The Match Out: ASX rallies as RBA sits pat, Private Equity picks off Costa Group (CGC)

A positive open for stocks before the index tracked lower ahead of the RBA decision on interest rates at 2.30 pm - no change to rates - the market rallied, particularly the financials and property stocks buoyed by some respite to cost of living pressures. About half of the professional forecasters had expected a hike, while interest rate futures were pricing a ~20% probability of a 0.25% move – so there was some chance being priced in which had to quickly get priced back out - although bonds were fairly subdued with yields actually ticking 2bps higher to 4.04% on the 2-year.

• The ASX 200 finished up +32pts/ +0.45% at 7279
• The Energy sector was best on ground (+1.16%) while Financials (+1.08%) & Property (+1.00%) were also strong.
• Industrials (-0.15%) and IT (-0.14%) the weakest links.
• The RBA held rates steady today at 4.1%, in line with our expectations.
• Futures imply that rates are still expected to peak at 4.6% before coming down next year, we expect one more hike in August and a peak cash rate of 4.35%
• Interestingly, the central bank added a new sentence to the last paragraph of its statement: “The decision to hold interest rates steady this month provides the Board with more time to assess the state of the economy and the economic outlook and associated risks.” i.e. they are data dependent (perhaps!)
• Banks and Real-Estate stocks were strong post the move supporting the index which put on a quick ~40pts – we’re now knocking on the door of ~7300. ANZ +1.17%, CBA +1.33%, NAB +1.25% & WBC +1.17%.
• Costa Group (ASX: CGC) +12.08% rallied on a private equity takeover tilt lobbed at $3.50 per share.
• Austal (ASX: ASB) +12.93% is also in the crosshairs of a potential bid as reported in AFR Street Talk having hired JP Morgan as a defence adviser.
• Silver Lake Resources (SLR) +5.77% higher on a record quarter of sales + they said costs were well managed.
• Suncorp (ASX: SUN) +0.60% ended higher despite saying it expected the cost of reinsurance premiums to increase more than $250m in FY24, it was down ~2% early before the RBA move turned things around.
• Goldmans reinstated Evolution (ASX: EVN) +1.8% with a BUY rating – we own and remain bullish on this Gold/Copper miner.
• CSL +0.11% underperformed despite being upgraded by Jefferies to BUY and $318 PT. As we said post downgrade on the 19^th June Here, the easy trade has always been to buy the dips in CSL, however, we see no rush in doing this for now.
• ReadyTech (ASX: RDY) +2.73% is worth a look with all this private equity activity happening – they were presented with a deal worth $4.50 a share last year, it failed, but at $3.39 the stock looks cheap & is starting to move. We own.
• Uranium stocks had a good day, Paladin (ASX: PDN) +4.73%, they remain on-track and on budget for a restart in 1Q of calendar 2024 – i.e. not long now.
• Lynas (ASX: LYC) +4.20% enjoyed some more favourable chatter on rare earths – been a pain trade of late!
• Coal stocks should be trading higher – Coal prices on the up again, Whitehaven (ASX: WHC) +2.37% today is a start.
• Iron Ore was flat in Asia trading at $US112.75/dmt
• Gold was up overnight and edged higher today, currently trading at ~US$1926.
• Asian stocks were mixed, Hong Kong up +0.13%, Japan -0.98% while China was flat.
• US markets are closed tonight for Independence Day.
• US Futures are open, and little changed.

Costa Group (ASX: CGC) $3.34

CGC +12.08%: The fruit and veg grower, packer and marketer rallied today on a private equity takeover tilt lobbed at $3.50 per share. Paine Schwartz Partners had acquired 13.78% of CGC in October at $2.60, at the time saying they had no interest in taking the lot, however, we now know that was smoke and mirrors with the specialist in sustainable food chain investing back at the table, having completed 4-weeks of due diligence. There are some conditions associated with the bid, however, they know CGC well, have been a large investor for 10 months, have already received Foreign Investment Review Board (FIRB) backing and have the $$ to complete. In other words, this is a highly credible bid with a high chance of completing at the stated $3.50 per share, which would include any dividends declared before they wrap up the scheme of arrangement.

Silver Lake Resources (ASX: SLR) $1.10

SLR +5.77%: the best-performing gold stock today, Silver Lake confirmed they will hit FY23 sales numbers thanks to a record 4^th quarter. The company will deliver sales of 260koz in the 12 months, up 3% from FY22 while costs are expected within the guidance range after a strong 4^th quarter saw costs “decrease to the lowest level for the year.” The solid result came despite the impact of the Canadian forest fires which weighed on their Sugar Zone asset which was in part to blame for the recent share price underperformance vs peers. The company has no debt, and added $63m to its cash & bullion balance in the 4^th quarter, growing to $331m.

Broker Moves

• Liontown Resources Cut to Sell at Citi; PT A$2.80
• IGO Cut to Neutral at Citi; PT A$16.80
• Evolution Reinstated Buy at Goldman; PT A$3.80
• De Grey Mining Rated New Neutral at Goldman; PT A$1.35
• Gold Road Rated New Buy at Goldman; PT A$1.85
• Capricorn Metals Rated New Neutral at Goldman; PT A$4.60
• Northern Star Reinstated Neutral at Goldman; PT A$12.50
• Regis Resources Reinstated Buy at Goldman; PT A$2.30
• CSL Raised to Buy at Jefferies; PT A$318
• GUD Holdings Rated New Neutral at Evans & Partners Pty Ltd
• Lifestyle Communities Rated New Buy at Citi; PT A$18.50

Major Movers Today

Have a great night

The Market Matters Team

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