The Match Out: ASX rips, CSL the main driver, Santos (STO) almost triples profit

James Gerrish

Market Matters

A great session for the ASX keying off strong leads from overseas as Russia took a tentative step backwards while strength on the domestic earnings front also buoyed the market, the Healthcare index +6.22% higher the standout thanks to our 3rd largest listed company (CSL) beating expectations and rallying more than 8%.

  • The ASX 200 finished up +78pts/+1.08% at 7284.
  • The Healthcare sector ripped, CSL up +8.51% on a good earnings report contributing +30 points to ASX 200, accounting for 37% of today’s rally – more on the result below.
  • Energy -0.74% fell on Crude Oil weakness overnight while Santos (STO) also reported FY21 earnings.
  • The Investment Platforms were hit today after Netwealth (ASX:NWL) -9.76% delivered results – cost pressures the issue which is crimping margins, Praemium (PPS) -11.11% and HUB24 (ASX:HUB) -8.04% in sympathy. It’s competitive out there for talent and while they are attracting lots of $$, they’re having to spend more on people and platforms. The concept of operating leverage remained elusive this half.
  • Lark Distilling (ASX:LRK) -20.88% had a tough session after their CEO was caught up in an extortion plot and resigned. Worth a read.
  • Liontown Resources (ASX:LTR) +17.99% rallied after signing a deal with Tesla.
  • Fortescue Metals (ASX:FMG) -2.04% reported H1 underlying NPAT of $2.78bn vs consensus $2.702bn while the dividend of A86c was also inline. I wasn’t on the FMG call at 2pm today, our analyst was and we’ll cover the feedback tomorrow AM.
  • Treasury Wines (ASX:TWE) +11.67% rallied on a better than expected 1H profit despite China adding just $2m to earnings (down from $78m a year ago). TWE increasing prices and coming out the other side of a tough period. Well done!
  • Vicinity Centres (ASX:VCX) +11.01% beat 1H earnings and reinstated full-year guidance which shows growing confidence in their business. The shopping centre landlord is collecting more rent and signing up new tenants on decent metrics, with 91% of all new deals being negotiated with fixed annual increases of at least 4% (most were more like 5%). Property stocks are performing well this week, we own GMG and this looks a standout buy.
  • EML Payments (ASX:EML) -3.97% delivered a below par result but reaffirmed full-year guidance for EBITDA of $58-65m, they have a lot of work to do in the 2nd half to get over the line.
  • A reminder that Markets @ Midday is released everyday around noon. Harry Watt giving a quick take on market moves – Click Here to listen and make sure you subscribe and tell your friends.
  • Iron Ore was down in Asia today, around 1.5%.
  • Gold was flat at $US1854 at our close.
  • Asian stocks were up Hong Kong +1.24%, Japan 2.24% while China was up +0.57%.
  • US Futures down a touch – nothing significant.

CSL Limited (CSL) $263.69

CSL: +8.51%: A strong 1H22 for CSL relative to market expectations today plus their guidance was positive for the full year. Revenue of $5.81bn was above the $5.56bn expected while 1H22 EBIT of $2.21bn compared well to the $2.03bn forecast for the half and also the $2.96bn pencilled in for the full year. While they said the result would be heavily skewed to the first 6 months, they’ve already banked ~75% of the expected full year earnings making it a low bar to get over. All in all, a good result for our 3rd largest ASX listed company after a difficult year having seen the SP fall 25% from their November high.

MM is now bullish CSL.

Santos (STO) $7.19

STO -2.84%: The stock was hit today following their FY21 results that were slightly light on in terms of earnings while a weaker oil price overnight didn’t help. Underlying profit for the year of $946m was a sharp increase on FY20 profit of $337.8m and largely inline with the $950m expected by the market. FY22 will be a big year for Santos following the recent acquisition on Oil Search (OSH) with profit expected to hit nearly ~$2bn from revenue of nearly ~$7bn from the combined group. The focus now will be on their pathway to deleverage via $2-3bn asset sell downs and how capital management will play out from there.

MM remains long and bullish STO, targeting at least $8.00.

EML Payments EML $2.90

EML -3.97%: a choppy ride for the payment solutions business today on the back of a mixed 1st half result. Revenue of $113m was a slight miss, EBITDA fell 4% to $26.9m but they maintained full year guidance of $58-65m in EBITDA which will require a big second half to reach. The positive news is that the sales pipeline is growing, up 30% in the half to $13.6b and they are starting to see more establishment fees coming through. They are also leveraged to higher interest rates - for every 1% hike across all jurisdictions, EML expects to add $14-15m to EBITDA and while this is unlikely to come through near term it does provide ‘free’ growth over the medium term if and when central banks move. Shares recovered strongly off the lows today. Guidance doesn’t look too far out of reach but I suspect many analysts will take a conservative view for now.

MM remains long EML in the emerging companies portfolio.

Netwealth (NWL) $13.40

NWL -9.76%: shares in the independent platform were smashed today following a soft first half. While fund flows remain robust and revenue follows, margins have been crunched by increasing costs for each of the players in the space. Operating expenses (excluding share based payments) were up around 30% on 1H21 and NPAT margins fell from 38.2% to 32.4% with earnings falling despite revenue up 17%. Netwealth talked to investment in people and technology as short term pressures however the story has been about operating leverage which hasn’t shown up this half. The numbers also weighed on peers HUB24 (HUB) and Praemium (PPS).

Broker moves

  • BHP Cut to Hold at Morgans Financial Limited; PT A$48.70
  • Lifestyle Communities Raised to Buy at Canaccord; PT A$19.50
  • Sims Cut to Underperform at Jefferies; PT A$14.40
  • Temple & Webster Raised to Buy at Goldman; PT A$12.65
  • Seek Raised to Buy at Jefferies; PT A$37.52
  • Atomos Rated New Overweight at Barrenjoey; PT A$1.78

Major movers today

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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