The Match Out: ASX edges higher, Coal prices come off the boil, James Hardie (JHX) downgrades.

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A choppy but positive session today, more a lack of conviction on either side of the ledger saw the local index edge marginally higher with the defensive sectors offsetting weakness from the recently strong Energy & Material stocks.

• The ASX 200 finished up +25pts/ +0.39% at 6958
• The Utilities sector was best on ground (+1.38%) while Consumer Staples (+1.30%) & Financials (+1.02) were also relatively strong.
• Energy (-2.27%) and Materials (-0.26%) the weakest links.
• Our Research Lead Shawn Hickman was on Ausbiz this morning discussing Woodside (ASX: WDS), BHP Group (ASX: BHP) & Sandfire (ASX: SFR) as they dovetail into our bullish view on resources - Watch Here
• James Hardie (ASX: JHX) -13.72% downgraded FY23 guidance today, now expecting underlying earnings of $680m versus the market’s prior expectations of $730m, equating to a ~7% downgrade. More on that in the AM tomorrow.
• Sims Group (ASX: SGM) -9.70% fell sharply on a weak quarterly update, the scrap metal market in a ‘bit of disarray’ they say.
• The Lottery Corp (ASX: TLC) +3.95% said at their AGM that group revenue was +11% to Oct 31 on the back Lucky Lotteries, where no one seemed to be lucky but them!
• Pilbara Minerals (ASX: PLS) +4.42% & IGO Limited (ASX: IGO) +2.49% are both tipped to be added to the MSCI Australia Index.
• Select Harvest (ASX: SHV) -0.56% announced a very orderly transition of their CEO today with well credentialled David Surveyor replacing Paul Thompson who has been with the company for ~10 years.
• National Bank (ASX: NAB) +0.69% edged higher ahead of FY22 results tomorrow –focus will be on cost pressures, revenue growth and its NIM outlook.
• Magellan (ASX: MFG) +0.42% edged higher despite Hamish Douglas selling $118m of stock at $9.10 to a bunch of institutions. That line of stock was worth $730m more 2 years ago! Ouch…but still!
• Coal prices are down with Newcastle Futures (Dec) trading at $US$334, down from a $US450 September high due to unseasonal (high) temperatures in Europe, Gas reservoirs at capacity ahead of winter & LNG cargoes waiting to unload i.e., in short, a market that is not tight for energy units (for now at least).
• Whitehaven Coal (ASX: WHC) -5.52% to $9.40 & New Hope (ASX: NHC) -7.75% to $5.95 coming off recent highs.
• Iron Ore was flat in Asia today, ditto the Iron Ore producers Fortescue (ASX: FMG) -0.01% & RIO (ASX: RIO) +0.07% - we plan to cover Fortescue tomorrow morning looking at the sustainability of its dividend.
• Gold was down a touch in Asia to ~US$1670 at our close.
• Asian stocks were mixed Hong Kong was down -0.75%, Japan +1.20% while China was off -0.79%
• US Futures are largely flat.

ASX 200 Chart

Sims Group (ASX: SGM) $11.55

SGM -9.7%: Fell sharply today on a weak quarterly update saying that soft market conditions were persisting with cost pressures also impacting margins. They went on to say scrap metal markets are in a ‘bit of disarray’ with high costs of scrap not being reflected at the other end, putting pressure on margins. They guided to 1H earnings before interest & tax (EBIT) of $65-75m, they’ll need a miracle in the 2H to meet current consensus for the full year of $360m in EBIT.

Calix (ASX: CXL) $4.24

CXL +0.95%: today announced a relatively small $947,035 grant by the Australian Renewable Energy Agency (ARENA) to help fund a Basis of Design (BOD) and Front-End Engineering and Design (FEED) study for a renewably powered demonstration plant for its Zero Emissions Steel Technology (ZESTY). While that is clearly a mouthful, and the amount is a trickle in the ocean relative to their recent loss of ~$40m in grants following the budget (these could come back - maybe), we still view this as a positive outcome as it highlights the attractiveness of Calix’s technology, but also the willingness of the Australian Government to fund green projects.

Santos (ASX: STO) $7.57

STO -5.26%: the energy company hosted an investor day today, with some suspect forecasting playing into share price weakness. They maintained 2022 production guidance of 103-106mmboe, and capital expenditure of $US1.1b while costs are now expected at the lower end of the previously guidance range. They also put out 2023 guidance for the first time, expecting production to fall to 91-98mmboe as they run down an old asset and reduce WA LNG production. The company then moved to medium-term forecasts, expecting a swift repayment of investment in their PNG LNG project, however, they have assumed some lofty LNG and prices including $US100/bbl oil, around 10% above spot and well above most street forecasts. While this makes the project look appealing, the market seems to have looked through the lofty expectations.

Broker Moves

• Temple & Webster Cut to Underperform at Macquarie; PT A$4
• Baby Bunting Cut to Neutral at Macquarie; PT A$2.80
• Eclipx Raised to Buy at CLSA; PT A$2.40
• Appen Raised to Neutral at Macquarie; PT A$2.70
• Pilbara Minerals Raised to Neutral at JPMorgan; PT A$5.10
• Transurban Reinstated Sell at Goldman; PT A$13.50
• Iress Rated New Market-Weight at Wilsons; PT A$10.05
• AMA Group Raised to Buy at Bell Potter; PT 32 Australian cents
• Endeavour Group Rated New Underweight at Morgan Stanley

Major Movers Today

Have a great night

The Market Matters Team

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