The Match Out: ASX rallies ahead of the Budget tonight, Tech leads the line…

James Gerrish

Market Matters

A strong session for the ASX today with most sectors in the green ahead of the budget tonight. Technology stocks followed their US counterparts higher while consumer discretionary names benefitted from chat that tonight’s budget will put more money in consumers’ pockets. US Futures were positive during our time zone which created a tailwind while Asia was also in the green. It doesn’t feel like it, but today’s advance was the 6th on the trot for the local market.

  • The S&P/ASX 200 added +51 points / +0.70% to close at 7464.
  • IT (+3.29%) & Consumer Disc (+2.12%) led while the Energy sector (-0.55%) and Materials (-0.18%) were the drags.
  • Bond yields rallied at the short end of the curve, Aussie 2 year yields +0.11% to 1.91%, 3 years +0.07% to 2.47%while 10 years were flat at 2.90%.
  • Energy down just -0.55% despite Oil off ~9% overnight shows no one really that keen to sell the sector here.
  • Federal Budget tonight at 7.30 pm - simply a fascinating backdrop for a budget to be delivered in. There is already a heap of money in the system, a war is putting upward pressure on resources and other stuff which is stoking inflation, unemployment is super low heading to levels not seen since the 1970’s and of the seven top pandemic spenders, only two have not raised rates yet - Australia is one of those. Throw in a Federal election in less than eight weeks’ time and we get one of the most fascinating backdrops for a budget that I can remember.
  • Nearmap (NEA) +16.6% landed a big contract and has now met the bottom end of FY guidance (3 months early).
  • Telstra (TLS) +1.55% finalises it’s legal structure for T22 strategy
  • Uniti Group (UWL) -1.69% receives improved/ upgraded $5.00 bid from Morrison, Brookfield.
  • Service Stream (SSM) +3.88% rallied as the Government pre-released a $480m infrastructure project to increase NBN speeds in rural Australia that will be included in tonight’s budget. SSM is a critical infrastructure builder/manager /maintainer with a strong telco division – we own.
  • Blackstone which is acquiring Crown Resorts (CWN) +0.87% has received FIRB approval
  • Iron ore futures were flat, Coal Futures fell -1.7%.
  • Gold was down ~1.8% to US$1923 at our close.
  • Asian markets are higher, Japan up +0.94%, Hong Kong up +0.57% while China added +0.25%.
  • US Futures are all higher, up around +0.20%.

Nearmap (NEA) $1.51

NEA +16.6%: mapping technology company Nearmap announced it was on track to reach the top end of guidance after winning its largest government contract in North America. Previous guidance for Annual Contract Value (ACV) was between $150-160m with their new contract win pushing them over the low end of the range with around 3 months left in the period. As a result, the company has already grown ACV at least 17% in FY21 at $128.2m. They’ve managed to continue underlying growth despite being under pressure around patent infringements. It remains a risky play however the market has been very negative on the stock with shorts at 5.2% of the issued capital. This will at least see some short-covering play out.  

Sigma Healthcare (SIG) 53c

SIG +1.92%: Sigma is a chemist retailer operating under brands like Amcal and they also have a large wholesale business, although smaller than it once was after losing the contract to supply Chemist Warehouse a few years ago. They released FY22 results today and presented to us this afternoon. We haven’t really looked at SIG before and find it hard to get excited about the stock right now, although it is in turnaround mode. Today’s result was in line with both guidance and market expectations, FY22 underlying EBITDA of $92.1m was +10.8% on last year and compared to guidance of +10-15%. No FY23 guidance, but expects to return to profit in the period.

Broker Moves

  • Gold Road Raised to Neutral at Macquarie; PT A$1.70
  • Costa Raised to Overweight at Wilsons; PT A$3.66

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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