Afternoon Report / ASX flat, all the action underneath the hood (NWH, OZL, CWN, CSL, FMG, RIO, WES, ABP, WPL)

WHAT MATTERED TODAY

Just as the subject line suggests today, not a lot happening at the top line but a hell of a lot going on underneath the hood. We had landmine today in NRW Holdings (NWH) which fell 17%, I cover that below plus a bunch of other names that reported earnings. At the sector level today a 2.78% gain in CSL drove the healthcare sector to the top of the boards while the property stocks lagged again, we have Dexus (DXS) in the office tomorrow and I’ll be interested to get their take on the office market, they’re heavily exposed in the space and hopefully they’ll be forthright about the current challenges and whether or not their experience is as negative as the market is pricing in.

Anyway, more stocks finished down that up today, Treasury Wines (TWE) a standout adding 17% after reporting the prior day

Reporting tomorrow we have: (stocks we hold in yellow): CPH, CWY, ECX, GMG, ING, MMS, MVP, QBE, RCE, RDC, SIQ

Asian markets were mostly lower today, while US Futures are trading a shade lower.  

The ASX 200 finished flat at 6885. Dow Futures are trading flat

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

NRW Holdings (NWH) -17.14%: A few issues in the NRW result today and the stock down 17% as a result. The issues broadly are around higher costs thanks to COVID which has driven lower margins and that  has hurt earnings, at the EBITDA line this was a 10% miss however more in terms of profit (-26%). Top line revenue for the half was fine / inline at $1.168B and they reconfirmed full year guidance for revenue of $2.2-2.3B, confirming that $2.2b is already contracted, plus they have a huge pipeline of tenders in place. So clearly, the issue is not winning work, it’s about completing it which is always an issue with contactors. In this case, higher covid costs and higher staff turnover, restricted workforce etc has been the killer and this is something the company can see continuing in the second half. Patience now required here as we look towards 1. Better top line at the FY21 result and / or more diligence on the cost side.

MM remain positive NWH despite a weaker than expected result.

NRW Holdings (NWH) Chart

Oz Minerals (OZL) +0.97%: a full year result for OZL, caught a commodity tailwind into the end of the year across copper & gold. NPAT up ~50% to $213m was in line with expectations, net cash of $32m and operations all running smoothly. Carrapateena production ramp up has come in well ahead of schedule and focus now turns to the expansion project there. Guidance – costs and production - for the full year was unchanged from comments at the 4th qtr update. We bought last week enjoying both the commodity tailwind and the growth options OZL has access to.

MM remains bullish OZL

Oz Minerals (OZL) Chart

Crown (CWN) +0.41%: Not much point talking CWN earnings as they are largely irrelevant given the massive disruption in Melbourne and the big reform agenda now in front of them. These things (re-opening) plus board / management refresh will dictate the future of this iconic business. As it stands though, debt is the other major issue for them sitting at $1.2bn with around about 200m to spend on Crown in Sydney, however offsetting this is very strong apartment sales in Sydney (about $900m) with cheques starting to land. This will create a big de-gearing event throughout 2021 which is key, plus of coarse getting Sydney gaming operational and navigating other regulatory potholes in other states.

All in all, a lot going on for CWN however if they can get through it, their assets are worth a lot more than the market is giving them credit for. This is a higher risk position in the MM Growth Portfolio, however worth remembering that Wynn Resorts bid $14.75 per share in 2019 and Melco agreed to buy 20% at $13. There is value in them hills, the challenge is clearly unlocking it!

MM remains cautiously optimistic CWN

Crown Limited (CWN) Chart

CSL Limited (CSL) +2.78%: A good 1H21 result from CSL booking a decent NPAT beat for the half, on the back of strong Seqirus revenue but they maintained their FY21 guidance given weakness in Plasma collections in December. We had some concerns ahead of these numbers however CSL have done a very good job in the half which is pretty customary for this high quality operator. However, the fact that 1H has been strong yet they’re maintaining full year guidance speaks to a clouded short term outlook. I wasn’t on today’s call however will seek feedback from those who were.

MM are neutral CSL, but getting more bullish

CSL Limited (CSL) Chart

Fortescue Metals (FMG) +1.93%: Good first half profit numbers from FMG printing NPAT of $4.08b verse their guidance of $4-4.1b.  Here’s what Peter O’Connor said…FMG wrapped up 1H21 with consistent prodn/shipping metrics – especially impressive project delivery, revenue realisation and cost performance - and a VERY healthy price tailwind, especially in December 2020. Recent Big iron ore price tailwind, delivered big FCF and earnings (pre-released in mid-January), which as expected flowed thru to a big 1H21 NPAT and dividend. 1H dividend landed at A$1.45/share vs consensus expectations of A$1.33. Payout ratio was ~80% which is at the high end of FMG’s very clear 50-80% policy - needless to say confident signal in the outlook especially given recent project hiccups.

