The Match Out: Banks knock the ASX lower, CBA a meet, but not a beat
The market was hit today as the influential banking sector weighed heavily on the index, accounting for ~2/3rds of the day’s decline. It actually wasn’t too bad elsewhere with 50% of the ASX trading higher, but when the average decline of the Big 4 is ~4.5%, it’s always going to be tough going. CBA was the catalyst as they talked to tougher conditions ahead while RBA Governor Philip Lowe highlighted his concerns around inflation and why he needs to be ‘unpopular’ in a much-anticipated appearance at Senate estimates.
- The ASX 200 finished down -78pts/ -1.06% at 7352
- The defensive Utilities sector was best on ground (+1.12%) while Consumer Discretionary (+0.55%) & Industrials (+0.23%) were higher.
- Financials (-3.39%) and Consumer Staples (-1.36%) the weakest links.
- Banks actually took 53 index points off the ASX 200 – a huge influence. CBA the weakest down -5.72%, WBC -4.32%, NAB -4.11% & ANZ 3.77%.
- Lead Portfolio Manager James Gerrish was on Ausbiz this morning talking results as they landed and will be on SBS tonight covering CBA - Watch here
- Commonwealth Bank (ASX: CBA) –5.72% fell despite an inline result, a meet versus a beat was not enough given the share price performance into the result.
- Wesfarmers (ASX: WES) +1.33% beat consensus by ~9% at the EBT line & said the start of 2023 was inline with the same time last year.
- Fortescue (ASX: FMG) -0.81% was as expected, although clear cost pressures from rising energy and labour rates were at play – C1 cash costs are now $17.43/dmt, up 14%.
- Cochlear (ASX: COH) +7.75% delivered a 7% beat at the profit line, and announced a surprise buy-back but stuck with their existing FY23 guidance.
- Treasury Wines (ASX: TWE) -6.91% lower as revenue and profit missed consensus – they tried to make good by talking about future capital management. More on this below.
- Seven Group (ASX: SVW) +1.33% reported underlying EBIT for 1H23 of $595m, up from $511m a year earlier and raised its FY23 guidance thanks largely to Westrac.
- Vicinity (ASX: VCX) +1.99% beat low expectations by a decent margin, Funds From Operations (ASX: FFO) of $357.1m v $308m expected (although a $25m Covid write-back was part of that).
- Magellan (ASX: MFG) +7.14% rallied following a bullish note from UBS – they had a sell on this all the way down, now saying the sum of the parts is worth a lot more than the current share price – moved to a BUY.
- Computershare (ASX: CPU) –4.03% down on a 1H23 miss, although they maintained FY23 guidance, which seems optimistic.
- Netwealth (ASX: NWL) +2.71% rallied despite obvious cost pressures that they say will moderate, FUA targets maintained. `
- Coal producer Peabody Energy (BTU US) rallied +13% overnight after Q4 earnings topped expectations – a positive read-through for local producers. Whitehaven (ASX: WHC) +3.54% and New Hope (ASX: NHC) +5.91%.
- Coal prices lower overnight, down 2.5%
- Iron Ore was ~2.5%% higher in Asia today supporting RIO which added 1.51%.
- Gold was down 0.5% to ~US$1846 at our close.
- Asian stocks fell, Hong Kong down -1.44%, Japan -0.62% while China was off -0.50%
- US Futures are all lower, off around -0.40%
- Reporting tomorrow: Abacus (ASX: ABP) | ASX (ASX: ASX) | Bapcor (ASX: BAP ) | Beacon Lighting (ASX: BLX) | Charter Hall Retail (ASX: CQR) | Domain (ASX: DHG) | Evolution Mining (ASX: EVN)* | Goodman Group (ASX: GMG)* | Hotel Property (ASX: HPI) | Incitec Pivot (ASX: IPL) | IPH (ASX: IPH)| Magellan (ASX: MFG) | NAB 1Q (ASX: NAB) | Newcrest (ASX: NCM)* | Origin Energy (ASX: ORG) | Orora (ASX: ORA) | Sonic Healthcare (ASX: SHL) | South32 (ASX: S32) | Southern Cross Media (ASX: SXL) | Super Retail (ASX: SUL) | Telstra (ASX: TLS)* | Whitehaven (ASX: WHC)*
ASX 200 Chart
Commonwealth Bank (ASX: CBA) $103.00
CBA -5.72%: Fell today despite delivering an inline result with cash earnings of $5.15bn broadly aligned with consensus of $5.165bn, EPS of $3.05 was ahead of $3.00 expected while the Dividend of $2.10 compared to $2.09 pencilled in by the market. Net Interest Margin (NIM) was strong at 2.10%, up 23bps while asset quality and capital position all fine, so why was the stock down?
