The Match Out: ASX trickles lower despite solid earnings, Lithium stocks soar

The daily Match Out report for Thursday 11 May with Market Matters' James Gerrish.
James Gerrish

Market Matters

Solid earnings and a bump in corporate activity were not enough to push the market higher today, with weakness amongst the mining stocks (ex-Lithium) to blame. Meanwhile, Westpac (ASX: WBC) trading ex-dividend didn’t help. That said, another example of intra-day weakness being bought, and more stocks than not actually trading higher while the index experiences a slow, shallow and begrudging pullback.

  • The ASX 200 finished down -3pts/ -0.05% at 7251
  • The IT sector was best on ground (+1.44%) while Communications (+0.75%) & Consumer Discretionary (+0.27%) ended higher.
  • Utilities (-1.10%) and Materials (-0.45%) the weakest links.
  • A few analysts out today talking up healthcare and consumer stocks as the winners in the budget – not sure how much validity this has, hard to tell really and probably not worth bothering.
  • The macro backdrop remains a fascinating one, last night US Inflation came in at a 2-year low (4.9%) down from a peak of 9.1% - inflation has peaked, and so have rates.
  • Goodman Group (ASX: GMG) +0.91% now forecast FY23 operating EPS growth of 15%, they had previously guided to 13.5% growth.
  • GrainCorp (ASX: GNC) +10% rallied after boosting its earnings guidance for the full year.
  • Allkem (ASX: AKE) +15.72% has agreed to merge with US rival Livent in an all-stock deal that will create a $US10.6 billion producer. We think the deal has merit.
  • The rest of the Lithium sector rallied, Pilbara (ASX: PLS) +5.05%, and Global Lithium (ASX: GL1) +12.01% – we covered lithium stocks earlier in the week here
  • Orica (ASX: ORI) +0.85% edged higher today following solid 1H23 results and decent guidance for the 2H
  • NEXTDC (ASX: NXTtrading halt, raising $618m at an 8% discount to yesterday’s close, funding expansion in NZ and Malaysia, plus increasing their capacity in Sydney.
  • NXT expects construction to start next year for 2026 completion. They also marginally upgraded their Revenue guidance, and tightened the spread on profit guidance.
  • Sandfire (ASX: SFR) -1.52%% negotiated improved terms for the debt facility used to fund the MATSA acquisition, extending the life and reducing the lumpiness of payments without increasing the total amount owed.
  • Metals & mining stocks seem to be catching the recession cold – further weakness and we’ll start nibbling away, S32 is tracking back to our ~$4 target.
  • REA Group (ASX: REA) +0.77% higher today ahead of tomorrow’s quarterly – we’re a bit nervous about this one in the short term.
  • Iron Ore was ~1.5% lower in Asia today weighing on Fortescue (ASX: FMG) -1.99%, Rio Tinto (ASX: RIO-1.72%, BHP Group (ASX: BHP-1.01%.
  • Gold was up overnight to ~US$2032.
  • Asian stocks were okay. Hong Kong down -0.7%, Japan flat, while China was off -0.18%
  • US Futures are marginally higher  

S&P/ASX 200

Allkem (ASX: AKE) - $14.94

AKE +15.72%

Allkem announced a merger with US group Livent (LTHM US) to create the world’s 3rd largest lithium producer forcing shares in lithium miners to squeeze higher today. Allkem shareholders, which was born out of a merger between Galaxy and Orocobre, will own 56% of the combined group, however, Livent’s CEO Paul Graves will be tasked with combining the assets across Canada, Argentina and Australia. 

The deal is expected to save $US285m in both cost synergies and CAPEX net of the costs involved in pulling the deal together. Talking their own book, the group expects to benefit from its scale attracting customers demanding a large supply of various lithium products, expecting to produce more than 200kt/year of production within 5 years. We suspect there will be plenty more M&A in the space in the near term.

GrainCorp (ASX: GNC) - $7.81

GNC +10%

The first half numbers for the agricultural commodities and processing business were better than expected, helped by a bid for United Malt Group (ASX: UMG) of which they own ~8.5%. Both the Agricultural and Processing sides of the business beat by similar dollar amounts, with EBITDA of $383m a 40% beat to consensus. The mark-to-market of their investment in United Malt (UMG) boosted profit by ~20%, adding $41m. 

GrainCorp upgraded EBITDA for FY23 by ~6% to $500-560m as a result of the strong start, 7.5% above consensus at the midpoint. They also upgraded ‘through the cycle’ guidance, reflecting earnings in a ‘normal’ year, by ~30% to $310m on higher oilseed margins, operating leverage and better pass-through of interest costs.

Orica (ASX: ORI) - $16.61

ORI +0.85%

Orica edged higher today following solid 1H23 results and decent guidance for the 2H. For the half, sales were up 22% to $4bn which was about ~20% above consensus and that dropped down to underlying net profit after tax (NPAT) of $164m, up 27% and around 6% above consensus expectations with increased interest expense having an obvious negative influence. The interim dividend of 18cps unfranked was also above 16cps expected. Their outlook, while it appears conservative, still points to single-digit consensus earnings upgrades to flow through, and speaks to a more positive story around demand for explosives despite higher prices.

St Barbara (ASX: SBM) - 67.5c

SBM -0.75%: 

More news flow regarding the sale of their WA assets with Silver Lake (ASX: SLR) looking to disrupt a deal with Genesis (ASX: GMD). Silver Lake came back with an improved offer worth $707m by increasing the scrip part of the deal after St Barbara rejected their earlier $668m offer. The assets are promised to Genesis in a deal worth ~$600m, while Silver Lake moved to allay St Barbara’s liquidity concerns, looking to complete the deal with just 2 weeks of due diligence. 

While a bidding war would ultimately improve the price, St Barbara is in need of the cash injection that would come from the sale, while shares in both courters fell today which reduced the value of the scrip components that make up the bulk of each offer, weighing on SBM shares.

Broker Moves

  • Appen (ASX: APX) Cut to Underperform at Macquarie; PT A$1.18
  • Mayne Pharma (ASX: MYX) Raised to Overweight at Wilsons; PT A$4.43
  • CSR (ASX: CSRCut to Sell at CLSA; PT A$5
  • Woodside Energy (ASX: WDS) Raised to Neutral at Citi; PT A$32
  • Appen Cut to Underperform at RBC; PT A$2
  • Allkem (ASX: AKE) Cut to Reduce at CLSA; PT A$13.70
  • CSR Cut to Underperform at Jefferies; PT A$4.50
  • CSR Cut to Neutral at Citi; PT A$5.45
  • Mader Group (ASX: MAD) Cut to Hold at Bell Potter; PT A$5.10
  • Xero (ASX: XRO) Cut to Reduce at CLSA; PT A$99
  • Suncorp (ASX: SUN) Raised to Overweight at JPMorgan; PT A$14.30

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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