The Match Out: ASX flat, China growth misses the mark, Whitehaven (WHC) enjoys solid quarter

A tentative start to the trading week from an index perspective, although there were a few landmines at the stock level, signs of what could be ahead as we approach FY23 results season perhaps…

• The ASX 200 finished down -4pts/ -0.06% at 7298
• The IT sector was best on ground (+0.88%) while Consumer Discretionary (+0.62%) & Industrials (+0.59%) were also strong.
• Energy (-0.81%) and Materials (-0.78%) the weakest links.
• Chinese GDP was weaker than expected today printing YoY growth of 6.3% in the second quarter, weaker than expected of 7.1%, piling more pressure on Beijing to stimulate.
• Chinese shares fell ~1.2% on the back of the data while the Yuan also tracked lower.
• Endeavour Group (ASX: EDV) -9.9% whacked after the Victorian government said it would impose tougher restrictions on poker machines in the state while JPMorgan downgraded the stock to neutral.
• Whitehaven Coal (ASX: WHC) +2.71% rallied on a decent quarterly, more on that below.
• IGO Limited (ASX: IGO) 4.47% fell after flagging a non-cash and pre-tax impairment of $880-$980m for assets they bought from Western Areas.
• CSL -0.83% continues to slide hitting a new 52-week low today, closing $258.82
• Corporate Travel (ASX: CTD) -0.61% slipped after losing its 3rd CFO in the past 4 years. Not a good look and will provide more fodder for the shorts that have focussed on CTD in the past.
• Interest rate futures are now implying a 40% probability of 1 more rate hike in August, although from what we read, a lot of economists are now edging back from their calls for more hikes, we could be done here!
• A few stocks we own looking good, Worley (ASX: WOR) +0.59% knocking on $17, Lend Lease (ASX: LLC) -0.35% looks like it wants to rally, Cleanaway (ASX: CWY) +1.13% has been a choppy hold since we acquired but is starting to perform.
• Transitioning into some of the depressed value parts of the market has been our recent tilt, and we took another step in that direction today by taking profit on REA Group (ASX: REA) in the Flagship Growth Portfolio.
• Iron Ore was ~0.80% lower in Asia today weighing on Fortescue (ASX: FMG) -1.32%, RIO (ASX: RIO) -0.98% & BHP (ASX: BHP)  -0.57%
• Gold was flat at ~US$1954, recent strength a result of $US weakness
• Asian stocks were softer, although Hong Kong didn’t open thanks to a Typhoon.
• US Futures are marginally lower, off around -0.10%

ASX 200 Chart

Whitehaven Coal (ASX: WHC) $6.83

WHC +2.71%: Out with their June quarterly this morning and it was a solid period production-wise, with production/sales at the upper end of their downgraded guidance (tweaked lower in March) and costs were mid-range. They achieved an average price of A$264/t in the quarter, down from A$400/t in the March quarter, generating operating cash flow of A$435m, down from A$1.2b – clearly a tougher price environment however they controlled what they could very well.

A few key points worth reiterating on WHC:

• WHC has a net cash position of $2.7b against a market capitalisation of A$5.8b - so an enterprise valuation of A$3.1b.
• They generated A$4.1b of operating cash flow in FY23 – which is likely to be lower in FY24 with lower coal prices – but even so, that is remarkably cheap.
• They have an aggressive buy-back underway, since 7 March 2022 WHC has bought back 196m shares at an average price of $6.69ps (A$1.311b) NB: The company is now in blackout until after the FY23 result release on August 24^th.
• We believe Coal prices are at or near a cycle low.

Obviously, Coal prices are the big variable here and this is what WHC said with respect to prices: We expect coal prices to remain subdued during the Northern Hemisphere summer period while high coal stocks at end user facilities and cheaper alternatives, including gas are available. We maintain our view that increased gas and coal demand for the winter period will mark a turning point in the market where trade flows and the tightness of high CV coal supply will provide support for pricing. In metallurgical markets, volatility is expected to continue for the balance of CY23 reflecting uncertainty around the strength of economic activity in developed and developing economies.

Broker Moves

• Transurban Cut to Negative at Evans & Partners Pty Ltd
• IGO Reinstated Reduce at CLSA; PT A$16.25
• Pilbara Minerals Cut to Accumulate at CLSA; PT A$5.75
• Endeavour Group Cut to Neutral at JPMorgan; PT A$6.70
• Nib Cut to Neutral at Citi; PT A$8.15
• Endeavour Group Cut to Hold at Jefferies; PT A$6.50
• Mirvac Group Cut to Neutral at JPMorgan; PT A$2.40
• Waypoint REIT Cut to Neutral at JPMorgan; PT A$2.80
• Hotel Property Investments Ltd Raised to Overweight at JPMorgan
• Charter Hall Retail Raised to Neutral at JPMorgan; PT A$4.10
• BWP Trust Cut to Underweight at JPMorgan; PT A$3.70
• Alliance Aviation Raised to Overweight at Wilsons; PT A$3.88
• ARB Rated New Hold at Jefferies; PT A$26.50

Major Movers Today

Have a great night

The Market Matters Team

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