ASX 200 slips 16 points to 7408 (0.2%). Narrow trading range with results dominating. Banks eased back ahead of CBA numbers later this week, the Big Bank Basket fell to $190.08 (0.6%). Insurers doing well, IAG jumped 4.5% on results. QBE up 1.3% and SUN up 1.5%. Fund managers under pressure and MQG slipping 0.6%. Industrials mixed with REA down 1.6% on broker downgrades, CAR 0.6% better on results, SEK off 1.5% and tech mixed, WTC up 0.6% and XJO down 1.4%. The All–Tech Index falling 0.9%. Defensives holding the line, WOW up 0.1% and TLS better by 0.7%. REITs rebounding with VCX up 1.0% and GPT up 0.7%. Healthcare down, RMD off 2.1% and RHC off 1.8% with CSL flat. Resources weaker but no huge moves, BHP down 0.3% and RIO off 0.2%. Energy stocks all better, WDS up 2.1% and STO rallying 1.7% with coal stocks also in demand as China gears up to take Australian coal again. WHC up 2.5% and YAL up 3.9%. In results, a big start to the week but losses seem to be the main reaction. SGR fell hard, 21.0% on more write offs on compliance, AZJ dropped 6.5% with LLC down too on results. JBH reported too following its sales update and warned of tougher times ahead, LYC answered questions on Malaysian regulatory risks. APX also fell hard on its own write-offs, down 15.4%. VIT had a good day charging 15.2% ahead on a presentation. EDV toasted better numbers rising 4.1% with AD8 also doing well up 10.0% on record revenue numbers. Nothing significant on the economic front but 10-year yields pushing higher again. Asian markets mixed, Mixed with Japan down 0.5%, HK down 0.5% and China up 0.6%. Dow futures down 105 points and NASDAQ futures down 57 points.

HEADLINES

  • Winners: AD8, PNV, CTT, EDV, MAD, YAL, CRN
  • Losers: SGR, IMU, VUL, AZJ, FBU, LLC, MSB, JBH
  • Positive sectors: Oil and gas. Coal. Insurers.
  • Negative sectors: Banks. Healthcare. Tech.
  • High 7431 Low 7406
  • Big Bank Basket: Down to $190.08 down 0.6%
  • All-Tech index: Falls 0.9%
  • Gold rises to $2690
  • Bitcoin: Lower at US$21793
  • Aussie Dollar: Falls to 69.09c
  • 10-Year Yield: Back up to 3.77%, continues to head higher.
  • Asian markets: Mixed with Japan down 1.0%, HK down 0.5% and China up 0.6%.
  • US Futures: Dow down 105 Nasdaq down 57.

MAJOR MOVERS

  • AD8 +10.04% record results.
  • IAG +4.46% good results.
  • PNV +4.61% bouncing back after losses last week.
  • EDV +4.11% results cheer.
  • JLG +3.23% bouncing off recent lows.
  • MEI +4.00% blasting ahead again.
  • EXR +3.85% CBM Pilot plant passes a key milestone a few days ago. Good volume.
  • NXL -25.74% ACCC software contract concerns.
  • APX -15.36% write-downs.
  • SGR -20.80% heavy write-downs. Increased competition.
  • VUL -7.26% Phase one DFS presentation.
  • JBH -5.08% results warning on outlook.
  • LYC -4.78% Malaysian regulatory issues.
  • SPECULATIVE STOCK OF THE DAY): Nothing on any significant volume. Kore Potash (KP2) +41.67% responded to a ASX ‘please explain’. The company knows nothing. Latest announcement is the updated Dougou extension PFS and production target.
  • Above Average Volumes (this can be up or down): EX1, HNG, RML, VEE, FID, PHO, VTI.

