Evening Wrap: ASX 200 falls + Morgan Stanley's key reporting season pick

Strength from the Big Four Banks was unable to offset weakness from the rest of the market, RBA minutes flags El Nino risks and potential future hikes, the S&P 500 is trading above its 5-and-10 year average PE ratio, Morgan Stanley is bullish on Corporate Travel heading into reporting season and a few ugly earnings updates from Annsell, Syrah and Aurizon.

Let's dive in.

ASX 200 Session Chart

ASX 200 lower but off worst levels (Source: Market Index)

Markets

The ASX 200 finished lower but off worst levels on Tuesday. The Big Four Banks, notably NAB (+2.0%) and ANZ (+1.7%) helped offset declines from sectors including Real Estate, Telcos and Industrials. The market continues to work its way through a bit of a pullback, which has so far been rather shallow (down 0.26% in the last two days as opposed to previous pullbacks where most of the gains are already gone by now). China's weaker-than-expected GDP data on Monday continues to weigh on Materials and Energy. A key commodity like Copper sold off 2.2% yesterday after briefly rallying to a 3-month high.

On a side note, the S&P 500 is trading at a forward PE of 19.3, above its 5-year average of 18.6 and 10-year average of 17.4. This means we want to see strong earnings (especially from the big tech stocks) follow through to justify the earnings multiple.

Economy

RBA minutes highlights:

• Hike vs. hold was close: “The Board recognised the strength of both sets of arguments but judged that the case to hold the cash rate unchanged at this meeting was the stronger one.”

• Hikes still on the table: “Members agreed that some further tightening of monetary policy may be required to bring inflation back to target within a reasonable timeframe, but that this depended on how the economy and inflation evolve.”

• El Nino in focus: “Furthermore, the increased likelihood of an El Niño event in 2023/24 and an associated downgrade for agricultural production could put upward pressure on some food prices over the coming year.”

Latest news

Interesting news and movers

Trading higher

• +7.7% Kogan (KGN)

• +7.7% DGL Group (DGL)

• +6.9% Boart Longyear (BLY)

• +6.5% Anson Resources (ASN) – Acquires lithium project

• +5.1% NRW Holdings (NWH) – Contract award (Mon)

• +3.7% Cooper Energy (COE) – Q4 earnings

• +2.8% AGL Energy (AGL) – Upgraded at JPMorgan

• +2.3% Graincorp (GNC) – Move on Russia quitting black sea grain

• +1.2% Regal Partners (RPL) – FUM update

Trading lower

• -16.3% Syrah Resources (SYR) – Q2 earnings

• -14.0% Ansell (ANN) – Guidance

• -10.8% Antisense Therapeutics (ANP) – Upsizes placement

• -5.0% Aurizon (AZJ) – Guidance

• -4.9% Lendlease (LLC) – Plans to release 10% of staff

• -4.6% Nickel Industries (NIC) – Q2 production

• -4.4% Latin Resources (LRS)

• -2.3% Cettire (CTT)

• -3.8% IGO (IGO) – Downgraded by multiple brokers

• -2.9% Monash IVF (MVF) – Downgrade by Jefferies

Broker notes

A few standalone Morgan Stanley notes of interest:

Corporate Travel Management (CTD)

• Rating and target price: Overweight and $28.60

• "Ahead of Aug/Sep results, we highlight key small/mid-cap ideas where we have conviction into earnings and on out-/ underperformance into FY24. Key Idea #1 – OW CTD."

• “While travel peers were undertaking emergency capital raising to survive, CTD was widening its scale advantage at depressed multiples.”

• “If CTD delivers on FY24 guidance of A$265m EBITDA it implies c.10x EV/EBITDA and 16.5x FY24e P/E (c.40% discount to LT average). So meeting FY24 guidance is not priced in.”

Endeavour Group (EDV)

• Rating and target price: Underweight and $5.80

• “We reduce our hotel revenue growth assumption to 0% in FY25/26 to capture potential EGM spend weakness under a tighter regulatory regime, however acknowledge downside risk to these assumptions as more details of reforms are decided upon.”

IGO (IGO)

• Rating and target price: Equal-weight and $14.70

• The WSA writeoff is equivalent to 7.5% of IGO’s market cap

• “We expect the stock to fall to a level around our PT of A$14.70 (our Base Case is A$11.60/sh).”

Whitehaven Coal (WHC)

• Rating and target price: Overweight and $7.95

• “4Q ROM production was 6% ahead of MSe with costs 2% lower. Strong build of ROM stocks at Maules a good setup into FY24 as Narrabri also moves to shallower domains allowing more predictable production.”

Scans