Evening Wrap: ASX 200 erases gains, inflation accelerates in September + Pilbara Minerals quarterly preview

The Index sold off sharply after the hotter-than-expected inflation print at 11:30 am AEDT, the yield sensitive real estate sector sold off sharply while miners outperformed thanks to higher iron ore prices, Super Retail Group reported stronger-than-expected sales figures, Citi is bullish on novated leasing stocks (McMillan Shakespeare and SmartGroup) plus a preview for Pilbara Minerals and Fortescue quarterlies (due tomorrow).

Let's dive in.

ASX 200 Session Chart

ASX 200 finished breakeven from a session high of 0.59% (Source: Market Index)

Markets

The ASX 200 was trading around 0.5% higher heading into the inflation print at 11:30 am AEDT. It then nosedived to around -0.25% a few minutes after the hotter-than-expected inflation print. Plenty of analysts are now expecting another hike in November. Yesterday, RBA Governor Bullock said that "the board will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation."

The Materials sector helped soften the selloff, led by gains from Fortescue (+3.1%), BHP (+2.6%) and Rio Tinto (+2.4%). Singapore iron ore futures rallied around 2.7% on Tuesday, and another 0.9% on Wednesday to US$117.1 a tonne amid growing fiscal stimulus hopes from China.

The yield sensitive Real Estate sector led to the downside. Most shorter end yields rallied around 5-6 bps after the inflation print. The Australian 3-Year Government bond is near a four month high of 4.26%. Any higher and it'll be a fresh 12 year high.

Economy

Australia’s inflation accelerated to 5.6% in September, up from 5.2% in August. 

• Exceeded analyst forecasts for a 5.4% increase

• Highest level in five months

• Most significant contributors to the rise in the September quarter was automotive fuel fuel (+7.2%) – This marks the largest quarterly rise since March 2022

• Other significant contributors include rents (+2.2%), new dwellings purchase by owner occupiers (+1.3%) and electricity (+4.2%)

• Food prices rose 0.6% for the quarter, the softest quarterly rise since September 2021 driven by favourable growing conditions

Latest news

Super Retail Group: Solid Sales

Super Retail Group (ASX: SUL) is demonstrating resilient sales against a bearish backdrop for the economy and consumer spending. It's trading update on Wednesday noted:

• Group sales growth of 4% for the first 16 weeks of FY24

• Three out of four business experienced sales growth for the above period including Supercheap Auto (+4.0%), Rebel (+2.0%) and BCF (+11.0%)

• Macpac sales fell 7% as its cycling 76% like-for-like sales growth from the prior period

To add some perspective, Macquarie is forecasting FY24 sales growth of -0.6%.

“As always, the Group’s first half result will be highly dependent on trading in the peak Christmas holiday period," notes CEO Anthony Heraghty.

SUL shares rallied 4.1% as the market opened and managed to hold onto those gains through to 11:30 am. The gains disappeared after the hotter-than-expected CPI report.

Super Retail Group intraday chart (Source: TradingView)

Pilbara Minerals Consensus Preview

Pilbara Minerals (ASX: PLS) is scheduled to report its first quarter production figures tomorrow before the open. Here's what the street is expecting:

• Spodumene production of 159,400 dmt

• Spodumene shipments of 162,100 dmt

• Unit operating cost of $609 dmt

In terms of full-year guidance:

• Spodumene concentrate of 660-690,000 dmt

• Operating costs between $600-670 dmt

• Growth capex of $490-540m

Fortescue Consensus Preview

Likewise, Fortescue (ASX: FMG) is also scheduled to report first quarter production.

• Preliminary iron ore shipments 45.9Mt

• Ore mined 55.9Mwmt

• C1 cost of $18.2 per wmt

• FY24 guidance of $192-186Mt at C1 costs of $18.00 to $19.00 per wmt

Interesting news and movers

Trading higher

• +19.4% Invictus Energy (IVZ) – Gas shows in Upper Angwa

• +8.7% Kogan (KGN) – Q1 results

• +7.7% MetalsX (MLX) – Q3 production

• +6.7% Develop Global (DVP) – Court approval to acquire Essential Metals

• +4.4% Lynas (LYC) – Lynas Malaysia operating license

• +4.3% IVE Group (IGL) – To acquire JacPak for $35 million

• +1.8% Solvar (SVR) – Q1 trading update

Trading lower

• –2.9% Magellan Financial (MFG) – Raises cost guidance

Broker notes

A few Citi notes of interest: 

Lynas (LYC) – Neutral with $7.20 target ($6.82 at Oct 24)

• “We’ve increased our NdPr production forecasts 16%/8% in FY25/26 as we incorporate importing/processing lanthanide concentrate in Malaysia until March 2026.”

McMilan Shakespeare (MMS) and SmartGroup (SIQ) – Upgraded to Buy

• “The novated leasing industry is receiving a huge boost from the Government’s Electric Car Discount Policy, with ~26% of EVs sold in Jun '23 financed through a novated lease.”

• “We estimate MMS and SIQ have ~12% and 10% share of the novated market, but given their large employee base, they could capture ~16% and ~15% share of Novated EVs.”

• “We upgrade both MMS and SIQ to Buy, with SIQ remaining our preferred choice given SA contract and NDIS review risks for MMS.”

UBS on Zip (ZIP) – Neutral with $0.36 target ($0.32 at Oct 24)

• “Zip's 1Q24 trading update showed stronger than expected revenue yields, particularly in ANZ.”

• “Overall, we remain constructive on Zip's turnaround over the past 12 months to exit unprofitable regions, lift revenue yields, improve profitability and liability management.”

• “Whilst revenue yields were the key surprise, Zip's active customers had underperformed, with US declining -100k QoQ, ANZ was flat. We lower our active customer forecasts from 6.8m to 6.1m, given 6 quarters of sluggish active customer growth.”

Morgan Stanley on Audinate (AD8) – Overweight with $13.30 target ($13.68 at Oct 24)

• “FY24e guidance reiteration of growth in US$ gross profit dollars consistent with historical, which we take to mean c.26-31% revenue growth (VA cons c.28-29%)”

• “TAM materially upgraded to US$2bn, from A$1bn previously.”

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