The Match Out: Market down but not out, Wage data weakens, Domino's (DMP) undercooks 1H result

An interesting session today with the market getting knocked ~60pts early on following a ~700pt fall by the Dow Jones in the US, however wage data that was weaker than expected saw the AUD fall, bond yields fall and equities rally strongly from the morning lows to finish only marginally in the red, particularly when we strip out the impact of dividends with CBA trading Ex-Div for $2.10 + franking today.

• The ASX 200 finished down -21pts/ -0.30% at 7314
• The Utilities sector was best on ground (+4.79%) while Consumer Staples (+1.20%) & Energy (+0.87%) were also strong.
• Consumer Discretionary (-1.29%), Materials (-0.78%) & Healthcare (-0.65%) the weakest links.
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• Data today showed that wages are rising less than expected at 3.3% pa in Q4, much lower than CPI inflation at 7.8%. Another sign that the RBA is anchored in the rear-view mirror as apposed to looking forward. Simply another indicator that is not supporting their current economic assumptions that are underpinning their rhetoric and actions on interest rates. ,We fear they will go too hard.
• Dominos (ASX: DMP) -23.81%: Whacked today and rightly so after a result that was a big miss to consensus while market positioning had clearly become more positive on the stock with the share price up ~50% from its recent lows.
• Santos (ASX: STO) +3.08%: Had a good session today following FY22 results that showed NPAT of US$2,46bn, up 160% on CY21 due to higher oil and gas prices
• Woolies (ASX: WOW) +1.99%: Reported a ~2% beat to 1H23 consensus profit expectations this morning driven by higher margins in their food business.
• National Storage (ASX: NSR) Flat: Increased their FY23 guidance for underlying EPS of at least 11.5c versus prior guidance of at least 11c – an incremental upgrade rather than anything more life changing.
• Readytech (ASX: RDY) -7.52%: 1H23 result today and talked to positive trends for the 2H – the share price was down but we suspect the market is missing a few things.
• St Barbara (ASX: SBM) -10.94%: the mid-cap gold company struggled today after writing down 2 assets at their half-year result.
• Lovisa (ASX: LOV) -0.87%: Said 1H23 revenue was a 5% beat at $315m while EBIT was a slight miss at $70m vs $71m expected. Some margin pressure obvious.
• Origin (ASX: ORG) +12.7%, received a revised bid from Brookfield at $8.90/sh, 10c below the previous offer. The market liked it – not enough of a cut for Origin to walk, but still plenty of value for them here. It takes a deal a step closer.
• Iron Ore was flat in Asia today, Coal prices rallied strongly with the active contract +9%
• Gold was down overnight and flat today, trading ~US$1835 at our close.
• Asian stocks were mostly down Hong Kong flat, Japan -1.31% while China was off -0.28%
• US Futures are all up, around +0.20%

ASX 200 Chart

Market Matters in the Media

Members of the investment team at Market Matters feature regularly in the Media.

• Today: Lead Portfolio Manager James Gerrish discusses results as they land, including Dominos (DMP), Lovisa (LOV), Worley Parsons (WOR) & Flight Centre (FLT) – Watch Here
• Yesterday: Research Lead Shawn Hickman covers the overcrowded Lithium trade while assessing the UBS call of Insurance over Banks – Watch Here
• Monday: Portfolio Manager Harrison Watt talks Adairs (ADH), A2 Milk and trends so far this reporting period – Watch Here

Market Matters in the Media

Dominos  (ASX: DMP) $54.37

DMP -23.81%: Whacked today and rightly so after a result that was a big miss to consensus while market positioning had clearly become more positive on the stock with the share price up ~50% from its recent lows. Fund manager’s drank the DMP cool-aid with gusto as Mr Meji said that while things were tough, they were turning around – which now seems a stretch, in the short term at least. For the 1H, same-store sales growth was -0.55%, online sales went backwards (-4.5%), and revenue declined (-4.3%). With a weaker top line and rising cost pressures, earnings fell by more with underlying EBIT of $113.9m down 21% YoY while net profit was around ~16% below consensus. A stock on ~30x earnings that is not growing is a stock that won’t be on 30x for long, and that was certainly the case with DMP today. We have no interest in trying to catch this falling knife – downgrades to come.

Santos (ASX: STO) $7.02

STO +3.08%: Had a good session today following FY22 results that showed NPAT of US$2,46bn, up 160% on CY21 due to higher oil and gas prices. While 2H earnings were weaker than forecast due to higher costs, the dividend of 15.1c was better and their guidance was good. STO is still a low cost business with a $34/bbl free cash flow break-even oil price. They have underperformed Woodside (WDS) all year and we think STO now represents an opportunity as a relative value play.

Woolworths (ASX: WOW) $37.45

WOW +1.99%: Reported a ~2% beat to 1H23 consensus profit expectations this morning driven by higher margins in their food business. Sales of $33.2bn were up 4% YoY, just ahead of $33.1bn expected while NPAT of $907m beat the $875m pencilled in by the market - the interim dividend of 46cps was inline. In terms of guidance, they said the 1st 7wks saw Aust Food +6.5% YoY, NZ Food +6.3%, Big W +9.7% with commentary around food inflation interesting , they say it is impacting how consumers shop yet the impact on WOW has been modest to date. Group EBIT growth in 2H23 they say will be lower than 1H23.

