ASX News Live | ASX Up; Qantas Spikes, Elmo Software Approached By Accel-KKR

When it comes to the doom and gloom in markets RIGHT NOW, there is a bright spot on the horizon…

Commodities.

Despite enormous falls in the US market over the last few weeks, if you’re holding large-cap mining stocks, you’re probably faring pretty well. This was the message I conveyed to readers of The Insider last week.

It’s one reason Australia’s leading index, the S&P ASX 200, continues to pivot away from the US S&P 500.

Why?

While both indices represent the largest companies for their respective countries, it’s Australia’s heavy weighting toward mining stocks that is giving it an edge against the tech-dominant US index.

As you can see from the chart below, the 12% decline in the Aussie looks reasonable when you compare it to the huge 25% sell-off in US markets since the beginning of the year:

Overlaying Australia’s two largest diversified mining companies indicates why the Aussie index might be holding up quite well. BHP [ASX:BHP] is strongly ahead of the ASX 200, up 5% for the year, and Rio Tinto [ASX:RIO] is down a moderate 6%.

The weighting of these two stocks (within the index), in addition to other large-cap miners, has given the Aussie market a boost relative to global indices:

In every boom-and-bust story, there’s always a winner and a loser.

It’s not often you see BHP or RIO stock prices overlayed against the Nasdaq Tech Index, but I thought it would offer an interesting comparison to see the diverging markets and highlight the stark contrast.

I’ve used the Nasdaq 100, as it holds the world’s 100 largest tech firms. As you can see, it’s been a brutal year for the group, down a whopping 41%. But the story for our two largest diversified miners is very different, as you can see below:

It demonstrates a point I made just last month: this global bear market is squarely focused on overvalued tech stocks. It’s why I drew the comparison to the dotcom bubble of 2000.

https://www.dailyreckoning.com.au/commodity-stocks-a-pillar-of-strength-in-this-growing-bear-market/2022/10/13/

Qantas hit pre-Covid service levels in the first half of October as travel demand continues to rebound following the pandemic embargo.

Domestic travel is particularly strong.

Revenue intakes for domestic leisure travel has risen to 130% of pre-Covid levels. Revenue for business purposes has rebounded to 100%.

Domestic performance wasn’t without its hiccups.

Jetstar had a bad September, when six of its 11 wide-body aircraft went out of service simultaneously.

QAN blamed lightning strikes, a bird strike, runway debris, and global supply chain snarls. The grounded aircraft have since returned to service, with Jetstar’s domestic and international performance ‘stabilised significantly in October’.

The strength of travel demand is accelerating QAN’s business recovery following five consecutive halves of heavy losses, which in aggregate totalled $7 billion.

For 1H23, however, Qantas expects underlying profit before tax to be between $1.2 billion and $1.3 billion.

Qantas is also anticipating net debt to fall to between $3.2 billion and $3.4 billion by the end of 2022.

The forecasted debt position sits below QAN’s minimum target range of $3.9 billion.

And Qantas Loyalty is expecting to post ‘record earnings’ for the first half. The segment is expected to reach its FY23 EBIT target of between $425 million and $450 million.

Qantas’ CEO, Alan Joyce, commented:

“Qantas’ operations are largely back to the standards people expect, and Jetstar’s performance has improved significantly in the past few weeks and will keep getting better with the extra investments we’re making.

The fact our financial recovery has accelerated means we can invest more in rewarding our employees, who are doing an amazing job. We’ll spend an additional $40 million a year on permanent pay increases for our people on top of the $200 million in cash and share bonuses we’ve announced for our people.”

Qantas did warn that the wider operating environment ‘remains complex’. QAN said high fuel prices, high inflation and rising interest rates are ‘impacting on consumer confidence’.

Despite this, the airline thinks people are prioritising travel:

‘Robust demand indicates that people are prioritising spending on travel above other categories, which supports the Group’s ability to fully recover higher fuel costs through fares.’

QAN’s own fuel costs are now 75% higher than pre-Covid but the airline is offsetting this with higher fares.

Drone stock Droneshield (ASX:DRO) released its September quarter results, ending the period with a bank balance of $7.5 million.

DRO shares were up 6% in late afternoon trade but are down 20% over the past six months.

Droneshield reported a positive operating cashflow quarter in September, with multiple ‘larger sized contracts’ received, including a $2 million European DroneSentry order and a $1.8 million US Department of Defence DroneGun order.

DRO reported the second highest cash receipt quarter of $5.6 million, up 103% on 2Q22.

However, that figure included government grants and tax incentives of $2 million.

Actual customer receipts for the quarter came in at $3.6 million.

If you remove the government grants, DRO ends the quarter with a negative operating cash flow of about $1 million.

Looking out, DRO said it has a $50 million sales pipeline for the remainder of 2022.

A further $180 million is slated for ‘2023 onwards’.

Droneshield did caution that these sales pipeline figures are not definitive – ‘there is no assurance that any of the company’s sales opportunities will result in sales.’

DRO said it will steer its sales pipeline towards US and Australian government customers.

Right now, over 75% of the firm’s revenues come from defence and 15% from the intelligence community.

But DRO said there is a ‘major opportunity for continued expansion into other markets including civilian airports, prisons, stadiums, and corporates’.

A group of prominent economists has petitioned the US Treasury Secretary Janet Yellen to support a price cap on Russian oil exports.

