the sort of operational leveraged in the business. Management also upgraded guidance for revenue to be between $1.05 billion and $1.10 billion for FY22, which was around 5% better than prior guidance and market expectations. Overall, it was a strong result and upgrades should flow through tomorrow, bearing in mind the tech selloff has seen the stock fall around 20% from recent highs.

MM is bullish SEK.

Seek Limited

Sims (SGM) $17.04

SGM +13.68%: the best on ground for the ASX200 today was scrap metal business Sims, following a strong first-half result. Revenue jumped 74% to $4.27 billion and earnings (EBIT) came in ahead of guidance at $362 million, up over 5 times for the first half of 2021. Margins grew despite management noting inflationary pressures, but these were more than offset by a 64% jump in prices for ferrous products and 46% for non-ferrous. Volumes were also strong, taking in 12.8% on the same time last year and selling 7.6% more. As a result of the strong numbers, Sims lifted the interim dividend more than 3 times and have set aside $54 million for a share buyback. While no specific guidance was given for the full year, management said momentum has continued into the second-half, intake volumes were solid and commodity prices are tracking higher than the first-half averages, which is a supportive backdrop.

MM is neutral SGM.

Sims Limited

Dexus Property Group (ASX: DXS) $10.43

DXS +2.66%: It was a strong start to the year for the biggest office landlord in Australia. Dexus saw Funds From Operations (FFO) fall slightly to 28.1 cents a share in the half, on the back of a softer trading result, but it maintained full-year guidance of at least 2% growth in both FFO and distribution, in line with consensus. And importantly, the company isn’t showing signs of stress in terms of office demand. Occupancy in the office portfolio was 95.1%, and 98.6% in the industrial portfolio, while rent collections continue to improve, coming in at 97.9%. Management noted strong global demand for quality real estate, despite the threat of rising interest rates, which should provide a good backdrop for improved trading performance. All in all, it was a decent read through for DXS and the broader property sector, given Dexus’ size.

MM is neutral DXS.

Dexus Property Group

Broker moves

  • Beach Energy Cut to Underperform at Macquarie; PT A$1.50

  • Nanosonics Raised to Overweight at Wilsons; PT A$7

  • Healius Cut to Neutral at Jarden Securities; PT A$5.57

  • Charter Hall Social Infrastructure Cut to Hold at Canaccord

  • Beach Energy Cut to Hold at Canaccord; PT A$1.66

  • Bendigo & Adelaide Raised to Equal-Weight at Morgan Stanley

  • Bendigo & Adelaide Cut to Hold at Jefferies; PT A$10

  • Crown Resorts Cut to Neutral at Credit Suisse; PT A$13.10

  • Gr Engineering Cut to Hold at Argonaut Securities; PT A$2.20

Major movers today

Enjoy your 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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