Evening Wrap: ASX 200 falls, Aussie retail sales disappoint + Brokers are bearish on Fortescue

The Index closes the week up 1.23% despite Friday's weak finish, Australian retail sales tumble in June as cost-of-living pressures take a toll on spending, a few Macquarie notes of interest plus reporting season: Why should investors take note of reporting dates.

Let's dive in.

ASX 200 Session Chart

ASX 200 lower but bounces in the last 90 minutes of trade (Source: Market Index)

Markets

What a classic sequence of events: The ASX 200 breaks out, the US market pulls back which then marks the top for our market.

Things finished on a rather mixed note on Friday, with the ASX 200 lower but off worst levels of -1.33%. Sectors including Utilities, Tech, Staples and Financials all staged strong intraday reversals. While Materials and Real Estate experienced rather lacklustre bounces from lows.

A bit of a pullback is taking place, which provides us with feedback as to whether or not this is a buyable pullback or one of those inverse 'V' shaped moves we've seen in recent weeks (aka staircase up and elevator down).

Economy

Australian retail sales fell 0.8% month-on-month in June from 0.8% growth in May.

• Missed consensus expectations of no change

• "Retail turnover fell sharply in June due to weaker than usual spending on end of financial year sales. This comes as cost-of-living pressures continued to weigh on consumer spending.” – Ben Dorber, ABS Head of Retail Statistics 

• “There was extra discounting and promotional activity in May, leading up to mid-year sales events. This delivered a boost in turnover for retailers, but that proved to be temporary as consumers pulled back on spending in June.”

• Department stores (-5.0%) recorded the largest fall 

Australian producer prices rose 0.5% in the Q2, down from 0.7% in Q1.

• Marks the lowest quarterly growth since March 2021

• “While price increases have largely moderated, the Construction industry continues to drive growth in Final demand.” – ABS 

Latest news

Market Insights

Not so much about what happened today but a bit more about interesting market-y stuff.

Reporting Season: Save the Date

Reporting season is on the horizon, which means it's a good idea to note when your stocks or the stocks you're thinking about buying are due to report. This is particuarly important for the latter. I'll show you why.

Fortescue (ASX: FMG) posted its June quarter report on Thursday, 27 July. This is a widely known date that's on the company's website.

Now imagine you're a breakout trader. On Wednesday, Fortescue pushed above the key $23.40 area into an almost two-year high. You buy the break and the stock finishes the session at $23.73 (around 1.5% above your entry price). Nice one!

Fortescue then drops the Q4 production result the next day. In summary:

• Q4 production was in-line with analyst estimates and towards top-end of guidance

• Analysts continue to question the company's Fortescue Future Industries capex, higher costs and delays in projects

• Across 14 sell-side ratings, 71% were Sell rated and 29% Hold

• The average price target was cut by 1.4% to $18.00

The stock is down 8.6% since Wednesday. So much for a breakout.

Fortescue weekly chart (Source: TradingView)

From personal experience, the chart below is Synlait Milk (ASX: SM1) in 2019. In Feb-March, the stock was trending up and consolidating around the $10.00 level and that's where I started to nibble.

On 13 March, the stock started to move out and by 19 March it was trading around $11.20. Then came the earnings. And the stock gapped down 14% to $9.50. How delightful.

Synlait Milk daily chart (Source: TradingView)

Interesting news and movers

Trading higher

• +21.5% SiteMinder (SDR) – Trading update

• +10.5% Yojee (YOJ) – Trading update

• +5.9% Recce Pharma (RCE) – Completes clinical trial

• +1.9% Antisense Therapeutics (ANP) – Earnings

• +0.6% GQG Partners (GQG) – Preliminary discussions to acquire PAC (Thu) 

Trading lower

• -15.4% Bowen Coking Coal (BCB) 

• -7.1% Perpetual (PPT) – Q4 AUM (Thu)

• -5.5% Panoramic Resources (PAN) – Downgraded by Macquarie

• -4.7% Electro Optic Systems (EOS) – Contractor selection

• -4.6% Lotus Resources (LOT) – Earnings

• -3.5% BCI Minerals (BCI) – Earnings

• -3.5% Downer EDI (DOW) – Downgraded by Credit Suisse

• -3.0% Metals X (MLX)

• -2.6% Vulcan Energy (VUL) – Earnings

• Retail sector move: Myer (-2.3%), Lovisa (-3.3%), Accent Group (-3.6%), Kogan (-4.5%)

• Gold sector move: Westgold (-4.4%), Gold Road (-4.3%), Perseus Mining (-4.2%), Ramelius (-4.2%), Bellevue Gold (-3.7%), Evolution Mining (-2.1%)

Broker notes

A few Macquarie notes of interest:

Allkem (AKE) – Outperform with $19.00 target ($15.32 at 27 Jul close)

• “4QFY23 result was mixed, with strong production offset by lower sales; cost performance was also mixed at two operations.”

• “We have lowered our FY23 earnings forecast by 13% after incorporating the AKE’s 4QFY23 soft sales and lower realised prices. We lift FY24 EPS by 2% as we assume an unwind of finished good inventory in 1HFY24.”

Fortescue (FMG) – Underperform with $16.00 target ($23.73 at 26 Jul close)

• “Iron-ore production, shipments and realised prices were in line with our estimates for 4QFY23, while cash costs were lower.”

• "Volume guidance for FY24 was softer than expected, and we have lowered our haematite shipping forecasts and slowed our Iron Bridge ramp-up.”

• “FMG is trading on modest free cash flow yields of 6-8% and with uncertainty over the capital commitment to FFI.”

Perpetual (PPT) – Outperform with $30.50 target ($25.90 at 27 Jul close)

• “We expect flows to remain volatile on a quarterly basis, however the synergy realisation profile underwrites a significant amount of earnings growth (~30%) over the next 2 years. This results in a ~10x FY25 P/E multiple vs the current sector P/E of ~12x.”

Sandfire Resources (SFR) – Outperform with $7.10 target ($6.54 at 27 Jul close)

• “SFR's 4QFY23 result was weaker than we had expected, however lower capital expenditure resulted in an improved cash result.”

• “We expect SFR to see improved cash flow generation in FY24 and particularly FY25 as Motheo is ramped up to full production rates.”

Scans