The Match Out: ASX rallies, Westpac tanks, All eyes on the RBA tomorrow

James Gerrish

Market Matters

The market got off to a very indecisive start today, giving up early gains to trade just marginally higher by 10.30 am before buyers stepped up to the plate and carried the index higher. The financials sector was weighed down by a poor fiscal 2021 report from Westpac (ASX: WBC) – but it was the only sector to close lower for the day.

  • The ASX 200 finished up 47pts/+0.64% today at 7470
  • Financials were the only sector to finish lower (-0.48%) on the back of weakness in Westpac (ASX: WBC) while listed telcos were supported by a strong move by Telstra (ASX: TLS)
  • The race that stops the nation happens tomorrow afternoon, but it will be the RBA that stops the market with its rate decision at 11.30 am. Bonds have been smashed in the lead up to this meeting, the market anticipating a more hawkish stance from the central bank – and tomorrow is crunch time for our central bank.
  • Westpac fell more than 7% on a weak result, higher costs and low interest rates leading to weaker margins, particularly in the second half. More on that below.
  • Ausnet Services (ASX: AST) looks to have sewn up a deal with Brookfield. At this stage, it appears APA Group (ASX: APA) is hard done by in these negotiations.
  • Gold was a touch higher during the Asian trade back to around $US1785 at our close.
  • January Iron Ore Futures were down around 3%.
  • In Asia, Hong Kong was off -1%, China added +0.24% while Japan was strong following the election result, gaining around 2.5% on the session.
  • US Futures are flat.

ASX 200

Westpac (ASX: WBC) $23.78

WBC -7.36%: The big-four bank reported full-year results this morning that were underwhelming. While cash profit was only a slight miss, coming in at $5.35 billion versus $5.42 billion expected, the real issue stemmed from higher costs, weaker net interest margins (NIMs) and a concerning trend half on half. While the dividend of 60 cents a share was positive, alongside the announcement of an off-market share buyback of up to $3.5 billion, a focus on the second-half 2020-21 showed a deterioration in profit and a NIM that declined from 2.09% to 1.99%. Expenses increased from $5.23 billion in the first half to $5.7 billion in the second – with $140 million of additional costs for “financial crime capabilities and systems, product governance, data and regulatory changes”. This saw the bank’s cost to income ratio rise from 61.6% to 63.1%. All up, a weak result and a share price decline of around 7% is probably warranted. The focus will now be on the large cost out program management announced and the ongoing turnaround that is (apparently) underway.

MM is neutral Westpac, currently preferring National Australia Bank and Commonwealth Bank.

Westpac

Independence Group (ASX: IGO) $9.74

IGO +1.04%: The production numbers out today were solid and confirmed a good start to fiscal 2022. Management announced the maiden contribution from the recently acquired lithium JV and Nova production and costs were better than pro-rata quarterly guidance. It announced no change to full-year guidance metrics for Nova but there are still no guidance metrics for the Lithium unit. For the short term, most of the focus is on whether or not it will progress with a deal to acquire Western Areas (ASX: WSA).

IGO has now hit our initial target of around $10.

Independence Group

APA Group (ASX: APA) $8.41

APA +2.56%: looks to have lost out on its attempt to take over Victorian electricity grid and gas pipeline owner AusNet (AST) after Brookfield came back to the table with a $2.65/sh all-cash bid. The AusNet board intend to unanimously recommend the offer to shareholders despite giving APA due diligence just a week ago. APA shareholders were unfazed with shares ticking up today – the scrip offer would have come with sell downs from a number of AST shareholders which would weigh on the stock short term regardless of the longer-term value it could bring. The deal still has its hurdles, with shareholders and FIRB approval still required. Singapore power owns around 33% of AST and has indicated it will accept, while China’s state-owned power company which holds 20% has not yet declared intentions – it’s unlikely they will be as willing. FIRB will grapple with the idea of another key infrastructure asset going to offshore hands. For APA though, it should remove some short term pressure on the stock.

MM recently added APA to the Income Portfolio.

APA Group

Broker moves

  • ANZ Bank Raised to Neutral at Citi; PT A$29.25
  • Macquarie Group Raised to Buy at Citi; PT A$226

Major movers today

Make informed investment decisions

At Market Matters, we write a straight-talking, concise, twice daily note about our experiences, the stocks we like, the stocks we don’t, the themes that you should be across and the risks as we see them. Click here for your free trial.

The Match Out will be available each day after the market close. Follow my profile to be notified when the latest report is live.

........
Livewire gives readers access to information and educational content provided by financial services professionals and companies ("Livewire Contributors"). Livewire does not operate under an Australian financial services licence and relies on the exemption available under section 911A(2)(eb) of the Corporations Act 2001 (Cth) in respect of any advice given. Any advice on this site is general in nature and does not take into consideration your objectives, financial situation or needs. Before making a decision please consider these and any relevant Product Disclosure Statement. Livewire has commercial relationships with some Livewire Contributors.

2 topics

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...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.