The Match Out: Stocks rally as RBA sits pat, Weak guidance from Credit Corp (CCP) implies economic strength

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The ASX was enjoying another positive session ahead of the RBA decision at 2.30 pm, with their call to sit pat at 4.1% supporting another leg higher for stocks and a leg lower for bond yields and the AUD. The associated messaging sounds increasingly like a central bank that sees the hiking job as complete, and while they will remain data dependent, this move can only be described as a ‘dovish pause’.

• The ASX 200 finished up +40pts/ +0.54% at 7450
• The IT sector was best on ground (+1.14%) while Staples (+0.88%) & Materials (+0.82%) were also strong.
• Industrials (+0.05%) and Utilities (+0.19%) underperformed but all sectors closed higher.
• Aussie 3-year yields fell 9.5bps back to 3.77% versus the cash rate at 4.10% showing cuts are now priced in. They peaked 3 weeks ago at 4.23%.
• More stimulus is being touted out of China as they pledge to boost credit to private companies and extend other funding measures to small firms.
• Credit Corp (ASX: CCP) -12.58% kicked off reporting today with an in-line result for FY23 but very soft guidance which weighed on shares. More on that below. Harry thought it should be down ~20% on their guidance!
• Lynas Rare Earths (ASX: LYC) +2.97% saw a further $US138m committed by the US Dept of Defence for their Heavy Rare Earths processing facility in Texas. Lynas is in a sweet spot of Govt support from the US and Australia.
• Strandline (ASX: STA) -22.73% back online after raising $33m at 18c in an institutional placement to put the finishing touches on the Mineral Separation Plant in WA + progress their Tanzanian projects. There was strong demand for the raise, but they elected to upsize the deal which likely weighed on secondary market support. We did not participate.
• New IPO Abacus Storage King (ASX: ASK) -4.26% came online at 12.30 pm after raising $225m as they de-stapled the storage assets from the traditional Abacus Property (ASX: ABP) business. All a bit complicated, however, they raised at $1.41, with the stock finishing today at $1.35. We did not participate in the deal and we’ll have more on the topic and its implications for the sector in tomorrow’s Portfolio Positioning Report

TPG Telecom (ASX: TPG) +11.55% rallied on the news they are negotiating a sale and leaseback agreement of their non-mobile fibre assets with Macquarie-backed Vocus. TPG have too much debt and this would help them immensely.

• Deterra (ASX: DRR) +1.49% reported $73m in mining royalties in the latest quarter, taking its FY23 figure to $229m.
• Perpetual (ASX: PPT) +1.99% is recovering after a poor FUM update last week, the same sort of trend played out with Magellan (ASX: MFG) +2.04%. For deep value, leveraged exposure to the market, fund managers are a good place to get it.
• Worley Parsons (ASX: WOR) +0.75% is approaching 5-year highs as the sentiment towards the energy transition and WOR’s role within it continues to build. A few larger funds now banging the drum on WOR.
• AGL Energy (ASX: AGL) +0.74% is showing signs of waning momentum. We still own it in the Income Portfolio but questioning our weightings – more on this tomorrow AM.
• Iron Ore was ~0.60% higher in Asia.
• Gold was up overnight to ~US$1964 before tracking down -US$7 in Asian trade today, settled $US1957 at our close.
• Asian stocks were mixed, Hong Kong down -0.42%, Japan +0.60% while China was off -0.19%
• US Futures are flat, they were higher early on in our session.
• Reporting Tomorrow: Janus Henderson (ASX: JHG), BWP Trust (ASX: BWP) & Pinnacle (ASX: PNI).
• Download the Market Matters Reporting Calendar Here

ASX 200 Chart

RBA Decision – Rates steady at 4.10%

The RBA kept rates on hold as we expected today, inline with cash rate futures pricing, but not aligned with what the majority of economists were expecting. The reaction to the news was swift, with stocks up, bonds yields and the AUD down. The associated messaging from the RBA sounds increasingly like a central bank that sees the hiking job as complete – in other words, this was a dovish pause as they stuck to their usual themes of inflation gradually returning to its target range and the forecast of rising unemployment. Bets that the RBA is done quickly increased, the market now pricing a cash rate to peak at 4.23%, which is about a 70% chance for one more hike whereas this morning there was another one (and some) fully priced in.

• MM thought the RBA would sit pat, a sensible move with growing signs we’ve hit the top already, with cuts now being priced by mid-2024.

Credit Corp (ASX: CCP) $20.63

CCP -12.58%: the debt collection company kicked off reporting season today with a largely disappointing update regarding guidance. FY23 though was broadly in line with revenue of $473m and the dividend of 70cps both slightly beating consensus and Net Profit of $91.3m a slight miss. Lending was the main breadwinner for the company in FY23 and not the usual collections arm which is also reflected in the weak guidance provided. The company expects $90-100m in profit for FY23, a 4% increase to FY23 but a ~10% miss to consensus. They have also guided to $200-250m in ledger purchases in FY24, a ~30% drop from the year just gone which will put significant pressure on the company’s ability to hit expectations for outer years as the market expects profit to be ~20% higher in FY25 vs FY24 guidance. While this is a negative for CCP, it is a great sign of the strength in consumers given the low availability of bad debts to buy.

• Shares in CCP had rallied hard into the result, up 35% in the past 2 months. Given the large shift required in expectations, we expect CCP to trade nearer to 12-month lows.

Broker Moves

• Gold Road Raised to Buy at Jefferies; PT A$1.80
• Baby Bunting Raised to Neutral at Citi; PT A$1.65
• IGO Raised to Accumulate at CLSA; PT A$15.25
• Gold Road Raised to Outperform at Macquarie; PT A$1.90
• Challenger Cut to Neutral at Credit Suisse; PT A$7.20

Major Movers Today

Have a great night

The Market Matters Team

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