Evening Wrap: ASX 200 rallies on solid CBA earnings, China slips into deflation

The Index rallied off the back of CBA's solid FY23 results, China's inflation rate dips into negative territory for the first time since covid, TPG is set to acquire InvoCare, Suncorp posts a solid full-year result but its dividend was well-below consensus expectations and Goldman's take on yesterday's results (Coronado Global and James Hardie).

Let's dive in.

ASX 200 Session Chart

ASX 200 rallies intraday to finish near session highs (Source: Market Index)

Markets

The ASX 200 finished higher and near best levels thanks to a solid FY23 result from Commonwealth Bank (+2.6%). Tech continued to catch bid, with the S&P/ASX 200 Info Tech Index less than 0.1% off recent highs. The rest of the market was relatively choppy, with Defensives sectors like Utilities, Real Estate and Healthcare finishing lower. The Index was saved by Commbank's results while the rest of the market remained relatively choppy, that's what happens when the Index is so concentrated towards a few banks and miners. The next major catalyst for markets is US inflation (Thursday at 10:30 pm).

CBA result in a nutshell: Its cash profit was in-line with expectations, net interest margins saw a sequential 5 bp decline in the second half as competition offset higher rates. Outlook commentary flagged downside risks to economic growth due to the lagged effects of rate hikes. Analysts were impressed by the final dividend, which was up 17% year-on-year as well as the new $1bn on-market buyback. Mortgage delinquencies experienced a slight uptick but balance sheet remained strong.

Economy

China’s inflation rate fell into negative territory in July, down 0.3% year-on-year from 0% in June but above analyst expectations of -0.4%. 

China’s producer price index improved to -4.4% in July from -5.4% in June. Here are some key analyst takeaways from Reuters:

• "With destocking and credit expansion, we expect PPI and CPI will rebound from the bottom in the fourth quarter. China launched intensive stimulus measures after the July politburo meeting, it will take time to reflect.” – Tao Chaun, Soochow Securities

• "Market needs to see more actionable support measures from the Chinese authorities to stay upbeat. While there is room for some mild monetary policy easing, the onus is on the fiscal side.” – Frances Cheung, OCBC Bank

• "Both CPI and PPI are in deflation territory. The economic momentum continues to weaken due to lacklustre domestic demand. It is not clear at this stage if the policies announced recently can turn around the economic momentum soon.” – Zhiwei Zhang, Pinpoint Asset Management

Latest news

Interesting news and movers

Trading higher

• +10.7% Bowen Coking Coal (BCB) – Resource upgrade

• +10.6% Adriatic Metals (ADT) – Upsized placement (Tue)

• +8.3% Next Science (NXS) – Pilot study results

• +5.9% InvoCare (IVC) – TPG to acquire IVC

• +3.9% Nanosonics (NAN) 

• +2.6% CommBank (CBA) – FY23 results

• +2.4% Westgold Resources (WGX) – Board approvals mine development

• +1.6% Syrah Resources (SYR) – Non-binding MoU with Samsung

• Coal sector move: Coronado Global (+4.8%), Terracom (+3.8%), Whitehaven Coal (+2.3%), New Hope (+2.2%)

Trading lower

• -22.2% Renascor Resources (RNU) – Siviour BAM study results (Tue)

• -21.4% Panotro (PNR) – Placement

• -12.7% Delta Lithium (DLI)

• -8.2% Electro Optic Systems (EOS) – Ceases Satellite Manufacturing Hub

• -7.6% Kogan (KGN)

• -4.4% Aeris Resources (AIS)

• -4.3% Lovisa (LOV) – Downgraded by Macquarie

• -1.5% Suncorp (SUN) – FY23 earnings

Broker notes

UBS’ take on today’s results:

Commonwealth Bank (CBA) – Neutral with $100.00 target ($102.21 at 8 Aug close) 

• “We view this as a clean result with the better-than-expected dividend and $1B buy-back a positive surprise relative to UBS estimates.”

• “Credit trends and asset quality across the bank and its divisions still looks healthy with a 13 bps BDD / GLA charge in H2 23 (as expected).”

• “The DPS per share of 240 cents in H2 23 was stronger than forecast too, with a ~4.8% beat to VA consensus (+5.5% to UBSe).”

• "CBA is trading at 2.2x estimated P/BV, slightly above historical avg, and P/E (2-yrs fwd) of ~17.6x, above its historical +1st dev.”

Suncorp (SUN) – Buy with $15.00 target ($13.75 at 8 Aug close)

• “Cash NPAT in line but GI and Bank both miss. Guidance softer. Dividend bottom end of payout.”

• “Overall Australia was ahead of consensus (and UBSe) whilst NZ and Bank were both behind.”

• “The Bank has delivered on its FY23 mid-term target CTI but FY24 guidance is disappointing in the mid 50s (consensus 52%).”

Plus Goldman’s notes on yesterday’s results:

Coronado Global (CRN) – Buy with $2.20 target ($1.52 at 9 Aug close)

• “CRN reported in-line 1H 2023 underlying EBITDA/NPAT of US$352mn/US$199mn with the result largely pre-reported.”

• “CRN declared a US0.5cps interim dividend (well below our US3.7cps estimate), equating to just 7% of FCF for 1H23, but did reaffirm its capital management framework to return 60-100% of FCF over the full year.”

• “We remain constructive on met coal in 2023 due to ongoing risks around supply; the EU ban on Russian coal, ongoing mine supply issues in Australia & Canada.”

James Haride (JHX) – Buy with $51.70 target ($46.50 at 9 Aug close)

• “NPAT was 20% ahead of GSe with EBIT 21% higher. All operating segments were higher than expected, with North America accounting for ~75% of the operating earnings EBIT.”

• “FY24 volume outlook suggests increased management confidence in the macro backdrop.”

• “We have lifted our FY24e earnings estimates by ~15%. Within this, largely driven by the North America segment, we’ve increased our segment volumes forecast by 7%, albeit this translates to a 14% upgrade to EBIT.”

Scans