The Match Out: ASX gains on Energy rebound, No signs of stress at Virgin Money UK (VUK)

James Gerrish

Market Matters

A solid session for the ASX today led by the sectors that fell yesterday, the ebb and flow continues, although today’s action was void of any meaningful detractors as 121 stocks from the ASX200 edged higher.

  • The ASX 200 finished up +42pts/ +0.59% at 7181
  • The Energy sector was best on ground (+2.64%) while Materials (+1.15%) & IT (+0.96%) were also strong.
  • Industrials (-0.31%) and Staples (-0.29%) the weakest links.
  • Pendal (ASX: PDL) +0.41% edged higher & Perpetual (PPT) -1.17% fell after the Supreme Court of NSW approved the convening of a meeting for PDL shareholders to vote on the proposed acquisition by PPT.
  • Calix (ASX: CXL) Halted today after CEMEX announced that they were commencing three Front End Engineering (FEED) studies to scale CCUS technologies at CEMEX plants in Germany, Poland, and the US. The studies fall under the scope of a new global license agreement with Leilac, a subsidiary of Australian technology company Calix – the issue being, they forgot to formally tell Calix!
  • Virgin Money (ASX: VUK ) +10.63% rallied on a strong FY22 result & guidance, the bank enjoying the benefit of higher rates while not seeing any real distress from consumers (yet).
  • Bluescope (ASX: BSL) +4.83% reaffirmed underlying EBIT guidance for the 1H of $800-900m at their AGM today.
  • Bapcor (ASX: BAP) -0.58% fell despite hosting an investor day, revenue up but margins were lower.
  • Select Harvest (ASX: SHV) -4.63% lower on a slight miss at FY22 results today – Ag stocks are always difficult to make money out of!
  • We had the Elders (ASX: ELD) -1.57% Chairman in yesterday and I walked away thinking – gee it’s a tough business + we now expect them to take all of 12 months to find a new CEO. We were interested in ELD before but now don’t see any rush.
  • Oz Minerals (ASX: OZL) +0.07% flat today and we expect them to stay that way for a while. The BHP takeover is unlikely to complete any time before 2Q23 implying that selling our remaining stock at a ~3% discount to the offer price makes sense.
  • Technology One (ASX: TNE) +5.1% rallied on strong FY22 results, most metrics came in ahead of expectations and they now expect to surpass $500m ARR by FY26.
  • Coal stocks rallied, Whitehaven (ASX: WHC) +7.81% and New Hope (ASX: NHC) +7.25% - the tide turning here after a deep pullback. Newcastle Coal is now US$340/tonne having been sub $US285.
  • Iron Ore was flat in Asia today – ditto Fortescue (ASX: FMG).
  • Gold recovered the overnight declines in Asia trading ~US$1744 at our close. We like Gold here.
  • Asian stocks were mixed, Hong Kong down -0.70%, Japan +0.61% while China was up +0.86%
  • US Futures are flat

Virgin Money UK (VUK) $2.81

VUK +10.63%: Rallied strongly overnight in the UK and today in Oz following a strong FY22 result that showed impressive leverage to rising interest rates. Their 2H22 profit before tax (PBT) result of £401m (£789m for FY22) was 7% ahead of consensus.

Key points to catch our eye:

  • Margins were inline with optimistic guidance at 185bps, with upside here going into FY23 and beyond given higher rates.
  • The loss charge was low at 9bps and helped to drive the beat. While the headlines from the UK a dire, we’re not yet seeing a lot of stress.
  • Capital levels were better than expected
  • They announced a further buy-back of £50m and 7.5p final dividend taking FY buybacks to £125m and dividends to 10p. 2022 total payouts of £267m are ~13% of mkt cap.
  • Costs were 1% higher.
  • FY23 guidance implies modest upside to consensus.

All in all, another solid bank result with the sector enjoying (for now) the benefit of higher rates. VUK remains one of the cheapest global banks trading on just 0.4x price to book (for context CBA is the most expensive on 2.5x).

Bapcor (BAP) $6.81

BAP -0.58%: the aftermarket auto parts business hosted an investor day today, with shares falling on weaker commentary. While they have seen strong revenue growth so far this year, margins have been squeezed by higher costs from labour, supply chain and general inflation. They do expect to pass these costs on to customers and margins will revert, however, there will be some lag here. The company spent some time talking about the forecast growth in the Australian car market, and EVs in particular, and how they can leverage this opportunity with new products and services. Overall, despite the margin pressure, we were impressed with today’s presentation.

Select Harvests (SHV) $4.94

SHV -4.63%: the FY result was out today for the almond grower, with shares weaker on a slightly disappointing report. EBITDA was in line at $37.9m, however, the revenue of $200m and NPAT of $4.8m were slight misses to consensus. They produced 29kmt, right in the middle of guidance, while the selling price of $6.80/kg was slightly above expectations. The almond market remains oversupplied with prices at cyclical lows, however, there are signs the outlook is starting to improve as the drought in California weighs on crops, though this is taking longer than we expected to play out. Costs are also expected to be higher in FY23 given high fertilizer prices, though this is partially offset by lower water prices. The company said recent heavy rainfall across Australia is expected to have a minimal impact on the current crop.

Broker Moves

  • Atlas Arteria Raised to Outperform at RBC; PT A$7.50
  • Cedar Woods Rated New Buy at Bell Potter; PT A$5.40

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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