The Match Out: Market edges lower as BHP weighs, Qantas (QAN) to spend more on planes

A softer session for the market, but again there was a lot happening under the hood as you’d expect with reporting season still in full swing - although tapering off from here. 60% of the ASX actually rallied today although when the Materials are down ~1.5% it’s always going to be tough going at the index level.

• The ASX 200 finished down -29pts/ -0.40% at 7285
• The Utilities sector was best on ground (+1.17%) while Healthcare (+1.11%) & IT (+0.69%) were also strong.
• Materials (-1.56%) and Consumer Staples (-0.87%) the weakest links.
• Qantas (QAN) – 6.8%: Reported 1H23 Underlying Profit Before Tax (PBT) of $1,428m was near the top end of the $1.35-1.45b guidance range, and they even announced a $500m buyback, the issue came with guidance.
• Eagers Automotive (APE) +8.97%: Topped the leaderboard today with FY22 results that met expectations while their guidance for FY23 was stronger than expected.
• Smart Group (SIQ) +7.38%: The car leasing and salary packaging company reported FY22 earnings that were as expected today, full-year revenue of $224.7m.
• APA Group (APA) +1.41%: Delivered a solid result that rightly supported the stock, with EBITDA up on both East and West coast pipeline networks thanks to higher tariffs
• Perpetual (PPT) -2.81%: While the result was inline in terms of underlying profit, the composition of earnings were weaker, particularly in the prized Trust business where costs were higher.
• Nine Entertainment (NEC) -2.91%: the media group struggled despite a decent 1H, weighed on by non-committal guidance.
• Capitol Health (CAJ) -3.64%: first half numbers were a touch light, but the trend is turning with momentum building for the diagnostic imaging company.
• Ive Group (IGL) - +2.71%: all-time highs, at least briefly, for the integrated marketing company on the first half result that came with an upgrade to guidance.
• Bega Cheese (BGA): -7.78%: Underlying EBITDA down -30% year on year & downgraded guidance saying significant inflationary cost pressures are persisting.
• Platinum Asset (PTM): -16.89%: Had few friends today reporting 1H23 profit of $37.6m versus $60m last year. Kerr Neilson will be livid!
• Rio Tinto (RIO):  -1.68%: Reported after market yesterday and profit missed expectations while the dividend was also weak.
• Qube Logistics (QUB): +8.7%: had a corker, reporting underlying profit for the first half of $124.9 million vs $88.3 million last year.
• Medibank (MPL): +6.49%: Prices up and so too was policyholder growth – a good combo.
• Iron Ore was flat but remains solid around US$131.50/tonne.
• Gold was up a touch, trading ~US$1828 at our close.
• Asian stocks were okay Hong Kong +0.25%, Japan +0.10% while China was up +0.05%
• US Futures are all higher, around +0.30% 

ASX 200 Chart

Eagers Automotive (ASX: APE): $13.00

APE +8.97%: Topped the leader board today with FY22 results that met expectations while their guidance for FY23 was stronger than expected. Revenue of $8.54 billion was largely inline with consensus while underlying profit before tax of $405 million was around a 2% beat driven by better margins while the dividend of 71c/share compared well to the 60c/share expected. 

They talked a big game for the year ahead, guiding to $9.5-10 billion in sales in FY23, which is ~8% above where the market was. This strong result and positive commentary about the year ahead, we suspect will have also helped leasing & salary packaging business Smart Group (SIG) who reported an inline result today against some more negative market positioning. We have held both stocks in the past, with SIQ residing on our hit list.

Smart Group (ASX: SIQ) $6.11

SIQ +7.38%: The car leasing and salary packaging company reported FY22 earnings that were as expected today, with full year revenue of $224.7m meeting expectations while underlying net profit of $61.2m was inline. The final dividend of 29c took the FY payout to 49c, ahead of expectations while they talked fairly favourably about a number of growth initiatives in the business. 

That, along with upbeat sales guidance from car yard operative Eagers Automotive (APE) had investors musing whether or not growth is possible in FY23, commentary had that sort of vibe. Consensus numbers for FY23 are for no growth while the stock has had a difficult past 12 months following a failed takeover tilt. We have owned SIQ in the past, and it resides on the MM Hitlist – a stocks we are now considering for our Income Portfolio.

APA Group (ASX: APA) $10.80

APA +1.41%: Delivered a solid result today that rightly supported the stock, with EBITDA up on both East and West coast pipeline networks thanks to higher tariffs, which are linked to CPI. There is a lot to like about APA and they’ll almost certainly play a key role in transporting renewables as we move down that path. In the meantime, they remain a very dependable, high quality infrastructure business, which is now very rare on the ASX. 

