Good Evening,

Welcome to Equity Espresso

We’re here to catch you up on all the day’s news both in Oz and abroad.

Here’s a sample of what you may have missed today:

1. 👗 City Chics Discount Drama

2. 🦑 China and Japan’s Seafood Stouch

3. ⚒️ Investors Don’t Buy Chalices Valuation

4. ✈️ Flight Centre To Pay Back Shareholders

5. 👩🏻‍⚖️ Grayscale Gets Favourable Court Ruling - Bitcoin Rises

The Recap

CPI Rate Surprise: Lower Figures Propel Markets Upward

The day began on a positive note and received an additional boost in the afternoon when the July CPI was reported. CPI came in at 4.9%, which was lower than the estimated 5.2% and a decrease from June's reading of 5.4%. Markets are now anticipating that the Reserve Bank of Australia (RBA) will keep the cash rate unchanged during its meeting next Tuesday. The ASX200 closed 1.2% higher to 7,297.70, the largest single-day gain since mid-July.

Nine of the 11 sectors finished in the green, led by Industrials (+2.14%) which got a boost from Brambles, who rose by 7.1% after reporting full-year earnings. Health Care (+1.81%) was the other big winner, with CSL (+1.8%), Cochlear (+2.6%) and Sonic Healthcare (+1.0%) all finishing higher.

The Australian dollar dropped 0.4% to US64.54c after the July inflation read, reinforcing the belief the RBA will keep rates at 4.1% next week.

The value of Bitcoin rose by 5% overnight following the news that Grayscale had won its appeal against the SEC to convert its Bitcoin trust to a Spot ETF. The judge ordered a review of the previous denial of Grayscale’s application for a spot Bitcoin ETF. The price of Bitcoin is currently trading at US$27,436.

ASX200 Stock Snapshot

Wall Street

Wall Street made it three consecutive days of gains, as U.S. Bond yields fell from their highest levels in decades following some disappointing economic data.

The U.S. JOLT job openings for July fell below 9 million for the first time since May 2021, indicating a slowdown in the labour market before August’s non-farm payroll data release this week. Additionally, consumer confidence unexpectedly dropped in August.

Although Chairman Powell’s recent statements were hawkish, this data suggests that the Fed’s hiking cycle may end earlier than anticipated. The U.S. 2-year bond yields decreased by 12 basis points to 4.89%, the lowest in over two weeks.

Technology companies led the way in the strong market rally, with all major companies ending the day on a positive note. Tesla saw a 7.7% rise in its stock price, while Nvidia reached a record high with a 4.2% increase. All sectors in the S&P 500 index finished higher, with Consumer Discretionary, Technology, and Communication Services leading the way with gains of over 2%.

Economic News

• The total number of dwellings approved decreased by 8.1%. Private sector houses rose 0.1%, while private sector dwellings, excluding homes, fell 15.8%.

• The Consumer Price Indicator (CPI) for July dropped to 4.9% from June’s 5.4%, which was above forecasts of 5.2%. Housing (+7.3%) and Food and non-alcoholic beverages (+5.6%) saw the most significant price rises. Whilst Automotive fuel (-7.6%) fell the most. Annual trimmed mean inflation was 5.6% in July, lower than the rise of 6.0% in June and 6.1% in May.

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Quick Singles

🪃 Local News

• 29Metals reported a $307 million loss, exacerbated by $206 million of impairments against its Capricorn Copper asset in QLD. The copper and zinc miner faced operational disruptions and damages from extreme weather in the first half of 2023.

• Dicker Data said its diverse vendors and technology portfolio helped it navigate a decline in device sales as the IT distributor reported a first-half NPAT increase of 9.4% to $37.6 million. Revenue increased by 5.3% to $1.1 billion despite the fall in sales from devices.

• Orora has been granted approval from the ASX to have its shares remain temporarily suspended whilst in advanced discussions with French glass bottle maker Saverglass SAS regarding a potential buyout. Orora shares have been in a trading halt since Monday.

• Online SME lender Prospsa posted a $44.9m after-tax loss, with higher-than-expected arrears forcing them to provision higher losses. The company saw 90-day delinquencies jump from 1.9% to 3.4%.

• REX announced a statutory profit after tax of $14.4 million for FY23, in stark contrast to the $46.1 million loss last year.

• Seven Group sold down its stake in building products group Boral to 71.6% with the sale of a 1% chunk at an average price of $4.90.