COMPANY NEWS

  • The Star Entertainment Group Ltd (SGR) reports 1H FY23 earnings and outlook. Revenue down 1% on pre-covid levels due to changes, competition, and compliance investment. Underlying EBITDA is estimated at $195m-$205m, excluding fines. FY23 underlying EBITDA is forecasted at $330m-$360m. The company plans operational improvements to add $40m annually to operating performance. Lots of uncertainty with this stock due to its exposure to external factors that affect earnings. Regulatory risks including tax increases, ESG risks and market risks. Investors should a higher margin or safety given the current regulatory uncertainty.SGR flagged a potnetial write down of $1.6bn to the Sydney Casino.
  • JB Hi-Fi Limited (JBH) reported an 8.6% increase in total sales to $5.28bn for 1H23. The growth was driven by continued elevated customer demand for consumer electronics and home appliances, as well as well-executed promotional periods. NPAT up 14.6% to $329.9m and EPS up 20.4% to 301.8c. The interim dps was also up 20.9% to 197.0c. JBH’s net profit margin of ~6% is considerably tight and does not provide a significant buffer during a retail downturn. Shares are currently trading at a premium reflecting the markets positive outlook on consumer demand despite the cost of living risks and surging inflation.
  • Aurizon Holdings Limited (AZJ) reports 1H23 financial results. Revenue grew by 12% due to the acquisition of One Rail and higher energy/fuel prices, but impacted by lower volumes. Operating costs increased 30% and EBITDA margin declined 8.3%. Statutory NPAT was $130m, down 49% from the previous year. Interim dps was 7c, down 33%. Free cash flow declined 76% due to adverse working capital and higher cash taxes. Currently trading at a 7.75% discount, with a sound balance sheet. Aurizon is highly levered to global coal and iron ore a slowdown in economic growth especially from China would result in considerable deterioration of Aurizons profitability.
  • Beach Energy Limited (BPT) reported its financial and operating results for the first half of FY23. Sales revenue was up 3% to $813m, underlying EBITDA was down 4% to $491m, and underlying NPAT was down 10% to $191m. The company declared a 2c interim dividend, and aims to maintain a net cash position and total liquidity of $609m. The company is progressing its major growth projects and prioritizing growth opportunities across its portfolio, and has made progress on its safety and emissions reduction initiatives. Beach has a strong unlevered balance sheet but lacks an economic moat. Beach is more suitable for growth-orientated investors seeking exposure to an Australian Gas producer.
  • Vulcan Energy Resources Limited (VUL) has released results from its Phase One Zero Carbon Lithium Project Feasibility Study. The study showed a 250% increase in NPV8 and an estimated IRR of 34% pre-tax, 26% post-tax, with an expected EBITDA margin of 84%. The project aims for a net-zero per tonne carbon footprint, making it the world’s first in the lithium industry.
  • Carsales.com Limited (CAR) announced its half-year results. The results showed strong financial performance with revenue up 15% and EBITA up 17% pcp. The business also had good cash flow and generated excellent free cash flow, allowing for a 28.5cps interim dividend. CAR has a strong history of earnings growth with an adjusted EBITA CAGR of 8% from 2018 to 2022. CAR is a capital light business allowing for high profitability and margins and is suitable for growth investors who want exposure to domestic online automotive, motorcycle and marine classifieds with expanding operations overseas.
  • Lendlease Group (LLC) reported a core operating profit after tax of $105m for the 1H23 compared to $28m in the previous period. The core operating eps was 15.2c, with an interim distribution of 4.9c. The statutory loss after tax for the period was $141m, including a $200m provision due to retrospective UK government action on residential buildings. Despite this, the group showed growth in its funds under management of 8% to $48bn and a global development pipeline of $121bn, including the addition of the Sydney project, One Circular Quay. The group has a strong focus on profitable growth and cost management as it moves through its five-year turnaround plan. LLC has a massive capital expenditure budget over the next decade which presents an attractive opportunity for investors but will increase debt on their balance sheet. Conditions for commercial property to worsen this year but property stock downside looks to be priced in already.
  • Contact Energy (CEN) – Reported a net loss of $6.4m for the 2H22, compared to a profit of $79m in the prior year. The loss was due to lower wholesale prices, reduced renewable and thermal generation, increased operating costs, and inflationary conditions, along with a $86m after-tax onerous contract provision.
  • Fletcher Building (FBU) – Interim net profit fell 46% to $83.6m, including $150m in construction provisions. The company’s revenue increased 5%, while EBIT before significant items was 8% higher. For FY23, Fletcher Building now expects its EBIT before significant items to be between $800m and $855m due to adverse weather impacts, and anticipates a softening of residential markets in both New Zealand and Australia, reducing volumes in its materials and distribution businesses by 10-15%.
  • Insurance Australia Group (IAG) reported a net profit after tax of $468m in the first half, with cash earnings rising 26.7% to $223m. Underlying insurance margin fell by 440 basis points to 10.7%.
  • Imdex Limited (IMD) has reported its 1H23 financial results. The results showcase the strength of its underlying business and the progress made in executing its growth strategy. In 1H23, revenue is up 18.4% to $198.8m, normalised EBITDA up 22% to $62.8m and NPAT of $22.7m down 6.9%. The company declared a fully franked interim dividend of 1.5 cps. The company’s balance sheet is robust with a net cash position of $32.5m.
  • Lifestyle Communities Limited (LIC) launched 4 out of 7 planned projects in 1H23, with three more scheduled for launch in H2. The company will have 11 projects in delivery by the end of FY23. NPAT was $25.3m, down from $27.5m due to lower home settlements but expected to recover in H2. A 20.7% increase in annuity revenue resulted in an interim dividend of 5.5 cps. The company aims to deliver 1,400 to 1,700 new home settlements between FY23-25 and has increased debt facilities by $150m to support growth.
  • Monadelphous Group (MND) – secured $200m in new contracts in the resource sector. One of the contracts awarded is the WAIO Asset Panel Framework Agreement with BHP for the Car Dumper 3 Replacement Project at Nelson Point in Port Hedland, Western Australia. The contract is valued at more than $115m.

