The Match Out: Tech stocks star as market finds support, BHP underwhelms

The ASX 200 bounced today as generally better than expected earnings, particularly from some key technology stocks reinvigorated the bulls, despite BHP slightly underwhelming.

• The ASX 200 finished up +6pts/ +0.09% at 7121
• The IT sector was best on ground (+5.19%) while Communications (+1.92%) & Property (+0.82%) were also strong.
• Staples (-2.52%) and Healthcare (-0.88%) the weakest links. 
• Scentre (ASX: SCG) +3.79% reported 1H23 operating profit of $546m vs. $540.5m YoY and slightly higher guidance for FY24
• Coles (ASX: COL) -7.08% fell as cost headwinds hurt profit.
• HUB 24 (ASX: HUB)  +11.31% rallied on better earnings, a higher dividend and share buy-back. Seems a bit overdone though.
• BHP (ASX: BHP) -0.71% fell as earnings came in ~3% below consensus and capex guidance for FY24 was higher than hoped.
• Megaport (ASX: MP1) +16.94% higher on strong guidance for FY24 – a huge turnaround here.
• Altium (ASX: ALU) +25.92% beat on FY23 and bumped up FY24 revenue guidance – a huge move for a great stock we no longer own!
• Woodside Energy (ASX: WDS) -1.04% down despite solid 1H23 results, costs up and outlook more muted.
• SRG Global (ASX: SRG) unchanged, beat on FY23, and guidance was strong, just cash conversion was soft.
• ARB Corp (ASX: ARB) -4.05% fell after missing FY23 profit by ~7%, however, it seems things are turning and FY24 should be better.
• G8 Education (ASX: GEM)   -5.26% is still struggling with occupancy levels for various reasons, the turnaround remains stubbornly slow. More on this tomorrow morning.
• Audinate (ASX: AD8) +9.3% built on yesterday’s gains to hit a new all-time high today, showing good results are being rewarded for multiple days.
• Magellan (ASX: MFG) +2.23% also fits that bill as the beaten-up fund manager attracts more interest following their FY23 results.
• Lendlease (ASX: LLC) -3.66% on the other hand is paying for the complexity that remained in their results, no new news out today we could see however the stock fell away throughout.
• Telstra (ASX: TLS) +3.27% bounced, we covered the sector in our morning note today here
• Gold edged up overnight and is back testing US$1900/oz, Gold stocks were supported, Northern Star (ASX: NST) +2.44% and Evolution (ASX: EVN) +1.8%.
• Asian stocks were strong, Hong Kong rallied +1.9%, Japan +1.33% while China was up +0.94%
• US Futures are flat.

ASX 200 Chart - Intraday

ASX 200 Chart - Daily 

BHP Group (ASX: BHP) $43.21

BHP -.0.71%: A softer session for BHP following their FY23 results out this morning, with earnings coming in around 3% below consensus, while forward-looking capex was higher as cost pressures continue to work against the miners at a time when their biggest customer is wobbling. Underlying profit $US13.42 billion was down 44% versus the bumper result last year (and consensus of $13.93 billion). Lower realised pricing and higher costs, which were up about 10% in FY23, played out across their suit of main commodities with earnings from iron ore -23%, even as production increased 1%, Coal profits were down 47%, copper was 22% lower, and nickel was 61% lower than FY22. The final dividend per share of US80c was down from $US1.75 last year – they’ll be glad they scrapped their progressive dividend policy!

• Softer earnings on lower revenue and higher costs are the key takeaways here, what comes next with China is clearly important for the big Australian in the near term.

Altium (ASX: ALU) $46.44

ALU +25.92%: A huge session for the software provider that underpins the design and manufacture of printed circuit boards (PCB’s) after they reported results overnight that were strong and ahead for FY23 and their guidance for FY24 was also better than consensus. For FY23, revenue of $263.3m was ~2% ahead of consensus driving a ~3% beat at the profit line thanks to strong subscriptions of 61.2k. For FY24 they have guided to revenue of $315-325m, versus the current consensus of $307m which is ~4% ahead at the midpoint.

• Commentary was positive and trends here are strong, simply a great update against conservative market positioning.

HUB 24 (ASX: HUB) $31.20

HUB +11.31%: Stormed higher today after the wealth management platform reported underlying EBITDA for the full year of $102.4m versus consensus of $99.23m, however, they also increased the dividend (18.5c v 12.5c) and announced a $50m buyback which underpinned the shares. Improved cost controls and a lower tax rate drove the beat and provided the board with confidence to repay shareholders with an increased payout for FY23. The operational leverage is starting to shine through for HUB with net profit of $38.2m up from $14.5m last year and total Funds Under Administration (FUA) hit $80.3bn, up 22% YoY.