In a letter addressed to the Treasury Secretary, the group writes:

“As envisaged by the G7, the price cap would set a maximum price that Russian oil could be traded in conjunction with G7 services. This price, set in dollars, would be substantially below the world price, yet above the marginal cost of production in Russia. To use US, UK, EU, and allied financial services (such as insurance, credit, and payments), market participants will need to attest that all qualifying purchases are at or below this threshold.

“Given the importance of participating countries for global finance and for shipping, compliance with this cap will create pressure for a lower price on Russian oil moved by tanker. While we do not expect all trades will be performed under the price cap, its existence should materially increase the bargaining power of private and public sector entities that buy Russian oil.

“The price cap maintains economic incentives for Russia to produce current volumes. In April 2020, when the price of the Brent benchmark was close to $20, Russia continued to supply oil to world markets, because that price was above the cost of production in many or most existing Russian oil fields. Russian has little or no available onshore storage, and since shutting down and restarting oil fields is expensive and risky, it was more profitable for Russia to continue producing in the presence of low prices. The price of Brent now is around $96 per barrel, but Russia receives significantly less due to the “Urals discount”. This discount is caused by the perceived stigma of buying Russian products for some customers; they decline to bid for Russian oil, which reduces effective demand and lowers the price that the remaining customers need to pay.

“The oil price cap proposal would effectively institutionalize the Urals discount and consequently further lower the dollar value of the Russian government’s primary revenue stream.

“According to the IEA, Russian oil exports were 7.6 million barrels per day in August, down only slightly (390 kb/d) from pre-war levels. With revenue from coal and natural gas exports likely to decline and not rebound soon, the Russian government needs substantial oil revenue (in dollars) to pay its bills and keep the ruble from collapsing. The price cap as proposed gives the Russian government the incentive to continue to supply the world market but reduces the revenue available to fund their brutal war in Ukraine.”

The full letter can be read here.

 

 

Bank of New York Mellon — America’s oldest bank — said it will begin receiving clients’ cryptocurrencies this week onwards.

BNY Mellon becomes the first large US bank to safeguard digital assets like Bitcoin.

As the Wall Street Journal reports:

‘BNY Mellon won the approval of New York’s financial regulator earlier this fall to begin receiving select customers’ bitcoin and ether starting this week. The bank will store the keys required to access and transfer those assets, and provide the same bookkeeping services on those digital currencies that it offers to fund managers for their portfolios of stocks, bonds, commodities and other assets.’

Fidelity’s director of global macro, Jurrien Timmer, has reported that insiders are buying their company stock again … and in size … despite the current market sell-off.

For Timmer, it is a “glass half-full sign” as insiders can sell for all kinds of reasons but only buy for one.

Look who's bullish: Corporate insiders are buying their company stock again in size during this latest sell-off. As the saying goes, insiders sell for all kinds of reasons, but they only buy for one. Given the historical accuracy of their timing, it’s a glass-half-full sign. pic.twitter.com/Z3YcJUn9Rs

— Jurrien Timmer (@TimmerFidelity) October 12, 2022

Grappling with the complex world of stocks can be tricky for any investor. But when confusing investments deliver overnight success, it’s easy to feel like you missed out. No asset class is a better representative of this than cryptocurrency. Because while it is still a mystery to many, plenty of people are aware of crypto. And for that reason, you don’t want to be the last to know what crypto has to offer.

Do investors need to understand what they invest in?

This may seem like a stupid question to some, but it’s one that I think about a lot.

As someone who spends most of their day trawling through ASX updates, I often find myself having to familiarise myself with new and old stocks alike. Depending on the sector, it isn’t always easy.

Biotech companies, for example, are some of the worst offenders when it comes to investor accessibility — at least in my view.

Their business breakdowns are often so full of jargon or technical know-how that it will make your head spin. You have to have the patience to take the time necessary to fully unpack what it is they do, how they do it, and why it gives the biotech a competitive edge.

For most retail investors, I imagine they just don’t have the time to do the proper due diligence on a company like this. The time and effort required probably isn’t worth it compared to just sticking to blue chips or easier-to-understand stocks.

That is, until you see the fear of missing out (FOMO) kick in…

Whether it’s biotechs, mining explorers, or whatever else — the complex sectors are often the most speculative. These are the investments that can deliver triple-digit percentage returns in days, not years.

That’s what makes them hard to ignore.

Because even if you can’t understand the company, you can’t ignore the incredible gains.

While plenty of people know of #crypto, few actually know how it works.

60% of the surveyed people said they do not understand #cryptocurrencies.

In other words, there is a huge divide between awareness and understanding that crypto has yet to bridge. https://t.co/GwmZ4ln7JX

— Fat Tail Daily (@FatTailDaily) October 13, 2022

People still don’t get Bitcoin

This brings us to the heart of today’s topic: Bitcoin [BTC].

Because when it comes to investment assets, cryptocurrency is certainly one of the more confusing. The cryptographic nature of the blockchain is not an easy concept to wrap one’s head around.

I know it took me a couple of weeks to truly comprehend how blockchain works and the value it provides when I first delved into it. However, that was back in a time when information was far more limited, and a lot of explanations were flat-out wrong.

Today, the amount of free knowledge and resources to learn about blockchains and crypto is far more widespread. Better yet, they also do a far better job of simplifying the explanation to give people a better chance of actually understanding it.

For these reasons, the level of global understanding within crypto has grown a lot.

However, while plenty of people know of crypto’s existence, few actually know how it works.

Do you know how #blockchain and #cryptocurrencies work? #crypto #Bitcoin

— Fat Tail Daily (@FatTailDaily) October 13, 2022

https://www.moneymorning.com.au/20221013/most-people-still-dont-get-crypto-dont-be-one-of-them.html