The Match Out: Stocks rally as retailers & resources break out of the naughty corner!

The daily Match Out for Monday 5 June with James Gerrish of Market Matters.
James Gerrish

Market Matters

A strong start to the week with the ASX holding onto the majority of the gains that were flagged by futures markets this morning. The recently depressed Consumer Discretionary & Materials sectors bounced back while Technology gave back some recent outperformance.

  • The ASX 200 finished up +71pts/ +1% at 7216
  • The Consumer Discretionary sector was best on ground (+1.75%) while Materials (+1.49%) & Healthcare (+1.02%) were also strong.
  • Technology (-1.08%) and Utilities (-0.29%) the weakest links.
  • The Fair Work Commission has awarded low-paid workers a 5.75% wage rise with the increase tipped to benefit around 25% of workers. It’s big but it is smaller than the 7% rise many had expected.
  • The Retail sector will be hit hardest by the wage increase, particularly the companies with the highest labour costs as a percentage of sales, which include Lovisa (ASX: LOV) +5.25%, Premier Investments (ASX: PMV) +1.53%, Super Retail (ASX: SUL) +2.31% & Domino's (ASX: DMP) +1.29% - we still think the Pizza is overdone and should trade with a 3 handle…
  • The positive share price moves across the sector today were in part a result of US moves on Friday but it did show that many were thinking a worse outcome would happen – sell on rumour, buy on fact as they say!
  • The more cautious increase will help ease some concerns at the RBA that inflation could remain higher for longer if there's a broad surge in wages growth across the economy.
  • The RBA meet tomorrow with Cash Futures pricing a 31.3% chance of a 25bps increase – down from a ~40% probability. 

As we wrote this morning, we’ve had mixed success over the last 12 months second guessing the RBA, especially last month when we thought they would pause after sitting pat in April – we are going to sit on the fence slightly now looking for one hike through June/July taking rates to 4.1% which hopefully will be it for the year.

  • Evolution Mining (ASX: EVN) +3.12% outperformed a weak gold price on optimism stemming from their investor day – more on that below.
  • NRW Holdings (ASX: NWH) +5.02% jumped after Citi upgraded to buy from neutral, saying the share retreat was “overdone given its current robust order book based on announced contract awards which should cover next 18 months of revenue.” analysts led by William Park wrote in a note. NWH now has 8 buys, 1 hold and no sells.
  • Elders (ASX: ELD) +2.66% was higher but finished well off their early peak after announcing that Mark Allison will delay his retirement, continuing in the role of chief executive. This is a strange move by Elders and the composition of his package implies that it was driven more by the Elders side, after a tough 6 months for the company. This just kicks the can down the road…not one for us.
  • Energy stocks were up today, Woodside (ASX: WDS) +0.75%, Santos (ASX: STO) +1.08% & Beach Energy (ASX: BPT) -0.70%, however the best of the gains were seen early on a supply cut from Saudi Arabia announced on Sunday.
  • Fund Managers like GQG Partners (ASX: GQG) +4.55% & Perpetual (ASX: PPT) +2.62% look interesting here, while Magellan (ASX: MFG) +2.04% we think has value below $8.
    • UBS put a bullish note out on GQG ahead of their May FUM update, saying…. GQG stock trades at an estimated ~8.4x PE and 10.7% dividend yield, valuations which are typical of troubled fund managers, and at odds with its robust flow prospects. They have a BUY and $2.20 PT versus today’s close of $1.38, implying a huge ~60% upside!
  • Iron Ore was ~2% higher in Asia today supporting Fortescue (FMG) +3.3% & RIO +1.17%
  • Gold was down on Friday night to ~US$1947 before tracking down -US$3 in Asian trade today, settled $US1944 at our close.
  • Asian stocks were mixed Hong Kong up +0.38%, Japan +1.87% while China was flat.
  • US Futures are mixed, S&P +0.07% while Nasdaq is -0.27%

ASX 200 Chart

Evolution Mining (EVN) $3.64

EVN +3.12%: the gold miner bucked the trend of weaker peers today, trading higher on a positive investor day presentation. Evolution announced the extension of the mine life for Ernst Henry to 2040 after doubling the resource for the Queensland mine since they bought out Glencore around 18 months ago. 

They will also invest $250m in the Mungari asset in QA to increase production capacity to 200koz and extend the mine’s life. Alongside the operational progress, Evolution has restructured a $590m term loan facility, replacing it with a new 4-year term loan & a &US200m US Private Placement. The new structure doesn’t increase current borrowing, but it does provide a further $445m in available liquidity, something they may need if Newmont (NEM US) looks to offload some assets from Newcrest (NCM) following their takeover.

Broker Moves

  • Monash IVF Rated New Overweight at Wilsons; PT A$1.35
  • Adairs Cut to Neutral at UBS; PT A$1.65
  • Allkem Cut to Hold at Jefferies; PT A$14
  • Chalice Mining Raised to Hold at Jefferies; PT A$7
  • NRW Holdings Raised to Buy at Citi; PT A$2.90
  • a2 Milk Raised to Neutral at Citi; PT NZ$5.80

Major Movers Today


At Market Matters, we write a straight-talking, concise, twice-daily note about our experiences, the stocks we like, the stocks we don’t, the themes that you should be across and the risks as we see them. Click here for your free trial.

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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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