☕️ Three Weeks of Wins: ASX Climbs as Retail Sales Stagnate

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Welcome to Equity Espresso’s Market Recap.

The Australian sharemarket closed near record highs on Friday, with the S&P/ASX 200 Index gaining 0.6% to 8,091.9 points. This marked the third consecutive week of gains, up 0.9% for the week and over 3% in the past three weeks.

Industrials (+1.65%) was the best-performing sector, with Downer EDI (+16.95%) and Qantas (+5.34%) some of the best performers. Energy (+1.27%) stocks performed well, buoyed by higher oil prices and strong U.S. GDP figures. Woodside Energy (+2.07%) and Yancoal (+2.47%) saw notable increases. The Consumer Discretionary (-0.46%) sector was the worst performer, with Harvey Norman leading the fall after a 35% drop in net profit.

Australian retail sales were flat in July 2024, falling short of the expected 0.3% increase. Household goods and other retail sectors remained unchanged, while food retailing saw a slight uptick. Clothing and footwear sales declined, and the hospitality sector continued downward for the third straight month.

Corporate Earnings

• Appen (-17.70%) reported narrowed losses for the year's first half. Revenue fell 18.4% to $113.4 million, or 1.5%, excluding the Google contract loss. A $13.5 million cost-cutting program helped reduce the underlying earnings loss to $2.6 million. The statutory loss improved to $17.8 million, with $30.6 million cash on hand as of July 31, 2024.

• Austal (+2.63%) reported a revenue decline to $1.47 billion in FY24 from $1.59 billion the previous year, attributing the drop to reduced shipbuilding activity. The company incurred a $57 million charge for legal costs and fines related to a U.S. regulatory investigation.

• Downer EDI (+16.95%) reported a significant turnaround, posting an $82 million annual profit compared to a $386 million loss the previous year. Despite a $600 million revenue decline to $11 billion, the company managed to cut over $1 billion in costs. Underlying earnings met expectations at $380 million. Downer increased its final dividend to 11¢ per share, bringing the total dividend to 17¢ per share.

• Harvey Norman (-6.34%) reported a 35% drop in net profit to $352.5 million for FY2023-24, with total sales declining 3.6% to $8.86 billion. Despite the downturn, attributed to reduced discretionary spending amid cost-of-living pressures, the company maintained its final dividend at 12¢ per share.

• Ramsay Health Care (-6.75%) reported a 24.5% increase in underlying net profit to $300.1 million for fiscal 2024. The company raised its full-year dividend to 80¢ from 75¢, fully franked.

• TPG Telecom (+8.30%) announced 120 job cuts to save $20 million following a 40% drop in interim net profit to $29 million. While revenue remained flat at $2.7 billion, increased finance costs impacted profitability. The company saw growth in mobile subscribers but lost broadband customers to competitors.

Wall Street

The U.S. stock market showed mixed performance on Thursday, with the Dow Jones (+0.59%) reaching a record high close of 41,335.05. The positive movement was supported by strong U.S. economic data, particularly robust consumer spending figures that reinforced expectations of the country avoiding a recession. Despite this, the S&P 500 remained flat, while the Nasdaq declined 0.23%.

However, the broader market performance was tempered by Nvidia's (-6.38%) stock decline. The artificial intelligence chipmaker's shares dropped after its forecast, while meeting expectations, failed to excite investors.

Dollar General's shares plummeted 32% after slashing full-year guidance, citing financially constrained customers. Q2 results were disappointing, with an EPS of $1.70 and a revenue of $10.21 billion, both below expectations. The company now forecasts lower same-store sales growth of 1.0% to 1.6% and reduced EPS of $5.50 to $6.20 for fiscal 2024. Affirm's shares surged about 32% following a stronger-than-expected revenue outlook for Q1 FY2024, projecting $640-670 million against analysts' $625 million estimate. The buy now, pay later company reported Q4 FY2023 results beating expectations, with revenue up 48% year-over-year to $659 million and a narrowed net loss of $45.1 million.

S&P500 Sector Performance

Economic Data

• Australian Retail sales stagnated from a year earlier in July 2024, missing market forecasts of a 0.3% rise, coming on the back of three consecutive months of growth.

• France's annual inflation rate slowed to 1.9% in August 2024, the lowest reading since 2021. After a 2.3% rise in July, the reading was slightly ahead of forecasts of 1.8%.

• Japan’s Unemployment rate was 2.7% in July 2024, compared with market estimates and June's figure of 2.5%. It was the highest jobless rate since August 2023, as the number of unemployed rose by 110,000 to 1.87 million.

• U.S. GDP grew at an annual rate of 3.0% in the second quarter of 2024, up from 2.8% in the initial estimate and 1.4% in the first quarter. The upward revision was mainly due to increased consumer spending (2.9% vs 2.3% earlier reported).

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Quick Singles

🌎️ Around The Globe

• Berkshire Hathaway has continued to reduce its stake in Bank of America, selling approximately 24.7 million shares between August 23 and 27 for $981.9 million. This latest transaction is part of a larger sell-off that began in mid-July, with Berkshire divesting about $5.4 billion worth of Bank of America shares.

• Google has announced the partial resumption of its AI-powered image generation feature for people on its Gemini platform. This comes six months after the company suspended the service due to controversies over historically inaccurate and racially problematic depictions.

• OpenAI is reportedly discussing a new funding round that could value the artificial intelligence startup at over $100 billion. According to a confidential source, Thrive Capital is set to lead the round with a $1 billion investment. This potential valuation represents a significant increase from the company's reported $80 billion valuation earlier this year.

• OpenSea, a leading NFT marketplace, received a Wells notice from the SEC threatening legal action. CEO Devin Finzer announced on X that the SEC believes NFTs on their platform should be classified as securities, potentially subjecting them to stricter regulations.

• Telegram CEO Pavel Durov was released from police custody in France but faces preliminary charges related to illicit activities on the messaging app. The charges include complicity in managing a platform enabling illegal transactions, distribution of child sexual abuse material, drug trafficking, and fraud. Durov was released on a €5 million bail.

• Chinese electric vehicle manufacturer Xpeng announced that its mass-market brand Mona will offer models under $17,000. The basic Mona M03 electric coupe, priced at 119,800 yuan ($16,812), features a 515km range and parking assist. The offerings significantly undercut Tesla's cheapest Model 3 in China, which sells for 231,900 yuan after recent price reductions.

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*1-year, 3-year and 5-year returns are calculated as of July 31 2024.

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