The Match Out: ASX follows the US lead higher, Xero (XRO) result impresses but Aristocrat (ALL) disappoints

The daily Match Out report for Thursday 18 May with Market Matters' James Gerrish.
James Gerrish

Market Matters

A solid session for the ASX today, particularly in some areas as good results from Xero (XRO) and a ‘less bad; update from Nufarm (NUF) curated some broader optimism. Tech led the gains today, the local market enjoyed a risk-on shift thanks to improved rhetoric around the US debt ceiling discussions. Resources also caught a bid, mostly later in the day following improving China relations and some talk of reducing coal production. Real Estate and Healthcare were the main detractors, we suspect some profit taking to switch into other sectors with the risk-on trade.

  • The ASX 200 finished up +37pts/ +0.52% at $7236
  • The IT sector was best on ground (+2.64%) while Materials (+1.17%) & Energy (0.71%) were also strong.
  • Real-Estate (-0.60%) and Healthcare (-0.52%) the weakest links.
  • Local employment data surprised to the downside with Unemployment rising to 3.7% on a shock fall in jobs (-4K vs +25k expected). This shift initially put pressure on bond yields, though the 2yr had recovered the drop by the end of the session.
  • Coal stocks got a lift today as safety concerns arose around Chinese coal mines – prompting talk of closures.
  • Whitehaven Coal (ASX: WHC) +5.44% rallied hard from mid-afternoon, so too did New Hope (ASX: NHC) +3.74% - seems like Coal may be ready to move higher again.
  • News also hit the wires this afternoon that China would allow Australian Timber imports immediately, implying the relationship is improving – good news for resources collectively.
  • Xero (ASX: XRO) +8.92% ripped higher on an earnings beat – their strategy to balance growth & profitability off to a good start.
  • Nufarm (ASX: NUF) +14.15% higher after delivering stronger-than-expected 1H23 results – they are coming off a low base.
  • Aristocrat (ASX: ALL) -3.06% fell as 1H results for the gaming machines company’s ANZ and Pixel United arms underwhelmed – the stock was down more early on, and some buyers emerged into weakness.
  • Beach Energy (ASX: BPT) -4.26% flagged cost pressures will see a capex overrun for their stage 2 ramp-up at Waitsia. A review is underway to limit the impact.
  • Iron Ore was ~1.7% higher in Asia today supporting Fortescue (FMG) +1.38% & RIO +1.43%
  • Gold was down overnight and lost another US$3 in Asian trade today, settled $US1978 at our close.
  • Asian stocks were okay Hong Kong up +0.45%, Japan +1.60% while China was up +0.18%
  • US Futures are off a touch

ASX 200 Chart - Intraday

ASX 200 Chart - Daily

Xero (ASX: XRO) $102.49

XRO +8.92%: A good update from the accounting platform today which solid progress as they work towards balancing growth and profitability. 2H23 Revenue of NZ$741m was inline with consensus while they ended the period with 3,741,000 subscribers, slightly better than expected and a few more than Market Matters. The momentum in subs was also solid, particularly in ANZ where net adds were still at an all-time high. Average Revenue Per User (ARPU) was better than expected and despite the challenges playing out in the UK, performance was inline with expectations. The only real blip was the US business where their 32k net adds was slightly light on. This all drove adjusted EBITDA of $193m, ~10% ahead of the $174m consensus, while they reiterated March guidance of FY24 operating expenditure to revenue ratio of ~75%. Lower R&D spend also drove a big beat in terms of free cash flow. All in all, a really solid update to a business that is going through some adjustment to ramp up earnings.

Aristocrat Leisure (ASX: ALL) $38.04

ALL -3.06%: first half result for the gaming technology business today was largely in line, however weakness in the mobile segment weighed on shares today. Revenue was slightly ahead of expectations, up 125 to $3,080m, Segmental EBITDA (Pre-corporate and FX costs) was up 8% to $1,305m, and in line with expectations. The core gaming business is doing well, winning market share with sales volume up 27%, while price is following it higher as well (+21%). It was the online and mobile segment that weighed though with Pixel seeing revenue fall 6% with a 7% fall in the Tier 1 market. The maintained guidance at the group level, however they reduce Pixel guidance to the lower end of previous expectations. Shares were strong heading into the update with the market expecting a strong core number based on US peers. The weakness elsewhere is what weighed on the company’s shares today. They recently announced the acquisition of US-listed NeoGames for $1.2b earlier this week, spending money they raised a few years ago for an acquisition that eventually fell through.

Broker Moves

  • CTD AU Rated New Underperform at Barclay Pearce Capital
  • SiteMinder Ltd Rated New Underperform at Barclay Pearce Capital
  • Incitec Cut to Neutral at Macquarie; PT A$3.15
  • Incitec Cut to Hold at Morgans Financial Limited; PT A$3.29
  • Appen Raised to Hold at Bell Potter; PT A$2.20

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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