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

The S&P/ASX 200 closed 15 points lower, down -0.20%. 

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