The Match Out: ASX ends higher, IT & Financials lead, Dominoes (DMP) tanks

James Gerrish

Market Matters

It was the second day of gains for the ASX, as the market edged another 0.5% higher thanks largely to a bounce-back in the IT stocks, which never seem to stay down for long, while weakness in oil and the prospect of higher output saw the energy sector sold off.

  • The ASX 200 added +35pts /+0.48% to 7428 today.
  • IT bounced back today while Energy fell 2%.
  • The Uranium stocks are back in focus with strong bounces overseas that filtered into the local sector here today – Paladin (PDN) +12% however they also had an update that refined their re-opening plans for Langer Heinrich – nothing earth-shatteringly new there.
  • CSR +4.6% out with good 1H results and solid outlook – more on that below.
  • The opposite for Dominoes (DMP) -18% as food inflation and weakness in Japanese sales hit home (and hard!).
  • Morgan’s says Tyro (TYR) -4% is now oversold after yesterdays update – I’m not so sure.
  • Altium (ALU) +2.66% saw more buying after bells upgraded the stock yesterday and it’s now trading above the price at which it traded after Autodesk’s failed takeover bid, closing today at $39.28. Autodesk had apparently offered around $40 verbally, which looks cheap now for a change of control transaction. We remain long.
  • We made some tweaks to the portfolios today which can be seen here – there is an international trade being put through tonight.
  • The Market Matters weekly video update covers Coal and Iron Ore this week, James Gerrish chats with analyst Peter O’Connor – click here.
  • A reminder that we post a podcast called Markets @ Midday on the website – for a short sharp overview of the morning’s trade, log into your Dashboard– or click here to listen.
  • Gold was flat in Asia today after falling around $US1772 overnight.
  • Jan Iron Ore Futures were down around 1.5%.
  • Asian markets were mixed, Japan up +0.81%, Hong Kong off -0.20% while China rallied +0.60%.
  • US futures were mostly flat.

ASX 200 chart

In this week's video, Market Matters author and portfolio manager James Gerrish is joined by senior mining analyst at Shaw & Partners, Peter O’Connor, to talk Coal and Iron Ore after their big price drops, and whether or not the stocks will bounce from here. Remember to like the video (if you do!) and please subscribe to the Market Matters YouTube Channel.

CSR Limited $6.28

CSR +4.67%: Reported first-half net profit today of $156.6 million which was up from $58.7 million this time last year while the company’s interim dividend of 13.5 cents reflected that strong growth. Management talked to strong demand for building products with earnings before interest & tax (EBIT) up 25%. CSR’s Aluminium division was also strong thanks to higher spot prices and better hedging outcomes, the company used this recent strength to better set its hedging book to give more certainty around future earnings. All in all, it was a solid update and we remain positive on the stock.

MM remains bullish and long CSR targeting around $7.

CSR Limited (CSR)

Tyro (TYR) $3.30

TYR -4.35%: Another poor session for TYR today after dropping around 15% yesterday, the main issue stemming from their trading update yesterday afternoon that sighted year to date gross profit of $38 million versus current consensus expectations of $159 million for the full year i.e. they are not likely to get anywhere near FY22 consensus hence the readjustment in the market. We own the stock in our emerging companies portfolio, we’ve held it through thick and thin in recent times and were under the distinct impression that the business was accelerating again after the terminal issues, but it seems that rising transaction volumes are not being reflected in higher profitability. We do like the longer-term growth story of TYR, and will likely hold it through this blip – but it was a clunky announcement yesterday.

MM is now neutral TYR.

Tyro

Dominoes (DMP) $116.12

DMP -18.4%: The pizza maker got hit today after sighting inflationary pressures across the group along with weaker sales in their Japanese operation at their AGM today. Citi say that Domino’s cost pressures appear to be building due to the early onset of food cost inflation and the two-week closure of the highly profitable New Zealand market, and that puts their FY earnings at risk. When your stock is trading at a 90% premium to the broader industrial sector, any sort of hiccup will be compounded by a big multiple re-rate. If we price DMP back on it’s average P/E for the past five years, i.e. take away the COVID bump to earnings and multiple expansion, DMP is worth around $90, not the $116 it closed today.

MM has no interest in DMP at this stage.

Dominoes

Broker moves

  • Amcor GDRs Raised to Hold at Jefferies; PT A$15.

Major movers today

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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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