Evening Wrap: ASX 200 higher, Domino's massive reversal, Wisetech misses FY24 expectations

Wisetech shares tumbled almost 20% after its FY24 guidance came in below analyst expectations, Woolworths shares recover yesterday's Coles' driven selloff, Australia's manufacturing PMI hits a two month low while service demand begins to deteriorate and a closer look at three key earnings results today (and how the stocks traded).

Let's dive in.

ASX 200 Session Chart

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

Markets

The ASX 200 finished higher but off best levels of 0.74%. Here are the key sector moves amid another reporting season driven session:

• Staples led to the upside after Woolworths (+3.5%) posted FY23 results that were largely in-line with analyst expectations

  • Note: Woolworths sold off 3.0% on Tuesday after Coles' weaker-than-expected result

• Materials bounced as Singapore iron ore futures rose 2.2% to US$113 a tonne, this buoyed the majors Fortescue (+2.5%), Rio Tinto (+2.4%) and BHP (+1.9%)

• Energy underperformed after Woodside (-1.2%) and Santos (-1.0%) posted full-year results. Both were largely in-line with analyst expectations

• Tech nosedived at Index level after Wisetech (-19.6%) FY24 guidance missed analyst expectations

Economy

Australia’s manufacturing PMI fell to 49.4 in August from 49.6 in July, marking a 2-month low.

• "The index continued to signal deteriorating business conditions across the sector, though the latest decline was again marginal." – Judo Bank

• "... another monthly increase in input cost inflation, though the rate of inflation remained below the series average."

Australia’s services PMI declined to 46.7 in August from 47.9 in July. Here are a few key takeaways from Warren Hogan, Chief Economic Advisor at Judo Bank

• Services deterioration: “The previously resilient services industries have displayed the most rapid loss of momentum in activity over the past three months."

• Employment remains strong: "Both services and manufacturing employment is expanding, confirming the persistence of labour demand and employment shortfalls for many Australian businesses."

• Businesses expect downturn to be short-lived: “Businesses remain confident about the outlook with the future activity index, a proxy for business confidence in the PMI survey, up strongly in August."

• Inflation remains stubborn: “The inflation indicators are not moving in the right direction. The disinflation trend that was evident throughout 2022 has come to an end in 2023 as both input prices and final price indexes have stopped falling in the past six months."

Latest news

Market Insights

Going to list a few earnings-related things to review and learn from today.

#1 Domino's Pizza: A bit of a squeeze

Domino's Pizza (ASX: DMP) posted some abysmal FY23 results today:

• Underlying net profit of $122.6m, down 25.7% and below the $130.5m expected by analysts

• Full-year same store sales growth, new store additions and net capex all missed its medium-term growth targets

Despite the double miss, the stock managed to close 11.1% higher, up from session lows of -5.7%. (You'd be up almost 20% if you bought the session low). Let's break down some of the factors that may have influenced the massive intraday swing:

• Positive outlook: Network sales growth for the first 7 weeks of FY24 is 12.6% compared to -2.4% in FY23

• Short interest: Domino's is the 24th most shorted stock on the ASX (5.63% short interest). The stock gaps down at the open, shorts rush to cover and squeeze the stock higher

• Cost cutting: Domino's plans to exit the Danish market and close underperforming stores, which is expected to deliver savings of $50-70 million in FY24

Domino's experienced a massive rally on its weaker-than-expected FY22 results a year ago. The stock finished the session up 7.6% but down -9.6% the next day. Will we see a repeat of such price action? Or will it be different this time?

Domino's intraday chart (Source: TradingView)

#2 Corporate Travel: All hype, no game

Corporate Travel's (ASX: CTD) FY23 results were very strong at face value (revenue up 70%, underlying net profit up 367%). But its FY24 guidance was a little soft and the market failed to price in such shortcomings at the open.

• FY24 underlying EBITDA of $240-280m vs. $270m expected

• FY24 revenue of $770-850m vs. $888m expected

• FY24 profit after tax of $193-233m vs. $220m expected

The stock opens 0.15% lower but nosedives to a session low of around -10.3% by 11:00 am.

Corporate Travel intraday chart (Source: TradingView)

#3 WiseTech: FY23 beat, FY24 miss

Wisetech (ASX: WTC) experienced a similar situation as CTD, except the stock opened 17% lower. In terms of its FY24 guidance:

• EBITDA of $455-490m vs. $550m expected

• Revenue of $1.04-1.095bn vs. $1.10bn expected

What's really interesting about Wisetech is that its forward freight customers are struggling amid normalising freight rates and macroeconomic headwinds. Take a heavyweight name like DHL or DSV for example:

• DHL: Ocean freight volumes fell 7.1% in the first half of 2023 and revenues down 45.6%.

• DSV: Sea freight volumes down 9% in Q2 2023 and profits down 27.3%

How badly does this impact Wisetech's earnings? And is this the reason why its guidance was below market expectations?

Interesting news and movers

Trading higher

• +13.0% McMilan Shakespeare (MMS) – Earnings

• +12.5% Data#3 (DTL) – Upgraded by Morgans

• +11.8% Domino’s Pizza (DMP) – Earnings

• +9.5% IDP Education (IEL) – Earnings

• +6.6% Monadelphous (MND) – Upgraded by Macquarie

• +6.0% Neometals (NMT) – Order to supply Mercedes

• +5.6% Champion Iron (CIA) – Updated Mineral Resource

• +4.6% Hansen Technologies (HSN) – Earnings

• +3.9% Cedar Woods Properties (CWP) – Earnings

• +3.8% HMC Capital (HMC) – Earnings

• +3.5% Woolworths (WOW) – Earnings

• +2.3% National Storage (NSR) – Earnings

• +1.8% Lynch Group (LYL) – Earnings 

Trading lower

• -19.6% Wisetech Global (WTC) – Earnings

• -14.2% Pepper Money (PPM) – Earnings

• -11.3% Iluka Resources (ILU) – Earnings

• -11.3% Retail Food Group (RFG) – Earnings

• -10.4% Virtua Health (VIT) – Earnings

• -8.9% Nanosonics (NAN) – Earnings

• -6.9% Corporate Travel (CTD) – Earnings

• -2.4% Mount Gibson Iron (MGX) – Earnings

Broker notes

Broker notes are not available today.

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