🌏 Around The Globe

• Chipotle Mexican Grill will pay Washington DC ~$322k to resolve 800+ alleged violations of the city’s child labour laws logged since 2020.

• Google plans to license mapping data to companies for renewable energy product development, with aims to generate up to $100 million in the first year.

• Toyota has suspended operations at all 14 of its assembly plants in Japan due to a production system malfunction.

• Disney aims to revive its streaming business in India by offering free cricket on smartphones. The strategy aims to boost ad revenue and offset falling subscriber numbers.

₿ Crypto Corner

• The price of Bitcoin shot up 5% overnight after Grayscale won its appeal against the SEC to convert its Bitcoin trust to a Spot ETF. A judge ordered that the denial of Grayscale’s spot Bitcoin ETF application be reviewed. The decision potentially paves the way for Grayscale and other applications for a spot ETF to be approved—including Blackrock, Ark, Van Eck and Fidelity.

Markets

Index & Commodity Prices

Bond Prices

ASX By Sector

ETF Watch

Movers and Shakers

✅ Biggest Gainers

Bramble’s (BXB) share price rose 7.1% to finish the day at $15.15 after reporting better-than-expected earnings, with a Sales Revenue increase of 14% (c.c) and an Underlying Profit jump of 19% (c.c).

The pallet producer also lifted its dividend to US$0.26 p/s for FY23 - up from $0.23 last year. Brambles attributed the growth in sales to higher prices, as volumes declined 2% due to pallet availability issues in 1HFY23.

The company’s outlook was received well by markets, driving the share price higher. It guided for a Sales Revenue growth of between 6-8% and an Underlying Profit increase of between 9-12%.

Healius (HLS) shares were up 7.8% today despite cutting its final dividend. The company met its underlying EBIT guidance of $99 million - a fall from $487 million in FY22, with a staggering but unsurprising 89% reduction in COVID-19 testing.

Core Revenue (excl. Covid testing) rose 6.3% to $1.6 billion. Statutory NPAT was $25.7 million, down from $306.6 million in FY22 due to less COVID testing and a non-cash impairment charge to goodwill of $349.8 million in its Pathology division.

Before today’s announcement, Healius shares were down almost 27% in the last 12 months after reaching highs of over $5.00 in late December 2021.

🔻Biggest Fallers

Chalice Mining (CHN) has released the scoping study for its Gonneville Nickel-Copper-PGE Project in Western Australia, which it fully owns. The study includes two options for the mine's size, with the extraction of platinum group elements, nickel, and other critical minerals. According to Chalice, extracting 15 million tonnes of ore annually would require a budget of $1.6 billion. Doubling the mine's size would cost up to $2.3 billion.

Despite the promise of a two-year payback, investors were more focused on the lower-than-expected nickel production from the mine and the use of commodity price forecasts well above current market prices. Chalice ended the day down 25% to $3.77.

City Chic (CCX) woes continue, sinking 4.8% as the women’s apparel retailer reported a 15.8% drop in sales to $268.4m and an NPAT Loss from continuing operations of $45m.

City Chic said that trading remained volatile across each market, requiring heavy promotional activity to drive sales of ageing stock. After reporting 40.4% gross margins in FY23, City Chic said it would target 60% gross margins next year. A staggering drop from the 62.5% in FY21.

To go from bad to worse, sales in the first eight weeks of FY24 are down 33% from the PCP as the company aggressively tries to clear winter inventory from its ANZ market and summer range from the USA.

Deep Dive

Flight Centre Announces

$485M Profit Turnaround

Flight Centre Travel Group reported a significant profit turnaround for FY23. The company achieved an underlying EBITDA of $301.6 million, marking a reversal of almost $485 million from the previous year’s loss of $183.1 million. Key financial highlights include:

• 112% total transaction value (TTV) growth to $22 billion.

• A year-on-year turnaround in underlying EBITDA of about $485 million to reach $301.6 million.

• Revenue margin of 10.39% - up 70 bps YoY

• Record low underlying cost margin of 9.6%

• Final Dividend of $0.18 per share, representing a 52% return of the underlying net profit after tax (NPAT) to shareholders.

As was previously indicated by the company, almost 70% of the underlying EBITDA was generated during the last six months of FY23. The improvement came upon improved market conditions as global travel restrictions were lifted, airline capacity increased, and normal travel seasonality resumed.

Flight Centre also reported growing results from the corporate side of the business, stating it had “comfortably out-paced the broader industry recovery.” TTV rose 96% to $11 billion in this segment, with milestones in all geographic regions.

