The Match Out: ASX hits 6-month high, now up 13% from recent lows, Qantas (QAN) upgrades again & rallies

James Gerrish

Market Matters

The ASX hit a 6-month high today at 7246, a rally of +834 or ~13% from the low set on the 3rd Oct at 6412. Following that day MM wrote….Yesterday’s dip by local stocks which tested this year’s 6400 lows may have been the final washout which would be ironic as it occurred on a Public Holiday for most of Australia but either way MM believes the market is looking for / has found a low and we will be higher into Christmas.

  • No change, we still believe equities are likely to be trading in a 6400-7200 range over the next 6 months i.e. the risk/reward favours the buyers at current levels.
  • We remain bullish at current levels believing we should see improved performance from the rate-sensitive names as bond yields drift but investors may need some convincing.

Since then, the banks have been a major driver of performance while the resources have also contributed, the most obvious sector that has struggled even though bond yields peaked is technology. Still, the level of negativity at the time was high and stocks ultimately climbed the wall of worry – a solid effort given the myriad of economic challenges hitting the newswires – it would have been easy to get dragged into the bearish camp.

While we are now in a seasonal period of strength for the ASX, only 7 times has the market fallen in December over the past 30 years, we are now conscious that stocks have rallied strongly and it makes sense to selectively move from a fully invested stance, to one that affords a bit more flexibility.

  • The ASX 200 finished up +50pts/ +0.70% at 7231
  • The Utilities sector was best on ground (+1.56%) while Industrials (+1.30%) & Energy (+1.27%) were also strong.
  • IT (-1.05%) and Real-Estate (-0.34%) the weakest links.
  • Lead Portfolio Manager James Gerrish was on Ausbiz this morning discussing December seasonality & portfolio positioning – Watch Here
  • The RBNZ increased rates today by an aggressive 75bps, although it was inline with expectations.
  • Current market pricing has the RBNZ hiking by another 125bps to a 5.5% peak, the RBA is expected to increase by 115bps to ~4% while in the US, futures markets are pricing another 120bps to ~5%.
  • Economists think rates will peak at lower levels, and we tend to agree, hence our belief that bond yields have also peaked – for now at least.
  • Qantas (ASX: QAN) +5.28% announced another upgrade today, 6 weeks after the last one, guiding to profit before tax for the half of $1.35 -1.45bn – up $150m.
  • Abacus Property (ASX: ABP) -1.46% fell despite affirming distribution guidance of at least 18.4¢ per security for the 2023 financial year, reflecting a payout ratio in the range of 85-95% of FFO. The stock is yielding 6.8% on that guidance.
  • National Storage (ASX: NSR) -2.46% fell on a CLSA downgrade to Sell, PT $1.98 v $2.40 last.
  • Chalice (ASX: CHN) +6.45% was strong after flagging “material” potential at its Julimar Nickel-Copper-Platinum mine in Western Australia.
  • CSL  +0.13% hit $300 again today, although sold off thereafter to close back under the milestone. This is a key technical level for the bio-tech.
  • Medical device company PolyNovo (ASX: PNV) -8.85% fell after completing a $30m insto placement to be used to expand the business in the US, Canada, India, and Hong Kong. Shares were placed at $1.90 with the stock closing a whisker above that level.
  • Calix (CXL) +7.83% rallied after they resumed trade, they clarified that they were still in negotiations with CEMEX even though the latter had announced a ‘done deal’. Clearly they are keen and a deal feels odds on, hence the pop by CXL. .
  • Iron Ore was ~2% lower in Asia today, Fortescue (ASX: FMG) fell -0.68% - buy weakness, not strength in Iron Ore the key message from MM.
  • Gold was marginally lower during Asian trade ~US$1735/oz
  • Asian stocks were mostly higher, Hong Kong up +0.56%, Japan +0.89% while China was flat.
  • US Futures are flat – another quiet night expected then no trade in the States on Friday.

ASX 200 Chart

Qantas (ASX: QAN) $5.28

QAN +5.28%: Rallied today on another earnings upgrade just 6 weeks after their last one, the flying Kangaroo now saying profit before tax (PBT) would be $1.35-1.45bn for 1H23, a $150m increase on their last update. While only early days, the momentum is clearly strong in QAN and we suspect they’ll look to re-charge their current $400m share buy-back which is now 76% complete. The market is now a lot more rational i.e. higher prices, and the consumer is still keen to travel. On UBS numbers, QAN is now trading in a PE of 7.7x for FY23 with strong earnings ‘tailwinds’, although when you look at what is being charged for overseas travel, it’s hard to see such buoyant conditions remain if we nosedive into recession next year.

Broker Moves

  • Breville Cut to Underweight at Jarden Securities; PT A$19.20
  • Star Entertainment Cut to Neutral at Macquarie; PT A$3.05
  • Monadelphous Cut to Neutral at JPMorgan; PT A$13.70
  • Technology One Cut to Hold at Morgans Financial Limited
  • Technology One Cut to Hold at Bell Potter; PT A$14.25
  • Goodman Group Cut to Accumulate at CLSA; PT A$20.41
  • Dexus Industria REIT Raised to Accumulate at CLSA; PT A$3.02
  • Ingenia Cut to Accumulate at CLSA; PT A$4.69
  • Charter Hall Group Cut to Accumulate at CLSA; PT A$15.22
  • National Storage Cut to Sell at CLSA; PT A$1.98
  • Centuria Capital Cut to Reduce at CLSA; PT A$1.86
  • Rural Funds Cut to Sell at CLSA; PT A$2.32
  • Dexus Raised to Accumulate at CLSA; PT A$8.26

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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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