The Match Out: ASX struggles again, Resources weigh, Telstra looks for growth in health and energy

James Gerrish

Market Matters

It was a poor session today for Aussie stocks, the market selling off throughout the session, again hitting its head on this stubborn wall of resistance at around 7480 points, as weakness in commodity stocks weighs on the broader market. But with only one sector (IT) finishing in the green, it shows how broad-based the decline was.

  • The ASX 200 finished down -49pts/-0.67% today at 7420.
  • The Materials sector, off -1.66%, was the biggest drag, within that mineral sands juggernaut Iluka (ASX: ILU) fell around 4% after presenting at a conference, while Chalice Mining (ASX: CHN) again topped the boards, up around 3%.
  • The IT sector keyed off positive leads overseas with Afterpay (ASX: APT) +1.7% supporting the sector.
  • RBA Governor Philip Lowe released minutes of the last meeting and did a good job of keeping a foot in both camps – that is, being optimistic on the economy but not optimistic enough on wage growth and inflation to think about rate hikes in 2022, for which the market is positioned.
  • Bitcoin was hit today, trading down 4.5% to US$61000
  • With many AGMs to cover, the standout for us today was Calix (ASX: CXL) +11.2% with more detail provided on its move into zero-emissions iron and steel – we own this stock in our Emerging Companies Portfolio.
  • Capital Health (ASX: CAJ) +7.25% also had its AGM and provided a good trading update. Harry covers this below, the company void of news recently, making the update very timely.
  • Telstra (ASX: TLS) -1.25% fell after management held an investor day.
  • AMP -2.59% hit with an enforceable undertaking and remediation costs of between $40 million and $45 million.
  • Gold was up marginally in Asia, +$US4 to trade $US1866 at our close.
  • January Iron Ore Futures were flat today in Asia.
  • Asian markets were mixed, Nikkei +0.24%, Hong Kong +1.07% while China was down -0.10%.
  • US Futures are flat.

ASX 200 

RBA today

The RBA released the minutes of its November Meeting today and there were interesting takeaways:

  • Starting at the end first, Governor Lowe was asked whether or not he was a dove – that is, implying that he’s negative on the Australian economy, which underpins his stance for supportive policy. His response provided a good summation of the RBA’s view: “I’m expecting the unemployment rate to get to 4% in two years’ time, I’m expecting the economy to grow by 5% next year and 2.5% the following year, and I’m expecting inflation to be in the twos, and that’s a very good set of economic outcomes and I remain incredibly optimistic about the medium-term prospects for this country.”

  • The governor reiterated that it was “still plausible” the first increase in the cash rate will not be before 2024, although if market pricing is anywhere near correct, he’ll be proven wrong on that. He went on to say: “The latest data and forecasts do not warrant an increase in the cash rate in 2022, the economy and inflation would have to turn out very differently from our central scenario for the board to consider an increase in interest rates next year.”

  • He said Australian wages will need to grow at “3 point something” to sustain inflation around the middle of the central bank’s 2-3% target, while adding that it will not be the sole determinant for price pressures and, in turn, policy.

  • “We still have a way to go,” Lowe said, emphasizing that inflation is only just above the bottom of the target band. He pointed out that the trajectory for consumer-price growth is also important, with a slow drift up having different policy implications to a sharp rise.

The AUD was marginally higher on the update, hovering around 73.5 US cents.

Australian Dollar $A

Telstra (ASX: TLS) $3.95

TLS -1.25%: Held an investor day today which we’ll cover in more detail in tomorrow morning’s portfolio report. But a key focus is on growing / scaling its non-core businesses, particularly in health software and technology through recent acquisitions such as a majority stake in billing services firm PowerHealth, and a $350 million purchase of medical software firm MedicalDirector. Management talked to further cost out and reconfirmed earnings targets under its T25 strategy, for annual growth rates in the "high-teens" for underlying earnings per share until the 2025 financial year.

MM is neutral / marginally bullish TLS under $4.

Telstra

Capitol Health (ASX: CAJ) 37c

CAJ +7.25%: the diagnostic imaging company hosted their AGM today with a solid performance update which helped the stock higher. Capitol Health has seen revenue up 6.3% in the first 4 months on the year when compared to the same period pre-CVOID in FY19. This comes despite around 80% of revenue being generated from Victoria, one of the hardest hit by lockdown. This start puts them well on track to meet consensus revenue estimates for the full year of $192m with the help of the recently opened Packenham site along with another 2 coming along before the end of 2021. The balance sheet is in great shape – has been for a long time – however management are yet to pull any triggers on meaningful acquisitions so money may find its way back to shareholders through buybacks or special dividends.

MM remains long bullish CAJ.

Capitol Health

SRG Global (ASX: SRG) 52c

SRG +4%: the mining and asset services company announced a number of new contract wins today worth around $110 million. It includes two three-year mine maintenance contracts, a three-year engineering services contract for NZ dairy producer Fonterra and two deals with Rio Tinto for work on its Queensland alumina refinery. The key will now be margins – services businesses have struggled to maintain profitability with higher labour costs and chasing work for the sake of revenue. SRG has managed to maintain margins recently despite the conditions.

MM remains long and bullish SRG.

SRG Global

Broker moves

  • Aurizon Cut to Neutral at UBS; PT A$3.50

  • DGL Group Raised to Buy at Bell Potter; PT A$3.05

  • Neuren Rated New Speculative Buy at Evans & Partners Pty Ltd

Major movers today

Have a great night

James, Harry & the Market Matters Team

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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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