The Match Out: Market down 1.5%, Healthcare & IT in the firing line, Energy rallies, Beach Energy (BPT) the star

James Gerrish

Market Matters

Well, it seems there’s very little middle ground in the market at the moment with another ~100pt selloff coming on the back a few strong sessions – the 3 steps forward 2 back mentality we’ve been writing about in recent notes seems on point. Today it was weakness in the high value names, the growth areas of IT & Healthcare which really weighed the broader index which is a function of rising bond yields globally.

  • The ASX 200 lost -108pts /-1.47% to 7275 today
  • Energy stocks continued to rally +4% however not enough to offset a 3.5% drop by Healthcare and to a lesser degree by IT. CSL fell 3.85% and took 16.5 points from the index while Xero (XRO) in the IT sector fell 6.40% and hit the index by 4 points.
  • It wasn’t all red though, there were some pockets of strength and fortunately for MM, we’re positioned in some of them. The Energy sector was strong, Santos (STO) +5.64% while our tilt in Coal via Whitehaven (WHC) continues to bear fruit, up another 6.5% today in a soft market
  • Coal prices in Newcastle cracked through US$200/MT – there’s a chart below that shows the impressive advance and the reason why we’ve stayed long WHC
  • Other stocks that caught my eye in weak market were those with a commodity price tailwind, Alumina (AWC) +3.83% looks strong, A2 Milk (A2M) +1.67% has finally found some love again as has Crown (CWN) -0.32% relatively speaking today.
  • One of the tests of positioning is when markets are weak – we like to see portfolio outperform in a weak market and while we certainly ended lower today, if I use the Flagship Growth Portfolio as a proxy, it was down ~0.60% against a market down 1.47%. That is more pleasing to us than upside capture.
  • Property remained under pressure today down 2.35% on growing talk of lending curbs. The implications here are negative in the medium term, however in the short term it can incentivise a rush on purchases pushing up prices.
  • Gold stocks are continued to get whacked and look awful – while there is value there the market is never wrong and the sniff of higher interest rates has been another catalyst hurting gold and gold equities. Newcrest (NCM) -2.27%, Evolution (EVN) -6.4%, Norther Star (NST) -4.29% and plumbing new 52 week lows
  • Gold was down in Asian today ~$US1740
  • Iron Ore Futures were also hit today, down 3% which sent Fortescue Metals (FMG) 5.59% lower, BHP fell 2.25% and is now back below $37 – this is overweight position hurting us
  • In Asia, Japan was down smalls -0.19%, China was flat while Hong Kong rallied 1.79% - we were a clear underperformer from a regional perspective today.
  • US Futures are trading down, and sold off at out close, Nasdaq Futures now off nearly ~1%

Coal Prices

Coal prices have continued to rip higher as strong demand hits weakening supply. While Coal is clearly on the nose, the supply side dynamics are really what’s driving prices higher i.e. no new supply coming on so existing coal miners are benefitting from elevated prices. Our analyst Peter O’Connor believes WHC is worth ~$7 based on current prices.

Beach Energy (BPT) $1.365

BPT +10.53%: the standout in a weak day today, Beach was helped by surging energy prices as well as a strong showing at their investor day. Beach talking to FY24 production of 28mboe, up from Fy21 25.6mboe. Importantly this target is fully funded and comes from current assets, excluding a number of projects in the pipeline. Gearing is set to peak below 10% in FY22 showing the balance sheet strength, likely the best of their ASX listed peers. They are also guiding to fully offsetting their carbon footprint by 2050 in an effort to alleviate concerns around ESG investment forcing cost of fund higher. It’s been a long while since BPT delivered an optimistic update – it still doesn’t convince us though.

MM is bullish the sector, preferring STO

Chart: Beach Energy (ASX:BPT)

Broker Moves

  • Insurance Australia Raised to Outperform at Macquarie; PT A$5.70
  • Collins Foods Raised to Outperform at Macquarie; PT A$12.50
  • Ramsay Health Rated New Overweight at Barrenjoey; PT A$79

Major Movers Today

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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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