Readytech (ASX: RDY) $3.32

RDY -7.52%: An interesting smaller software business exposed to defensive areas such as local government, education & justice that we’ve owned in the past reported their 1H23 result today and talked to positive trends for the 2H – the share price was down but three things stood out to us: 1) 1H revenue was a touch softer than expected, but it seems this is more a timing issue 2) Enterprise momentum is building with RDY signing $10.8m of high value deals vs $8m signed for the whole period of FY22. 3) FY23 guidance and longer-term targets were reaffirmed.

RDY had been the focus of a private equity bid that was recently pulled, however we suspect there could be more to play out here. This is now being added to our Hitlist for the Emerging Companies Portfolio.

  

National Storage REIT (ASX: NSR) $2.34

NSR Flat: We like this self-storage business that we’ve owned in the past, while it currently resides on our Hitlist.. Today they increased their FY23 guidance for underlying EPS of at least 11.5c versus prior guidance of at least 11c – an incremental upgrade rather than anything more definitive, however clearly the trends remain positive in Self Storage. They also reaffirmed their policy to distribute 90% - 100% of underlying earnings, and based on the midpoint of guidance, it implies a 4.8% dividend yield. In the short term, Abacus (ABP) flagging the potential spin out of their self-storage assets could be a headwind. We have ABP management in tomorrow and will learn more about these plans then.

St Barbara (ASX: SBM) 57c

SBM -10.94%: the mid-cap gold company struggled today after writing down 2 assets at their half-year result. They announced an underlying loss of $8.66m, however, they also added a $420m impairment at Atlantic, and a $74m at Simberi, two assets they are looking to demerge from the group. Production issues plagued the company in the half, forcing guidance to be amended to the low end of prior production expectations, and the high end on costs. Talks are ongoing with peer Genesis (GMD) to merge their Leonora assets, a deal that still has a number of hurdles to complete and today’s result put pressure on a few caveats.

Hansen Technologies (ASX: HSN) $4.65

HSN -3.93%: the utility billing software company reported HY numbers, coming in largely in line with expectations with shares trading lower with the weaker technology sector today. Revenue was flat and in line with consensus at $149m while EBITDA fell 17%, slightly below expectations. The company was cycling a strong licencing period that would have lifted revenue by an additional 7%, while cash receipts were lower than expected, though management said that this has started to unwind. Guidance for the full year was maintained at 3-5% revenue growth, however, we expect further growth to come through beyond the end of the FY after a number of contract wins. Hansen is also actively looking for acquisition targets with their flexible balance sheet, but we like their discipline, not paying up for now.

Lovisa Holdings (ASX: LOV) $23.85

LOV -0.87%: jewellery retailer Lovisa finished lower today in a choppy session as the market digested their first-half result. Revenue was a 5% beat at $315m while EBIT was a slight miss at $70m vs $71m expected. Margin pressure coming through weighed on the numbers today and concerned the market, particularly given the stock is on over 30x PE on FY23 expectations. LFL sales growth for the first 7 weeks was in line with expectations, currently tracking +12.3% on last year while the new store rollout remains on track. Lovisa has done well in a tough market for retailers, it remains expensive but also an attractive stock if economic conditions improve.

EML payments (ASX: EML) 58c

EML -9.38%: the half-year result for the payment solutions business was a tough one as regulatory pressure weighed on performance. Revenue was up 2% to $117m, a 5% miss, while EBITDA halved to $13.4m vs consensus at $15.8m. Much of this miss was driven by one-off regulatory costs that took $8.1m off the number, something the company is struggling to shake. Guidance was revised lower by 4% to $235-245m and profit guidance of a $4m loss to a $4m profit was provided for the first time, below consensus of $7.5m profit. Hard to dress up a weak result.

Broker Moves

• Seek Raised to Neutral at Macquarie; PT A$23.50
• Shaver Shop Cut to Hold at Ord Minnett; PT A$1.25
• AMA Group Raised to Speculative Buy at Canaccord
• Alumina Raised to Neutral at Citi; PT A$1.55
• Ingenia Cut to Underweight at JPMorgan; PT A$3.80
• Costa Cut to Reduce at CLSA; PT A$2.80
• Ramelius Raised to Outperform at Macquarie; PT A$1.20
• Monadelphous Cut to Neutral at Macquarie; PT A$13.26
• Ingenia Cut to Reduce at CLSA; PT A$3.91
• Costa Cut to Hold at Morgans Financial Limited; PT A$3
• Costa Cut to Neutral at Credit Suisse; PT A$2.50
• Costa Raised to Buy at Bell Potter; PT A$3
• CSR Cut to Underperform at Macquarie; PT A$4.55
• GWA Group Cut to Hold at Taylor Collison
• Reliance Worldwide Raised to Outperform at Taylor Collison

Major Movers Today

Have a great night

The Market Matters Team

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