The Match Out: Market rallies, broad-based buying, Metcash (MTS) delivers strong result

James Gerrish

Market Matters

A solid start to the week with the ASX putting on nearly 2% led by the financial sector, although it was green right across the screen with all sectors finishing up on the day. Nice to see buying early that was supported throughout the day with the market closing near session highs – some confidence returning, at least in the short term!

  • The S&P/ASX 200 added +127 points / +1.94% to close at 6706.
  • Financials (+2.64%), Energy (+2.56%) and IT (+2.38%) standouts on the upside.
  • Real-Estate (+0.81%) and Healthcare (+1.25%) the relative underperformers however they were still positive.
  • Metcash (MTS) +4.12% reported FY22 results today that were solid + sales momentum for the start of FY23 has also been good.
  • Oz Minerals (OZL) -3.8% fell on a production downgrade which flows into higher costs, the last of a number of companies that have done similar.
  • Evolution Mining (EVN) -24.89% fared worse though as similar influences hurt them more.
  • Carsales (CAR) was halted as they look to raise a huge $1.2b to fund the acquisition of the remaining 51% of US-based Trader Interactive they don’t already own.
  • Imugene (IMU) +45.45% roared higher on good results for their cancer treatment.
  • Suncorp (SUN) +3.60% is looking to offload its banking division
  • MCP Master Income (MXT) +5.88% which is the credit fund we own in the Income Portfolio rallied today as sanity prevailed. Liquidity-driven sell-downs don’t tend to last – Click here for our note having caught up with management last week.
  • Iron ore futures were up 3% today in Asia.
  • Gold was up $US9 at US$1836/oz at our close.
  • Asian markets were up, the Nikkei in Japan +1.09%, Hong Kong stocks rallied +2.4% while China was up 1.5%
  • US Futures are trading flat, although they were lower at out open and have recovered throughout the day.

ASX 200 Chart

Metcash (MTS) $4.30

MTS +4.12: The often forgotten poor cousin of Woolies & Coles reported FY22 earnings today that were ahead of expectations. Sales & earnings were a beat for the full year while sales growth of +8.6% to start 1H23 was also solid. All food divisions did well with market share growth evident while hardware enjoyed a strong period across both trade & DIY despite rising inflation, weather, tight labour & product supply. The dividend of 21.5cps compared well to consensus of 20cps. Overall, a good result from MTS and the stock deserved to close +4.12% higher, although it was up ~8% early on.

Oz Minerals (OZL) $18.46

OZL -3.80%: Confession session is underway for the miners and today saw another production downgrade leading to an increase in unit costs. So far, we have seen 6 names within the top 50 Australian miners downgrade based on production issues that have led to cost pressures, so this feels like a widespread thematic. Today it was Australia’s largest listed copper producer who lowered group copper production guidance due to Covid causing higher absenteeism while weather-related issues in quarter 1 didn’t help, Resourcing issues at Carrapateena & a one-off equipment failure with Carrapateena affected by a material handling system belt damaged in the second quarter. All of this, fed into a downgrade of Carrapateena copper production guidance by circa 13%. Importantly for MM though, while these issues are negative, they are transient rather than structural and given OZL is one of the best, if not the best, run copper company in the world, with a long-standing track record of operational and financial delivery, we think Andrew Cole and his team will sort these out.

Evolution Mining (EVN) $2.46

EVN -21.89%: the gold stock was smashed today after trying to hide a production downgrade into a more rosy medium-term outlook presentation. WA operations have been hit by COVID absenteeism, NSW operations hit by poor weather, the ramp-up in Canada has been slower than expected and overall costs were higher as credits from copper by-product fell on softer prices. Gold production for the current year is now expected around 640koz, down from 650-670koz previously guided, and all-in sustaining costs are expected around $1,250/oz, well above the top end of previous guidance at $1,195/oz. The outlook for FY23 & FY24 was decent though despite the setbacks. Some CAPEX spend will slip into FY23 but production is expected to be up around 12% in each of the next two years with costs staying flat. The market doesn’t appear to trust those numbers just yet though with shares not getting the benefit of the doubt into today’s session. (CAR) $20.76

CAR unch: shares in the automotive classifieds business spent the day in a trading halt as they look to raise a huge $1.2b to fund the acquisition of the remaining 51% of US-based Trader Interactive in a 1 for 4.16 entitlement offer at $17.75/sh. initially bought into the commercial vehicles business a little over a year ago in a $US624m deal with saying that this portion of the acquisition will be completed at a lower multiple despite the higher valuation given the strong growth in the business over the last year. The presentation also included a trading update with CAR expecting revenue growth of 16% and NPAT growth of around 27% for FY22 which are both small beats to consensus estimates.

Broker Moves

  • News Corp GDRs Rated New Positive at Evans & Partners Pty Ltd
  • NRW Holdings Cut to Neutral at Macquarie; PT A$1.80

Major Movers Today

Enjoy your night
The Market Matters Team

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James Gerrish
Portfolio Manager
Market Matters

James is the Lead Portfolio Manager & primary author at Market Matters, a digital advice & investment platform with over 2500 members that offers real market intel & portfolios open for investment. He is also a Senior Portfolio Manager at Shaw and...

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