Evening Wrap: ASX 200 hits 3-month low + A lithium hopeful tumbles on short attack

The S&P/ASX 200 closed 121 points lower, down -1.69%. 

The Index is down 3.3% in the last three sessions, wiping away all of last week's gains. All eleven ASX sectors finished red on Friday, Patriot Battery Metals tanks after a scathing short report, gold stocks sell off as spot prices tumble on higher yields and a few Macquarie note of interest.

Let's dive in.

ASX 200 Session Chart

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

Markets

The Index finished the week down 2.3% and closed at worst levels. The selling was broad-based, with every sector except Utilities down at least 1.0%. The Evening Wraps have talked about this recurring theme about how quickly recent rallies tend to unravel and the importance of shallow pullbacks (to which we have seen none). The market is now becoming increasingly oversold (and therefore due for a short-term bounce) but we're also in an undesirable state where volatility and distribution has picked up.

To add further insult to injury, bond yields are surging across the board. The UK 2-year yield is up 22 bps this week as traders believe UK rates could hit 6.0% by early next year. Not far off is the Australia 3-year yield which is up 20 bps this week to 4.26%, a level not seen since August 2011.

Economy

No major economic announcements.

Latest news

Market Insights: Interesting Stocks

Recapping a few interesting mid-to-small cap shenanigans.

Patriot Battery Metals (ASX: PMT) sold off rather aggressively on Friday (-6.5%) thanks to a short report by Night Market Research (I've never heard of them). You can read the full report here. In summary, the report claims that:

• PMT is a "rare mining unicorn - a lithium explorer ascending to a $2bn valuation despite having acquired its core asset for $8m only 16 months ago and lacking an established maiden resource."

• Gains can "in part be attributed to stock promotion with marketing outlets which other supposed "Tier-1" developers would avoid."

• Its leadership team has a history of shareholder value destruction

• Expectations for its initial resource estimate are "sky high"

• Lock-up restrictions on shares and warrants amount to 60% of outstanding shares

• Estimates 30% downside on an EV/LCE basis considering time to production

When I think about short reports, I think about J Capital and the mixed results its had with names like Lake Resources (ASX: LKE), Wisetech Global (ASX: WTC) and Nearmap (acquired at a 39% premium of $2.10 per share in late 2022).

The cream eventually floats to the top with or without the short report. We've seen Lake Resources miss numerous deadlines as well as headwinds for brine producers in general. While Wisetech shares are up 53% year-to-date and 80.5% in the last twelve months.

Patriot Battery Metals price chart (Source: Market Index)

Dubber Corp (ASX: DUB) provides call recording and audio management software as a service. The stock is one of those classic covid winners (ran around 300%) but its now down around 95% from its September 2021 high. The company is now joining in on the AI hype, with the release of its 'world first AI product suite Moments'.

• "Moments transforms calls carried across a communications network into actionable data with out-of-the-box." It currently has two products.

• "Complaints provides summarised data that enables organisations to identify and understand different types of complaints contained in communications across the whole organisation, including internal and external calls."

• "Actions is a world first network feature that detects commitments made in a call and displays those action items as an SMS or e-mail at the end of the call."

The company says it expects $30m revenue in FY23, with $39m in committed revenues for FY24. It's currently loss making but expects cash flow breakeven during FY25.

From a technical perspective, the stock is trying to bottom around the 20 cent mark. It's also seen a notable pick up in volume since the above update on 19 June.

Dubber 12-month price chart (Source: Market Index)

Duratec (ASX: DUR) is one of those stocks that's been doing either one of two things: Trending higher or taking a breather (so it can trend higher). The company provides engineering, construction and remediation contractor services, with a market cap of almost $300m. The stock is up 114% year-to-date and 201% in the past twelve months. In April, the company upgraded its FY23 guidance (EBITDA to $36-39m from $32-35m) and an update in June noted a Mining & Industrial orderbook of $465m (with $871m in tenders and overall pipeline worth $2.45bn).

Duratec 12-month price chart (Source: Market Index)

Interesting news and movers

Trading higher

• +13.9% BlueBet (BBT)

• +11.1% Latin Resources (LRS)

• +9.1% Incannex Healthcare (IHL)

• +5.6% Atomo Diagnostics (AT1) – Continuation rally, up 50% in last three

• +5.3% CleanSpace (CSX)

• +5.2% Metals X (MLX) - Tin price move

• +4.6% Bubs Australia (BUB) – Continuation rally, up 19% in last three

Trading lower

• -16.3% Aeris Resources (AIS) – Withdraws guidance

• -5.0% Pinnacle Investment Management (PNI)

• -4.4% RPMGlobal (RUL)

• -4.1% Talga Group (TLG)

• -3.6% Mineral Resources (MIN)

• -3.0% IGO (IGO)

• -2.9% Pepper Money (PPM)

• Gold sector move: Perseus Mining (-4.7%), Northern Star (-3.8%), Gold Road (-3.5%), Ramelius Resources (-3.5%), Evolution Mining (-3.3%)

• Tech sector move: Brainchip (-4.3%), Altium (-3.3%), Megaport (-2.9%), Life360 (-2.7%), NextDC (-2.4%), Wisetech (-2.3%)

• REIT sector move: Goodman Group (-3.8%), Arena REIT (-3.5%), National Storage (-3.4%), Homeco (-3.0%), Charter Hall (-2.9%), Stockland (-2.7%)

Broker notes

A few standalone Macquarie notes of interest:

ASX (ASX) – Outperform with $65.00 target price

• “Futures volumes were stable at +3.4% vs pcp in 4Q23.”

• “Equities trading volumes heavily compressed: 4Q23 ADV -18.5% vs pcp.”

• “ASX currently trades at a ~24.0x 12-month forward P/E, ~18% below the 3-year average of ~29.4x.”

• “ASX provides relative stability against a more difficult macroeconomic outlook; however, the lack of catalysts until Dec ’23 remain a concern.”

Pinnacle Investment Management (PNI) – Outperform with $10.95 target price

• “$54.8m performance fees in 2H23 and fair value gains boost FY23.”

• “PNI noted business conditions have remained challenging, continuing to moderate new business flows, particularly in retail.”

• “PNI has an attractive organic-growth outlook and potential to add accretive M&A. The outlook for PNI’s organic performance is backed by net flows, performance fees and operating leverage.”

Silver Lake Resources (SLR) – Outperform with $1.70 target price 

• “SLR had a strong end to FY23 despite forest fire impacts at Sugar Zone. 4QFY23 cash and bullion growth was an impressive A$63m and we expect a similar FCF generation rate over the next few years as Deflector grade lifts in the South West area and Sugar Zone progressively improves.”

Scans