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ASX down 0.5%, reporting season peaks

Daily Market Update (7)

ASX down 0.5%, reporting season peaks, Coles (ASX:COL), Woolworths (ASX:WOW) sold off

The ASX200 (ASX:XJO) fell 0.5% on what was one of the busiest days of reporting season, with 20 companies releasing either half-year or quarterly updates.

The consumer staples sector was the biggest detractor, falling 3.5% on fears that recent trends will slow, with the property sector also falling 2.2%.

Coles (ASX:COL) reported an 8% increase in revenue for the first half to $20.6 billion, with comparable store sales of 7.2% well above the longer-term average of 3%.

Growth in liquor sales, up 15.1%, was also a key driver of the 14.5% increase in net profit, which hit $560 million.

Management announced a 10% increase in the dividend to 33 cents but noted recent sales growth trends are unlikely to be sustainable in the longer term. This seemed a fairly obvious and innocuous statement, but shares fell 5.4% on the news.

The key for COL and Woolworths (ASX:WOW), which fell 4.6%, will be improving profit margins via a higher portion of online sales and supply chain efficiencies.

Westpac Bank (ASX:WBC) reported a 54% increase in quarterly profit to $2.2 billion in the first quarter, excluding the impact of loan impairments and write-downs.

Revenue improved by just 1%, but a 2% fall in expenses and an improvement in the net interest margin to 2.06% were the highlights. The dividend decision won’t be made until April but shares added 4.6% on the news.

Real estate sector turning the corner despite Charter Hall (ASX:CHC) and Vicinity (ASX:VCX) profits hit

Chadstone shopping centre owner Vicinity Centres (ASX:VCX) offered some positive news amid what was a difficult second half for the group.

Management announced a $394.1 million loss for the year, driven primarily by the $572.4 million reduction in the value of their property portfolio.

Despite the devaluation, the company reported that cash collection has now reached 72% including Victoria, with visitation also nearing 80% across each of their key assets.

Funds from operations, or more importantly distributable income, fell to $267.1 million. Distribution of 3.4 cents was announced, 50% of 2020’s payment, but a payout ratio of 65% of income.

Despite the weak performance, VCX’s net tangible asset value of $2.17 is well above the current share price, offering long-term investors a rare discount for a high quality property portfolio.

Charter Hall (ASX:CHC) experienced a similarly difficult year, albeit with a more diversified portfolio of properties. Occupancy across CHC’s $46.4 billion portfolio is now around 97.1%, however, operating earnings fell 42.7% in the first half.

Looking beyond the headlines, the significant fall in profit was actually due to a large performance fee received in the previous year making comparisons difficult. The dividend was increased 6% but shares fell 7.0% on the news.

Winners and losers from the pandemic, Treasury Wine (ASX:TWE) and Domino’s (ASX:DMP) report

Treasury Wine Estates (ASX:TWE) announced that they expect zero contribution from their Chinese business in the second half of 2021, but suggested they may have found alternative destinations for a significant portion of the wine allocated to Chinese markets.

It remains to be a sign whether shareholders trust the company, but shares increased 2.4% despite reporting a 43% fall in profit to $120.9 million on the back of an 8.2% fall in revenue.

The dividend was also cut by 25% with the CEO citing disruptions to sales channels, shipments, and of course the Chinese anti-dumping complaints.

Yesterday’s zero is today’s hero, with Domino’s Pizza (ASX:DMP) delivering a record dividend after reporting a 20.9% increase in group revenue to $1.1 billion in the first half.

Net profit also improved by 37.9% and importantly ‘network’ or franchise sales were the key driver, up 16.5% with management suggesting consumers had brought forward long-term deposits for home-delivered food.

Growth across all countries, including Germany and Japan was positive, with the CEO now flagging further acquisitions and store openings.

US markets pare gains, bond yields fall, Berkshire Hathaway (NYSE:BRK.A) hunting for yield

US markets took a breather overnight, with the technology and industrials sectors sending the Nasdaq and S&P500 down 0.6% and 0.1% respectively.

The weakness was driven by a better-than-expected retail sales result in January, which jumped 5.3% compared to expert forecasts of just 1.1%.

Traders are seemingly becoming wary of the threat that too much stimulus has been injected into the economy, increasing the risk of a breakout in inflation and potentially threatening highly valued unprofitable companies.

With little in the way of major news, Berkshire Hathaway’s (NYSE:BRK.A) release of its quarterly portfolio changes saw shares in Chevron (NYSE:CVX) jump 3.0%, with Warren Buffet clearly looking for income in ‘undervalued’ companies.

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