The Match Out: ASX kicks off the week on the front foot, Solid 1H23 result from Metcash (MTS).

James Gerrish

Market Matters

The ASX kicked off the week on the front foot today with Energy & Material stocks pushing the market higher in what was a fairly subdued session. It’s certainly starting to feel more like Christmas as volumes from here start to slide, and moves become more exaggerated, an example today was Elders (ELD) on the downside after UBS cut its recommendation.

  • The ASX 200 finished up +24pts/ +0.33% at 7325, just ~300pts/ 4% from all-time highs
  • The Energy sector was best on ground (+1.50%) while Materials (+1.41%) & Property (+0.71%) were also strong.
  • Utilities (-1.07%) and Industrials (-0.80%) the weakest links.
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  • Less than 50% of the market made gains today showing the breadth of the rally is starting to fade i.e. buying is very targeted with 5 of 11 sectors finishing lower on the day.
  • IGO Limited (ASX: IGO) -4.9% fell after saying Nova operations would be halted for a few weeks following a fire.
  • Metcash (ASX: MTS) +0.24% reported a solid 1H23 result today and said 2H23 had started well.
  • UBS downgraded Elders (ASX: ELD) -4.62% to hold from buy today on leadership uncertainty. We held the same view (here) having met management recently – there is no rush to buy this one.
  • Fortescue (ASX: FMG) +6.86% ripped on further strength in Iron Ore which hit US$110 today. We think FMG is a trading stock, a buy on Iron prices ~US$80 and a sell ~US$120…implies it is getting closer to a sell than a buy.
  • BHP +2.29%, Sandfire Resources (ASX: SFR) +3.24% and Iluka (ILU) +1.06% indicative of broader strength across material stocks as China eases policy
  • Iron Ore was ~3% higher in Asia today supporting the Iron Ore stocks
  • Gold was back up through $US1800, settled $US1808 at our close.
  • Asian stocks were solid Hong Kong up +3.23%, Japan +0.07% while China was up +1.50%
  • US Futures are all up, around +0.10%

ASX 200 Chart

Metcash (ASX: MTS) $4.24

MTS +0.24%: Released 1H23 results this morning that were ahead of expectations led by Hardware & Food. They also pointed to a strong start to 2H23 so all seems to be rosy for MTS. Sales of $8.9bn was +7.8% y/y while underlying EBIT of $255.1m was +10.3% y/y, & around 6% ahead of market expectations. The 11.5cps dividend was also a beat. We own Metcash due to 1. Relative valuation trading on 14x forward while yielding 5.5% FF 2. The trend of greater localisation to drive earnings in food & liquor & 3. Their faster-growing hardware division becoming a big influence on the group leading to higher earnings + a greater rate of growth in earnings = justifying a higher multiple on those earnings.

Broker Moves

  • Nickel Industries Cut to Hold at Jefferies; PT A$1.10
  • Elders Cut to Neutral at UBS; PT A$11.30
  • Synlait Milk Raised to Neutral at Macquarie; PT NZ$3.41
  • Amcor GDRs Rated New Neutral at Evans & Partners Pty Ltd
  • Orora Rated New Positive at Evans & Partners Pty Ltd; PT A$3.39

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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