Evening Wrap: ASX 200 higher, MinRes rallies on earnings and dividend beat, Lynas' capex blowout

The Index is up for a second consecutive session led by miners and retail stocks, shares in Mineral Resources rallies 8% as FY23 profits and dividends come ahead of analyst expectations, Lynas reverses early losses despite a double miss and blowout capex for Kalgoorlie, Japan's unemployment rate unexpected rises to 2.7% and Macquarie's take on some recent results.

Let's dive in.

ASX 200 Session Chart

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

Markets

The ASX 200 finished higher and at best levels on Tuesday.

• Miners led to the upside as Fortescue (+3.2%) bounced from yesterday's results and unexpected CEO departure, BHP (+1.2%) and Rio Tinto (+1.1%) also higher

• Weaker bond yields and a falling US dollar also supported commodities, notably gold names like Newcrest (+1.1%), Northern Star (+1.4%) and Evolution Mining (+1.4%)

• Discretionary stocks continued to climb on the back of Wesfarmers (+2.8%), which is up almost 9% in the last three sessions

• Tech led to the downside, notable losers include Weebit Nano (-12.7%), Hansen Technologies (-4.9%), Altium (-2.5%) Macquarie Telecom (-2.4%) and NextDC (-1.3%)

Economy

Japan’s unemployment rate unexpectedly rose to 2.7% in July from 2.5% in June, while analysts expected figures to stay unchanged month-on-month.

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Market Insights

MinRes: Messy Results

Mineral Resources (ASX: MIN) shares rallied 7.97% today after reporting a relatively messy FY23 result. Here's how it fared against Morgan Stanley estimates (MSe):

• Underlying net profit of $769m, up 92% which was 3% higher than MSe and 13% higher than consensus

• Free cash flow was 37% higher than MSe and 57% higher than consensus due to lower working capital build

• Full-year dividend of $1.90 per share, up 90% and 23% beat vs. MSe

• FY23 capex guidance of $2.75bn was 45% higher than MSe, with lower lithium tons and higher costs

We've seen a lot of stocks this reporting season rally on the back of better-than-expected dividends as well as fall on blowout capex costs. It looks like the market decided to focus on the strong result but let's see if the stock can hold those gains tomorrow.

Lynas rallies on soft earnings and capex

Lynas (ASX: LYC) missed both revenue and earnings expectations and flagged 27% higher capex for its Kalgoorlie Project.

• Revenue of $739.3m, down 19.6% and below the $781m expected by analysts

• Net profit of $310.7m, down 42.5% vs. $323m expected

• Kalgoorlie capex revised upwards to $730m from $575m back in February

The stock managed to finish the session 3.2% higher, up from session lows of -2.7%.

I wonder if its short interest of 5.6% had anything to do with its reversal. Let's see if those gains can stick tomorrow.

Interesting news and movers

Trading higher

• +31.5% EML Payments (EML) – Earnings

• +26.4% Sayona Mining (SYA) – Bounce after down 27% in last three 

• +20.6% Resimac Group (RMC) – Earnings

• +14.7% Tyro Payments (TYR) – Earnings

• +10.3% Frontier Digital Ventures (FDV) – Earnings

• +9.0% Johns Lyng Group (JLG) – Earnings

• +8.1% Predictive Discovery (PDI) – Drill results

• +7.9% Mineral Resources (MIN) – Earnings

• +7.7% Talga Group (TLG) – Exploration update

• +6.9% Tourism Holdings (THL) – Earnings

• +4.6% Zip (ZIP) – Earnings

Trading lower

• -14.6% Adbri (ABC) – Earnings

• -13.4% Sunland Group (SDG) – Return of capital

• -6.7% Link Administration (LNK) – Earnings (Mon)

• -6.1% Integral Diagnostics (IDX) – Earnings (Mon)

• -4.9% Hansen Technologies (HSN)

• -1.3% NextDC (NXT) – Earnings (Mon)

Broker notes

Macquarie’s take on recent results:

Codan (CDA) – Outperform with $8.20 target ($7.20 at 28 Aug close)

• “FY23 solid result, Comms in line and Detection a strong beat. The 2% beat to MRE NPAT would have been ~8% however a ~$5m FX hedge loss is included in underlying earnings that tempered group profit.”

• “Following the pullback in the share price our TSR is ~16% and we upgrade to Outperform (from Neutral).”

Fortescue (FMG) – Underperform with $16.40 target ($19.87 at 28 Aug close)

• “FMG’s FY23 result was solid with most key metrics within 3% of our estimates. The FY23 dividend payout ratio was 65% however we see downside risk given capital competition from FFI which is no longer constrained by the 10% of NPAT.”

Imdex (IMD) – Outperform with $2.05 target ($1.80 at 28 Aug close)

• “The start to FY24 has remained more subdued than our prior forecasts (revised down in Jun-23), that combined with a higher cost base, has tempered earnings & reduced visibility.”

• “However, valuation is attractive (6x EV/EBITDA) noting prior M&A transaction multiples range 10-12x.”

NextDC (NXT) – Outperform with $17.00 target ($13.62 at 28 Aug close)

• “Demand outlook remains resilient with NXT guiding to FY24 trading of >20MW in FY24. CAPEX of $850-900m in FY24 reflects demand pipeline.”

• “Medium term thematic around data demand and transition to cloud remain.”

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