The company also announced a new capital management policy, allocating 50 - 60% of NPAT to shareholders as dividends or share buybacks from FY24. During the pandemic, Flight Centre was forced into capital raises and took on $800 million in convertible notes as losses plunged to $2 billion before tax.

No specific FY24 financial guidance was provided, with the company stating it expects more favourable industry dynamics for travellers as airfare prices gradually decrease. Whilst revenue margin has improved from last year, it’s expected to remain below historical levels as the company moves into higher growth but lower revenue margin areas, including online leisure and business travel.

What The?

Japan Releases Radioactive Water,
But Is It Safe?

In a move that sounds like it’s straight out of a movie, Japan has started releasing treated radioactive water from the Fukushima power plant into the Pacific Ocean. This comes 12 years after a cinematic-like disaster involving an earthquake, a tsunami, and a nuclear meltdown. Since then, the power plant has produced contaminated water daily, filling over 1,000 tanks - more than 500 Olympic swimming pools worth of water!

Japan’s reasoning? They need the space for new facilities to shut down the plant safely. Plus, there’s the looming fear of what might happen if these tanks collapse during another natural disaster. The International Atomic Energy Agency (IAEA) gave Japan the thumbs up for the release, which will be done in four phases until March 2024.

But here’s the twist: the water contains tritium, a radioactive hydrogen element. While many experts say it’s safe, not all scientists agree with that conclusion.

Tritium is found in water globally, and many argue that there's minimal impact if its levels are low. However, some critics believe more research is needed, especially on its potential effects on marine life and humans. The IAEA, stationed at Fukushima, assures that the tritium levels are way below the danger mark. Japan’s environment ministry has reported safe radioactivity levels in recent seawater samples. Some experts even claim you could drink this water!

Last week, China, the largest purchaser of seafood from Japan, said it will no longer allow imports of such products. China, who has been against this move for the past two years, criticised Japan’s water discharge as “selfish and irresponsible.” China’s customs office then declared that the current ban on seafood imports from Fukushima and certain prefectures would be expanded to include all of Japan in the interest of safeguarding the health of Chinese consumers. China believes Japan’s actions will have severe and lasting consequences for future generations.

A Little Extra

📉 Going Down?

Top 10 shorted stocks on the ASX - as of August 24

1. Flight Centre (FLT) - 10.35%

2. Syrah Resources (SYR) - 9.11%

3. Elders Limited (ELD) - 8.93%

4. Pilbara Resources (PLS) - 8.58%

5. Lake Resources (LKE) - 8.50%

6. IDP Education (IEL) - 8.31%

7. JB Hi-Fi (JBH) - 8.18%

8. Brainchip (BRN) - 7.85%

9. Imugene (IMU) - 7.68%

10. 29Metals (29M) - 7.45% 

📊Broker Ratings

What do the brokers have to say?

1. Adbri (ABC) - Downgraded to Underperform from Neutral (Macquarie)

2. APM Human Services International (APM) - Upgraded to Buy from Hold (Bell Potter)

3. DGL Group (DGL) - Upgraded to Add from Hold (Morgans)

4. Imdex (IMD) - Upgrade to Buy from Neutral (UBS)

5. Mineral Resources (MIN) - Upgrade to Buy from Neutral (Citi)

6. Resimac Group (RMC) - Downgrade to Neutral from Buy (Citi)

7. Star Entertainment (SGR) - Upgraded to Outperform from Neutral (Macquarie)

💲Dividends

Companies trading ex-dividend today

1. 360 Capital Mortgage REIT (TCF) $0.035

2. Bapcor (BAP) $0.115

3. Bell Financial Group (BFG) $0.03

4. Evolution Mining (EVN) $0.02

5. Humm Group (HUM) $0.01

6. KKR Credit Income Fund (KKC) $0.017

7. Maxiparts (MXI) $0.032

8. Mcgrath (MEA) $0.035

9. Ooh!Media (OML) $0.018

10. Perpetual Credit Income Trust (PCI) $0.007

11. Propel Funeral Partners (PFP) $0.069

12. Telstra Group (TLS) $0.085

13. Ventia Services Group (VNT) $0.083

14. Wesfarmers (WES) $1.03

📅 Economic Calendar

Data to keep an eye on this week

DISCLAIMER: None of the information provided in this newsletter should be constituted as financial advice. This newsletter is strictly for educational purposes only. It should not be taken as investment advice or a solicitation to buy or sell assets or make financial decisions. Please do your research.