The Match Out: Inflation cools boosting stocks, Harvey Norman (HVN) guidance impresses

Shares opened higher this morning, but the real rally came following the 11.30 am print on inflation which was significantly lower than expected prompting investors to reduce bets on rate hikes – it now seems like the RBA’s aggressive move to tighten policy at an unprecedented rate is showing signs of working, boosting equities. Most sectors finished more than 1% higher, and only one sector closed lower, but only marginally so.

• The ASX 200 finished up +78pts/ +1.1% at 7196
• The Discretionary Retail sector was best on ground (+2.14%) while the Real Estate sector (+2.05%) was also strong. Five other sectors were up more than 1%
• Utilities (-0.01%) was the only sector lower, though only just.
• Local CPI hit the screens at 11.30 am with 5.6% yoy vs the expected 6.1%, and well below last month’s 6.8%. The main driver of the fall came from Auto fuels which dropped 8%. Dairy +15.1%, Travel accommodation +7.3% & Insurance +7.8% were notable contributors.
• Bega (ASX: BGA) -8.53% struggled following the CPI print on input cost pressure based on the dairy product contribution to inflation. Shares were weaker to start the session as well on a broker downgrade.
• Harvey Norman (ASX: HVN) +4.92% guidance was ahead of consensus, providing some relief from the recent slide. More on that below.
• Capitol Health (ASX: CAJ) -7.14% struggled after flagging tighter-than-expected margins. We also discuss this below.
• Ramsay Healthcare (ASX: RHC) +4.77% outperformed after exploring the sale of their stake in the Asian JV, Sime Darby. This stake was the reason the recent takeover of RHC was scuttled, perhaps suitors will return after its divestment.
• Iron Ore was up +1.5% higher in Asia today, helping to support the materials sector.
• Gold was marginally lower ~US$1910/oz in Asian trade today.
• Asian stocks were mixed, Nikkei +2.02% the standout while the other indices were marginally lower.
• US Futures are all lower, S&P -0.2% and Nasdaq -0.37%

ASX 200 chart

Harvey Norman (ASX: HVN) $3.41

HVN +4.92%: the retailer was strong today after it provided guidance for the first time in FY23, just days out from the end of the year. The company expects profit within 5% on either side of $670m based on the first 11 months of the year through May. This number, however, excludes property revaluations expected in the range of $119m, taking the total profit to a strong ~$800m, well ahead of the market. The figures suggest a far better-than-expected 2H with the much-touted roll-off in demand not coming through as expected, or at least not as harshly. Harvey Norman shares were trading near three-year lows ahead of the announcement on the downbeat attitude to retail.

Capitol Health (ASX: CAJ) 26c

CAJ -7.14%; the diagnostic imaging company was out with guidance ahead of the end of the financial year which showed margins being squeezed more than expected. Revenue for Fy23 is expected to come in at $208m, largely in line with consensus, however, EBITDA has been guided to $39.3-40m, around 7.5% below expectations. The company said it had held on to staff numbers despite weaker volumes on anticipation of improving demand, signs of which have come through late in the 4Q. while not improving the current year’s numbers considerably, this should help build momentum into FY24. Also assisting the company is a bump to Medicare indexation which will increase payments for their services. While a disappointing set of numbers, the commentary suggests a turning point has been reached for the company.

Broker moves

• Seek Cut to Hold at Jefferies; PT A$23.52
• Karoon Energy Reinstated Neutral at Goldman; PT A$2.40
• Strike Energy Rated New Buy at Goldman; PT 55 Australian cents
• Cooper Energy Rated New Sell at Goldman; PT 15 Australian cents
• Elders Raised to Buy at Bell Potter; PT A$7.25
• Bega Cheese Cut to Hold at Bell Potter; PT A$3.50

Major movers today

Have a great night,

The Market Matters team.

Make informed investment decisions

At Market Matters, we write a straight-talking, concise, twice-daily note about our experiences, the stocks we like, the stocks we don’t, the themes that you should be across and the risks as we see them. Click here for your free trial.

The Match Out will be available each day after the market close. Follow my profile to be notified when the latest report is live.