This ASX healthcare giant has the new love of two brokers

The Morning Wrap

Livewire Markets

Welcome to Charts and Caffeine - Livewire's pre-market open news and analysis wrap. We'll get you across the overnight session and share our best insights to get you better set for the investing day ahead.

MARKETS WRAP

  • S&P 500 - 4,031 (-0.67%)
  • NASDAQ - 12,018 (-1.02%)
  • CBOE VIX - 26.21
  • GERMAN DAX - 12,893 (-0.61%)
  • STOXX 600 - 422.65 (-0.81%)
  • US 10YR - 3.111%
  • USD INDEX - 108.78
  • GOLD - US$1,750/oz
  • WTI CRUDE - US$96.84/bbl

EARNINGS WRAP AND PREVIEW

A2 Milk was the standout performer yesterday and, let's be honest, it was in a class of its own. It announced a NZ$150 million buyback, a hiked profit, and even better revenues. No wonder Spheria Asset Management's Matt Booker is happy to buy it. If only the market was kinder yesterday, Booker reckons it would have been a 20%+ gain instead of a 10%+ gain. 

Ah, 2022. The gift that keeps on upsetting (or giving.)

Elsewhere, it was miners' reporting heaven. Northern Star Resources (ASX: NST) launched a surprise buyback of its own but not everyone (including Emanuel Datt) is all that convinced. In the iron ore space, Mineral Resources (ASX: MIN) and Fortescue Metals (ASX: FMG) both saw profits and dividends slump. But it's the comments from Romano Sala Tenna and Sean Fenton on the broader market that should make you want to read our coverage of these stocks.

Elsewhere, Lovisa reported a near-60% pop in revenues while margins soared to nearly 80%. But Shaun Weick of Wilson Asset Management is one step ahead of the curve. He's not just bullish - he thinks everyone else will join him in the bullish camp (eventually).

Finally, NextDC hiked its FY23 earnings guidance after beating the top-end of its FY22 earnings guidance. It even made a net profit! 

Today, it's the last hurrah for reporting season's big guns. Harvey Norman (ASX: HVN), Woodside (ASX: WDS), and IGO (ASX: IGO) are all coming in hot for a big day of reports.

STOCK TO WATCH

It's not often that two brokers give the same kind of love to one company, but that's what you're getting today in our stock-to-watch segment. The company is Ramsay Health Care (ASX: RHC) and the brokers in question are Citi and Morgans.

It all follows developments from late last week where American private equity giant KKR walked away from its initial takeover offer of the Australian healthcare giant. Right as they were about to reveal its full-year earnings too! Then, the second bombshell - KKR was back but with a different (and more convoluted offer). The cash-and-scrip offer was labelled "meaningfully inferior" by management. Ouch!

Following its result, Citi lowered its own estimates for the company's FY23-25 earnings per share as the negative impact of the pandemic continues to delay an earnings recovery. Despite news of the new bid, Citi still believes there is a greater than 50% chance of a formal bid still occurring and upgrades to Buy from Neutral. 

Morgans simply maintained its takeover premium for RHC's valuation following the updated bid. It also upgraded its rating to Add from Hold. Unlike Citi, however, it kept its price target unchanged.

THE STAT

50.4: The forecast P/E ratio for FY22 in the ASX small resources index. At the large-cap level, it's a comparatively cheap 35. Talk about making money in your sleep! (Source: Macquarie)

And if you'd like the full table, here it is. Amazingly, these forecasts are actually toned down because of the broker's new iron ore price forecasts. If you want to read about the re-rate, you can read about it here:

Daily Report
Macquarie downgrades these three iron ore miners

The table

The table is also backed up by this quote, which I think makes for stark reading:

We still think it is hard to make a bull case for stocks when Industrial PEs are already high, we are early in an earnings downgrade cycle and the Fed/RBA are likely to tighten further to slow inflation.

Does that make Macquarie the Morgan Stanley of the Bridge Street brokers? Something to ponder over. 

THE CALENDAR

Quiet night tonight, but one thing of note is even more FedSpeak! (Because who wouldn't want more of that after Friday night's bloodbath.) Vice Chair Lael Brainard is speaking at a bank-run event in Illinois. One thing worth noting is that the video is pre-recorded. I hope it wasn't pre-recorded before the Jackson Hole blockbuster...

Other than that, Wednesday is when things heat up. So, for now, macro minds can take a back seat and stock up on coffee.

THE CHARTS

Today's charts bring the discussion back to the really key question at heart for central bankers right now - the jobs market. But in this case, I'm focusing on wages and the dichotomy between the US and European job markets. Hopefully, by the end of this explainer, you'll also find out the big problem facing both markets. That's in spite of the fact that one's actions will probably have a greater market impact than the other.

First, the US of A:

The very hot US labour market is worrying for central bankers. This chart shows how the “pass-through effect” from wages to prices gathered pace during the pandemic, according to new research from the New York Fed, and compiled by the fine folk at Macrobond Financial. The employment cost index is approaching 7 percent year-on-year growth, twice the pre-pandemic rate. All this is to say that inflation is feeding into wages which in turn will feed inflation.

Conclusion? Wage-price spiral. And trust me, that's three words you don't want to hear.

Then there's Europe - which is the opposite story but worse:

In the euro area, negotiated wages are falling sharply in real terms – i.e., any increase is being more than outpaced by inflation. It's a painful reminder and headwind for European workers - and you can see that in all the consumer confidence reads. If the recession is not around the corner, it's certainly hit in a big way now.

Just a reminder of why this country is a lucky country in many respects.

TODAY'S TOP READ

Goldman Says ‘Buy Commodities Now, Worry About Recession Later’ (Bloomberg): A new note out from Jeff Currie at Goldman Sachs (Jeff is their commodities czar) is urging investors to pile into commodities as most recession risks coursing through global markets are overblown in the near term. If you're bullish, that might be good news. Then again, Jeff would say buy commodities given that he runs the commodities shop, right?

Today's report was written by Hans Lee.

GET THE WRAP

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The Morning Wrap
Markets Wrap
Livewire Markets

Australia's most comprehensive markets wrap is back for 2023, with a fresh look and a new emphasis on getting you and your money ahead of the curve. Available each weekday morning at 8:30am AEDT. Written by Chris Conway, Kerry Sun, and Hans Lee.

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