Firstly, it’s run hard into the result trading at all-time highs (~$110). Before today it was up 10% excl dividends over the past year versus the others that were either down (ANZ-6%) or up less (WBC +3%). CBA was trading at a 43% premium to the sector versus its 5-year average of 24% - so it’s more expensive than it normally is. The other issue is around competition in the mortgage market. CBA’s NIM actually peaked in October and trended lower into the end of December. Matt Comyn spoke to very strong competition in mortgages that hurt margins, which implies that competition could erode some of the benefits of higher rates – a win for consumers but this of course is a sector-wide issue hence the decline across the cohort.
Wesfarmers (ASX: WES) $49.35
WES +1.33% : A solid result today from Wesfarmers with revenue up 27% Y/Y to $22.6bn which was above consensus of $20.5bn, driving a ~9% beat to earnings before tax (EBT) while they declared a 1H23 dividend of 88cps. The result was driven by Kmart as consumers traded down, while their Chemical, Energy & Fertilizer business was also strong. Bunnings produced $1.3bn EBT – up 1.5% and inline with expectations while Catch & Office Works were light on. They said retail trade for the 1st 5wks was broadly in-line with 1H23 growth, which is a good outcome. No guidance was provided which is customary for WES, however, the market is expecting FY23 revenue of $40.42bn and FY EBT of $3.76bn. Given they produced $2.1bn in 1H23, there is some slight deterioration already priced in by the market.
Treasury Wine Estates (ASX: TWE) $13.34
TWE -6.91%: the winemaker and distributor struggled today following a headline miss at the first-half result. Revenue of $1.3b was shy of expectations of $1.4b, and EBIT of $308m was short vs consensus at $316m. Much of the pain was felt in the lower-priced wines while the premium end of the market showed some support, so despite sales being up in the half, volumes were down. Margins improved as well, up to 23.9% and on track for their long-term target of 25%. The balance sheet is also in great shape with $1.5b of liquidity available, management said they are assessing capital management opportunities.
Cochlear (ASX: COH) $225.28
COH +7.72%: A good result here with 1H23 revenue of $892m, above the $850m expected while Net Profit After Tax (NPAT) of $142m was 8% ahead of consensus. They announced a surprise buy-back as they look to use cash on their balance sheet while they maintained FY23 guidance, which was for NPAT of $290-$305m, with the market sitting at $298m before today. Clearly, momentum is good here and we were surprised they didn’t upgrade FY numbers, we suspect brokers will edge their numbers to the top of the guided range.
Netwealth (ASX: NWL) $13.64
NWL +2.71%: investment platform Netwealth traded higher today on an inline result that showed cost control can be managed. NPAT of $30.6m was in line while Revenue growth of 19% was a touch better than expected while platform margins increased by 4%. The company stuck to their target of $11b of net flows, seeing $5b in the first half, with management confident of an improvement in the 2H. Costs were up 27%, however, the guidance suggests that this is starting to level out and headcount will only marginally increase in the last 6 months of the year. The market enjoyed the more upbeat commentary today.
Computershare (ASX: CPU) $23.60
CPU -4.03%: registry and corporate services business struggled today on the back of a softer 1H result, though the company did maintain FY23 guidance. NPAT of $269m was 95% higher than last year, though it includes a full half contribution from CCT which was acquired from Wells Fargo in 2021, and missed expectations by ~3%. Computershare benefits from higher rates, but margin income missed expectations on lower holding balances with a lack of deal flow coming through. The dividend was a big miss, 30cps was ~15% below expectations. The company maintained FY EPS growth guidance of 90%, however this requires a larger than usual contribution in the 2H to meet expectations.
- Breville Raised to Overweight at Wilsons; PT A$23.50
- Magellan Financial Raised to Buy at UBS; PT A$10
- James Hardie GDRs Cut to Reduce at CLSA; PT A$32
- Judo Capital Rated New Neutral at Evans & Partners Pty Ltd
- Temple & Webster Raised to Neutral at Macquarie; PT A$4
- Viva Energy Rated New Positive at Evans & Partners Pty Ltd
- Ampol Rated New Positive at Evans & Partners Pty Ltd; PT A$36
- Blackmores Cut to Neutral at Citi; PT A$88.10
- Challenger Cut to Hold at Morgans Financial Limited; PT A$8.24
- Sims Cut to Sell at Citi; PT A$14.30
- Breville Cut to Hold at Morgans Financial Limited; PT A$22
Major Movers Today
Have a great night
The Market Matters Team
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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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