This ASX stock's outlook is "out of reach": Macquarie

Charts and Caffeine

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 - 4,305 (+0.19%)
  • NASDAQ - 13,103 (-0.19%)
  • CBOE VIX - 19.69
  • FTSE 100 - 7,536 (+0.36%)
  • STOXX 600 - 443.35 (+0.23%)
  • US10YR - 2.81%
  • USD INDEX - 106.47
  • GOLD - US$1791/oz
  • WTI CRUDE - US$86.86/bbl

EARNINGS WRAP AND PREVIEW

Yesterday was all about The Big Australian (BHP) and all its records. The company made - get this - US$31 billion last year and will be returning US$23 billion of that to shareholders. Even more amazing, that net profit figure is only the second-highest of all time. The one thing worth considering is that it sold its oil and gas assets to Woodside Energy, hence the fattened figure.

Also in the commodities space - Sims Metals (ASX: SGM) warned “soft market conditions” would impact its outlook. Not that it stopped the company hiking its dividend by two-thirds for the full year. In contrast, James Hardie (ASX: JHX) lowered its FY23 profit guidance after admitting there was margin deterioration across the board. Challenger Financial (ASX: CGF) had an even worse showing - reporting a 57% drop in profits. The company cited volatility in investment markets which impacted the value of its insurance business. 

Seven West Media (ASX: SWM) shareholders meantime will be participating in a share buyback in spite of a sharp fall in net profits. In another contrast, Goodman Group (ASX: GMG) did manage to grow operating profits but also flagged that macro headwinds will pose challenges in the short term. Finally, SG Fleet (ASX: SGF) and Seek (ASX: SEK) found ways to increase their dividends after healthy bumps in profits.

Phew. Today is all about such names as Magellan (ASX: MFG), Santos (ASX: STO), and some healthcare minnow called CSL (ASX: CSL). How we wish we were all in on that company 20 years ago.

STOCKS TO WATCH

The company downgrade tally continues to pile up (by my count, nearly 90 broker emails with "downgrade" in the subject line have hit my emails since the start of August). Another six appear in my highlights reel today:

  • Bendigo and Adelaide Bank (ASX: BEN) is now a lighten at Ord Minnett
  • Bluescope Steel (ASX: BSL) is now a neutral at Macquarie
  • Carsales (ASX: CAR) is now a neutral at both Macquarie and UBS

But the one that really got my attention is the two downgrades to Beach Energy (ASX: BPT). The company is now neutral-rated at Citi and underweight at Macquarie, but it's the wording that attracted my spidey senses. 

There is no longer a clear run to >20% free cash flow yield ... as a result, dividend growth and capital management are currently out of reach. - Macquarie
With higher costs, reserves downgrades, well productivity challenges, and risks against meeting an ambitious 28MMboe FY24 production target. - Citi

But at least the team at Citi provided one bit of positive outlook - if we can call it that:

We expect BPT to continue with a modest div. payout in FY23 before a potential uplift in FY24.

THE CHART

(Source: Deutsche Bank)

If you read yesterday's (and so far, today's) edition of the report, you'll know that I refer heavily to companies commencing or expanding share buybacks. But how far can buybacks realistically go in this environment? This chart from Deutsche Bank's US team seems to suggest that the number and value of those buybacks are disappearing as quickly as the commencement of quantitative tightening.

Does the end of free money also infer the end of corporate easy money too?

THE CALENDAR

It's a day of red-letter, red-flag macro events, so let me take you through it bit-by-bit. 

11:30am AEST: Australia Q2 Wage Price Index

Key for the RBA as it will prove just how much inflation is crimping take-home pay. Before May, it was the sole indicator the RBA was waiting for before it would raise interest rates. 

12pm AEST: RBNZ Decision

The Reserve Bank of NZ could raise interest rates to 3%, but the press conference could provide a lot more colour and detail about how all that front loading has impacted its housing market. 

4pm AEST: UK CPI

Inflation's supposed to hit 9.8% year-on-year when it reports tomorrow, but there's every chance we'll see a 10-handle early.

Imagine that. 10% inflation months ahead of the Bank of England's base case. 

10:30pm AEST: US retail sales

A miss on either retail sales or retailer earnings would challenge the growing narrative of a soft landing. And if you thought that wasn't enough, we have earnings reports from Target and Walmart to boot. 

And you thought reporting season was exhausting enough.

THE QUOTE

Confidence that the inflation fever is breaking comes from the alignment of the details of July CPI reports with a broader set of incoming news confirming that two significant inflation impulses are being removed.

JP Morgan are the current and reigning "bulls of Wall Street" - they have the highest S&P 500 target and the most optimistic macro outlook. But, as this wire shows, they're far from being the norm:

Macro
Bulls v Bears: Why Bridgewater, Citi, Morgan Stanley, and Ed Yardeni are divided on recession outlook

THE STAT

$1.1 billion: Tassal accepted a takeover offer from Cooke at $5.23/share. The board's unanimous recommendation follows a prior, lower offer which they turned down. 
(Source: AFR)

Today's report was written by Hans Lee.

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Charts and Caffeine
Markets Wrap
Livewire Markets

Charts and Caffeine is Livewire's daily pre-market wrap. We get you across the overnight markets and share the best in global finance so you can start your day on the front foot. Written by Hans Lee (Mondays - Thursdays) and Chris Conway (Fridays).

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