Earnings season hots up….
After yesterday’s strength the market came back to earth today with some selling in both the banks and resources, while a number of the companies that reported earnings yesterday / today had big share price reactions – Mortgage Insurer Genworth for instance on the upside after announcing a big share buy-back ($100m) while Resmed copped a hiding after showing lower growth than its 26x multiple would like – the stock down -5.69% and it’s just another example of highly valued healthcare stocks struggling. They’ll be a time to step back into that sector, however we’re not there yet.
Elsewhere CYBG, the old Clydesdale Bank (CYB) had a great session adding +7.27% to close at $4.72 – back up above our original buy price after the stock had dealt us some pain in recent times. They delivered a quarterly trading update showing margins up, volumes were good, loan losses down while they’re travelling ahead on their cost out story. The weak pound is providing a bit of a headwind however the trends in the underlying business remain positive. We continue to like the story, own it in the Growth portfolio and todays result and share price reaction is pleasing.
CYBG Daily Chart
Rio Tinto has dropped with their 1H result and they’ve missed in terms of earnings but other metrics look OK; 1H underlying earnings came in at $3.94b versus the mkt expectations of $4.26b, however they now plan to return $3b in cash to shareholders, which represents 75% of 1H underlying earnings. They said in Feb that total cash returns to shareholders over longer term will be 40%-60% of underlying earnings and they’ve just re-jigged this number fairly sharply. The interim dividend is $1.10/share – the biggest interim divi in RIO’s history, or $2b and they also increased the current buyback by $1b of their London listed shares.
Clearly RIO have a lot of cash + they managed to reduce their net debt by $2b giving them a net gearing ratio of just 13%, which is a lot lower than the 20-30% they guide to + they still see $5b in additional free cash flow by end of 2021.
Share price reaction will be interesting – not sure if the mkt will focus on the earnings miss, or the strong underlying metrics of the business & increased buy back. We own RIO in the Growth Portfolio
RIO Tinto Daily Chart
On the broader market today, the Industrial stocks did best, Qantas a clear standout adding +3.53% following weakness in the Oil price overnight, while the Real Estate stocks were hit hardest - an overall range of +/- 41 points, a high of 5779, a low of 5738 and a close of 5744, off -28pts or -0.49%.
ASX 200 Intra-Day Chart
ASX 200 Daily Chart
Have a great night
The Market Matters Team
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