Evening Wrap: ASX 200 rises, RBA hits pause + A small cap that upgraded earnings 4 times in 10 months

The RBA paused interest rates for a second consecutive month, the ASX 200 finishes higher and not far off a seven month high, China's manufacturing PMI fell back into contraction, Australian refinancing activity remained near record highs as borrowers switch for better rates plus a small cap that upgraded its outlook four times in the span of ten months.

Let's dive in.

ASX 200 Session Chart

ASX 200 opens higher and rallies off the RBA pause at 2:30 pm AEST (Source: Market Index)

Markets

The ASX 200 finished higher after a brief rally to session highs of 0.8% after the RBA pause. Every sector finished higher, led by a mix of defensive and growth. The S&P/ASX 200 Info Tech Index rallied 1.1% on Tuesday to levels not seen since January 2022. Uranium stocks rallied after the Global X Uranium ETF added 3.3% overnight to a 6-week high. A few names like Paladin Energy (ASX: PDN), Lotus Resources (ASX: LOT) and Aura Energy (ASX: AEE) are beginning to to test 2-6 month highs.

The Index is not far off last week's high and a push above that would mark a fresh seven month high. Still, the ASX remains choppy at best (especially compared to the strong trending US market). Technology seems to be the only sector that's reminiscent of US markets right now.

Economy

The RBA kept interest rates unchanged at 4.1%.

• Economists were largely expecting a 25 bp hike while the market priced in a pause

• On inflation: “The central forecast is for CPI inflation to continue to decline, to be around 3¼ per cent by the end of 2024 and to be back within the 2–3 per cent target range in late 2025.”

• On unemployment: “With the economy and employment forecast to grow below trend, the unemployment rate is expected to rise gradually from its current rate of 3½ per cent to around 4½ per cent late next year.”

• Tightening bias: “Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon the data and the evolving assessment of risks.”

China’s Manufacturing PMI fell back to contraction in July, coming in at 49.2 from 50.5 in the previous month.

• Missed analyst forecasts of 50.3

• Marks the first decline since April

Australian new loan commitments for housing fell 1.0% month-on-month and down 18.2% year-on-year in June.

• The value of total housing refinance fell 3.1% month-on-month but remained near record highs of $20.2bn in June

• “Refinancing activity has remained at record highs in recent months, as borrowers continued to switch lenders amid interest rate rises. The value of total refinancing between lenders was 12.6 per cent higher in June compared to a year ago.” – ABS Head of Finance Statistics, Mish Tan

Latest news

Market Insights

Intraday price action: A closer look at Credit Corp

Credit Corp (ASX: CCP) shares tumbled 12.6% after posting its FY23 results and guidance.

The FY23 result was largely in-line with analyst expectations:

• Net profit of $91.3m vs. guidance of $90-97m

• Revenue of $473.4m vs. analyst expectations of $430m

But the FY24 guidance was rather disappointing:

• Net profit between $90-100m vs. $107m expected

• EPS of $1.32 to $1.47 vs. $1.56 expected

The stock gapped down around 15% within the first 15 minutes and traded around those levels through to 11:00 am. That little spike around 11:00 am represents a bounce of around 8% (from $20.40 to almost $22.00).

One of the things to note for Credit Corp is that it has a relatively high level of short interest. It's the 32nd most shorted stock on the ASX (around 4.8%). This could be a factor at play amid its bounce (which quickly faded by 12:00 pm).

Credit Corp Intraday chart (Source: TradingView)

Upgrades on upgrades

I came across Acrow Formwork and Construction (ASX: ACW). It's a stock that traded around the 50 cent mark between February and November 2022 before breaking out to highs of almost 90 cents in May 2023.

It's currently taking a bit of a breather around the 50-day moving average and 80 cent mark.

Acrow Formwork and Construction daily chart (Source: TradingView)

Its breakout made fundamental sense after I checked its market sensitive announcements, which included four guidance upgrades between October 2022 and May 2023.

Acrow Formwork and Construction market sensitive announcements

Interesting news and movers

Trading higher

• +21.3% Baby Bunting (BBN) – Trading update

• +19.8% Imricor Medical (IMR) – Ethics approval to commence

• +18.7% Harmoney Corp (HMY) – Preliminary earnings

• +11.8% 29Metals (29M)

• +11.6% TPG Telecom (TPG)

• +11.4% Azure Minerals (AZS)

• +10.6% Patriot Battery Metals (PMT) - Albemarle stake

• +8.6% Gold Road (GOR) – Upgraded by Macquarie

• +8.6% EML Payments (EML)

• +5.9% Adairs (ADH) – Distribution centre control

• +4.6% Byron Energy (BYE) – Forward sale loan facility

• +3.2% IGO (IGO) – Upgraded by CLSA

• Uranium sector move: Peninsula Energy (+14.1%), Alligator Energy (+9.4%), Bannerman (+8.6%), Deep Yellow (+7.8%), Paladin Energy (+4.8%)

Trading lower

• -22.7% Strandline Resources (STA) – Placement at $0.18

• -13.6% Centaurus Metals (CTM) – Placement at $0.73

• -10.1% Audio Pixels (AKP) – Earnings

• -12.6% Credit Corp (CCP) – Earnings

• -14.0% Reece Pharma (RCE) – Earnings (Mon)

• -9.0% Strike Energy (STX) – Revised offer for Talon Energy

Broker notes

A few interesting Macquarie notes:

Gold Road (GOR) – Upgrade to Outperform with $1.90 target ($1.58 at 31 Jul close)

• “GOR has released its 2QCY23 result with production 3% ahead of our estimates while AISC was 20% stronger.”

• “Importantly, the company has retained its CY23 AISC guidance despite the previously reported production guidance downgrade.”

Lynas (LYC) – Outperform with $7.70 target ($6.70 at 29 Jul close)

• "LYC's 4QFY23 result was mixed, with stronger production offset by lower sales revenue and higher costs.”

• “We have cut our FY23 forecast by 21% to reflect the lower revenue and higher costs. Incorporating higher costs as the Kalgoorlie plant is ramped up drives a 20% cut to FY24 earnings and 7-8% reductions to our FY25-FY29 estimates.”

Nickel Industries (NIC) – Outperform with $1.10 target ($0.82 at 31 Jul close)

• “NIC had a solid quarter with 2QCY23 nickel metal sales of 31.8kt up 16%; however, realised pricing of US$13,810/t Ni was 19% lower QoQ.”

• “The 2QCY23 operational result was solid, however realised pricing declined QoQ. Cash built QoQ and the interim dividend of A$0.02 was as expected. Ebitda is set to improve in 2HCY23 if NPI prices stabilise and cash costs continue to fall.”

Patriot Battery Metals (PMT) – Outperform with $2.30 target price ($1.51 at 31 Jul close) 

• “The maiden resource for the CV5 deposit boasts 109.2mt @ 1.42% Li2O and 160pm Ta2O5 using a 0.4% Li2O cut-off grade.”

• “We see significant upside to the maiden resource as the regional targets at CV4, CV8, CV9. CV10, CV12 and CV13 are drilled out.”

Scans