The Match Out: Market ends a tough week on its heels, REA Group (REA) doesn’t expect improved earnings till 2024

The daily Match Out for Friday 10 February with Market Matters' James Gerrish.
James Gerrish

Market Matters

A soft end to a tough week for stocks with the market down 1.65% across the five sessions - all sectors finishing lower with Real-Estate (-5.77%) suffering most at the hands of the RBA following a 25bps increase in cash rates, but more importantly, they guided for more to come.

  • Today, the ASX 200 finished off -56pts/ -0.76% at 7490
  • The Consumer Staples the only sector to finish higher, (+0.95%) while REITs (-0.30%) & Healthcare (-0.38%) outperformed.
  • IT (-2.04%), Energy (-1.68%) and Communications (-1.65%) the weakest links.
  • The RBA have revised up their inflation forecasts, now tipping a rate of 4.3% by year-end, above the 3.8% they previously thought, although they do think inflation has now peaked.
  • UBS have revised up their cash rate call, now expecting rates to peak at 3.85% mid-year, up from the 3.35%. We had their Chief Economist in yesterday.
  • Interest rate futures are pricing a cash rate of 4.13% by August, i.e. another 3 25bps rate hikes.
  • REA Group (ASX: REA-2.67% reported 1H23 results that were inline/slight beat, however, the commentary was more tepid.
  • Coal Stocks were hit today, more so early on as Coal prices continued to slide – Whitehaven (ASX: WHC) -3.73%, Newhope Corp (ASX: NHC) -8.61%.
  • The short-term coal price is linked to the gas price in Europe – gas prices have fallen because the winter in Europe was mild and gas inventories look capable of meeting demand.
  • However, there will be another problem in 2H23 when Europe needs to refill gas storage without Russian gas – which was still available in 2022.
  • WHC also remains in a buyback hiatus ahead of the result (Thu 16th Feb).
  • AGL Energy (ASX: AGL) -2.39% dropped below $7 today following yesterday’s update, a few more down days and this will look interesting.
  • Iron Ore was flat in Asia today, Fortescue (ASX: FMG) -2.31% was lower and looks like a sell at current levels.
  • Gold was down overnight and tracked lower in Asia, off -US$7 to ~US$1854 at our close.
  • Asian stocks fell, with Hong Kong down –1.79%, China was off -0.60%, while the Nikkei in Japan was up 0.36%
  • US Futures are all marginally lower, off around -0.14%  

ASX 200 Chart - Intraday

ASX 200 Chart - Daily

REA Group (ASX: REA) $121.11

REA -2.67%: 1H23 earnings were out this morning and they were down around 9% YoY however slightly above analysts’ expectations. Revenue of $617.3m for the half was above the $611m expected while core profit of $204.9 was above the $200m we had pencilled in. Australian property listings were down 5% YoY in 2Q, and “we don’t expect significant improvement until fiscal 2024, when interest rates stabilize and buyer demand returns”. They had previously guided to positive operating jaws (operating profit growth exceeding cost growth) but now say that may not be achieved depending on listings performance. A reasonable result in a tough environment, but we think some patience will be needed on this one. The market is expecting no growth in the 2H. We own REA from the $120 level and are holding tight for now.

Sectors this week – source Bloomberg

Stocks this week – source Bloomberg

Broker Moves

  • Arena REIT (ASX: ARF) Raised to Hold at Moelis & Company; PT A$3.71
  • Breville (ASX: BRG) Rated New Buy at Shaw and Partners; PT A$25.10
  • Mirvac Group (ASX: MGR) Cut to Neutral at Citi; PT A$2.40
  • Arena REIT (ASX: ARF) Raised to Overweight at Jarden Securities; PT A$4.30
  • ANZ Group )ASX: ANZ) Raised to Neutral at Jarden Securities; PT A$26.30
  • Mirvac Group (ASX: MGR) Cut to Neutral at Credit Suisse; PT A$2.42
  • (ASX: CAR) Cut to Accumulate at CLSA; PT A$25
  • Titan Minerals (ASX: TTM) Rated New Buy at Red Cloud
  • Arena REIT (ASX: ARF) Raised to Outperform at Macquarie; PT A$4.05
  • Credit Corp (ASX: CCP) Cut to Neutral at Macquarie; PT A$20.70
  • Arena REIT (ASX: ARFRaised to Reduce at CLSA; PT A$3.71
  • RWC AU (ASX: RWC) Rated New Positive at Evans & Partners Pty Ltd; PT A$4.34
  • James Hardie GDRs (ASX: JHX) Rated New Positive at Evans & Partners Pty Ltd
  • Iluka (ASX: ILU) Cut to Neutral at Credit Suisse; PT A$10.90
  • Mirvac Group (ASX: MGR) Cut to Sell at CLSA; PT A$2.16
  • AGL (ASX: AGL) Energy Cut to Hold at Morgans Financial Limited; PT A$6.89
  • Dicker Data (ASX: DDR) Cut to Hold at CCZ Statton Equities Pty Ltd.

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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