Afternoon Report / ASX down a touch, Westpac now bullish Australia, BHP hits record high, results dominate on a busy day (CTD, WBC, CAR, EML, BAP, WHC, SUL, COL, PGH)

WHAT MATTERED TODAY

**No income note today, desk was very busy, will revisit tomorrow**

Weakness across some of the more defensive areas of the market today as bond yields continue to tick higher, while the reflationary trade (materials, energy, financials) remained firm. The tech sector was weak, Zip Co (Z1P) ended down 14% while Afterpay gave back -3.71%, although they had been lagging Z1P in recent sessions. Smaller rival Openpay (OPY) has been a big laggard in the sector and now looks interesting as a shorter-term play!  

Again, reporting dominated news flow and overall, it was another solid day. One clear theme to date is analysts are revising earnings higher in aggregate and this is helping the market look less overvalued on a collective sense.

Reporting tomorrow we have: (stocks we hold in yellow): AMA, ANZ Trading update, CSL, CWN, IRE, NGI, PPT, SGR, SHL, SVW, CSL

In terms of CSL, this will be an important result, the market is looking for 1H21 Revenue of US$ 5.56b, EBITDA around US$ 2.12b and profit of about US$ 1.43b. Guidance obviously key with consensus sitting for  FY21 Revenue of US$ 10.15bn (+10.15%), EBITDA of US$ 3.44B (+9.79%)  and a profit of US$ 2.25b (+6.78%).

Asian markets were mostly higher today, China the best of them, while US Futures are up a touch at out close.

The ASX 200 finished down -32pts / -0.46% to close at 6885. Dow Futures are trading higher, +19pts / +0.06% 

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

Corporate Travel (CTD) +4.94%: This is a stock we’re keen on as discussed in recent notes and today they delivered an okay update for the 1H21 given the challenging conditions, however there is a solid improvement in exit-run rate for the period and importantly, they’ve won a lot of new customers over the past 6 months, plus of course invested internationally at a low point. We like companies that have the fortitude to turn turmoil into opportunity and that’s what CTD did during the pandemic. These guys will come out the other side a lot bigger and stronger business and while these half yearly numbers were nothing to get excited about, things are shaping up nicely for FY21.

MM are bullish CTD

Corporate Travel (CTD) Chart

Westpac (WBC) +4.58%: A frustrating day for MM given we’ve talked about switching from CBA to WBC and that trade today put on 6.48% alone I.e. WBC up 4.58% & CBA down – 1.9%) back to the drawing board! It seems pretty clear from WBC’s quarterly trading update that the tide has turned with a much more upbeat rhetoric about the economy thanks to the vaccine rollout. For Q1, cash NPAT was $1,971m which was a big beat while they had a $501m "impairment benefit", i.e. they overprovisioned, a theme we’ve talked about at length. All in all, a really strong result from WBC and another sign that banks now have legitimate tailwinds, the first in many years.

MM is bullish Westpac (WBC)

Westpac (WBC) Chart

Carsales (CAR) -1.58%: a solid result with reported revenue for the half of $199m, which was smack on expectations while there was a small beat in terms of EBITDA and net profit, largely around better cost management. Of the $199m in revenue, the dealer network accounted for $87m of it, which was up 10% YoY – there was some rebates paid here but top line was reasonable. Private sales accounted for $33.6m of the revenue, that was down -24% YoY but again, inline with expectations and not a great surprise given lockdowns and social distancing regs.  Display revenues were $19.2m, down 12% YoY and the rest is international, Sth Korea +23% YoY and Latam +11% YoY all doing okay.

They also provided a January trading update saying trends were much the same as they exited calendar 2020 i.e. good.  They then went on to provide customarily vague guidance, forecasting ‘moderate’ adjusted revenue growth and ‘solid’ adjusted EBITDA and profit growth guidance. If we make some assumptions here around what moderate (high single digits) and solid means (mid double digits) then the markets current expectations for profit of $142m are about right hence the muted share price reaction today.

