Evening Wrap: ASX 200 higher, China unexpectedly cuts rates, Life360 shares surge on earnings upgrade

The ASX 200 finished higher on solid earnings from large cap names including CSL, Cochlear, Treasury Wines and Life360, China unexpectedly cut rates by most since 2020 as economic woes deepen, Japan's GDP grew much faster than expected in sign of resilience and a few Macquarie notes of interest.

Let's dive in.

ASX 200 Session Chart

ASX 200 finished higher but off best levels (Source: Market Index)

Markets

The ASX 200 finished higher but off best levels of 0.72%. Healthcare led to the upside thanks to better-than-expected results from CSL (+3.7%) and Cochlear (+5.7%). Tech names also rallied in-line with the Nasdaq's overnight outperformance and optimism around Life360's earnings (+12.3%). The Resource sector struggled for upside after China reported data that broadly missed expectations, notably industrial production and retail sales. The unexpected PBOC rate cut failed to buoy sentiment. From a seasonal perspective, the market is working its way through a recent low, ahead of the worst performing month of the year.

ASX 200 seasonal performance between June 1992 to March 2023 (Source: Market Index)

Economy

Japan’s GDP growth accelerated to 6.0% year-on-year in Q2, up from 3.7% in Q1.

• Well above analyst expectations of 3.1%

• Marks the fastest rate of growth since Q4 2020

China’s central bank unexpectedly cut its one-year medium-term lending facility by 15  bps to 2.50% from 2.65% – marking the second cut in three months. 

China also reported July data that broadly missed expectations including:

• Industrial production eased to 3.7% year-on-year in July from 4.4% in June and below the 4.4% increased analysts had expected

• Retail sales up 2.5% in July, down from 3.1% in June and the 4.5% rebound analysts had expected

• Fixed asset investment fell to 3.4% in July from 3.8% in June and below the 3.8% expected

• Unemployment ticked up to 5.3% in July from 5.2%

• The National Bureau of Statistics did not include the unemployment figure for young people, which soared to record highs in recent months

Latest news

Market Insights

A few interesting snippets from today.

Life360 (ASX: 360) posted a mean Q2 result:

• Revenue of $70.8m, up 45% year-on-year

• Net loss of $4.4m vs. $33.0m a year ago

• Upgraded FY EBITDA guidance to $9-14m from prior $5-10m

• Reiterates Life360 subscription growth of more than 50% year-on-year

• Reiterates operating cash flow of $5-10m

It has a cracker chart and also rallied on its previous quarterly result (+11.7% on 16 May).

Life360 daily chart (Source: TradingView)

Temple & Webster (ASX: TPW) posted a relatively mixed FY23 result:

• Revenue of $395.5m, down 7.2% vs. $397m expected by analysts

• Net profit of $8.3m, down 9.7% vs. $7.3m expected

• Positive momentum in Q4 continued into FY24 with revenue between 1 July and 13 August up 16% on the prior period

• Plans to continue $30m on-market buyback

The stock nosedived 17% in the first three minutes of trade, before experiencing a V-shaped rebound. Its worth noting that TPW has a pretty high short interest of 5.15%, which might have squeezed the stock (as shorts take profit).

Temple & Webster daily chart (Source: TradingView)

Interesting news and movers

Trading higher

• +16.7% Lake Resources (LKE) – Completes stage 1 extraction and injection test campaign at Kachi

• +14.9% GUD Holdings (GUD) – Earnings

• +12.3% Life360 (360) – Earnings

• +8.7% Reckon (RKN) – Earnings

• +8.0% Delta Lithium (DLI) – 60m block trade (Mon)

• +6.8% Azure Minerals (AZS) – SQM interest

• +6.3% Sims (SGM) – Earnings

• +5.7% Cochlear (COH) – Earnings

• +4.2% Pro Medicus (PME) – Earnings

• +2.8% Treasury Wine (TWE) – Earnings

• +2.7% CSL (CSL) – Earnings

• +0.9% REA Group (REA) – Upgraded by Macquarie

• +1.3% National Australia Bank (NAB) – Earnings 

Trading lower

• -33.3% Melbana Energy (MAY) – Drilling update

• -4.5% Temple & Webster (TPW) – Earnings

• -4.3% Seek (SEK) – Earnings

• -4.3% Silex Systems (SLX) – Testing of second module

• -3.0% Region Group (RGN) – Earnings

• -2.9% Challenger (CGF) – Earnings

• -0.8% Deterra Royalties (DDR) – Earnings

Broker notes

Macquarie’s take on recent earnings:

Aurizon (AZJ) – Outperform with $4.04 target ($3.70 as at 14 Aug close)

• “FY23 was a tough year with coal volumes at record lows caused by weather and derailments.”

• “The weather is getting drier and coal volumes are improving. UT5 reset is positive. The delta for AZJ share price is confidence in the growth from the bulk business and the broader set of opportunities.”

Beach Energy (BPT) – Neutral with $1.55 target ($1.67 at 14 Aug close)

• “FY23 NPAT of $385m was an 8% beat to MRE, however the soft final dividend payout ratio was a disappointment vs our expectations.”

• “BPT won't generate much free cash in FY24 — low/uncertain Otway nominations (Origin) and delays to Waitsia Phase 2 start.”

• “Longer term, new management may be able to unlock value from BPT's contingent resource, exploration acreage and infrastructure positions in the East & West coast gas markets.”

Bendigo & Adelaide Bank (BEN) – Neutral with $9.25 target ($8.92 at 14 Aug close)

• “BEN’s FY23 result was ~4% below our forecast, driven by weaker revenue trends and a miss on costs.”

• “With a lower earnings profile over the medium term than major bank peers, we see BEN’s FY24E PE discount of ~11% to major bank peers (ex CBA) as adequate.”

• “While not expensive at current levels, with a -5% cash earnings CAGR to FY26E, we see limited upside.”

JB Hi-Fi (JBH) – Underperform with $45.00 target ($47.21 at 14 Aug  close)

• “JBH delivered a strong result, with a beat across both the top and bottom line, with market share gains and strong gross margins.”

• “Cost growth has exceeded revenue growth, as wages and rents continue to rise, while the retail environment slows. Margins under pressure.”

• “The key driver for our recommendation is the slowing macroeconomic environment, with mortgage resets peaking in the second half of CY23.”

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