Stock in Focus: Lynas Rare Earths (LYC.ASX)
Lynas shares slumped –6.2% after revealing a weak half year result for the 2023 financial year. Net revenue rose +18% from last year to $370m, however a +32% rise in operating costs due to higher chemical prices, utility tariff rates, employee costs and royalty costs weighed upon results.
As a result net profit slipped –4.3% from last year to $156.9m, ending its streak of explosive growth. The other major overhang is Lynas’ operating license in Malaysia has been renewed for another 3-years – with no change to the condition that the import and processing of lanthanide concentrate from July 2023. Lynas are looking to appeal the conditions; this would impact operations short-term, while long-term they have the option to operate its cracking and leaching component in Australia at its Kalgoorlie plant. There could be an option to continue to operate the leaching and cracking plant in Malaysia “if” the radioactive waste can be shipped out of the country.
We continue to rate Lynas as a BUY, and overlook short term hiccups and that long-term demand fundamentals will continue to play out in Lynas’ favor over the long-term. It also appears better value than lithium miners.
New Zealand Market Movers
The New Zealand market (NZX50 Index, -0.9%) was down yesterday following a weak lead from global markets on Friday as inflation data in the US continues to remain stubbornly high.
We enter the tail end of earnings season, with Genesis Energy reporting a soft result, down –0.7% due to weak margins and higher costs; the company increased its EBITDAF forecast +3% to $515m. – we remain BUY rated.
Australia Market Movers
The Australian market (ASX200 Index, -1.1%) fell to a 7-week low as weak earnings weigh down on the market.
Downer EDI crashed –23.7% to a three-year low after the company cut its full year earnings guidance.
Woodside Energy shares rose +1.5% after delivering a record net profit after tax of US$5.2b, up three-fold from the previous year benefiting from the BHP petroleum asset merger and realising average fuel price of $98.4 per boe. We remain HOLD rated on Woodside Energy on the basis that oil prices are more likely to slip over recessionary period, the stock not pricing in a weaker medium-term outlook.
US Market Movers
The S&P 500 eeked out a +0.31% gain as selling pressure eases; little to report. Worth noting demands being made by the activist trifecta at Salesforce – activist Starboard wants the company to aim for 30% net margins; similar to mega-cap peers like Microsoft. This strikes us as a big ask in a recessionary market — most tech companies are seeing their margins normalise to around 20-25% — the road to 30% for Salesforce may be some time away. Also of note is WarnerBrothersDiscovery – our buy-rated pick in media has gained +66% YTD. What caught our eye is the company’s narrowing loss from its streaming services (HBO Max, etc) – just +$217M; normally a $217 million dollar loss is nothing to crow about, but it stands up as impressive when compared to Disney’s +$1.5B streaming loss. Retain buy on WBD.
What Markets will be Watching this Week
Monday
Earnings from Lynas, Invocare, TPG telecom, Woodside Energy and Downer
Tuesday
Earnings From Restuarant Brands Heartland Group
Wednesday
Australian CPI data
Australian GDP
Meridian Energy Result
Thursday
US Manufacturing PMI (Producer Inflation) data
Eurozone Inflation data
Eurozone Unemployment data
Friday
Pushpay shares will vote on the proposed takeover from BGH Capital/Sixth Street.
Japan CPI (Inflation) Data
