Evening Wrap: ASX 200 higher, PointsBet sells US assets, Elders shares tumble as profits halve

The market is flat for a fifth straight session, PointsBet decides to sell its US business for US$150 million despite spending more than $600 million on marketing in the past three years, Elders fundamentals catches up to its share price performance, UBS' ratings for Aussie banks and Goldman's take on QBE.

Let's dive in.

ASX 200 Session Chart

Market climbs from session lows to squeeze out a small gain (Source: Market Index)

Markets

Another sleeper session where the ASX 200 closed at best levels and off session lows of -0.30%. This is the fifth session in a row where the market refuses to down but it doesn't want to post some meaningful gains either.

Economy

No major economic announcements.

Latest news

Market Insights

PointsBet: Selling its US business

The US legalised sports betting in May 2018, when the Supreme Court struck down the Professional and Amateur Sports Protection (PASPA).

PASPA prohibited states from legalising sports betting, except for Nevada and a few other states. This opened up a landgrab situation, where new bookmakers were burning cash to obtain market share.

PointsBet (ASX: PBH) debuted in June 2019 at an IPO price of $2.00. It has since raised over $1.1bn from investors and spent over $600m in marketing alone in the US.

What's it got to show?

Well, it's selling its US business to Fanatics Betting for US$150m (A$222) and plans to return $1.07 to $1.10 per share back to shareholders.

The stock is down more than 20% on Monday, down 39% in the last twelve months and down 91% from all-time highs. Yikes.

Elders: That explains it

Elders copped a 23% selloff on 14 November 2022 after its FY22 results flagged a cautious outlook amid adverse weather conditions and softening commodity prices. Longstanding CEO Mark Allison also announced his retirement.

Nevertheless, Elders was still viewed as a defensive agricultural play and in February 2023, management reiterated a favourable cropping outlook.

Still, the stock continued to trend lower.

Elders price chart (Source: TradingView)

Elders posted its half-year FY23 results on Monday and it became clear as to why the 'defensive' stock couldn't stop falling.

Its revenue was up 9% to $1.66bn but underlying profits fell 45% to $50.6m amid softening livestock trading conditions, weaker crop input prices and unseasonably wet weather.

Interesting news and movers

Trading higher

• +12.1% InvoCare (IVC) – Revised offer from TPG

• +5.1% NewsCorp (NWS) – Earnings (last Friday)

• +4.5% Develop Global (DVP)

• Gold sector move: Evolution (+4.2%), Ramelius (+3.8%), Bellevue Gold (+3.1%), Gold Road (+2.9%), Northern Star (+2.9%)

Trading lower

• -20.9% PointsBet (PBH) - Plans to divest US business

• -14.1% Pact Group (PGH) – Guidance

• -13.3% Elders (ELD) – Earnings

• -8.9% Nanosonics (NAN) – Downgraded by JPMorgan

• -2.8% Eagers Automotive (APE) – Downgraded by Macquarie

• -1.7% REA Group (REA) – Downgraded by Morgans

• Lithium sector move: Vulcan Energy (-6.6%), Patriot Battery (-5.7%), Argosy (-2.9%), Allkem (-1.9%), Pilbara Minerals (-1.1%)

Broker notes

UBS on Australian Banks

• “As expected the Australian Banks reported record 1H 23 results of $15.6B, helped by 14 bps of margin expansion, a still benign credit cycle (ECL 9bps), 9% volume growth and cost discipline (+2.9% pcp).”

• “These strong results however were not enough to offset a more challenging outlook, with the rate of NIM expansion (11bps of downgrades) and outlook disappointing relative to consensus.”

• “Intense competition in mortgages (1H 23 impact) and deposits (2H expected impact) could result in NIMs contracting further 5bps into FY25E. Consensus EPS downgrades are currently running at -5% over the past few days post results, and are yet to find a floor, in our view.”

• UBS was BUY rated for Macquarie and ANZ, NEUTRAL rated for Westpac and Commonwealth Bank and SELL rated for Bank of Queensland, Bendigo Bank and NAB

Goldman Sachs notes:

Aristocrat Leisure (ALL): Buy with $45.70 target price

• “Key listed gaming peers in the US have reported 1Q23 results across the land-based space over the past couple of weeks.”

• “Common themes across all results were continued strength in topline growth and shipments, i.e. flagging strong industry growth for the quarter.”

• “For ALL, we expect the Americas division to report c. 18.2% growth YoY for 1H23.”

QBE Insurance (QBE): Buy with $17.45 target price

• “QBE outlook for FY23 has been updated to reflect strong GWP growth trends over 1Q23.”

• “Running yield still strong as expected and mark to market impacts broadly in line overall: Running yield was 4.3% at the end of Apr-23 v 4.1% at Dec-22.”

• “While the update on PYD was a negative surprise, higher CAT costs over Apr-23 YTD were not entirely unexpected given peer commentary and elevated CATs over 1Q23.”

Scans