The Match Out: Stocks rally, Commodities lead, one more sleep before BHP jettisons oil

A solid session for the ASX with the market keying off a positive lead from US stocks, however, what was also obvious was buying of the intra-session dips that played out today, a theme that MM discussed this morning and a sign that bearish sentiment is starting the wane. Our preferred scenario is stocks now enjoy a decent bid tone through to the EOFY which implies areas that have struggled over recent times will stage comebacks of varying degrees i.e. tech and some commodity stocks have plenty of room to reclaim some of the recent weakness, which was an obvious theme today.

• The ASX 200 finished up +70pts/ +0.99% at 7182
• The Material sector was best on ground (+2.51%) while IT (+1.91%) & Industrials (+1.79%) were also strong.
• Consumer Staples (-0.96%) and Financials (-0.04%) the weakest links.
• The final vote for Woodside (WPL) shareholders to agree on the purchase of BHP’s oil division happens tomorrow, and if given the green light, it will trade Ex on the 31^st May – more detail on this below.
• Wage data released this morning was a touch weaker than expected printing +2.4% YoY versus 2.5% expected – in other words, wages are appreciating at about half the rate of inflation.
• Bluescope (BSL) +1.51% upgraded earnings guidance today due to strength overseas – the stock was stronger earlier implying some scepticism around earnings momentum remains – it still finished up on the day & this is one worth a look ~$18.
• Eagers (APE) -3.28% lower on an earnings downgrade, new cars hard to come by due to supply chain issues + chip shortages.
• Boral (BLD) -3.12% put through its second downgrade in 2 months, blaming east coast floods and higher energy costs.
• Mineral Resources (MIN) +4.49% was upgraded this morning by Credit Suisse targeting $73
• Other Lithium stocks rallied today as money started to flow back towards commodities – IGO looks good here finishing +3.12% higher at $11.25.
• Dubber (DUB) +18.28% has been a painful position in our Emerging Companies Portfolio, but it rallied well today. These beaten up small caps will rally hard when sentiment does turn.
• Adore Beauty (ABY) +9.26%, the online beauty retailer is trading on just 0.7x sales having traded as high as 4.82x sales at its peak. Will sentiment finally turn back towards eCommerce?
• Iron Ore was down ~2% in Asia today.
• Gold was still chopping around recent lows, trading at US$1811 at our close.
• Asian stocks were mixed Hong Kong down -0.48%, Japan -0.86% while China was flat
• US Futures are all marginally lower.

ASX 200 Chart

BHP Group (BHP) $47.01

BHP +3.18%: The divestment of BHP’s oil unit is getting closer to completion and by extension the dividend returns to shareholders. Acquiror, Woodside Petroleum (WPL), received a final regulatory approval (National Offshore Petroleum Titles Administrator) on 17 May, the only outstanding condition now for the merger is Woodside shareholder approval, which is set for 2022 AGM on 19-May-22 (tomorrow). Based on the agreed merger terms with WPL, BHP will own 48% of the expanded WPL amounting to ~US$20bn or A$28bn. This is almost 80% higher than when BHP first announced the intention to divest petroleum (August 2021). WPL is making the ~$28bn consideration via WPL shares (918.4m) & the ATO has ruled that BHP can pass thru this payment to BHP shareholders in the form of a BHP dividend (albeit in the form of WPL shares). Importantly, this dividend will be fully franked – we estimate the franking value adds ~A$2.50/share. Based on BHP’s current share count and the current WPL share price, BHP shareholders are expected to receive a dividend of around A$5.60/share (17 May close). We also note that BHP generously “rounded-up” the merger ratio form 0.1768WPL/BHP shares to ~0.18 giving BHP s’holders another little but handy windfall. Our FY22 dps includes the “special”.

Key dates

· WPL scheme vote: 19 May (yep, that’s tomorrow!),

· Ex-date: Wednesday 25 May,

· Record date: Thursday 26 May

· Completion Date: Wednesday 1 June i.e. WPL takes over the keys to BHP Petroleum

· Pay date: Is effectively 1 June, share certificates will likely be out a few days later.

Other pertinent details – The cost base of the new WPL shares will be based on the closing price on 31 May 2022.

Broker Moves

• Cochlear Raised to Overweight at Wilsons; PT A$235
• James Hardie GDRs Raised to Overweight at Morgan Stanley
• OZ Minerals Raised to Neutral at Credit Suisse; PT A$21
• James Hardie GDRs Raised to Buy at CLSA
• Mineral Resources Rated New Outperform at Credit Suisse; PT A$73
• United Malt Raised to Buy at Bell Potter; PT A$4.55
• CBA Cut to Hold at Jefferies; PT A$114

Major Movers Today

Have a great night

The Market Matters Team