Evening Wrap: Light & Wonder to join the ASX 200, Tech stocks sell off

The Index finished lower on Monday led by Technology stocks, Light & Wonder is set to join the ASX 200, Morgan Stanley gives its key takeaways from LME week and UBS' take on Domino's Pizza.

Let's dive in.

ASX 200 Session Chart

ASX 200 lower and finished at worst levels (Source: Market Index)

Markets

The ASX 200 finished lower and near worst levels on Monday. Energy and Materials were the only bright spots, reflecting the jump in oil and gold prices last Friday as well as resilient iron ore prices. Most sectors finished lower but Technology fell an outsized 2.8%. This was somewhat in-line with the Nasdaq's underperformance last Friday. The Index is starting to dwindle after a strong bounce from recent lows. Let's see if the market can muster up an orderly pullback (or maybe last week was just a dead cat bounce).

Economy

No major economic announcements. 

Latest news

The Newest ASX 200 Member

United Malt Group (ASX: UMG) will be removed from the ASX 200 subject to final court approval of its takeover by Malteries Soufflet and Light & Wonder (ASX: LNW) will take its place, effective prior to the open of trading on Wednesday, 18 October. The Index inclusion drove the stock up 6.1% on Monday.

To be honest, I've never heard of this company in my life. So what is it and where did it come from?

• Listing: LNW is a Nasdaq-listed gaming business which made its ASX debut on 18 May in the form of CDIs (CHESS Depositary Interests) at a ratio of 1 CDI to 1 share of common stock.

• What do they do: LNW manufacture gaming products such as slot machines, table games and shuffling machines. The company also offers a comprehensive iGaming platform for online casino games, sports betting and lottery solutions as well as its own social casino games on mobile.

• Earnings: Revenue rose 20% year-on-year in the June quarter 2023, EBITDA up 33% and net debt leverage ratio lowered to 2.9x (lowest in company's history). In the first half, the company generated US$1.4bn revenue and US$529m in adjusted EBITDA.

Morgan Stanley’s LME Wrap

LME Week is the annual gathering of the global metals community in London to discuss current trends in commodity markets and what to expect for the year ahead.  Here are some of Morgan Stanley’s key takeaways:

• Bearish near term: “The consensus was clearly for a bearish macroeconomic outlook over the next 6-12 months and for metals prices to fall over the period. European demand and demand expectations appeared to surprise many participants to the downside. Chinese metals offtake was seen as resilient, though participants had mixed views about the outlook from here, some expecting resilience to continue through next year and some very concerned about property completions declining sharply (-20%) during 2024.”

• More downside to come: “Many participants had concerns about solar panel price declines and potential stockpiles, slowing battery metals demand, alongside an outlook of weaker demand from Europe and European tariffs on automotive imports from China. Our take is that this could add to metals downside during the next 6-9 months and will ultimately give way to a renewed wave of demand growth.”

• Demand uncertainty drives investment uncertainty: “With uncertainty on the pace, trajectory and mix of metals demand, the investment outlook becomes even more murky for producers, raising the risk that sufficient supply will not be developed in time.”

From a commodity outlook perspective:

• Aluminium – Optimism rising: “While concerns on European demand persist, the mood on aluminium seemed more positive, with rising energy prices pushing up the cost curve, and expectations that China's exports will remain subdued on strong domestic demand.”

• Copper – Mixed views: “Views on copper were mixed, with a record contango and rising inventories against hopes that China's data may be bottoming, at least temporarily.”

• Nickel: “The prevailing sentiment leaned bearish, driven by Indonesia's robust supply growth and expectations for a pick-up in China's refined nickel output, driven by class 2 conversion.”  

• Zinc: “Supply disruptions took the limelight, with more expected on the horizon.”

Interesting news and movers

Trading higher

• +5.6% Light & Wonder (LNW) – Replaces United Malt Group in ASX 200

• +4.1% Resolute Mining (RSG) – Guidance update 

Trading lower

• -8.6% Fletcher Building (FBU) – BGC claims related to WA plumbing (Fri)

• -5.5% DGL Group (DGL) – Chair retiring

• -5.1% Latin Resources (LRS) – Sale of subsidiary (Fri)

Broker notes

UBS on Domino’s Pizza (DMP):

• Sell with $43.00 target price

• “For the 1st 7wks to start 1H24E, DMP noted that delivery had returned to growth in ANZ (was down in FY23) yet was flat to down slightly in Europe and down in Asia, with consumers having left DMP for other QSR brands due to higher prices and the delivery service fee early in FY23.”

Scans