They re-affirmed FY23 dividend guidance for 53c/share and said CAPEX would be in line with previously stated levels. The only issue is around valuation, priced on a margin over 10-year bond yields, it sits at ~1.10% whereas the historical premium is more like 2.8%.

Perpetual (ASX: PPT) $25.95

PPT -2.81%: While the result was inline in terms of underlying profit, the composition of earnings were weaker, particularly in the prized Trust business where costs were higher. While these were offset by lower costs in Perpetual investments, it seems like cost growth is tracking along at a higher rate overall than the ~6% they guided to. 

They kept the expected synergies derived from the acquisition of Pendal unchanged at $60 million pre-tax while the 90c/share dividend announced today included the 35c/share special that was paid earlier in the month. They maintained a targeted 60-90% payout ratio and suggested the final dividend payout is likely to be ~75%. 

All said and done, we expected more upbeat commentary regarding PDL, which we didn’t get plus the elevated costs in the Trust business is not ideal.

Qantas (ASX: QAN) $6.03

QAN -6.8%: the flying kangaroo was brought back to earth today after a tough reaction to their 1H results. Underlying Profit Before Tax (PBT) of $1.43 billion was near the top end of the $1.35-1.45 billion guidance range, while EBITDA was in line and they even announced a $500 million buyback. 

The issue came with guidance as the company failed to provide PBT targets for the second half and lifted capex guidance for the full year by 20% to $2.6-2.7 billion as well as bumping up medium-term fleet capex by $2 billion. Other guidance looks largely in line, however, the market will also want to see some better cost control after non-fuel costs came in above expectations for the first half.

Nine Entertainment (ASX: NEC) $2.00

NEC -2.91%: the media group struggled today despite a decent first-half, weighed on by non-committal guidance at the result. Revenue of $1.4 billion was in line with consensus, as was NPAT at $189.5 million with the result driven by market share gains in free-to-air and a beat by streaming platform Stan while radio was in line and 9Now missed slightly. 

The company shied away from any firm guidance, saying 3Q FTA revenues will be softer while costs will be higher. Stan is expected to do well, particularly on margins as price increases are passed through.

Capitol Health (ASX: CAJ) 26.5c

CAJ -3.64%: first half numbers were a touch light, but the trend is turning with momentum building for the diagnostic imaging company. EBITDA of $20 million was a 5% miss to consensus however this includes some stale analysts that hadn’t updated post-recent industry data prints. 

Margins were a touch light at 20%, however we expect this to improve with revenue rebounding (+3% YTD) and working capital unwinding in the second half. A number of large trades went through today below the market price at the time, likely seeing selling pressure flushed out for the moment.

Ive Group (IGL) $2.65

IGL+2.71%: all-time highs, at least briefly, for the integrated marketing company on the first half result that came with an upgrade to guidance. EBITDA of $65 million was strong with EBITDA margins up to 12.9%. The Ovato acquisition that was completed in the half was a positive contributor, and the company stated that synergies look to be coming ahead of schedule. They upgraded full-year guidance by 5% to $120 million EBITDA. A really solid result.

Broker Moves

• Lovisa Raised to Overweight at Wilsons; PT A$27.30
• Macquarie Telecom Raised to Overweight at Wilsons; PT A$70.48
• Scentre Group Raised to Neutral at Macquarie; PT A$2.89
• McMillan Shakespeare Raised to Accumulate at CLSA; PT A$14.90
• WiseTech Raised to Buy at CLSA; PT A$75
• Karoon Energy Raised to Overweight at Morgan Stanley; PT A$2.88
• Service Stream Raised to Buy at Citi; PT 80 Australian cents
• WiseTech Raised to Positive at Evans & Partners Pty Ltd
• Domino's Pizza Enterprises Cut to Neutral at JPMorgan; PT A$58
• Domino's Pizza Enterprises Raised to Hold at Jefferies; PT A$50
• Platinum Asset Cut to Sell at CLSA; PT A$2
• Reece Cut to Underperform at Macquarie; PT A$14.10
• Perseus Raised to Outperform at Macquarie; PT A$2.50
• Domino's Pizza Enterprises Raised to Neutral at Macquarie
• Woolworths Group Cut to Neutral at Evans & Partners Pty Ltd
• Macquarie Telecom Raised to Positive at Evans & Partners Pty Ltd
• Worley Raised to Buy at Jefferies; PT A$17.15
• CBA Raised to Hold at Jefferies; PT A$87.20

Major Movers Today

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.