Weekend Wrap: Choppy Markets, Choppy Results

Hi there! This article is an excerpt from our weekend newsletter – which talks all things markets plus some interesting data insights and memes

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1. Up, Down and Around

Source: Shutterstock

Credit Corp is one of the first ASX 200 stocks to report FY24 results – And its price action was absolutely wild to say the least. Here’s the play by play.

The result – A very mixed one

• Context: Back in May, Credit Corp experienced a one-day selloff of around 30% after downgrading its FY24 guidance, notably statutory NPAT of $35-45 million and underlying NPAT of $80-90 million

• The good: FY24 statutory NPAT came in at $50.7 million or 26% ahead of its guidance at the midpoint. The company also managed to grow its consumer loan book by 24% to a record $445 million.

• The mixed:

  • Final dividend of 23 cents per share missed Macquarie expectations of 28 cents (17.8% miss). But here’s the catch, the payout ratio was only 51% whereas Macquarie’s forecast was 95% – So it was more so a miss due to payout ratio and not weak earnings

  • Underlying NPAT of $81.2 million was towards the low-end of its guidance

• The bad: FY25 guidance including EPS and NPAT were 4-8% below Macquarie forecasts

A bull might say “wow unexpectedly strong statutory NPAT, massive loan book growth and the dividend miss was due to a focus on cash preservation. The market needs to price in this good result.”

While a bear might say “FY24 was solid but the dividend miss should be punished. FY25 looks weaker-than-expected so the stock should trend lower.”

From a price action perspective, we got both – The stock opened 4.9% higher, quickly reversed to a -5.2% fall in early trade and then spent the rest of the day trending higher, finishing the session up 14%. A takeaway – This was a pretty messy result. Its easy to form a bias ... but with no clear cut view, it might be best to follow price action.

CBA forward returns for when PE ratio exceeds 17.5 (2004 to date) Only the first instance in each month when the PE ratio exceeds 17.5 is counted | Source: Market Index

2. The Ultimate Fundie

Source: Shutterstock

Pinnacle Investment Management might be one of the strongest stocks I’ve seen in a while. Its hit a fresh 52-week high for 13-consecutive weeks, absolutely killed it during February reporting season and smashed it again in August.

The key stat from the February half-year was – Net inflows of $4.5 billion, which was about 540% ahead of Macquarie expectations ($0.7 billion).

Come August full-year results and they smashed it again, with funds under management up 20% to $110.1 billion vs. Macquarie estimates of $106.5 million and performance fees almost doubled to $31.2 million.

The stock opened the session 1.2% higher and finished up 4.2%. Let’s see if it can continue to trend higher.

3. High Level Numbers

Source: Shutterstock

Here are some key numbers you should know heading into reporting season:

• Valuations are high: The ASX 200 is trading at a 12-month forward P/E ratio of 16.7x or 14% above historical average of 14.7x

• Banks are expensive: The average major bank PE ratio is currently at record highs at around 18x (ANZ: 12.9x; CBA: 24.1x; NAB: 17.0x; WBC: 15.5x)

• Earnings to dip: Aggregate consensus FY24 EPS growth is trending at -3.5%, largely driven by weaker earnings from the resource sector.

• But set to rebound: Aggregate consensus FY25 EPS is forecast to bounce 5.4%, largely driven by an improvement in resource-related earnings. This is forecast to continue into FY26, up 5.3%.

• Condensed season: Morgan Stanley says a higher than usual number of companies will report their results in the final two weeks of August, representing 70-75% of companies by number and 40-45% by market cap.

4. ASX Seasonality

Source: Macquarie Research

August is a pretty flat month of the year for Australian equities – In the past decade, the ASX 200 has performed -0.3% for the month and positive 60% of the time.

Just be weary of the month that follows – September is the worst month of the year for the ASX 200, down an average 2.2%. But it’s not just Australian equities.

The average return for the Dow Jones over the past 100 years is -1.11%.

Source: Macquarie Research

5. In the Wire – Buy Hold Sell: 5 Stocks Likely to Surprise to the Upside This Reporting Season

Source: Livewire Markets

Welcome to a new section of the Weekend Newsletter – Each week, I’ll handpick the most intriguing and insightful content from our sister site, Livewire.

In this week’s episode of Buy Hold Sell, Marcus Today's Henry Jennings and Market Matters' James Gerrish analyse three stocks that could beat consensus expectations ahead of their earnings result this August. They also put their necks on the line and name a stock that will crush forecasts. The stocks they discussed include:

• Goodman Group

• James Hardie

• Super Retail Group

• Henry Jennings named Lovisa

• James Gerrish named Car Group

More from Livewire:

• The one question these investors want answered this reporting season

• The small and mid-cap biotechs poised for a big breakout

• Forager's 5 ASX stocks for long-term investors

• Christopher Joye: How investors can prepare ahead of a second "humiliating" RBA rate hiking cycle

6. Bellwether LIC moves

Source: Shutterstock

Australian Foundation Investment Co (AFI) is one of the largest LICs and released its preliminary results earlier this week. Here are some of the key changes within its portfolio:

Additions:

• Woodside Energy

• Telstra

• Mineral Resources

• Ampol

• BHP

Disposals:

• James Hardie (partially because of the exercise of call options)

• National Australia Bank (partially because of the exercise of call options)

• Wesfarmers

• Iress (complete disposal from the portfolio)

• Ansell (complete disposal from the portfolio)

New companies added:

• Mineral Resources

• Ampol

• Region Group

• Macquarie Technology Group

I will note that its performance has been reasonable over a 1-year timeframe (1-year return of 15.1% vs. ASX 200’s 13.5%) but it underperforms the benchmark over 3-and-10 year return horizons.

7. Meme of the Week

Turkish pistol shooter Yusuf Dikec went viral this week – Likened as a regular dude competing at the Olympics. He did not wear any specialised lenses, no eye cover and no ear protection. And he still won the silver medal.