The Match Out: Selling continues after the weekend, Westpac 1H impresses, TPG sell tower assets

James Gerrish

Market Matters

Broad-based selling continued for a second session as investors feared higher for longer inflation and a slowing global economy. Shares in resources companies were sold off on poor China export data which saw growth at a two-year low on the back of lockdowns in a number of cities. Energy was one of the few exceptions with further sanctions on Russia’s exports tightening the market. Traditional low growth sectors of consumer staples and healthcare also managed to finish higher on a soft day while Real estate shares took the most heat as bond yields continued to rise.

  • The ASX 200 finished up +20pts/ +0.28% at 7116
  • The Energy sector was best on ground (+0.53%) while Staples (+0.20%) & Healthcare (+0.12%) both managed gains.
  • Real estate (-4.13%) and Tech (-3.21%) the weakest links.
  • China has seen export growth slow to 3.9% YoY largely as a result of broad lockdowns sweeping the major port city of Shanghai. The data put pressure on lithium and iron ore stocks in particular.
  • Westpac (ASX: WBC) +3.23%, rounded out the 1H reporting period for the banks today. It was probably the pick of the four thanks to cost control. More on that below
  • Suncorp (ASX: SUN) -0.27%, managed to grow its lending volumes at above-market rates and expects impairments to remain at near record low levels. Volume growth was seen in all segments except personal lending and SME with the riskier parts of the book opting to reduce leverage.
  • TPG Telecom (ASX: TPG) +2.33%, has followed Telstra in selling its tower assets. It will release nearly $900 million in capital, which they’ll use to pay down debt.
  • Magellan (ASX: MFG) -8.41%, sold their 11.6% stake in Mexican food chain GYG as they look to sharpen up their assets.
  • Iron ore futures were hit around 5% today, dragging down the Iron Ore stocks.
  • Gold was down thanks to $US strength, trading US$1871/oz at our close.
  • Asian markets were weaker, the Nikkei in Japan -2.84%, Hong Kong stocks -0.91% while China was off -1.4%.
  • US Futures are all lower, down around 0.9%. There were off more early and have moved higher since 11.30am our time.

ASX 200 Chart

Magellan Financial Group (ASX: MFG) $15.80

MFG -8.41%: the fund manager is continuing to refocus its business, today announcing the sale of its 11.6% stake in Mexican fast-food chain Guzman Y Gomez. They’ll book a 36% profit in just under 18 months, selling the stake to Magellan backed Barrenjoey for $140m, with an additional $6m linked to the company’s performance. The proceeds will go towards ongoing capital management with Magellan shares currently 70% below their 12 month high. The move is a positive one in our view, a capital raise without the dilution of new shares and provides further flexibility for Magellan’s core business.

TPG Telecom (ASX: TPG) $5.70

TPG +2.33%: Announced the sale of its entire mobile tower and rooftop infrastructure network today for around $950m to a Canadian pension fund, using the proceeds to pay down about 20% of their current debt. Both Telstra and Singtel have made similar moves in recent times cashing in on the current appetite for infrastructure assets. Reducing the overall amount of debt TPG carries will reduce the cost of that debt and provide greater flexibility moving forward. We recently added TPG to our growth portfolio as a more defensive position and view today’s announcement as a positive.

Westpac (ASX: WBC) $24.60

WBC +3.23%: A strong 1H22 result this morning from Westpac beating consensus expectations by ~6%.Cash NPAT of $3.1 billion was ahead of the $2.9 billion expected while the interim dividend of 61c was a tick above the 60c pencilled in by the market. Cost management was a key driver and they did a good job here, cutting underlying costs by 10% plus they also guided for 2H22 costs to be 0-2% lower than the 1H, that is, costs flat or trending lower which goes against what we saw from the other banks who are stepping back from their cost guidance. This seems slightly odd that WBC can deliver further reductions while other banks (and the market more generally) are experiencing cost pressures, time will tell on this one. The share price performance tells you the story today and we wouldn’t be surprised to see some performance catch up to the others after a sustained period of underperformance.

Broker moves

  • REA Group Cut to Equal-Weight at Morgan Stanley; PT A$130
  • Centuria Office REIT Cut to Equal-Weight at Morgan Stanley
  • NAB Cut to Neutral at UBS; PT A$35
  • Macquarie Group Cut to Neutral at Citi; PT A$187
  • Charter Hall Long WALE Cut to Neutral at JPMorgan; PT A$5.20
  • GPT Group Cut to Underweight at JPMorgan; PT A$5.20
  • Hotel Property Cut to Neutral at JPMorgan; PT A$3.90
  • Macquarie Group Raised to Add at Morgans Financial Limited
  • REA Group Raised to Add at Morgans Financial Limited
  • Macquarie Group Cut to Underperform at Credit Suisse; PT A$150
  • REA Group Raised to Outperform at Credit Suisse; PT A$142.80

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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