The Match Out: ASX falls in a volatile session, Resources were strong, Xero reports 1H loss and falls

James Gerrish

Market Matters

It was a very volatile session today for local stocks, as big volumes through the futures market pushed the market down around 40 points in short order this morning, ahead of a much weaker than expected employment print, which provided the catalyst for another leg lower. The ASX 200 was down -94points at the lows, before a spirited fightback after lunch meant we closed +52pts up from the day's nadir. Today was not one for the faint-hearted, with the volatility very much focused locally.

  • The ASX 200 finished down -42pts/-0.57% today at 7381.
  • Materials bounced back today to finish +2% higher with Fortescue Metals (ASX: FMG) +8.19% topping the boards – we discussed our view around Iron Ore stocks this morning, concluding with the following on FMG: We continue to believe that FMG represents good value at current levels and a minor recovery in iron ore could easily see the stock 20% higher i.e. a stock that doesn’t fall on bad news is strong, or in this case looking for a low.
  • IT struggled and fell -2.54% as a rally in bond yields hurt the sector overseas, which created a headwind locally.
  • Xero (ASX: XRO) -6.22% is also a big weighting in that index and it struggled after releasing first-half results and announcing an acquisition. Harry covers more on that below.
  • We had the National Australia Bank (ASX: NAB) CFO in this morning, who talked very favourably about the backdrop for bank earnings and the momentum in the business as we head into Christmas, plus re-opening gains adding further momentum.
  • The Gold stocks were standouts today and we like the sector from here. Gold looks to be finally breaking out and we "up weighted" our exposure in the precious metal today – looking at the sector, it appears to have been a popular move.
  • Aerial imaging company Nearmap (ASX: NEA) -12% was hit hard today after saying it would burn through $30 million in cash to support growth in the financial year.
  • Nitro (ASX: NTO) -2.81% back on the boards after raising capital to make an acquisition.
  • Austal (ASX: ASB) +5.34% rallies after the defence contractor’s US branch received approval from the San Diego Port of Commissioners to assume the lease of Marine Group Boat Works in the Port of San Diego.
  • Gold was up a touch in Asia today, gaining around $US3 on the back of a good night overseas – it was trading $US1,850 at our close.
  • January Iron Ore Futures bounced +5% today in Asia – supported the Iron Ore stocks.
  • Asian markets were mostly higher, Nikkei +0.55%, Hong Kong flat while China was up +0.80%.
  • US Futures are largely flat.

ASX 200

Xero (ASX: XRO) $138.12

XRO -6.22%: The first half result for the accounting software business was a bit light on. The company swung into a loss of NZ$5.9 million versus a NZ$34.5 million profit in the first half of 2021, despite growing revenue 23% and gross margins expanding 1.4% to 87.1%. Earnings and cash flow were impacted by higher marketing and development expenditure, which are expected to subside in the second half. The result also came with a small acquisition, buying US-based inventory management software business LOCATE for a mostly scrip deal worth US$19 million. This adds another string to the Xero offering, but the result was a tad soft.

MM remains long XRO in the Flagship Growth Portfolio.

Xero

Nitro (ASX: NTO) $3.70

NTO -2.81%: returned to trading today after successfully completing a capital raise to fund an acquisition. NTO is raising $140 million at $3.43 a share through a placement and a 1 for 11.4 entitlement offer, a 10.7% discount to Tuesday’s close. The money will be put towards a US$81 million acquisition of Connective, a European e-signature business. It’s an “on message” acquisition for Nitro, with management being open about looking to improve capabilities through an acquisition. Connective’s technology is capable of handling far more complex signature needs, which will be integrated into their existing product. Nitro has paid up for it, though, at around 13 times Annual Recurring Revenue (ARR), and there will be some work to push the tech across borders, but the strategy is positive.

MM is long NTO in the Emerging Companies Portfolio.

Nitro

Broker moves

  • Austal Raised to Outperform at Credit Suisse; PT A$2.50
  • Barton Gold Rated New Speculative Buy at Taylor Collison
  • Evolution Cut to Underperform at RBC; PT A$3.50
  • Vulcan Energy Resources Rated New Buy at Berenberg

Major movers today

Have a great night

James, Harry and 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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