ECONOMIC & OTHER NEWS

  • No news today.

ASIAN MARKETS

  • Taiwan has revealed that it often has Chinese balloons flying over its airspace.
  • China’s weekly Covid deaths in hospitals slumped to less than 1,000.
  • Singapore Final 4Q, 2022 GDP lower than preliminary as well as forecasts. Final reading for the quarter through December showed the economy grew 2.1% from the same period in 2021, compared with the advance reading of 2.2% and forecasts of 2.3%.
  • Moody’s cut its outlook for Adani Green Energy from stable to negative, alongside Adani Transmission Step-One, Adani Electricity Mumbai and Adani Green Energy Restricted Group.

US AND EUROPEAN HEADLINES

  • Kansas City Chiefs win Superbowl 38-35. Kansas is an AFC team. A win for the AFC team is supposed to herald a decline in the stock market for the year.  
  • Rihanna is pregnant and Elon Musk was spotted talking to Rupert Murdoch.
  • According to an interview in the FT, Goldman Sachs Chief Executive Officer David Solomon said he should have gone with his instincts and acted sooner to cut jobs.
  • US shoots down its fourth high-altitude balloon-like object. Pilot was captured by onboard CCTV.

And finally….

If you think nobody cares whether you’re alive,
try missing a couple of payments.

My therapist said that my narcissism causes me to misread
social situations. I’m pretty sure she was hitting on me.

My 60 year kindergarten reunion is coming up soon and I’m
worried about the 175 pounds I’ve gained since then.

Denny’s has a slogan, “If it’s your birthday, the meal is on us”
If you’re in Denny’s and it’s your birthday, your life sucks!

The pharmacist asked me my birth date again today. I’m pretty
sure she’s going to get me something.

On average, an American man will have sex 2 to 3 times a week.
Whereas, a Japanese man will have sex only 1 or 2 times a year.
This is very upsetting news to me. I had no idea I was Japanese.

The location of your mailbox shows you how far away from your house
you can be in a robe before you start looking like a mental patient.

I think it’s pretty cool how Chinese people
made a language entirely out of tattoos.

Money can’t buy happiness, but it keeps the kids in touch !

Clarence

XXXX

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