The Match Out: ASX ends lower, Financials firm as banks start reporting, Energy and commodities were weak

James Gerrish

Market Matters

While the market was lower overall today, there were some big moves in individual stocks and unfortunately, we were on the wrong side of a few – more on that below. At the sector level, financials ground higher following full-year results from ANZ that showed a 72% rise in profit, while the energy sector was the biggest drag, hit by weakness overnight in oil, coupled with China’s move this morning to cap thermal coal prices.

  • The ASX 200 finished down -18pts/-0.25% today at 7430.
  • It was a big day for bond traders with three-year yields trading above 1.2% - they were 0.80% a few days ago.
  • Financials +0.24% with the banks entering a strong seasonal period into results and dividends (for ANZ, NAB and WBC) while the Energy sector fell -1.94%.
  • It was a tough day for MM Portfolios, with a couple of stocks hit hard while there were no standout bright spots to speak of. We made four changes to our Flagship Growth Portfolio with subscribers receiving an SMS & email alert in real-time.
  • Our Emerging Companies Portfolio was on the wrong side of PointsBet (ASX: PBH) -18%, our Income Portfolio on the wrong side of IOOF (ASX: IFL) -8.5% and our Flagship Growth Portfolio was on the wrong side of Whitehaven Coal (ASX: WHC) -5% – a disappointing trifecta. More on each of these below.
  • Newcrest (ASX: NCM) +0.84% continued a string of weak production scorecards from the gold stocks although reiterated full-year guidance – gold rallied which overshadowed the update.
  • Fortescue (ASX: FMG) +0.14% shipped a lot of Iron Ore in the September quarter however price realisation was weak and costs are rising.
  • Coles (ASX: COL) +0.12% showed it is experiencing the same sort of cooling as Woolies at its trading update today – still solid but not the pandemic driven growth across their business.
  • The bathroom and plumbing business Reece (ASX: REH) +4.38% said it sees 1H22 EBITDA up 8-11% as 1Q sales revenue was up 13.2% on the same period last year.
  • IOOF (ASX: IFL) -8.5% is hoping a name change will help with fund flows as they recorded nets outflows of +$2b for the 3 months to September 30.
  • PointsBet (ASX: PBH) -18.28% won’t die wondering as it spends a heap on advertising to support growth – Shaq does not come cheap!
  • ANZ Bank (ASX: ANZ) +0.74% reported a decent full-year result with profit +72% on the period – we don’t own ANZ so we’ll cover in more detail tomorrow morning – time has gotten away today.
  • Coal stocks hit on more China crackdowns.
  • Gold was higher during the Asian trade back to ~$US1800 at our close.
  • January Iron Ore Futures were down around 7%, December Coal Futures were off 8.5%.
  • In Asia, Hong Kong was flat, China fell -1.06%.
  • US Futures are trading marginally higher.

ASX 200

IOOF (ASX: IFL) $4.20

IFL -8.5%: The wealth manager provided a trading update today and while they sighted growth in funds it was market gains (+$5bn) that did the heavy lifting, overcoming around $2.3 billion in outflows for the three months to September 30. 

It also changed some methodology around how it reports funds under advice as management continues to harmonise the significantly expanded business. 

This is all still a work in progress with a lot more to do and it’s easy to see why the market has sold the stock off around 8% today given the outflows mentioned above, particularly when we put the IFL experience up against the independent platforms like HUB and Praemium. 

Having said that, we own IFL in the MM Income Portfolio from around $3.60, we are backing the turnaround that’s underway but we need to remain realistic on the task at hand. It’s complicated, is not a quarterly proposition, but the stock is priced accordingly.

MM remains a holder of IFL in the Income Portfolio.

IOOF

PointsBet (ASX: PBH) $8.63

PBH -18.28%: a very tough day for the wagering and online gaming business following its first-quarter update. While growth remains firm with active customers in both Australia and the US up 10% in the quarter, translating into more than double the turnover in the quarter just gone versus the first quarter of FY21, the issue remains how much that growth is costing. 

Marketing and staff costs jumped significantly through the period, contributing to a cash burn of $38 million in three months. 

While the company has over $620 million in cash and equivalents and no debt, it is a big number to be spending to acquire customers. 

Shares have now fallen through the price of the recent capital raise, which no doubt drove some of the selling today. The blue sky is great if management executes, but a lot of cash will be spent along the way – I get the distinct feeling these guys will not die wondering!

MM remains a holder of PBH in the Emerging Companies Portfolio.

PointsBet (ASX: PBH)

Newcrest Mining (ASX: NCM) $25.26

NCM +0.84%: Posted quarterly production numbers today that confirmed a soft start to FY22, albeit well flagged while they reiterated full-year guidance. 

Gold production was 27% lower than the prior period, a bunch of factors to blame and it was foreshadowed in the June 2021 quarterly report, however as would be expected, lower production impacted financial metrics with costs up 59% to US$1,270/oz and margins down – leverage and economies of scale work both ways in commodity companies and that was clearly on show today from NCM. 

All in all, it was an okay update, the miner just needs gold prices to break out of their funk.

MM is long and bullish NCM.

Newcrest Mining (ASX: NCM) 

Whitehaven Coal (ASX: WHC) $2.69

WHC -4.95%: Coal stocks were hit hard today right around the Asian region as news broke that Chinese authorities plan to limit the selling price of thermal coal to ease a power crunch that’s prompted electricity rationing. 

While Whitehaven Coal sells no coal to China, prices in the region have been crunched as that’s put a lot of pressure on coal stocks generally, including WHC. 

This sort of volatility is clearly unnerving and while market noise will dictate short term ebbs and flows in prices, underlying supply and demand will ultimately prevail and prices will rebound.

MM remains long & bullish WHC.

Whitehaven Coal

Fortescue Metals (ASX: FMG) $14.02

FMG +0.14%: Said that Iron Ore shipments of 45.6/wmt were down 8% on the quarter but up 3% on the year today with FMG realising 73% of the benchmark iron ore price down from 84% in the prior quarter and well below the average of around 85% received over the past eight to 10 quarters. 

That equated to $118/wmt with C1 cost of US$15.00 - US$15.50/wmt i.e. still plenty of fat. Management introduced FY22 guidance today for shipments 180-185mt – the mid-point at 182.5 is just a whisker ahead of the FY21 record (182.2mt). 

Net debt of US$175 million at 30 September 2021 after payment of the FY21 final dividend of US$4.7 billion and capital expenditure of US$744 million in the quarter.

Fortescue Metals

Broker moves

  • Reliance Worldwide Raised to Buy at UBS; PT A$6.20

  • Silk Laser Australia Rated New Buy at Jarden Securities

  • Pact Group Rated New Overweight at Jarden Securities; PT A$4.30

  • Orora Rated New Overweight at Jarden Securities; PT A$3.50

  • Amcor GDRs Rated New Buy at Jarden Securities; PT A$17.90

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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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