Evening Wrap: ASX 200 falls, Adairs and Iress cancel dividends, China cuts rates

The Index continued to sell off on Monday and finished at worst levels, Iress shares fall more than 30% after halting dividends and lowering its full-year guidance, Premier Investments and Breville lift the discretionary sector, China cuts its key interest rate as its economy falters and Macquarie's take on last week's results.

Let's dive in.

ASX 200 Session Chart

ASX 200 falls intraday to finish at worst levels (Source: Market Index)

Markets

The ASX 200 finished lower and at worst levels on Monday. Index and sector movement was mainly driven by company results, which we'll list below:

• Discretionary stocks bucked the trend thanks to solid results and updates from names including Premier Investments (+12.2%) and Breville (+9.0%)

• The Big Four banks finished lower after a weaker-than-expected Q3 trading update from Westpac (-2.8%)

• Tech was dragged lower after Iress (-34.9%) suspended its dividend

• Staples underperformed after A2 Milk's (-13.6%) soft guidance and a poor trading update from Elders (-10.8%)

The Index continues to slip into this uncomfortable territory where its technically oversold and due for a bounce. But sellers are in control amid a period of heightened volatility and momentum (that's in the direction). Markets continue to unwind and the question everyone wants an answer for is: Where do we bounce? Will it be around 7,100? Will we revisit July lows of 7,000? Or March lows of 6,900?

Economy

China cut its one-year benchmark lending rate by 10 bps to 3.45% while the five-year rate was left unchanged at 4.20%.

• The one-year cut was in-line with market expectations but analysts were also expecting a cut to the five-year amid ongoing work concerns

Latest news

Market Insights: Today's Session

Breville's (ASX: BRG) FY23 results cruised past consensus earnings expectations. (Below refer to Macquarie forecasts)

• Revenue +4.2% to $1.47bn vs. $1.43bn expected

• Net profit +4.2% to $110.2m vs. $106.7m expected

• Full-year dividend of 30.5 cps vs. 30.2 cps expected

• No guidance but "our expense budget is again set with flexibility to deliver EBIT growth under a range of probable revenue scenarios."

Interestingly, the stock didn't gap up that much at the open, up only 3.2% to $23.89. By 10:17 am, it was up 16.9% to $27.07.

Breville intraday chart (Source: TradingView)

Iress (ASX: IRE) shares were dumped (-35.5%) after its first-half results opted to suspended dividends due undergoing a period of high one-off costs. It also downgraded full-year earnings expectations due to cost challenges, reduced market trading volumes, and broader macro uncertainties in the second half.

The dividend suspension was not expected by analysts.

Adairs' (ASX: ADH) FY23 results were also relatively soft but the bulk of today's damage (-15.5%) is likely attributed to its decision to not pay a final dividend.

This leads me to think that dividends (and the ability to continue paying them) might be one of the most important metrics this reporting season.

At the same time, the ASX 200 forward dividend yield of 4.2% has fallen below the Australian 10-year bond yield (4.3%) for the first time since 2011.

Interesting news and movers

Trading higher

• +12.2% Premier Investments (PMV) – Preliminary earnings

• +10.7% Audinate (AD8) – Earnings

• +9.0% Breville Group (BRG) – Earnings

• +5.8% oOh!Media (OML) – Earnings

• +4.5% Galan Lithium (GLN) – Commence HMW phase 1 construction

• +4.5% NIB Holdings (NHF) – Earnings

• +3.8% Ampol (ALD) – Earnings

• +3.6% Charter Hall (CHC) – Earnings

• +3.5% Bluescope Steel (BSL) – Earnings

• Uranium sector move: Bannerman Energy (+7.7%), Elevate Uranium (+6.7%), Alligator Energy (+5.6%), Peninsula Energy (+4.8%), Lotus Resources (+4.7%), Aura Energy (+4.4%)

Trading lower

• -35.5% IRESS (IRE) – Earnings

• -15.5% Adairs (ADH) – Earnings

• -13.6% A2 Milk (A2M) – Earnings

• -10.8% Elders (ELD) – Guidance

• -9.5% Objective Corp (OCL) – Earnings

• -8.3% Reliance Worldwide (RWC) – Earnings

• -8.2% Alpha HPA (A4N)

• -3.1% Westpac (WBC) – Q3 update

• -2.7% Chorus NZ (CNU) – Earnings

• -2.5% Southern Cross (SXL) – Downgraded at UBS

Broker notes

Macquarie’s take on the third week of ASX reporting season:

• “Earnings surprises were slightly more negative in Week 3, driven by more disappointing margins than earlier weeks.”

• “On the positive side, share price reactions tended to be more positive despite the fall in the market.”

• “The top performers tended to have better margins (e.g. ING, CAR), with GMG outperforming on the data centre thematic.”

• “Other than CAR, Media stocks tended to underperform (DHG, SXL, SWM, SEK) in Week 3 due to weaker than expected margins.”

• “Discretionary has the most positive EPS surprise so far (71% beats), with average outperformance on Day 1 of ~5%.”

• “There was a shift towards negative EPS revisions, with FY24 downgrades now double the upgrades.”

As well as its ideas for this week:

• “Buy ideas. COL and ILU are ASX 100 stocks rated Outperform and the stocks are short term oversold based on Williams R.”

• “Least favoured. We highlight Underperform rated SCG given its high leverage and headwinds from higher interest rates.”

Scans