Evening Wrap: ASX 200 higher, Credit Corp shares down 30%, Whitehaven surges on BHP coal deal

The S&P/ASX 200 closed 22 points higher, up 0.31%. 

The Index finished higher on Wednesday, led by Energy and Healthcare stocks. China's economy grew at a faster-than-expected clip in the third quarter, Whitehaven is set to buy BHP's Daunia and Blackwater mines, Treasury Wine could be back in China "in a matter of weeks" and Credit Corp says its net profit will more than half amid a "sustained deterioration in collection conditions."

Let's dive in.

ASX 200 Session Chart

ASX 200 finished at best levels on Wednesday (Source: Market Index)

Markets

The ASX 200 finished higher amid a relatively uneventful session. But beneath the hood, the session was absolutely stacked with high-profile announcements. We'll review some of the key things below.

Economy

China’s GDP grew more than expected in the third quarter, September activity show economic recovery gaining momentum:

• Sept industrial output rose 4.5% year-on-year vs. 4.4% est

• Sept retail sales rose 5.5% year-on-year vs. 4.9% est

• Jan-Sept GDP up 5.2% year-on-year vs. 5.0% est

• Q3 GDP up 4.9% year-on-year vs. 4.5% est

Latest news

Whitehaven Coal Acquires BHP Assets

Whitehaven Coal (ASX: WHC) shares resumed trading at 2:02 pm AEDT after finalising its acquisition of BHP's Daunia and Blackwater metallurgical mines. It also released its September quarterly report, which smashed expectations. So the stock went flying.

To recap the quarterly result:

• ROM coal production of 5.3Mt vs. 4.7Mt consensus

• Saleable coal production of 4.4Mt vs. 4.0Mt consensus

• Average coal sale price of $224 a tonne

• Net cash position of $2.45 billion as at 30 September 2023

• Reaffirmed FY24 guidance of 18.7Mt to 20.7Mt ROM coal production

The transformational acquisition of Daunia and Blackwater:

• Acquired for US$3.2bn comprised of US$2.1bn upfront and three separate tranches totalling US$1.1bn plus contingent payments of up to US$900m depend on realised pricing exceeding thresholds (US$134 a tonne)

• Funded via a combination of available cash, a US$900 million bridging facility and cash flows

Initial thoughts and takeaways:

• Interesting to see that contingent payments are based on what price the assets realise

• Assets result in a material increase in production

• Diversifies production (Sept Q was 91% thermal and 9% met)

• Earnings accretive (~70% EPS accretive on broker consensus prices, ~160% EPS accretive on spot prices, according to WHC)

• Winchester South and Vickery Mine located within close proximity to Daunia and Blackwater (infrastructure synergies)

Source: Whitehaven Coal

BHP's September Quarter Production

Not many surprises in BHP's (ASX: BHP) September quarterly. The main surprise was the sharp drop in met coal production, which was due to plant maintenance and higher strip ratios (larger quantity of waste to reach desired ore).

• Iron ore production of 63.2Mt vs. 65Mt consensus

• Nickel 20.2kt vs. 19.7kt consensus

• Met coal 5.6Mt vs. 7.3Mt consensus

• Energy coal 3.6Mt vs. 3.5Mt consensus

The average realised prices slide is interesting as all key commodities eased against the second half of FY23.

Source: BHP

Treasury Wine: Back to China

The Financial Review reported at 3:12 pm AEDT:

"China's top diplomat in Australia said a resolution to punitive wine tariffs that crippled $1.2 billion of annual exports could be clear within weeks, amid preparations for Anthony Albanese to make a groundbreaking visit to Beijing before the end of the year."

The intraday chart below shows the sharp spike in TWE shares at 3:12 pm.

Treasury Wine intraday price chart (Source: TradingView)

Credit Corp: US Impairment

Debt purchase and collection services company Credit Corp (ASX: CCP) experienced a 30.5% dip on Wednesday after flagging a sizeable impairment to its FY24 guidance.

At the midpoint, EPS is down 58%.

"The impairment has arisen from a sustained deterioration in collection conditions ... These conditions have persisted throughout the first quarter of FY24, prompting a reassessment of the medium-term outlook for collections on the Company’s US PDL assets," the company said in a statement.

The recent resumption of US student loan repayments is a concerning development for Credit Corp. According to Barclays, the repayments will be an aggregate US$15.8bn headwind to consumers.

Interesting news and movers

Trading higher

• +27.7% Lithium Power International (LPI) – Codelco takeover

• +18.5% Southern Cross Media (SXL) – Takeover offer 

• +11.5% Whitehaven Coal (WHC) – Quarterly and buying BHP coal mines

• +13.8% Mayne Pharma (MYX) – Q1 earning sand guidance

• +10.3% Paradigm Biopharmaceuticals (PAR) – Phase 2 trial results

• +2.1% Alpha HPA (A4N) – Product marketing update

• +1.9% Latin Resources (LRS) – Drilling results

Trading lower

• -30.5% Credit Corp (CCP) – Lowers FY24 guidance, impairment

• -7.6% Bapcor (BAP) – Ord Minnett downgrade 

• -5.4% Hub24 (HUB) – Wilsons downgrade

• -4.1% ARN Media (A1N) – Takeover offer for SXL

• -3.7% Starpharma (SPL) – Phase 2 trial met primary endpoints

Broker notes

A few UBS notes of interest:

Bapcor (BAP) – Neutral with $7.20 target ($5.91 at Oct 17)

• “Today's share price reaction suggested the market was surprised BAP's 'non-discretionary' Trade/ Wholesale channels could drive a mid-SD NPAT miss over 2-3 months.”

• “We do however remain slightly cautious around the quantum of price increases from here given the inflation headwinds being faced by service networks as demand also eases.”

Hub24 (HUB) – Neutral with $35.00 target ($33.59 at Oct 17)

• “HUB has reported 1Q24 funds flows. Overall we consider the rebound in flows momentum, new product launches and adviser onboarding as supportive developments for flows outlook.”

• “HUB is currently trading at 18.7x EV/EBITDA (based on our FY25 forecasts). We believe valuation is reasonable considering 5Y-average of 23x and the strong earnings growth outlook of over 20% CAGR over the next 3 years.”

Rio Tinto (RIO) – Neutral with $115.00 target ($117.11 at Oct 17)

• “RIO pre-reported 3Q iron ore shipments and guidance for 2024 at its Pilbara site visit last week … We trim medium-term iron ore shipments by up to ~10Mt and increase proportion of lower quality SP10 until replacement projects ramp from 27/28E.”

• “RIO sees commodity prices finding support during 3Q with China's economy stabilising as steel demand shifts from property to infrastructure & manufacturing. Recessionary risks remain globally as consumer confidence wanes and manufacturing activities slow.”

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