Evening Wrap: ASX 200 fade's strong start, China's trade plunge + Brokers are bullish on Pilbara

The S&P/ASX 200 closed 2 points higher, up 0.03%. 

The Index gave back all of its early strength, China's trade plunged in July as slowing global demand weighed on exports, Australian consumer confidence fails to bounce despite the RBA pause, James Hardie smashes earnings expectations, Lynas shares 'accidentally' surge and a few interesting broker notes from UBS and Macquarie.

Let's dive in.

ASX 200 Session Chart

ASX 200 fades from session highs to close around breakeven (Source: Market Index)

Markets

The ASX 200 faded from session highs of 0.46% to close around breakeven. The bulk of this weakness was due to a pullback in banks, with the S&P/ASX 200 Financials Index closing flat from highs of 0.58%. As well as miners, with S&P/ASX 200 Materials Index closing slightly lower from highs of 1.0% after China's weak trade data. Such an intraday pullback is not very encouraging at the Index level. But the ASX 200 continues to trade within the narrow 7,300 level.

Economy

Australian consumer confidence fell 0.4% in August after a 2.7% bounce in July.

• “Responses showed no improvement over the course of survey week, sentiment instead declining 4.9% between those surveyed prior to the RBA decision and those surveyed after." – Westpac senior economist Matthew Hassan

• "Home owners with debt still have far lower confidence than other cohorts, as restrictive interest rates squeeze cashflows of indebted households.” – ANZ senior economist Adelaide Timbrell 

Australian business confidence rebounded to 2 pts in July from -1 pt in June.

• “Business conditions stayed resilient in July and inflation-related measures rose, challenging expectations that the economy would continue to cool as 2023 wears on.”

• “Confidence remained low, as did forward orders, but both measures have been weighed down by deeply negative readings in the retail sector.”

• “Labour cost growth in the NAB Business Survey rose sharply in July, from 2.3% in June to 3.7%.” 

China’s trade surplus plunged to US$80.6bn in July from US$102.7bn a year ago.

• Exports fell 14.5% year-on-year, marking the third straight month of decline and steepest drop since February 2020

• Exports to the US and Europe fell 23.1% and 20.6% respectively

• Imports fell 12.4%, the steepest fall in six months

Latest news

What happened today?

Some pretty interesting stuff happened today. So we'll recap a few pieces.

James Hardie (ASX: JHX) shares rallied 14.4% today after its first quarter net profits of US$174.5m came in 14% ahead of UBS expectations. Its FY24 guidance of US$170-190m was also 20% above consensus. The magnitude of the beat is quite important here as the stock opened 12.8% higher and hit a session high of 16.4%. It'll be interesting to see if the stock receives a long list of broker upgrades tomorrow (and if that results in more buying).

James Hardie price chart (Source: TradingView)

Lynas (ASX: LYC) CEO Amanda Lacaze spoke at the Diggers and Dealers Conference and misunderstood a question about whether the company had received any inbound buyout offers, to which she responded that Lynas had received approaches more than a month ago. Looking at the intraday chart below, you can easily see where it happened and when traders started to pile in.

Lynas intraday chart (Source: TradingView)

Interesting news and movers

Trading higher

• +14.4% James Hardie (JHX) – Earnings

• +7.1% Azure Minerals (AZS) – Continuation rally

• +5.7% Red5 (RED) – Drilling update

• +3.3% Life360 (360)

• +2.8% REA Group (REA)

• +2.7% Pilbara Minerals (PLS) – Upbeat broker notes

• +0.8% Kingsgate (KCN) – Chatree gold mine update

Trading lower

• -14.1% Myer (MYR) – Trading update

• -11.6% Coronado Global (CRN) – Earnings

• -11.3% Delta Lithium (DLI) – Drilling results

• -9.6% Lindian Resources (LIN)

• -8.9% Atlantic Lithium (A11) – Drilling results

• -8.7% Race Oncology (RAC) – Strategic Update

• -5.7% Charter Hall Long WALE REIT (CLW) – Earnings

• -3.4% Perseus Mining (PRU) – Eyes OreCorp deal

Broker notes

A few UBS notes of interest:

James Hardie (JHX) – Buy with $49.50 target price ($40.76 at 7 Aug close)

• “1QFY24 14% NPAT beat vs UBS. 2QFY24 NPAT guidance US$170-190m (+20% vs cons of US$150m).”

• “Margins in all three segments beat (USA +31.3% ahead of guidance vs UBSe 29.6%)”

• “We see the result as a strong positive with increased upside scenarios and JHX clearly taking advantage of an improving USA market.”

Liontown Resources (LTR) – Neutral with $2.80 target ($2.74 at 7 Aug close)

• “LTR is targeting 250-300 kt at <1% grade DSO sales in late CY23 … this implies A$100-120m revenue for LTR DSO sales at ~A$400/t achieved price (~A$20m NPAT).”

• “We are encouraged that LTR is de-risking its fully-owned highly strategic Kathleen Valley project, but still cautious ahead of opex (underground mining methodology) and capex updates.”

As well as Macquarie notes:

GUD Holdings (GUD) – Outperform with $11.75 target ($10.37 at 7 Aug close)

• “GUD has announced the divestment of Davey Water Products (Davey) for $64.9m EV (7.3x FY22 EBITDA), expected to complete 1 Sep 2023.”

• “The divestment is positive, removing net debt concerns while simplifying group structure; GUD is now a pure-play automotive business.”

• "With leverage under control, GUD has increased flexibility to execute its growth strategy, however the key focus is realising APG's earnings potential before any larger acquisitions are considered.”

Pilbara Minerals (PLS) – Outperform with $7.50 target ($5.18 at 7 Aug close)

• “PLS has upgraded the resource estimate to 414mt @ 1.15% Li2O, lifting tonnes and grade by 36% and 2%, respectively.”

• “Ore reserve update scheduled in the September quarter presents a key near-term catalyst for PLS.”

• “PLS is trading on free cash flow yields of 20% and 12% for FY23E and FY24E, respectively; we see shareholder-return upside via on-market buybacks.”

Scans