Evening Wrap: ASX 200 falls, all sectors in red + Australia's manufacturing slumps to Covid lows

The Index finished lower and at worst levels, Australia's manufacturing sector hits contractionary conditions not seen since the height of the pandemic, Helloworld announces it second guidance upgrade in six months, Aeris Resources joins the list of miners in need of fresh funds and a few interesting broker notes.

Let's dive in.

ASX 200 Session Chart

ASX 200 falls intraday and finishes at worst levels (Source: Market Index)

Markets

The ASX 200 finished lower and at worst levels, with every sector in red. Yield sensitive sectors including Utilities, Real Estate and Financials led to the downside. Volatility is picking up after a decent ~5% run from mid-July lows. Is this a warning sign for what's to come (aka the Index takes the staircase up and the elevator down). The ASX 200 has pulled back to the key 7,350 level so let's see if the market can muster up a bounce around these levels.

ASX 200 daily chart (Source: TradingView)

Economy

The Ai Group Australian Industry Index fell from -11.9 in June to -14.7 in July.

• Australian PMI Indicator fell to -25.6, indicating contractionary conditions in manufacturing not seen since the height of the pandemic 

• “The employment, industrial activity and new orders indicators all weakened into broader contraction.”

• “Price indexes all rose mildly in July, reflective of lower but still persistent inflation. The average wages indicator surged by 14.0 points to its highest level, indicating ongoing wage pressures in the tight labour market.”

Latest news

Market Insights

A few bits and pieces from today's session.

Another upgrade streak: On Tuesday, we noted Acrow Formwork and Construction (ASX: ACF) as a strong upward trending stock that had announced four guidance upgrades in about ten months. Helloworld (ASX: HLO) upgraded its guidance for the second time in six months. The travel agency expects FY EBITDA to be between $42-45m vs. prior guidance of $38-42m. The company said leisure travel demand continues to hold up strongly on both sides of the Tasman, with all geographic segments now running profitability. Interestingly, the stock faded from session highs of 7.6% to close around 1% higher.

Helloworld daily chart (Source: TradingView)

Mining is a tough gig: From IGO's massive nickel asset write down to Syrah pausing its graphite production, miners are doing it rough right now. We've seen a few names tap the market in recent weeks including Panoramic Resources (ASX: PAN) and Centaurus Metals (ASX: CTM). I wanted to highlight Aeris Resources (ASX: AIS) and its recent debt facility. Here's the story so far and key points:

• Cash position fell from $67.2m in the December quarter 2022 to $19.5m in the June quarter 2023

• All-in sustaining costs climbed to $6.11/lb in the June quarter

• Secured a new $50m 2-year working capital facility with Washington H Soul Pattinson at an interest rate of BBSY (a benchmark rate that's currently around 4%) plus 11% per annum on top a 3.5% establishment fee

What does this tell us:

• Aeris is adding leverage (debt)

• Copper needs to go higher (not just for Aeris but for copper miners more broadly speaking amid rising AISCs and depleting reserves)

Interesting news and movers

Trading higher

• +17.1% Symbio (SYM) – Acquisition from Superloop

• +13.2% McPherson’s (MCP)

• +12.9% FINEOS (FCL) – Upgraded by Citi

• +6.5% Anson Resources (ASN) – Produces first lithium carbonate

• +2.1% PSC Insurance (PSI) – Guidance

• +1.4% Helloworld (HLO) – Guidance

Trading lower

• -36.7% Victory Metals (VTM) – Reports MRE

• -8.8% Westgold Resources (WGX) – Guidance

• -4.8% AGL Energy (AGL) – Downgraded by Macquarie

• -4.0% Deterra Royalties (DRR) – Downgraded by CLSA

• Bank sector move: 

Broker notes

A few interesting Macquarie notes:

A2 Milk (A2M) – Underperform with $4.65 target ($5.11 at 1 Aug close)

• “FY23 result would show continued execution and share gains in China Label, while English Label guided to be down and margins yet to recover.”

• “FY24 has uncertainties for A2M with new CL launch late 1H meaning guidance could be limited or conservative, while headwinds remain around birthrate.”

• “We see some downside risk to FY24 cons. We acknowledge that A2M is starting to trade on cheaper multiples (providing FY1 EPS is correct) but a material premium to China comps at 6-8x PER.”

AGL Energy (AGL) – Neutral with $11.43 target ($12.19 at 1 Aug close)

• “The 1yr forward curve is a lead indicator of AGL's performance. With the FY25 curve down 10-12%, the risk of an earnings disappointment increases.”

• “AGL's price is +30% since investor day in June (ASX200 +4%). It has captured the FY24 growth. FY24 is likely to be peak electricity pricing, thus the ability to sustain the FY24 earnings into FY25 is now challenged.”

Credit Corp (CCP) – Neutral with $19.30 target ($20.63 at 1 Aug close)

• “FY23 NPAT $91.3m was towards the low end of guidance, -1% vs MRE. Consumer lending provisions were flat at ~21% of gross loans.”

• “rating. The near-term performance for the US PDL and Consumer Lending segments are set to drive FY24 growth, with the AU/NZ PDL segment expected to be a drag until supply of PDL books improves.”

Citi’s take on Tech and Communications:

• “While the Tech/Internet stocks are not immune to softer macro conditions, we generally expect steady to strong results and trading updates for the Tech/Internet sector …” 

• “Carsales, NXT and Xero are our top picks.”

• “Upgrading Fineos to Buy — While Fineos’ cash balance benefited from solid cash receipts and recent contract wins should drive earnings growth, we still think Fineos needs additional capital and have assumed an equity raise in 1H24e. However, with contract wins starting to pick-up, we upgrade to Buy.” 

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