Afternoon Report / ASX hits new post COVID high, Z1P up another 10%, BHP delivers big dividend (BHP, RHP, ARB, NAB, MNY, BRG)

WHAT MATTERED TODAY

Another strong session today with the market closing on a new post COVID-19 high at 6917, only a good session away from the 7000 handles. The market feels like it wants to go higher and the money permeating into the hot sectors are starting to feel a little frothy i.e. Z1P Co (Z1P) up another ~10% today and Openpay (OPY) which has lagged the BNPL rally added 20% as investors look for the laggards. That’s actually a theme starting to become obvious in this market where money is permeating back into the stocks that have struggled. We have a few ideas here that we’ll cover in coming notes as we look to optimise portfolios.

Today it was the Energy stocks that felt most love as Oil prices rallied on the big freeze in the US, Texas generally doesn’t get to minus 10!

Reporting tomorrow we have: (stocks we hold in yellow): ABP, AHY, BAP, CAR, CHC, COL, CWP, DMP, FBU, INA, LIC, ORA, PGH, SUL, TAH, TGR, TWE, VCX, WEB, WHC. 

The ASX 200 finished up 48pts / 0.70% to close at 6917.  Dow Futures are trading higher, up 224pts / +0.71% 

ASX 200 Chart

ASX 200 Chart

CATCHING OUR EYE

BHP Billiton (BHP) +2.73%: Out with 1H21 results this morning which were a shade light on in terms of profit – (NPAT of US$6,036m vs consensus US$6.331m - about a 4% miss to expectations) however they were inline in terms of EBITDA and they delivered a big beat in terms of the dividend which was $US1.01 for the half putting it on a healthy yield of 2.7% for the half. While the stock was higher today, it underperformed v its UK listing which was up 5% overnight implying the result was slightly underwhelming.  The dividend the main talking point in this result, which landed ~20% ahead of the street with a payout ratio of 85%, well above the 70% average of the past 8 HY periods. With solid iron ore and met coal tail winds and debt at the lower end of range, all looks good for BHP.

MM remains happy holders of BHP.

BHP Billiton (BHP) Chart

Rhipe (RHP) -2.5%: first half results today were broadly in line with our expectations though the market was pretty bullish leading into it, or at least our analyst was!  Revenue was up 15% on last year with operating profit up 34% highlighting the operational leverage in the business.  We hold this stock in the soon to be released Emerging Companies Portfolio and for those that aren’t across it, Rhipe sells a bunch of software licences & cloud services including those from Microsoft. I met with the CEO & COO today over Zoom, both were keen to talk about three areas of the business that perhaps the market hasn’t fully understood. 

1.       They have over $57m in cash at the end of the half – this will be deployed into M&A. The cash has been there for some time, and not using it has concerned a few in the market.

2.       Japan expansion - they are pushing money into the new joint venture, and while some deals are being signed, COVID has been a hinderance – sales in Japan rely significantly on being able to meet in person. The run rate is solid now, but they expect an uplift as the virus subsides.  

3.       They are looking to diversify off just a Microsoft offering, adding a broader set of services. A few smaller vendors have joined however they are looking at a number of other options – Microsoft tends to pay better margins but clients will want other products.

All up, RHP is a good business, leveraged to a fast-growing market with a strong balance sheet.

MM is bullish RHP

Rhipe (RHP) Chart

ARB Corp (ARB) -3.32%: My favourite 4WD accessory brand reported some strong 1H21 numbers today, however the stock had run hard leading up to them  and cooled a little as a result, many retailers travelled a similar path today. ARB had actually provided a trading update in January so not a lot of new news in today’s release and they failed to provide any guidance for the year ahead, simply saying that current uncertainty is high, although they remain positive given a strong order book. Everyone seems to be buying a 4WD at the moment and decking it out for camping trips, you can’t even order a new Landcruiser I’m told and second hand ones are going for unbelievable prices…ARB clearly a big COVID beneficiary.

Great company but now expensive on 35x

ARB Corp (ARB) Chart

National Bank (NAB) +1.07%: 1Q21 trading update today so not a lot of information in it, however what we did get was decent. For the quarter, cash profit was $1.65bn which was ahead of market expectations and that was driven by a lower credit impairment charge. Looking at the top line however, revenue was down -3% due to lower Markets & Treasury income however that was cycling off a strong period, the real number was around 1% growth which compares to CBA which is growing the top line at 4%, although NAB are doing a better job on costs. NIM was down slightly, but not by much and they reconfirmed FY guidance for underlying expense growth of 0-2%. There were very low credit impairments (just $15m) while tier 1 capital was 11.7% i.e. strong. That impairment charge is the lowest ever! All in all, a decent result and we remain comfortable with our holdings.

MM remains bullish NAB

National Bank (NAB) Chart

Money3 (MNY) -0.35%: finished the marginally down today, despite at one stage trading 5.9% better. The numbers looked good – NPAT up 27% to $19.9m with an 11% increase in the loan book and record half of cash collections. They have been acquisition hungry in the half, and secured over $300m across two warehouse facilities to help grow their loan book into the second half. Guidance was maintained at $36m though if the rapid improvements in the personal debt market continues and Money3 remain eager to acquire new books this would be light on. We like MNY looking for a breakout through the all-time highs it tested today.

Money3 (MNY) Chart

Breville (BRG) +2.75%: first half stormed home for Breville with lockdowns boosting demand for the small appliance manufacturer. Profit and revenue were both up 29% on the same period last year and with the first half stronger than expected the company upped EBIT guidance for the year by around 5%. The company actually tapered the dividend despite the growth, electing to retain a bigger portion of earnings to fund growth into new geographies, boost manufacturing capacity and rebuild inventory. Guidance looks light considering nearly 70% of EBIT has already been ticked off, suggesting a bigger than normal skew to the first half.  Technically the stock looks good here, however we’re a touch concerned about their guidance.

Breville Group (BRG) Chart

BROKER MOVES:

·         Charter Hall Retail Raised to Buy at Moelis & Company; PT A$3.86

·         SmartGroup Cut to Neutral at Macquarie; PT A$7.29

·         Inghams Raised to Outperform at Macquarie; PT A$3.78

·         GPT Group Raised to Outperform at Credit Suisse; PT A$4.78

·         Beach Energy Cut to Sell at Goldman; PT A$1.55

·         GPT Group Raised to Buy at Jefferies; PT A$4.80

·         Bendigo & Adelaide Raised to Neutral at Goldman; PT A$11.40

·         Bendigo & Adelaide Raised to Hold at Jefferies; PT A$9.50

·         Asaleo Care Cut to Neutral at Credit Suisse; PT A$1.50

·         Baby Bunting Rated New Buy at Ord Minnett; PT A$6.50

OUR CALLS

No changes today

Major Movers Today

Have a great night

James, Harry & the Market Matters Team

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