The Match Out: ASX storms higher, Retailers and Property buoyed by the prospect of fewer rate hikes

James Gerrish

Market Matters

The ASX opened with a bang this morning, rallying off the back of a strong session in the US following signs that inflation has peaked, CPI printing 8.5% versus 8.7% expected. This is a big deal. Uncontained inflation is the reason why rates have risen so aggressively and why risk assets had been sold off. Stabilisation here provides more certainty and more certainty gives confidence, and we all know the market ebbs and flows in the short term on this metric.

  • The ASX 200 finished up +78pts/ +1.12% at 7071 – the highest close since early June.
  • The Consumer Discretionary sector was best on ground (+2.17%) while Real-Estate (+1.98%) & Materials (+1.49%) were also strong.
  • Utilities (-1.49%) was the only sector that fell while Consumer Staples (-0.26%) underperformed.
  • It was clearly a risk-on session and that was seen from the sectors that saw the buying, plus it was positive to see the market push up hard into the close.
  • Reporting season so far has been fine, no real landmines (yet) although it is only early days, we’re bound to get a few!
  • Lots of negativity priced into some areas, property and consumer discretionary two obvious ones, these stocks will rally on okay results i.e. not disasters.
  • Telstra ASX:TLS –1.25% rallied early, fell late on what was a solid FY22 result and good guidance – more on that below.
  • AMP ASX:AMP  – 0.86% fell on a messy 1H result although that was always to be expected. Profit was a miss overall but their capital position is strong, outflows are decreasing and the bank is growing strongly, although margins are laughable for now. $350m capital return via a buy-back now and another $750m next year. This is a cheap turnaround play that we have on our hit list – just haven’t worked up the courage to buy it yet!
  • QBE ASX:QBE  +3.29% stronger as their first half result showed a positive start to the year.
  • Mirvac ASX:MGR +3.83% higher as operating profit of $596 million was +8.4% on FY21 and compared well to consensus of $578.2m. FY23 guidance seemed weaker however just like Centuria ASX:CNI, we think they are being conservative around their assumptions – I think property stocks are a high chance of upgrading throughout the year – time will tell - we’ve just bought Centuria Capital in our Income Portfolio.
  • Jeffries downgraded CBA to Hold with a $96 PT – there are now no brokers with a positive rating on CBA! The consensus PT is $90.94 – you can check this out on the Market Matters Website – Here
  • The Market Matters Weekly Video Update yesterday covered Portfolio Performance – Click Here
  • Iron Ore was ~2% higher in Asia today.
  • Gold was down to ~US$1786.
  • Asian stocks were solid, Hong Kong up +2.19%, Japan +1.19% while China was up +1.53%
  • US Futures are all up, around +0.50%
  • The Trade Desk (TTD US) had a good session overnight, up +36%

ASX 200 chart

Telstra (TLS) $3.96

TLS –1.25%: Reported FY22 results this morning that were met with buying early, although that tapered off throughout the session and the stock ended lower. For the full year, Telstra produced net profit of $1.69bn versus $1.66bn expected with a dividend of 8.5c for the 2H, a surprising increase inclusive of a 1cps special dividend. Free cash flow was lower, capital expenditure was higher which we suspect is the cause of a weaker SP, while their FY23 guidance was in line to slightly positive relative to expectations. Key commentary from today’s update:

  • As we enter the first year of our T25 strategy we are in a strong position to maintain our financial momentum and continue to build underlying growth.
  • Confident our financial momentum will continue, driven by product growth, productivity improvements, and the end of the financial headwinds created by the NBN.
  • Continued to take cost out of the business, with underlying fixed costs down $454 million and total operating expenses down $906 million, or 5.8%.

For FY23 they expect total income of $23 billion to $25 billion, current consensus was at the lower end, while they see EBITDA of $7.8 billion to $8 billion, up from the $7.26bn delivered in FY22.

QBE Insurance (QBE) $12.54

QBE +3.29%: 1H result for the insurer today showed a positive start to the year. Cash NPAT at $169m was a good beat to expectations, as was the 9c interim dividend vs 7c expected. Gross Written Premium (GWP) was up 18% in the half, though cycling lighter numbers. They lifted Gross Written Premium (GWP) growth expectations to around 10%, up marginally from “high single digits.” They have also seen an improving return from their investment book thanks to higher rates. This is partially offset by higher claims as a result of inflation, however, the numbers today were positive and they are set up well to beat full-year consensus at this rate.

Broker moves

  • Computershare Rated New Hold at Barclay Pearce Capital
  • Dexus Industria REIT Rated New Hold at Barclay Pearce Capital
  • REA Group Cut to Neutral at UBS; PT A$142.60
  • Zip Co. Cut to Neutral at Jarden Securities; PT A$1.20
  • CBA Cut to Hold at Jefferies; PT A$96
  • OZ Minerals Raised to Neutral at Credit Suisse; PT A$28
  • Computershare Cut to Neutral at Credit Suisse; PT A$25
  • Computershare Raised to Buy at Citi; PT A$28.20
  • St Barbara Cut to Neutral at Macquarie; PT A$1.10
  • Australian Clinical Labs Cut to Sector Perform at RBC; PT A$5.25
  • Computershare Raised to Add at Morgans Financial Limited
  • Australian Clinical Labs Cut to Neutral at Credit Suisse
  • New Century Rated New Buy at Shaw and Partners; PT A$3.60
  • GrainCorp Raised to Outperform at Credit Suisse; PT A$9.14

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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