Evening Wrap: ASX 200 higher as Staples bounce, Tech stocks underperform

The Index finished the week down 1.07%, Technology stocks underperformed after a weak lead from Wall Street, Consumer Staples bounce from oversold levels plus a few Citi notes of interest.

Let's dive in.

ASX 200 Session Chart

ASX 200 higher but closed off session highs (Source: Market Index)

Markets

The ASX 200 finished higher on Friday but off session highs of 0.49%. For the week, the Index is down 1.07% and briefly hit a 12-month low on Thursday.

Sector performance was relatively mixed. Technology stocks led to the downside after downbeat earnings from megacap names like Meta (-3.7%) as well as continued selling for Microsoft (-3.8%), Nvidia (-3.5%) and Tesla (-3.1%).

Staples bounced after an almost 5% selloff in the past six sessions. The gains were led by Endeavour Group (+3.5%), Coles (+2.1%) and Treasury Wine (+2.1%).

The Index has managed to hold the 6,800 level but remains in no man's land. Far from any key price points or levels (besides rounded numbers). Let's see what next week brings.

Economy

Australia’s Producer Price Index rose 1.8% QoQ in the September quarter and up 3.8% compared to last year.

Latest news

Interesting news and movers

Trading higher

• +177.3% Webcentral (WCG) – Stake sale of businesses for $165m

• +21.9% Calidus Resources (CAI) – Q1 AISC and cash flows

• +7.0% Predictive Discovery (PDI) – Q1 cash flows (Thu) 

• +6.9% Champion Iron (CIA) – CSLA upgrade

Trading lower

• -6.1% Lotus Resources (LOT) – Scheme approval from Federal Court

• -5.7% Brambles (BXB) – Citi downgrade

• -2.0% MAAS Group (MGH) – Full-year guidance

Broker notes

A few Citi notes of interest:

Brambles (BXB) – Sell from Neutral with $13.15 target ($13.98 at Oct 26)

• “Looking forward we think the uncertainty of the tough comps (that get tougher) will act as an overhang limiting stock price gains.”

• “While the continued fall in white wood prices and increased competition raises the possibility that issue fee growth may go backwards. With this asymmetric risk on offer, combined with recent outperformance we move to a Sell rating.”

Champion Iron (CIA) – Buy with $8.70 target ($6.59 at Oct 26)

• CIA's Q2 FY24 production was in-line, but shipments fell short due to ongoing rail constraints (which have now been resolved)

• CIA trades at ~0.6x DCF, given Stage-2 production growth and 3.2x FY24 EV/EBITDA

• CIA is a beneficiary of trends including lower China steel production with electric furnaces taking share from blast furnaces, rising demand for scrap and higher demand for high-grade iron ore

Coles (COL) – Buy with $17.50 target ($14.95 at Oct 25)

• Coles Food 1Q24 sales missed expectations and were slightly below consensus

• Coles' volume response to lower inflation was weaker than Woolworths'

• Coles is accelerating the rollout of technology to combat its high stock loss rate, and the initial rollout is achieving the expected benefits

• The Liquor result was in-line with consensus, but there is more evidence of customer pressure in this category compared to food

• “Coles remains our preferred supermarket exposure given depressed investor sentiment post the stock loss issues in 2H23. However, today’s update gives us further confidence that the issues will be resolved.”

JB Hi-Fi (JBH) – Neutral with $48.00 target ($44.02 at Oct 26)

• “JB Hi-Fi continues to outperform market expectations while The Good Guys faces more challenging trading conditions.”

• “While sales are tracking ahead of our expectations, we are cautious on the second quarter given Citi’s economists now forecast rate hikes in November and December.”

• “The timing of these hikes would be poor for an electrical industry that is banking on a strong Black Friday to Christmas trading period.”

Megaport (MP1) – Buy with $12.50 target ($11.51 at Oct 25)

• “While we expected KPIs to be soft in 1Q24, Megaport’s quarterly update was weaker than expected especially customer growth which suggests another weak quarter for MRR growth looking ahead into 2Q24e.”

• “However, we see the weakness as an enhanced buying opportunity as we continue to see EBITDA guidance as conservative and while there is execution risk with the go-to- market reinvestment we expect a pick-up in MRR growth towards 4Q24e.”

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