The Match Out: ASX edges higher, REA Group talks up property trends, NAB also positive

James Gerrish

Market Matters

A choppy / lacklustre session today from an index perspective although there continued to be more activity under the hood. Communications & IT were strong, Utilities and Financials were not as the ASX 200 held within a very tight ~20 point trading range.

  • The ASX 200 finished up +9pts/ +0.13% at 7029
  • The Communications sector was best on ground (+1.77%) while IT (+1.69%) & Consumer Discretionary (+1.37%) were also strong.
  • Utilities (-0.83%) and Financials (--0.81%) the weakest links.
  • The Utilities sector is up 20% YTD versus the ASX 200 down 5.62%, the outperformance we think is a result of investors looking for defensive exposure with embedded inflation protection in their earnings base, but the elastic band has stretched a long way – a topic we’ll cover in tomorrow mornings Portfolio Positioning report with reference to our Income Portfolio holdings.
  • Megaport (ASX: MP1) +10.02% reported and rallied – the result looked like a bigger than expected loss on first read through but they did a good job of jaw boning future growth – with ~8% of the register short, that was enough to see a decent short covering rally – Harry will cover this in more details tomorrow morning.
  • REA Group (ASX: REA) +6.69% higher despite FY22 core earnings 2% below consensus, FY23 guidance was good and they said Australian residential volumes had remained resilient into FY23 with volumes up 7% in July despite the broad negativity in the Aussie market.
  • Domain Group (ASX: DHG) +8.97% enjoyed the positive outlook + July trading update from bigger competitor REA – the volume of houses visibly ticking up in my area – Northern Beaches of Sydney.
  • NAB (ASX: NAB) -2.93% fell on a weaker quarterly trading update, higher costs and weaker margins, although they are on track to meet consensus for FY22.
  • Oz Minerals (ASX: OZL) +0.27% to $25.64 remained above the $25 BHP bid price.
  • Commonwealth Bank (ASX: CBA) -1.29% fell ahead of their FY22 result tomorrow – consensus looking for NPAT of $9.4bn & $3.82 dividend, implying a 2H dividend of $2.07, its biggest since 2019.
  • Lovisa (ASX: LOV) +2.78% had another good session and is now up ~40% from the June lows – we own and like, although less so post rally.
  • Iron Ore was ~1% lower in Singapore today, Fortescue (FMG) was stronger early and tapered off late.
  • Gold was up overnight to ~US$1805 but tracked lower during our time zone to be ~US$1786 at our close.
  • Asian stocks were mixed, Hong Kong was flat, Japan fell 1% while China was up +0.32%
  • US Futures are all up, around +0.20%  

ASX200 chart. Source: Bloomberg

National Australia Bank (ASX: NAB) $29.81

NAB -2.93%: The business focussed bank reported 3Q results today that signalled higher costs and weaker margins while unaudited cash profit came in at $1.8bn, pretty much in line with the run rate required to meet full year expectations. The bank said that FY22 will see costs up about 3-4% above their previously guided range of 2-3%, although that did include an uptick in remediation, while they guided net interest margin (NIM) lower. It is worth keeping in mind the recent nature of cash rate increases that (will ultimately) have a positive impact on margins – most of the hikes came late in the quarter so will be felt more acutely in Q4. Like other banks we have spoken to recently, they talked to good asset quality, more than 70% of borrowers ahead on repayments while low unemployment and healthy household and business balance sheets are helping mitigate the impacts of higher inflation and higher interest rates. 

NAB Source: Bloomberg

REA Group (ASX: REA) $132.32

REA +6.69%: the property classifieds business announced their FY22 results today largely in line with expectations, with poor international performance offset by more bullish commentary. Revenue was $1.16b for the year, while Core EBITDA at $673.5m was a ~2% miss to consensus at $685m. Operating expenditure was up 11%, driven by wage inflation, new product development and marketing, though the market took a positive view that it will lead to more revenue. Guidance suggests these cost pressures should normalize in FY23. They have their work cut out for them, looking to integrate the recent acquisition of Mortgage Choice as well as putting the required investment into building their Indian business to be a market leader in that geography. Australian residential volumes have remained resilient into FY23 with volumes up 7% in July despite the broad negativity in the Aussie market. All in all a strong result and shareholders will receive an 89c div, up from 72c last year.

REA source: Bloomberg

Broker Moves

  • Beach Energy (ASX: BPT) Cut to Hold at Morgans Financial Limited; PT A$1.91
  • Redbubble (ASX: RBL) Raised to Buy at UBS; PT A$1.60
  • Evolution (ASX: EVN) Cut to Neutral at JPMorgan; PT A$3
  • Domain Holdings (ASX: DHG) Cut to Neutral at Citi
  • REA Group Cut to Neutral at Citi
  • OZ Minerals Cut to Hold at Bell Potter; PT A$25
  • OZ Minerals Cut to Hold at Morgans Financial Limited; PT A$25.40

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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