The Match Out: ASX hit 3% as Russia ups the ante, land mines aplenty on the reporting front today

James Gerrish

Market Matters

It was a tough day for Aussie stocks coming off weakness in overseas markets while an escalation in the Russia/Ukraine saga saw a big risk-off swing right across Asia. News reports broke around 1 pm Sydney time of a nationally televised speech from Vladimir Putin saying Russia doesn’t plan to “occupy” its southern neighbour but is looking to defend itself from those who took Ukraine “hostage”. While all this is very unsettling and there will be real human and economic consequences, this isn’t new news from a markets perspective, so I’m mildly surprised about the aggressive nature of today’s sell-off – around 3% down is a big move.

  • The ASX 200 finished down -215pts/-2.98% at 6990

  • All sectors were lower however IT was hit hardest (-6.40%) while Materials fell (-4.33%) – total risk-off day.

  • Utilities (-0.84%) that we covered this morning were relative performers but still down – in fact, 180 companies in the ASX 200 finished in the red.

  • Some big moves on the reporting side today, particularly in the higher growth parts of the market.

  • Appen (ASX: APX) -28.7% one of the worst after they tweaked how they deliver guidance

  • The much loved City Chic (ASX: CCX) -30.89% on a weak result and Life360 (ASX: 360) -28.77% on huge cash burn for the period – they certainly know how to spend money!

  • Nitro (ASX: NTO) -14.62% was also on the nose today after their guidance was a miss in terms of both revenue & costs

  • It wasn’t all bad news though – Integrated marketing business IVE Group (ASX: IGL) +4.47% on a great result, this is one that is growth earnings, paying a ~9% yield and is still cheap – we own it.

  • Service Stream (ASX: SSM) +7.55% also had a good update and so did Capitol Health (ASX: CAJ) -1.41%.

  • BHP Group (ASX: BHP) traded -ex-dividend.

  • Gold was a standout up +US$30 to $US1938 which underpinned the gold stocks.

  • Iron Ore was up a touch in Asia, gaining around 1%.

  • Asian stocks were down Hong Kong -3.31%, Japan -1.78% while China was -1.86%

  • US Futures are all lower, S&P off -1.9%, the Dow Futures pricing a drop of -627 points on open.

  • The main message I’ll leave you with today is…don’t turn too bearish, I know the headlines are poor but a lot of capitulation-style moves played out today.

ASX 200

Appen (APX) $6.11

APX -28.70%: This has been a polarising stock in recent times with some analysts forecasting downgrades while others doubled down and increased their conviction on the buy side, today the stock fell around 30% after missing FY21 earnings expectations and pulling FY22 guidance, in favour of longer-term revenue targets which were big, a lot bigger than anyone in the market expected, however, FY26 is a long way out into the never-never. We were hopeful of a better outcome today but alas, the bearish camp led by Macquarie was right, and the stock fell hard. On the conference call it was clear that only analysts with a positive stance on the stock were engaging – Barrenjoey who had a buy-equivalent and $15.40 PT remains optimistic as were Citi and Jeffries. While I got off the call thinking that Appen does have a good future, the next couple of years are going to be challenging, their visibility on the business is simply not there and that’s a function of their customers (big US tech mainly) going through rapid changes – hence why they have scrapped shorter-term guidance. We had a 3% position in APX in the Flagship Growth Portfolio which we cut for a loss.

Appen

IVE Group (IGL) $2.00

IGL +4.17%: one of the few winners today was integrated media business IVE Group. The first half looked a big beat to consensus. EBITDA was up 25% on last year with margins increasing well above expectations. They’ve done well to manage cash flow despite the various supply chain pressures being put on the business, and leverage continues to fall, now just 0.7x EBITDA. For those that remember, IGL traded to below 30c in March 2020 due to leverage concerns, however, they’ve done a very good job turning the business around without raising equity, and our patience in the stock has been rewarded. A huge 8.5c fully franked div means IGL is one of the highest yielding shares on the ASX. Guidance was also strong – and conservative given 55% % of it is already banked – looking for $98-101m EBTIDA for the full year, around 10% better than consensus.

IVE Group

Service Stream (ASX: SSM) 85.5c

SSM +7.55%: 1H22 results released today from the network services company showed a turnaround that is building momentum following the large acquisition of the Lend Lease Services division. Revenue was +38% at $566.2m, ahead of expectations while EBITDA was largely inline. There was no dividend declared however that was in line with recent comments at the company AGM. We own SSM in the income portfolio, it’s been our weakest position however we’ve remained patient after a tough few years, and we think that patience will be rewarded.

Service Stream

Nitro (ASX: NTO) $1.46

NTO -14.62%: document productivity and signature business were out with FY21 results today. It was a solid year with average reoccurring revenue (ARR) and earnings coming in at the top of guidance. The recent acquisition of Connective made the numbers a little messy with some costs higher but largely positive signs with a strong run rate of growth. Guidance was a bit low though with the market after a more from the Connective acquisition. Costs are also likely to stay higher to integrate the new business before synergies and operating leverage start to kick in from FY23.

Nitro

Capitol Health (ASX: CAJ) 35c

CAJ -1.41%: a great start to the year for diagnostics business Capitol Health. Revenue grew 11% to edge above consensus, and they managed to grow EBITDA 7% thanks in part to improving margins despite lockdowns impacting the half. As usual, there was no guidance provided. We note that peer Peloton was recently acquired and Healius was also talking up M&A in their recent result. It’s hard to see Capitol Health trading on just 8.5x with continued strong performances like today's and corporate activity in the space.

Capitol Health

Broker moves

  • Universal Store Raised to Overweight at Jarden Securities

  • Stockland Raised to Neutral at Macquarie; PT A$4.19

  • Worley Cut to Neutral at Macquarie; PT A$12.60

  • Ainsworth Game Cut to Neutral at Macquarie; PT A$1.20

  • Symbio Holdings Raised to Buy at Moelis & Company; PT A$6.73

  • Stockland Raised to Outperform at Credit Suisse; PT A$4.56

  • Woolworths Group Raised to Buy at Citi; PT A$40.30

  • Uniti Group Raised to Buy at Ord Minnett; PT A$3.88

  • Charter Hall Retail Cut to Neutral at Credit Suisse; PT A$4.41

  • Platinum Asset Raised to Neutral at Credit Suisse; PT A$2.70

  • Worley Cut to Underperform at Credit Suisse; PT A$10.60

  • Integral Diagnostics Cut to Sector Perform at RBC; PT A$4.50

  • Domino's Pizza Enterprises Raised to Neutral at Credit Suisse

  • St Barbara Cut to Neutral at Credit Suisse; PT A$1.40

  • Woolworths Group Raised to Buy at Jefferies; PT A$40

  • Healius raised to Outperform at RBC; PT A$5.50

  • Karoon Energy Cut to Equal-Weight at Morgan Stanley; PT A$2.20

  • Woolworths Group Raised to Neutral at Credit Suisse; PT A$33.35

  • Worley Cut to Underweight at JPMorgan; PT A$10.80

  • Worley Cut to Hold at Jefferies; PT A$13

  • APA Group Cut to Neutral at JPMorgan; PT A$10.50

  • DMP AU Raised to Add at Morgans Financial Limited; PT A$115

  • Healius Cut to Hold at Jefferies; PT A$4.65.

Major movers today

Enjoy your 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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