The Match Out: ASX falls to 6-week lows, Materials struggle, Downer (DOW) whacked

James Gerrish

Market Matters

Markets @ Midday: Listen Here

Local shares started the week on the back foot following a soft Friday night in the US. Inflation concerns picked up again after the previous PCE figure was revised higher and bond yields rallied as a result. Risk off was the aim today, particularly in the resource stocks which felt the pain of a higher USD and China curbing steelmaking to cut down on pollution. The local reporting season also threw in some curveballs on its penultimate day.

  • The ASX 200 finished down -82pts/ -1.12% at 7224
  • Two sectors managed to eke out a gain – Energy (+0.25%) just topped Utilities (+0.24%)
  • Materials (-3.15%) was the main drag sector-wise. Followed by Real Estate (-2.08%), Discretionary (-0.89%) and Industrials (-0.84%)
  • Lynas (ASX: LYC) -6.24%, a soft 1H result for the rare earths miner. The company noted demand has picked up with new customer inquiries coming through, though risks remain around their new facility in WA which it is hopeful will come online next quarter.
  • Downer (ASX: DOW) -23.74%, a brutal session for the contractor, the stock tumbled on a soft 1H and weak guidance. More on that below.
  • Aussie Broadband (ASX: ABB) -1.02%, shares were lower but the result was strong as EBITDA margins jumped.
  • Praemium (ASX: PPS) +7.53%, a strong day against the backdrop, costs being controlled well and revenue margins are up.
  • Woodside (ASX: WDS) +1.53%, plenty of moving parts in the result. Numbers were a bit light but guidance was decent.
  • TPG +5.93%, strong FY results helped y $140m in cost synergies offsetting inflationary pressures, and Average Revenue Per User up 1.9%. Guidance was slightly ahead of consensus.
  • Gold continued its drift lower in Asian trade today, settled $US1808 at our close, down 0.15%.
  • Iron Ore fell more than 2% on the back of the comments by Chinese authorities. Fortescue (ASX: FMG) -7.26% felt the most pain, though the dividend (75cps) accounted for around half of the fall.
  • Asian stocks held up better that the local market, Hong Kong fell -0.3%, Japan -0.17%.
  • US Futures are currently flat to marginally higher

ASX 200 Chart

Aussie Broadband (ASX: ABB) $2.90

ABB -1.02%: 1H results for the telco today were mixed, however, the beats largely outweighed the misses. Revenue fell short of expectations, and FY guidance was cut there to $780-800m, down ~4%. But that was largely the extent of the bad news with EBITDA of $41.1m, up 38% on the last half, and guidance increased to $85-90m, around 5% above consensus. Margins are expanding as the company wins more business contracts following the Over the Wire acquisition last year, while synergies have also supported earnings. We like the result and ABB may see a further benefit come through from lower NBN charges that were flagged this week.

Praemium (ASX: PPS) 78.5c

PPS +7.53%: a strong move higher against a weak session for the market, the investment platform impressed at their HY results. Revenue margins increased 9bps, while EBITDA jumped 52% to $11.4m on the back of margins climbing 7.5 percentage points to 32.2%. Cost control drove the result, with costs up 6% against revenue climbing 17%. Overall a good set of numbers, Praemium also has a cash balance of $38m and flagged a dividend policy that will be announced later this year.

Woodside (ASX: WDS) $35.13

WDS +1.53%: a largely disappointing FY result from Woodside today, though shares managed to trade higher. The second half EBITDA was a 10% miss to consensus, coming at $US7b vs $7.6b expected, while NPAT was marginally below. The dividend also fell short at $US1.44/sh vs $US1.56/sh expected. The miss was mostly a result of a higher tax rate, royalties and replacement capex in the period with the result made messier by the BHP Petroleum acquisition completed last year. Guidance for FY23 is in line with the market for both CPAEX and production.

Downer (ASX: DOW) $3.02

DOW -23.74%: a brutal reaction to a poor 1H result for the facilities contractor as contract losses and a restructure weighed on the outlook. Profit fell 20% to $68m while a $12m post-tax hit will be taken in the 2H following a revenue recognition error on an ongoing contract. Costs weighed on their transport segment, contract losses hit their Utilities arm while some growth was seen in Facilities contracts. Overall though, the company downgraded underlying profit guidance by 18% to $170-190m which may be impacted further by restructuring costs.

Broker Moves

  • Westgold Raised to Outperform at Macquarie; PT A$1.20
  • Brambles Raised to Equal-Weight at Morgan Stanley; PT A$13.20
  • Austal Raised to Neutral at JPMorgan; PT A$1.85
  • Platinum Asset Raised to Outperform at Credit Suisse; PT A$1.90
  • Allkem Raised to Buy at Jefferies; PT A$15
  • Resimac Group Raised to Buy at Citi; PT A$1.20
  • Brambles Raised to Hold at Jefferies; PT A$11.84
  • Austal Cut to Neutral at Citi; PT A$2

Major Movers Today

Have a great night

The Market Matters Team

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James Gerrish
Portfolio Manager
Market Matters

James is Portfolio Manager & Primary Author at Market Matters, a daily investment report with over 2500 subscribers that offers real market insight. He is also Senior Portfolio Manager within Shaw and Partners heading up a team that manages...

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