Evening Wrap: ASX 200 higher, Appen tumbles 32%, Fortescue down 5% on CEO departure

The Index finished higher on Monday thanks to a relatively broad-based rally led by Healthcare and Discretionary sectors, Fortescue shares sell off after CEO resigns after just six months in the role, Appen loses a third of its value after results and guidance miss expectations, Australian retail sales bounce after a steep fall in June and UBS' take on a few of today's results.

Let's dive in.

ASX 200 Session Chart

ASX 200 higher and closed at best levels (Source: Market Index)

Markets

The ASX 200 finished higher and at best levels on Monday thanks to a strong lead from Wall Street. Sector strength was relatively broad-based, minus a few let downs:

• Tech was red due to weakness from heavyweight Wisetech (-1.7%), higher-than-expected FY24 capex guidance from NextDC (-2.6%) and weaker-than-expected results from Altium (-32.1%)

• Telcos were flat because ... Telstra was flat

• Materials underperformed Fortescue (-5.1%) sold off after CEO Fiona Hicks announced her departure after just six months in the role

The market is beginning to stabilise after a rough couple of weeks. It's one of those 'its a start but more is needed'. Can we see some sustained strength or will it be one of those short-lived 2-3 day rallies (into something like the 20-day moving average)?

Economy

Australian retail sales rose 0.5% month-on-month in July after a 0.8% fall in June.

• Above analyst expectations of a 0.3% rise 

• “While there was a rise in July, underlying growth in retail turnover remained subdued. In trend terms, retail turnover was unchanged in July and up only 1.9 per cent compared to July 2022, despite considerable price growth over the year.” – Ben Dorber, ABS Head of Retail Statistics

• “The rise in July was boosted by additional spending at catering and takeaway food outlets linked to the 2023 FIFA Women’s World Cup and school holidays.”

Latest news

Appen: From Bad to Abysmal

Appen shares finished 32% lower from a -10.7% open. That's a boatload of selling pressure. But here's why it sold off so badly.

First half was a double miss:

• Revenue of $138.9m, down 24% and below consensus expectations of $143m

• Net loss of $34.2m from a $3.8m loss a year ago and below consensus expectations of a $28.5m loss

Management fail to deliver on outlook:

• Back in May, management said "we expect an improvement on 2H FY23 revenue relative to revenue achieved in 1H FY23."

• Now they expect "2H FY23 revenue to be closer to 1H FY23 revenue"

Emerging producers sold to oblivion

Shares in Sayona Mining (-27.2%) and Bowen Coking Coal (-25.2%) sold off heavily today for separate reasons.

But these two stocks along with names like Core Lithium reflect companies that tried to push through to production at all costs. While they were able to hit production in a timely matter, they likely overlooked several key areas.

All three have had to raise cash in recent months.

This might serve as a lesson about project's that are moving quickly into production.

Interesting news and movers

Trading higher

• +40.3% Melbana Energy (MAY) – Well appraisal update

• +8.5% NextEd Group (NXD) – Earnings

• +12.8% Base Resources (BSE) – Earnings

• +6.0% Helloworld (HLO) – Earnings

• +4.3% Infomedia (IFM) – Earnings

• +2.6% APM (APM) – Earnings

• +2.5% Ramsay (RHC) – Bounce after downs 10.4% in last three

• +2.7% EVT (EVT) – Earnings

• Uranium sector move: Alligator Energy (+9.5%), Elevator Uranium (+7.6%), Lotus Energy (+4.6%), Boss Energy (+3.9%)

Trading lower

• -32.1% Appen (APX) – Earnings

• -27.2% Sayona Mining (SYA) – CEO Brett Lynch steps down

• -25.8% Opthea (OPT) – Placement 

• -25.2% Bowen Coking Coal (BCB) – Completes strategic review

• -15.8% Imdex (IMD) – Earnings

• -10.8% Brainchip (BRN) – Earnings

• -10.6% Paradigm (PAR) – Earnings

• -5.1% Fortescue (FMG) – Earnings

• -4.6% PeopleIn (PPE) – Earnings

• -4.2% Bravura Solutions (BVS) – Downgraded by Macquarie

• -3.0% Lindsay Australia (LAU) – Earnings

• -2.6% NextDC (NXT) – Earnings

Broker notes

UBS take on some of today’s results:

APM (APM) – Buy with $3.65 target price ($1.76 at 25 Aug close)

• “Return of strong 2H23 Op CF conversion the major positive, however outlook for employment services likely to drive minor consensus downgrades.”

DGL Group (DGL) – Neutral with $1.15 target ($0.80 at 25 Aug close)

• “Pre-guided EBITDA, NPAT below UBSe. Cash conversion and net debt better. No FY24 guidance.”

Imdex (IMD) – Neutral with $2.10 target ($1.80 at 25 Aug close)

• “Soft result. FY23 EBITDA -3% vs. consensus, 2H23 EBITDA -7% vs. consensus.”

• “Imdex operating well but exploration cycle is going against the company. We expect the focus will be on if the exploration cycle has troughed (we think so), the level of margin preservation the company can drive, and the earnings outlook for recently acquired Devico.”

NextDC (NXT) – Buy with $14.15 target ($13.62 at 25 Aug close)

• “Mixed: -6% d/grade to FY24E EBITDA, but solid FY23E and very strong recent MW contract wins - which together with increased capex suggests a strong FY25/FY26E.”

• “Solid FY23E and strong contract wins since Apr23 announcement major positives. We want more detail re enterprise customer component (higher profitability/early rev activation).”

• “Higher costs in FY24E slightly disappoint, but relate to growth to come in FY25E.”

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