Stock in focus: CSL Limited (CSL.ASX)
CSL shares edged up +0.6%, after last week’s “Ozempic” sell-off. CSL boss Paul McKenzie is confident that weight-loss drugs such as Ozempic are no threat to the company’s success as the biotech giant champions growth opportunities after a week of heightened investor scrutiny. We see the stock as oversold, and welcome anything below $255 as an attractive entry point. As seen above we see RSI (Relative Strength Index) at 26 the lowest it has been in over a decade as an indicator that the stock is greatly oversold. CSL currently trades at $239 per share which is a 4-year low. On a valuation basis, CSL trades at 26x forward earnings which is “cheap” for a quality compounder like CSL – well below its historical average forward PE multiple of about 30-40x. We reiterate BUY on CSL.
Aus/NZ
The Australian market (ASX 200 Index, -0.4%) was down on Monday, following a weak lead from Wall Street, as investors flocked to safe-haven assets.
The New Zealand market (NZ 50 Index, -0.7%) was down yesterday, mainly bought down by Fletcher Building’s plumbing products issues. Forbar is estimating ~$100mn in associated costs with a potential Fletcher lawsuit, while Craig’s is estimating a $2bn cost if a full product recall is required. Both estimates are so wide you could drive a truck through them and reliant on very different and uncertain outcomes — we prefer to sit on the sidelines for this one.
Noting Synlait and A2 now move to arbitration re: A2’s cancellation of the exclusive supply rights that Synlait previously held. Link. We prefer to avoid the dairy industry.
DGL shares sank 5% as markets (over)reacted to news the company’s chair will stand down. The investment case for DGL has not changed. Trades at 11x earnings, owner-operator run and controlled. We know it is not “fashionable” to like DGL – Simon Henry is hardly contender for Wokester Of The Year (he’s up there with Uncle Bob Jones for that, who issued a farewell post on his excellent blog following the election) – but we think Henry is an excellent operator whose net worth is tied up in the company – skin in the game. Sitting at 76 cents we think its a very good time to either add or initiate a position. 5x EBITDA, 11x earnings, hard to not see the value. Tower shares rose +4.9% after revising its net profit guidance for the 2023 financial year — investors in the beleaguered insurer. It now expects net profit to be between $7m to $10m, including large events, which is up from its previous guidance of at $3m loss to $2m profit. The company performed well thanks to higher interest rates, +17% is gross written premiums, and lower large event allowance.
US
US Markets were up overnight (S&P 500 Index, +1.1%) as investors prepare for a busy week of corporate earnings, reversing their risk appetite from last Friday largely driven by conflict in the Middle East.
Charles Schwab rose +4.7% after following suit with the major banks to beat market expectations for its quarterly result — the broker saw a deceleration of deposit flight from customers, meaning total deposits sat at $284.4 billion vs. analyst expectations of ~$260bn. N.I revenue sat just north of ~$2.2bn and earnings came in just ahead of expectations at 77 cents per share. We’ve been long on Charles Schwab since it sat under $50.00 a share and we haven’t changed our view. Deposit flight starting to slow is a very good sign, while new assets grew by $46bn in the quarter — a good turnaround.
Noting Dollar General has bought back former CEO Todd Vasos (Starbucks and Disney called; they want their idea back). Vasos oversaw DG when it went on a rockstar path of expansion from 2015-2022. We said last week that Dollar General needs to do something (reputationally, business-wise, potential lawsuit-wise). Bringing back Vasos feels like a good sign. The stock is up 10% on the news. Will the second time around be as good as the first?Manchester United is down ~10% on the news that Jim Ratcliffe will be purchasing ~25% of the club, pending board approval. This thing has been a dog for us. We don’t like the deal and it has been a disaster for shareholders. In brighter news, Microsoft is completing its acquisition of Activision-Blizzard at $95 a share. We had both as arbitrage ideas. One worked out, one didn’t. We wouldn’t hold our breath on the MANU deal, though — “it’s not over ‘til the fat lady sings’“.
Stock in focus: Charles Schwab Corporation (SCHW.NYSE)
Charles Schwab third-quarter earnings beat market expectations as clients continued to favour market markets over leaving them in the bank.
Bank deposit account balances of $99.5 billion vs. $102.7 billion in the previous quarter and $139.6 billion for the same corresponding period last year. Meanwhile, money market fund assets were a standout sitting at $436.3 billion and increased from $392.9 billion in the previous quarter and up from $211.1 billion in the same corresponding period last year.
Revenue was in line with expectations at $4.61 billion for the quarter, the stand-out was earnings per share which came in at $0.77 ahead of average estimate of $0.74. Full-year 2023 revenue is expected to decline 8% to 9% versus the prior year. Retaining buy.