Evening Wrap: ASX 200 bounces, Australian retail sales recover, PointsBet and NextDC go full circle

A little bounce but we're still down 0.7% for the week, Woodside extends gains after posting a bumper full-year result on Monday, Australian retail sales rise in January after a disastrous December and reporting season is punishing downbeat earnings more than usual.

Let's dive in.

ASX 200 Session Chart

Markets

Some support returned after a painful and rather panic-driven Monday. Although the question remains: Is this just a pitiful bounce from an oversold position or is the dust beginning to settle? Regardless of which it is, the market has a lot of work to do after such a damaging past 2-3 weeks.

• Energy outperformed as Woodside (+2.6%) extended gains after Monday's full-year results

• Real Estate and Materials bounced after falling -2.1% and -3.2% respectively on Monday

• Tech stocks catch a bid with names like Xero, Altium and NextDC up 2-3%

Economy

Australian retail sales rose 1.9% month-on-month in January following an unexpected 4.0% fall last December.

• “Looking through this volatility shows that turnover is at a similar level to September 2022, and on average, growth has been flat over the past few months." - Ben Dorber, ABS Head of Retail Statistics

• "The continued return of large-scale sporting and cultural events in January, combined with high costs reflected in prices, has boosted sales in catering services which are part of the cafes, restaurants and takeaway food services industry."

Australia's current account surplus surged to $14.1bn in the December quarter from $0.8bn in the previous quarter.

• “Australia’s current account surplus was supported by sustained high commodity prices over 2022, with the value of mining commodity exports reaching over $400 billion for the year.” - Grace Kim, Head of International Statistics

• Exports of goods and services rose 3.0% quarter-on-quarter, driven by higher commodity price sand a rise in travel services

Latest news

Market Insights

A wild reporting season

The margin for error this reporting season is slim, with the average miss being punished a lot more than previous seasons.

Source: Factset, Morgan Stanley

Source: Factset, Morgan Stanley

Speaking of wild moves: PointsBet, NextDC

The price action this reporting season has been crazy, with some stocks experiencing ~25% intraday moves.

PointsBet was your classic low interest rate winner that's now down more than 90% from all-time highs. The business is steadily growing its top line but boy does it burn a lot of cash. Its 1H23 results on Tuesday flagged a net loss of $136.6m. Still, the business has enough to remain a going concern for quite some time, with $387.2m cash at bank. What's interesting is that today's low (-27.5% or $1.05) would have meant the stock was trading below cash, with a market cap of around $350m.

PointsBet intraday chart (Source: TradingView)

NextDC is another volatile mover, down almost 7% as the market opened but closed 2.4% higher.

NextDC intraday chart (Source: TradingView)

Interesting news and movers

Trading higher

• +10.6% CogState (CGS) – Approvals share buyback

• +7.6% Aussie Broadband (ABB) – 1H  earnings

• +4.8% Mesoblast (MSB) – 1H earnings

• +2.9% Lynas (LYC) – Upgraded to Neutral from Underweight at JP Morgan

• +2.4% NextDC (NXT) – 1H earnings

• +2.1 Nickel Industries (NIC) – 1H earnings

• Lithium sector move: Piedmont Lithium (+7.3%), Lake Resources (+6.8%), Sayona Mining (+4.4%), Liontown Resources (+3.4%)

• Gold sector move: Gold Road (+5.8%), Bellevue Gold (+4.9%), Ramelius (+2.9%), Perseus Mining (+2.6%), Evolution Mining (+2.2%)

Trading lower 

• -10.3% PointsBet (PBH) – 1H earnings

• -16.7% Aeris Resources (AIS) – 1H earnings (Monday)

• -7.6% Harvey Norman (HVN) – 1H earnings

• -7.1% Adbri (ABC) – 1H earnings 

• -5.0% Yancoal (YAL) – 1H earnings

• -4.3% Weebit Nano (WBT)

Broker updates 

Macquarie’s take on recent earnings:

Appen (APX): Neutral with $2.50 target price

• “FY22 results weaker than expected; with 1H23 EBITDA guidance implying further downgrades to market expectations in our view.”

• “New CEO strategy promising but will take time to implement. If successfully

• executed could create longer-term structural growth for APX.”

Lynas (LYC): Neutral with $8.90 target price

• Earnings and cash flow both stronger-than-expected for the first-half

• “While we remain constructive on the outlook for rare earths prices, the uncertainties of Kalgoorlie’s ramp-up and operations at LYC’s Malaysia plant present headwinds for the company’s near-term earnings outlook.”

• Free cash flow yields are forecast to improve to circa 10% for FY25-26

Block (SQ2): Outperform with $145 target price

• Fourth quarter revenue of US$4.65bn was above estimates of US$4.6bn

• “The focus on profitability should do well to drive shareholder retention from here … The macro volatility does not help the cause, but the secular tailwinds for digital payments and neobanking do.” 

Woodside (WDS): Neutral with $35.00 target price

• Earnings was largely pre-guided but adjusted EBITDA missed due to higher-than-expected royalties

• “WDS’s enlarged business is well run and has been performing very well. It broke out of the ASX energy peer group, attracting offshore investor interest.”

• Falling LNG prices expected to drive negative earnings momentum, which “in turn will drive a much lower dividend in 2023.” 

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