We’re neutral FMG here

Fortescue Metals (FMG) Chart

Rio Tinto (RIO) +0.02%: out aftermarket yesterday, a bumper result of the iron ore miner given the surging commodity price. NPAT and EBITDA were slight beat, dividend a slight miss but this was more than covered by a special dividend. They guided to higher CAPEX costs with a few projects in the pipeline so this will likely be the end of the supercharged dividends for now. It’s fortunes largely hinges on iron ore, we own BHP in the space in the growth while we hold Both BHP & RIO in the Income Portfolio.

We’re turning more neutral RIO into new highs

Rio Tinto (RIO) Chart

Wesfarmers (WES) +0.63%: first half result was a beat to the market with profit up 23% at $1.4b ahead of consensus at $1.2b. The dividend rose with the profit, climbing to 88c. No doubt the first half was assisted by a positive retail market with each of Wesfarmer’s main brands caching a sales tailwind. Bunnings LFL was up 27.7%, Kmart and Target were up 9.1% and 13% respectively while Officeworks 23.4% higher. The company did note that LFL growth had started to revert towards long term averages into the end of the calendar year and is “expected to moderate from March” as the comp cycles to COVID lockdowns. WES also have a Chemicals, Energy and Fertilizers (CEF) business which makes up ~15% of the business, which saw EBIT fall 8% largely on commodity prices. They did announce approval on the Mt Holland Lithium projected expected to be up and running for FY22. We like WES, the result is a good one as expected. It’s well run and with plenty of balance sheet fire power.

We remain bullish WES

Wesfarmers (WES) Chart

Abacus (ABP) +2.67%:  another stock we own in the Income portfolio out today, first half funds from operations (FFO) fell 10% to $60.6m largely as a result of non-core assets. Abacus is repositioning itself away from retail to a self-storage and office property manager, now making up around 90% of assets. Office saw income fall 4% with occupancy running at 90%. Self-storage continues to ramp up – they have made a number of acquisitions, largely stemming from the relationship with Storage King. It’s cheap, trading at a ~20% discount to assets and a decent yield around 6%. The share price has been disappointing.

MM remains positive ABP

Abacus (ABP) Chart

Woodside (WPL) -2.39%: earnings miss for Woodside, $US447m was ~4% below consensus from what looks like losses taken hedging the book. Realised prices understandably weak, down 34% in the year while sales volumes were 19% higher. Gearing came in significantly higher as they stepped up their stake in the Senegal JV, the company still paying a dividend of U12c to end the year but noted that the “payout ratio remains under continuous review.”

While we like energy names over the medium term, we prefer others to WPL.

Woodside (WPL) Chart

BROKER MOVES:

·         Coles Group Cut to Neutral at Citi; PT A$19

·         Tabcorp Raised to Buy at Citi; PT A$5.30

·         Carsales.com Raised to Buy at UBS; PT A$24.50

·         ARB Rated New Hold at Ord Minnett; PT A$35

·         Pacific Smiles Cut to Market-Weight at Wilsons; PT A$2.75

·         Treasury Wine Raised to Positive at Evans & Partners Pty Ltd

·         Challenger Cut to Hold at Morningstar

·         BWP Trust Raised to Hold at Morningstar

·         NextDC Raised to Hold at Morningstar

·         Bapcor Raised to Hold at Morningstar; PT A$7.30

·         Vicinity Centres Cut to Neutral at Credit Suisse; PT A$1.69

·         Treasury Wine Raised to Buy at Jefferies; PT A$11.50

·         Treasury Wine Raised to Overweight at JPMorgan; PT A$11

·         Coles Group Cut to Hold at Jefferies; PT A$18.50

·         Sonic Healthcare Reinstated Neutral at Evans & Partners Pty Ltd

·         Coles Group Cut to Neutral at Credit Suisse; PT A$19.04

·         Whitehaven Raised to Buy at Goldman; PT A$1.90

·         Pact Group Raised to Overweight at JPMorgan; PT A$3.20

·         Webjet Raised to Neutral at JPMorgan; PT A$5

·         EML Payments Raised to Outperform at RBC; PT A$5.80

·         Westpac Raised to Hold at Jefferies; PT A$21.90

·         Tabcorp Raised to Neutral at Goldman; PT A$4.38

·         Pro Medicus Raised to Buy at Goldman; PT A$53.80

·         Tabcorp Raised to Neutral at JPMorgan; PT A$4.20

·         Pro Medicus Cut to Hold at Morgans Financial Limited; PT A$41.30

·         Pro Medicus Raised to Hold at Bell Potter; PT A$43

·         Ansarada Group Rated New Add at Morgans Financial Limited

·         Bapcor Cut to Hold at Morgans Financial Limited; PT A$8.42

OUR CALLS

No changes today

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

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