• A very solid update for HUB however we think the shares rallied too far today. 

Megaport (ASX: MP1) $12.15

MP1 +16.94%: Most of their FY23 result had been pre-reported to the market, so no new news in that respect, however, the guidance for FY24 was a surprise both in terms of the quantum and the elevated detail which has been a major criticism in the past. MP1 guidance for FY24:

• Revenue $190-195m (24-27% growth) – about inline with consensus at the upper end.
• EBITDA $51-57m (152-182% growth) – v consensus of $42.2m = 21% upgrade
• FY24 net cash flow positive

Simply a huge turnaround for Megaport with top-line momentum remaining strong and EBITDA margins expanding.

ARB Corp (ASX: ARB) $32.18

ARB -4.05%: Fell today although the worst of it was seen early thanks to a 27% decline in FY23 NPAT to $88.5m, ~7% below consensus estimates of $95.5m. Top line sales were off 3.4% to $671.2m, but largely in line while the final dividend of 30cps was a touch light on (31.5c consensus). They remain in a strong position, with net cash of $45m, however cost pressures in FY23 were an issue. They do expect sales and profits to grow in FY24 and they said cost pressures are subsiding which will help margins gets back to historical levels. A trading update for the first past of FY24 will be provided in October at their AGM.

• It looks like the worst is behind ARB and FY24 will return to profit growth – weakness here looks like an opportunity.

SRG Global (ASX: SRG) $0.72

SRG flat: the engineering company was out with FY23 results today which came in ahead of expectations however the stock failed to react as we would have expected. Revenue was a ~6% miss, mostly on the timing of payments, while EBITDA was a small beat and came in ahead of guidance at $80.1m thanks to margins improving significantly to 9.9%. Cash conversion was weak at 68%, usually tracking at ~80%, however, this is largely a result of working capital investment as the company prepares to grow earnings further on more contract wins. Work in hand was up 46% to $1.9b and they still have $6.5b opportunity pipeline of work to contend for.

• Overall, we see this is a great result with SRG trading ~9.5x PE vs peers ~10.5x despite having a superior growth outlook in our view. 

Coles (ASX: COL)  $16.01

COL -7.06%: FY23 numbers out for the staples business, Coles was largely in line but it looks like it gets harder from here. Revenue of $41.5b was largely in line while EBIT at $1.97b was a small miss, driven by a softer-than-expected Supermarket result. Gross margins slipped in the second half on higher costs while CAPEX came in at the top end of guidance following delays to their new Victoria and NSW fulfillment centres. Coles has seen a slight shift away from out-of-home dining to start FY24, however, costs are up and inflation benefits are starting to subside as it moderates. Increasing wages will further impact FY24, while the company also saw higher theft levels in FY23, up ~20%, a trend that is expected to continue.

Woodside (ASX: WDS) $38.06

WDS -1.04%: A mixed set of first-half numbers for the oil & gas company today, a new look Woodside after they completed the acquisition of BHP’s Petroleum business ~12 months ago. EBITDA of ~$5b in the period was in line with consensus as higher production costs were offset by lower royalties, while a small beat at the profit line was mostly on a better marginal tax rate which is considered low quality.

Looking forward, Woodside maintained capex and production guidance while they are also expecting better LNG prices with more exposure to the spot market. Investors were cautious on the back of the numbers as the company puts money to work at Scarborough and Trion with the two projects moving through regulatory approvals soon after the company faced delays and higher costs when bringing Sangomar online. Risks of industrial action also remain with workers looking at a strike at their North West Shelf assets.

Broker Moves

• Iress Extends Drop After Wilsons Downgrades to Underweight
• Reliance Worldwide Cut to Equal-Weight at Morgan Stanley
• a2 Milk Raised to Add at Morgans Financial Limited; PT NZ$5.85
• Breville Cut to Market-Weight at Wilsons; PT A$25.70
• a2 Milk Raised to Accumulate at CLSA
• Altium Raised to Buy at CLSA; PT A$45
• a2 Milk Raised to Neutral at Macquarie
• Altium Raised to Outperform at RBC; PT A$45
• Altium Raised to Buy at Jefferies; PT A$44.69
• Core Lithium Raised to Overweight at JPMorgan
• Iress Cut to Neutral at JPMorgan; PT A$7
• Insurance Australia Cut to Hold at Jefferies; PT A$6.10
• Iress Raised to Add at Morgans Financial Limited; PT A$8.10
• Westpac Raised to Accumulate at CLSA; PT A$22.40
• Breville Cut to Underperform at RBC; PT A$22
• Southern Cross Media Cut to Neutral at UBS

Major Movers Today 

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