Evening Wrap: ASX 200 falls, Australian consumer confidence returns to Covid lows, mining M&A roundup

The local sharemarket makes its first meaningful move in six days, Australian consumer confidence returns to the lowest levels since March 2020 after the RBA's surprise hike, China had a few economic updates and they all missed expectations, James Hardie rallies on upbeat earnings and a brief recap of all the ASX-listed resources M&A that's happened so far this year.

Let's dive in.

ASX 200 Session Chart

A trend down day (Source: Market Index)

Markets

We've been talking about how the markets (both ASX and US) have been relatively rangebound for the past few sessions, pointing towards a possible inflection point. The ASX 200 has made its first substantial move in the past six sessions, closing at worst levels. Sector performance was heavy, with notable decliners including Commonwealth Bank (-0.9%), CSL (-1.2%), Woolworths (-1.4%) and Wisetech Global (-1.5%).

Economy

Australian consumer confidence fell 7.9% to 79.0 in May from 85.8 in April. A few key quotes from the Westpac-Melbourne Institute: 

•  “The Index has fallen back to just above the dismal levels seen back in March, which recorded the lowest monthly read since the COVID outbreak in 2020 and, before that, since the deep recession of the early 1990s.”

• “The two key developments over the last month have been the surprise decision by the Reserve Bank Board to lift the cash rate by a further 0.25% in May and the Federal Budget.” 

• “The sub-group detail shows bigger sentiment declines for those with low incomes (–15%), renters (–13%), mortgagors (–10%) and women (–10%).”

• “The ‘time to buy a major household item’ sub-index dipped just 0.4%, but at 81.7 this reading is still amongst the weakest seen in the history of this measure going back to the mid-1970s.”

China’s economic data for April broadly missed expectations as the economy continues to flag a bumpy post-Covid recovery. Some key data points include:

• Industrial production up 5.6% year-on-year in April vs. 10.9% expected

• Retail sales up 18.4% year-on-year in April vs. 21.0% expected

• Fixed asset investment up 4.7% year-on-year vs. 5.5% expected

Reserve Bank meeting minutes highlights:

• "While the staff’s central forecast had inflation declining, inflation was not expected to reach the top of the target band until mid-2025."

• "Members noted that, although this was consistent with the Bank’s mandate and objectives, it left little room for upside surprises to inflation given that inflation would have been above the target for around four years by that time."

• "Another upside risk to inflation was the possibility that productivity growth remains very weak."

Latest news

Market Insights

Talking Technicals: ASX 200

The ASX 200 has made a little break towards the downside. Is this the type of break that's all part of the chop or should it be a cause for concern?

ASX 200 chart (Source: TradingView)

M&A activity is ramping up

I will look at this in a separate note tomorrow but 2023 is shaping up to be an epic year for ASX-listed M&A. Here's my list (that should cover most resource-related takeovers):

• Newcrest Mining (ASX: NCM) – Newmont

• Chesser Resources (ASX: CHZ) – Fortune Silver

• Breaker Resources (ASX: BRB) – Ramelius Resources

• Oz Minerals (ASX: OZL) – BHP

• New Century Resources (ASX: NCZ) – Sibanye Stillwater

• Norwest Energy (ASX: NWE) – Mineral Resources

• Mincor (ASX: MCR) – Wyloo Metals

• Warrego Energy (ASX: WGO) – Hancock Energy

• Danakali (ASX: DNK) – Sichuan Road and Bridge Group

• Demetallica (ASX: DRM) – AIC Mines

And the ones that are a work-in-progress or attempted takeovers:

• Liontown Resources (ASX: LTR) – Albemarle

• St Barbara (ASX: SBM) – Genesis Minerals 

• Essential Minerals (ASX: ESS) – Tianqi Lithium

Whether you think Resources are cheap or expensive, bullish or bearish, they sure are strategic with the amount of M&A that's been going on.

Interesting news and movers

Trading higher

• +11.7% Life360 (360) – Earnings

• +8.3% James Hardie (JHX) – Earnings

• +7.4% Develop Global (DVP) – Drill results

• +6.7% Baby Bunting (BBN)

• +6.5% Comet Ridge (COI) – Offtake with Orica

• +4.7% Zip (ZIP) - Positive Sezzle earnings

Trading lower

• -18.0% Weebit (WBT)

• -9.1% Vulcan Energy (VUL)

• -6.5% PointsBet (PBH) – Continuation selloff

• -5.4% Eagers Automotive (APE)

• -4.3% Cettire (CTT) – Trading update

Broker notes

Goldman Sachs notes:

Aristocrat Leisure (ALL): Buy with $45.70 target price

• “ALL has entered into a definitive agreement to acquire NeoGames for US$29.50 per share and an EV of A$1.8bn.”

• “The proposed acquisition is expected to be EPS accretive in FY25 prior to strategic revenue synergies like ability to distribute the ALL content more globally etc.”

• “Our first thoughts are that the acquisition offers an exciting growth option which expands the addressable opportunity for RMG.”

• “Overall, the acquisition in itself does not come as a surprise as management has previously noted the key gaps they are likely to target through inorganic opportunities in the RMG space.”

Elders (ELD): Buy with $13.20 target price

• “Revenue/gross margin was above GSe, but EBIT was -15% below our expectations at A$82.8mn, with distribution costs up +15% YoY.” 

• “Rural products looks to be supported by a favourable winter crop with continued uptake in financial services.”

• “Agency remains challenging, but management expects some volume response to falling livestock prices coupled with a stabilisation in pricing.”

• “Structurally, ELD should be able to deliver further margin expansion through the cycle via backward integration; the company also has ample opportunity to continue to grow its market share through bolt-on acquisitions and organic growth.”

Telstra (TLS): Buy with $4.70 target price

• “Telstra has announced that postpaid mobile plans will be increasing in price by $3-6/m from July-23, in-line with inflation & our recent expectations.”

Scans