MM are neutral CAR

Carsales (CAR) Chart

EML Payments (EML) +16.39%: A decent 1H21 result here with revenue of $95.3m up from $59m in 1H20, i.e. top line growing at 61% while they reinstated guidance for the full year, for EBITDA of $50-54m inline with current consensus of $53m. There is 22m shares held short in this one and clearly some of those covered today….a nice outcome for EML which is held in our soon to be released Emerging Companies Portfolio.

MM are bullish EML

EML Payments (EML) Chart

Bapcor (BAP) -2.35%: Also a stock held in the MM Emerging Companies Portfolio is the car parts business Bapcor. Today they delivered revenue of $883.6m which puts it on an annual runway to beat current consensus while NPAT was inline / slight 2% beat at $70.2m for the half. Cash conversion an issue and that’s a result of a lot of stock / parts in transit which is a consequence of strong demand and weak production / bottlenecks in distribution. In terms of outlook, January has started as  the first half ended, i.e. with good momentum. In terms of guidance, they highlight current consensus on an NPAT perspective of $122m and say that’s ‘not unreasonable’, which seems like they agree.

Bapcor (BAP) Chart

Whitehaven (WHC) -1.26%:  Clawed its way back from some early selling, the headline $90m NPAT loss for the half was a touch worse than expected but the company defended its position well in the investor call and clearly, this half was the bottom point of the cycle. Management did well managing costs which meant EBITDA managed to stay in the green. They talked up growth projects and their ability to pay down debt on the call as coal prices have rebounded strongly from the lows. Just $37m of EBITDA in the first half could turn into $500m+ in the second based on spot.

MM are positive WHC.

Whitehaven Coal (WHC) Chart

Super Retail Group (SUL) +1.99%: whirlwind of a day for SUL, closing marginally higher. The result was great, but largely as expected. Profit up 139% to $177m the big number, and an interim dividend of 33c fully franked plays into our holding in the income portfolio. Retail trends have been in their favour, and SUL are doing their part to capture the tailwind.

We continue to like SUL.

Super Retail Group (SUL) Chart

Coles (COL) -5.39%: EBIT up 12% for the first half on 1H20, taking the figure over $1b and marginally ahead of expectations. The outlook was the concern for the market today - LFL sales for the first 6 weeks of the new half have trended back around the long-term average at ~3% for the supermarket business. Coles now finds itself a victim of its own success with sales expected to fall into negative territory into the back end of the year and through FY22 as sales get compared to the ‘pantrydemic’ sugar hit of peak COVID lockdowns. On the fence here. They will pay a 33cps div for the half – the same as SUL despite the SP being ~30% lower.

Coles (COL) Chart

Pact Group (PGH) +5.66%: profit soared 44% to $50m in the half for the packaging business despite only a 1% improvement in revenues. Recycling has been the big beneficiary as companies continue to trend towards more environmentally sound practices. The rhetoric around the contracting business also looks to have changed with Pact now considering hanging on to the unit. It has been on the chopping block for 12 months now, part of the reason they were looking to sell was to improve the balance sheet which now looks in reasonable shape. The market appreciated the change as the company backed away from selling at a steep discount to the perceived value. Not looking to step up and buy though it looks good for a breakout around here.

Pact Group Holdings (PGH) Chart

BROKER MOVES:

·         Appen Cut to Underperform at Macquarie; PT A$19

·         Altium Raised to Buy at Citi; PT A$33.50

·         Pilbara Minerals Raised to Neutral at Citi; PT A$1.10

·         Orocobre Raised to Buy at Citi; PT A$6.75

·         Breville Raised to Market-Weight at Wilsons; PT A$32

·         Lendlease Raised to Buy at Morningstar

·         Domain Holdings Cut to Neutral at Credit Suisse; PT A$5

·         Ansell Raised to Buy at Jefferies; PT A$46

·         Ansell Raised to Add at Morgans Financial Limited; PT A$44.45

OUR CALLS

MM Growth: We sold Costa Group (CGC) and bought A2 Milk (A2M)

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

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