The Match Out: Stocks slide despite solid earnings, China again the culprit

The ASX was hit today, weighed by growing concerns around the Chinese property sector as another large developer teeters on default - while earnings continue to dominate news flow locally. As of Friday, around 20% of the market’s total capitalisation had reported results, so far, so good with earnings beats outnumbering earnings misses by a solid ratio of 3:1, although we have seen adjustments lower for FY24 on softer outlooks.

• The ASX 200 finished down -63pts/ -0.86% at 7277
• The Communication sector was best on ground (+0.81%) while Energy (+0.47%) & IT (+0.13%) finished in the black.
• Materials (-1.74%) and Real-Estate (-1.18%) the weakest links.
• JB Hi Fi (ASX: JBH) 2.75% rose after reporting a small beat to expectations at their FY23 results today, however, FY24 has started slowly.
• Bendigo Bank (ASX: BEN) -2.94% down after missing on earnings, although the result was a cleaner set of numbers and there was an improvement in the 2H.
• Lendlease (ASX: LLC) -2.83% fell on a result that was messy, which is typical of LLC, however, there is a pathway here for improved earnings & better times ahead. We own.
• ResMed (ASX: RMD) +1.86% had its first day of gains post disappointing results– we think this is a buy into current weakness and added to our holding on Friday.
• Carsales (ASX: CAR) +6.99% was a standout today, the best of the bunch beating on earnings + they expect ‘Good’ growth moving forward, the identical language they used last year!
• Ansell (ASX: ANN) -2.35%% fell despite no surprises for FY23 numbers or guidance given it was pre-announced, however some concerns around continued de-stocking by customers as they work through inventory levels
• Aurizon (ASX: AZJ) -2.97% fell after missing earnings expectations by ~6%
• Citi initiated on Elders (ASX: ELD) -6.1% today with a sell rating and $6.85 PT sighting various risks for the diversified ag business – we’ll discuss more tomorrow AM. We own.
• Iron Ore was ~1% lower in Asia hit by concerns from the Chinese property sector.
• Gold was flat at US$1912, not a bad effort really given the strength we’ve seen in the $US
• Asian stocks were down-weighted by more negative news from China as Country Garden Holdings, once China’s largest private-sector developer by sales, failed to make bond payments. It does have a 30-day grace period however to put this into perspective, these guys are multiples bigger than China Evergrande who sparked issues back in 2021.
• Hong Kong shares fell -2.32%, Japanese stocks lost -1.60% while mainland shares in China fell -1%
• US Futures are all down, around -0.15%
• Reporting tomorrow: CSL limited (ASX: CSL), Cochlear (ASX: COH), Temple & Webster (ASX: TPW), Treasury Wines (ASX: TWE), Seek (ASX: SEK), Challenger (ASX: CGF) & a bunch of others.
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ASX 200 Chart

Carsales.com (ASX: CAR) $26.33

CAR +6.99%: a new record high for the online auto-classified business today on the back of a strong FY23 and reasonable guidance. Revenue of $781m and EBITDA of $425m were broadly in line, however, NPAT up 43% to $278m was a 4% beat to expectations. International segments drove much of the company’s growth, particularly in the US and Brazil where the company has made considerable acquisitions over the last 18 months. Around half of the company’s earnings come from offshore with investments in the leading auto marketplace in the US, South Korea and Brazil. Similar to FY23 guidance, the company provided general commentary on the outlook, expecting “good growth in Revenue and EBITDA in FY24” which would be well ahead of consensus if it is anywhere near the growth achieved in FY23.

Lendlease (ASX: LLC) $8.24

LLC -2.83%: Fell today after reporting FY23 results that were inline in terms of underlying net profit ($257m), however, it was low quality and their reconfirmed guidance requires a few moving parts to align. They said they’re on track to meet the lower end of their guided Return on Equity (ROE) range of 8-10%, driven by >$8bn of development completions, improving construction margin and $60m of pre-tax cost savings in FY24. That guidance implies that earnings will approx. double in FY24 as they continue to skew the composition of earnings towards asset management v development. That move will drive better margins, and better earnings over time, however, some patience will be required here. Our takeaway from the call is there are still some risks in executing this transition, particularly given the challenging operating environment where confidence remains low as uncertainty around inflation and interest rates persist.

• On FY24 expectations, LLC is trading on 10.8x, which is around 3 P/E points cheap, however, this relies on strong earnings growth being achieved in FY24

JB Hi-Fi (ASX: JBH) $48.51

JBH +2.75%: the retailer came through with a small beat to expectations at their FY23 results today, however, FY24 has started slowly as the crunch on discretionary spending picks up. Margins fell across all three segments (JBH Australia, New Zealand and The Good Guys), however, record revenue of $9.6b, up 4%, supported earnings with NPAT at $525m being 5% ahead of consensus expectations. The company didn’t provide firm FY24 guidance but they did note a slowdown in sales for July for their larger brands – JB Hi-Fi Australia -1.8% and The Good Guys -12%, saying that recently there has been a noticeable shift in consumer trends with greater variance between categories. Investors were largely negatively positioned heading into the results with ~8% of shares short-sold for the retailer. JBH hit a 6 month high today.

Bendigo & Adelaide Bank (ASX: BEN) $8.92

BEN – 2.94% A miss at the earnings line drove a decline in the share price today, although it wasn’t all bad news for this regional lender. Cash net profit after tax (NPAT) of $282m was a ~5% miss to the $299m expected while the FY23 dividend of 61cps was around 1% ahead of consensus. Their capital position was solid while impairments of $28m were also as expected – and low given our point in the cycle. They did better in the 2H with net interest income (NII) of $843m ~4% ahead, underpinning better net interest margins (NIM) which increased 8bps to 1.94% - a return to loan growth + better NIMs HoH (despite -5bps in Q4) are the key positives to take away from the result. Asset quality, as was the case with CBA, remained sound despite all the doom and gloom.

• An earnings miss but some signs of improvement more broadly – not a bad update overall.

Broker Moves

• Nufarm Ltd Rated New Hold at Moelis & Company; PT A$5.47
• Nick Scali Cut to Market-Weight at Wilsons; PT A$12.20
• Avita Medical Inc GDRs Raised to Overweight at Wilsons
• REA Group Cut to Neutral at JPMorgan; PT A$155
• Task Group Rated New Buy at Bell Potter; PT NZ$0.67
• Nick Scali Raised to Buy at Citi; PT A$14.35
• Elders Rated New Sell at Citi; PT A$6.85
• Star Entertainment Raised to Buy at CLSA; PT A$1.63
• Baby Bunting Raised to Add at Morgans Financial Limited

Major Movers Today

Have a great night

The Market Matters Team

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