The Match Out: ASX opens with a bang, ends with a whimper, Smart Group downgrades

James Gerrish

Market Matters

It was a stronger open this morning for quarterly index and options expiry, hence the delayed start, however, the first hour saw the best of it and the rest of the day was a soggy affair, a slow, meandering slide as selling kicked into US Futures. The market strength post the 0.75% rate rise in the US was short-lived, probably short-covering and now we enter another vortex of data that could well be filled with negative rhetoric.

  • The ASX 200 finished down -9pts/ -0.15% at 6591
  • The Real-Estate sector was best on ground (+1.20%) – we covered this in the AM today – click here, while Communications (+0.53%) & Energy (+0.48%) were also strong.
  • Utilities (-1.56%) and Industrials (-1.24%) the weakest links.
  • The unemployment rate came in at 3.9% today with Shane Oliver from AMP now calling a rate of 3.5% in the next 3-6 months. Such a level keeps the RBA in focus and put upwards pressure on inflation and interest rates – a reason for today’s underperformance it seems.
  • ANZ now thinks house prices will fall 5% in 2022 and a further 10% in 2023. (was 3 & 8% respectively).
  • Eagers (ASX: APE) +5.44% announced a buyback of up to 10% of shares on issue in FY23 – the balance sheet remains in great shape despite supply chain challenges etc. The stock has halved this year.
  • Smart Group (ASX: SIQ) -10.91% fell today after losing a contract but more importantly, downgrading guidance by ~8%.
  • Link (ASX: LNK) -10.43% fell after the ACCC released preliminary concerns around the takeover by Canadian group Dye & Durham.
  • Netwealth (ASX: NWL) –2.85% fell on reports they may look to revisit their takeover of Praemium (ASX: PPS). The original deal was launched on the 2nd Nov 2021 with the respective share prices changing dramatically since then. PPS was $1.24 (v 46.5c yesterday) while NWL was $17.50 (v $11.21 yesterday).
  • Praemium (PPS) +6.45% was higher on the speculation while HUB 24 (HUB) -3.52% fell on the news + broader mkt weakness. We own HUB in the Growth Portfolio.
  • NextDX (ASX: NXT) +3.78% is reported to have hired Goldmans as defence adviser – the data centre business is down ~40% from highs in an environment where private equity is still out and about looking for quality assets like these.
  • JP Morgan upgraded Altium (ASX: ALU) to a buy today with a $32 PT – we own ALU.
  • China is moving to consolidate the country’s iron ore imports through a new centrally controlled group by the end of this year, as they try to increase pricing power over the industry. Iron Ore was down ~2% in Asia today.
  • Gold was flat after rallying overnight – currently trading ~US$1830.
  • Asian stocks mostly down, Hong Kong off -1.65%, China -0.67% while Japan added +0.57%
  • US Futures all lower, Nasdaq the weakest link -1.28%, S&P -0.92%

ASX 200 Chart

Smart Group (SIQ) $6.53

SIQ -10.91%: A poor day for the novated leasing and salary packaging business, missing out on renewing the contract for one of their top 20 clients, the Department of Education & Training in Victoria. There had been a competitive tender and the award was given to their competitor, Maxxia which is owned by McMillan Shakespeare (MMS). The exclusive contract currently has approximately 4,000 novated leases and 9,000 salary packages that would be transitioned to Maxxia. SIQ say that it will have no material impact on FY22 revenue and will impact revenue by less than 5% in FY23. MMS also said the financial impact would not be material. While it’s a blow for SIQ, they have retained all top 20 clients that fell due in 2021 and the bulk of those that fell in FY22. More importantly for the share price today was their guidance saying that 1H22 revenue and EBITDA would be inline with H1 2021. The market had factored in growth of ~8%, so a contract loss + an unrelated downgrade to boot, hence the weakness in the shares. MMS also finished lower, down -3.59%.

Smart Group

Link Administration Holdings (LNK) $3.35

LNK -10.43%: the corporate administration business copped a double whammy of bad news today which sent the stock to a 2-year low. The ACCC released preliminary concerns around the takeover by Canadian group Dye & Durham which aired concerns around competition given Link’s stake in digital property settlements and conveyancing business PEXA (PXA). Dye & Durham offers a software solution used by lawyers and conveyancing firms used for property settlements which the ACCC fears could vertically integrate with PEXA’s business to squeeze out any competition. The $5.50/sh cash off for Link is now 64% above today’s close, but is unlikely to proceed in its current state. Link was also taken to court in England with papers lodged regarding a class action from their involvement in the Woodbridge Income Fund collapse. While the issues seem to be stacking up for Link, there is value in the underlying business.

Link Administration Holdings

Broker moves

  • Strike Energy Rated New Speculative Buy at Bell Potter
  • Johns Lyng Raised to Positive at Evans & Partners Pty Ltd
  • ANZ Bank Cut to Underweight at Jarden Securities; PT A$24.50
  • CBA Raised to Neutral at Jarden Securities; PT A$98
  • Westpac Cut to Underweight at Jarden Securities; PT A$22.50
  • Bendigo & Adelaide Cut to Underweight at Jarden Securities
  • Inghams Cut to Neutral at Credit Suisse; PT A$2.90
  • Altium Rated New Overweight at JPMorgan; PT A$32
  • Ramsay Health Raised to Buy at Jefferies; PT A$88

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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