The Match Out: ASX drifts, Tech’s bounce short lived, Reporting now in focus

James Gerrish

Market Matters

Portfolios exposed to Technology had a tough session today, the sector hit nearly 6% following some big moves lower in large-cap US tech stocks that missed earnings expectations overnight. And Healthcare also fell. This was partially countered by strength in Utilities, buying among the Miners, and a solid day for the banks. This last point was headlined by a decent update from Westpac (ASX: WBC) alongside a few other interesting companies reported, which we cover below.

  • The ASX 200 finished down -10pts/-0.14% at 7078.
  • The Utility stocks bounced well up +1.63% as a group supported by Materials (+1.50%).
  • IT stocks were clobbered, the sector down -5.88%.
  • While the index was only down slightly today, it was a very risk-off session – anything on the edgier side was sold.
  • US Futures fell during our time zone today – Nasdaq futures -2% after Meta (the old Facebook) and Spotify tanked after the market closed in the US. Facebook’s guidance was weak, while Spotify failed to attract enough new subscribers – both down around 20%.
  • Tech stocks were hit on our market as a consequence, but so too was Magellan (ASX: MFG) –7.47%, when it rains it pours with Meta being a top 10 holding along with Netflix which tanked more than 20% earlier in US reporting. At least Magellan also holds Alphabet (Google), which reported well overnight. Hamish Douglass presented at a Morningstar virtual event today saying that we should all ignore short term share price noise – somewhat easier when you have around $1 billion in your back pocket!
  • Nick Scali (ASX: NCK) +0.97% was up slightly today on its 1H22 results – a good set of numbers that almost met a very strong period last year – more on this below.
  • Pinnacle (ASX: PNI) -2.31% had a volatile session following its half year results. This is a stock we have owned in the past but which we now think is overvalued, given how the sector has been re-rated.
  • The agricultural space is roaring, with Nufarm (ASX: NUF) +20.22% out with a cracking quarterly.
  • Westpac (ASX: WBC) +2.28% beat downbeat consensus by around 7% today when it released quarterly numbers.
  • Iron Ore markets closed in Asia.
  • Gold was flat at $US1805 at our close.
  • The majority of Asian markets still closed for Chinese New Year – Japan was open and down -1.16%.
  • US Futures are lower – Dow Futures flat however Nasdaq -2%.

ASX 200

Nick Scali (ASX: NCK) $14.54

NCK +0.97%: It was a choppy day for the furniture retailer, but shares closed higher in the end reflecting the small beat. Revenue was down 5.4% on last year to $180 million, though earnings fell 6.6% to $35.6 million in the half, as various COVID related costs jumped – store closures and supply chain disruptions were the culprits. Earnings are on track to meet full-year expectations however Nick Scali will get the benefit of a full half contribution from Plush-Think Sofas, which it acquired mid-way through the first half. Plush contributed $31.5 million to sales in the two months since the deal was completed. The business will need to continue to manage supply chain issues, with the outstanding order book continuing to grow in January, but the company has done well to at least maintain the bumper sales levels from the previous period.

MM likes NCK as a top-quality retailer, but we’re neutral/negative on the sector here.

Nick Scali

Pinnacle (ASX: PNI) $11.47

PNI –2.3%: Reported 1H22 results this morning and had a volatile session with the stock trading in a range of around 10%. While the result was a solid one, it’s not enough to push the shares higher. Our initial interpretation is that PNI has found it more difficult to grow, and growth is why you own this business. It did NPAT for the half of $40.1 million, up 30% on 1H21, but it’s worth bearing in mind this is now a $2.3 billion company.

MM continues to view PNI as too expensive at around $12.

Pinnacle

Nufarm (ASX: NUF) $5.59

NUF +20.22%: It was a strong day for the crop protection and seed technology business on the back of a bumper first quarter. Quarterly revenue has jumped 36% versus the first quarter last year, with good weather driving demand across both segments. Costs pressures are coming through though with higher raw materials and logistics costs softening the bump to earnings but the company is confident it will see revenue and earnings growth for the full year. Management has also set a $4 billion revenue target for FY2, a target it has a clear runway to hit with the above-market growth.

MM is neutral NUF, but there’s clearly some good momentum in the business.

Nufarm

Westpac (ASX: WBC) $21.07

WBC +2.28%: The first of the banks to present the quarterly update, Westpac led the way with a strong result. Cash earnings of $41.58 billion were 1% higher than the 2H21 average and a 7% beat to consensus. Better Treasury and Markets revenue, as well as a fall in costs, led the beat. Net interest margin (NIM) was disappointing, falling 8bps versus the 2H average to 191bps. But this was more than offset at the bottom line with falling headcount, lower investment spends and a vastly reduced notables charge supporting earnings. Westpac expects to continue to see costs slide throughout the year. The bank bumped up its bad and doubtful debt charge, largely blaming supply chain disruptions, but this number looks conservative. CET1 stood at 12.2% however this will drop to 11.65% following the $3.5 billion share buyback wrapping up next week.

MM likes banks and views WBC as cheap at around $21.

Westpac

Broker moves

  • Pinnacle Investment Raised to Add at Morgans Financial Limited

  • Reliance Worldwide Reinstated Outperform at Macquarie; PT A$5.75

  • Judo Capital Rated New Neutral at Macquarie; PT A$2

  • Technology One Raised to Neutral at Macquarie; PT A$11.10

  • CBA Rated New Neutral at UBS; PT A$95

  • NAB Rated New Buy at UBS; PT A$30.50

  • ANZ Bank Rated New Buy at UBS; PT A$30

  • Westpac Rated New Buy at UBS; PT A$25

  • Lotus Resources Raised to Speculative Buy at Canaccord

  • Pentanet Rated New Speculative Buy at Evans & Partners Pty Ltd

  • Select Harvests Raised to Buy at Bell Potter; PT A$7.10

  • Keypath Education GDRs Rated New Buy at Shaw and Partners

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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