Evening Wrap: ASX 200 drifts lower, JB Hi-Fi flags slowing sales, US futures fall

The S&P/ASX 200 closed 16 points lower, down -0.21%.

The pullback continues – the ASX 200 is down -1.5% in the last three sessions, earnings season is in full swing with several large cap names reporting, JB Hi-Fi sends consumer discretionary stocks lower, Vulcan Energy comes out with a two-faced DFS study and more.

ASX 200 Session Chart

A choppy session where the ASX 200 struggled for direction (Source: TradingView)

Markets

It was one of those dull sessions where the ASX 200 struggled for direction but amid an ongoing pullback, finished slightly lower.

• Energy stocks bucked the trend after oil prices rallied 2.7% last Friday, Woodside finished the session up 2.1%

• Consumer discretionary led to the downside after JB Hi-Fi (-5.1%) flagged that sales growth is starting to moderate from elevated levels seen in 1H23

• Risk-off tone is taking on tone on growth-heavy sectors like Technology, which is down for a six-consecutive session

Economy

No major economic developments.

Latest news

Deeper Dive

Earnings season: JB Hi-Fi

This sentence from JB Hi-Fi's earnings update says it all. As one of the first major retail stocks to report, its not a good look.

“While we are pleased with the January trading result, with sales continuing to be well above pre Covid January 2020, we have seen sales growth start to moderate from the elevated levels seen in the first half of FY23." - JP Hi-Fi CEO, Terry Smart

A closer look at Vulcan Energy

Vulcan Energy released its Definitive Feasibility Study today, which saw the stock rally around 3% in early trade and then aggressively sell off -7.3%. Let's take a closer look why.

Positives: Production bumped up to 24,000 tonnes of lithium hydroxide per annum (from 15,000); Project post-tax NPV more than doubled to $2.6bn (from $743m)

Below the surface: Capex doubles to $1.5bn (from $700m); Project start date pushed back to late 2025 from 2024; Operating expenses up to US$4,359 from US$3,201 a tonne

A little suspicious: How did Vulcan double its NPV? Well it doubled its lithium hydroxide pricing assumptions from approximately US$15,000 a tonne in its pre-feasibility study to US$30,283 a tonne in the DFS.

The market's response: Looking at the intraday chart below, you can see Vulcan rallying as the market opened and sit in positive territory for the first hour. Then, as investors and analysts come to realise the capex, opex and NPV implications. Boy did it sell off.

Vulcan intraday chart (Source: TradingView)

Interesting news and movers

Trading higher

• +10.0% Audinate (AD8) – 1H earnings

• +4.5% Insurance Australia (IAG) – 1H earnings

• +4.1% Cettire (CTT) 

• +4.1% Endeavour Group – 1H earnings 

• +3.9% Yancoal (YAL) – Bounce

• +3.2% John Lynn Group (JLG) +3.2%

Trading lower 

• -20.8% Star Entertainment (SGR) – 1H earnings

• -15.4% Appen (APX) – Flags non-cash impairment, guides FY2 EBITDA to lower end

• -6.5% Aurizon (AZJ) – 1H earnings

• -6.3% Fletcher Building (FBU) - 1H earnings

• -6.2% Lendlease (LLC) – 1H earnings

• -5.1% JB Hi-Fi (JBH) – 1H earnings, January sales update

• -4.8% Lynas (LYC) – Notes media speculation re Malaysian licence renewal

• -3.0% Tyro Payments (TYR) – Confirms Potentia commenced non-exclusive due diligence

Broker updates 

Endeavour: Results top estimates, strong start to second half

• UBS: $6.75 target price; Retains Neutral

• Notes: “Result above UBSe & mkt led by CODB mgmt., with strong sales growth start to 2H23e” 

Carsales: Well-rounded result 

• UBS: $26.30 target price; Retains Buy

• Notes: The result was in-line with UBS expectations and forward looking commentary was strong, with expectations of “good growth in adjusted revenue” and “to see margin expansion in Car Group adjusted EBITDA margin … in FY23.” Segments such as private revenues and dealer performance surprised to the upside, with CAR noting record private seller ad volumes and higher yield from dynamic pricing.

Lendlease: Losses narrow to $141m 

• UBS: $11.15 target price; Retains Buy

• Notes: 1H23 results were a slight miss, with debt up and UK provision but “FY24 ok for now”. “Gearing up to 16.8% signals ramping up production with a further $6bn expected to commence in 2H23 supporting higher development completions, with investors focused on profitability and risks of new commencements.”

JBH: Sales slow, customers feel the pinch

• UBS: $46.00 target price; Retains Neutral

• Notes: The results were pre-announced, so forward looking statements were the main interests. “Yet the moderation in current trading indicates the commencement of expected unwind in sales strength enjoyed over recent years. JBH well positioned with its value offer but EBIT margin compression is forecast under this slowing.”

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