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ASX News LIVE | Woolies CEO to Retire, Step One & Bravura Surge, Nvidia Dips, The Star & Humm Tumble

What is Humm’s actual return on cash equity?

Something in Humm’s interim report caught my eye.

‘Normalised return on cash equity’.

This normalised ROCE fell 3% in 1H24 to 10%.

Still not bad. But a big drop in 12 months. Not to mention this is a ‘normalised’ figure.

What would the actual, statutory ROCE be if we consulted the accounts?

First, Humm defines normalised ROCE as ‘annualised normalised cash profit after tax divided by the average total cash equity (total equity excluding reserves)’.

Quite a few variables there.

But, fine.

In 1H24, the average total equity excluding reserves was ~$562 million.

If we substitute normalised cash profit after tax for statutory net profit, we get negative ROCE since Humm made a net loss attributable to shareholders of $6 million.

But we know 1H23 normalised ROCE was 13%. What was the actual one for that half?

In 1H23, the average total equity excluding reserves was ~$582 million and the half-year statutory net profit was $7.5 million. Meaning that a more accurate ROCE is around 2.6% if you annualise that 1H23 profit…..

 

Carsales: great company, bad price

Our editorial director Greg Canavan wrote a piece for Livewire Markets on Carsales [ASX:CAR].

The gist: great company, bad price.

Read the piece here.

A snippet:

‘In fact, CAR doesn’t retain a great deal of its earnings. It pays out 80% of profits as a dividend.(But don’t worry, it’s a growth company!)

‘This growth isn’t coming from reinvested earnings. It’s coming from good prospects in new markets…purchased in the past few years for a very full price.

‘With this in mind, CAR trades at nearly 40 times FY24 forecast earnings, and around 34 times FY25 forecast earnings.

‘I could be wrong, but to me, this looks like a high price to pay for a company where profitability has been diminished by paying a high price for acquisitions. In Buffett’s words, this could cause a splendid business to become a poor investment for a painfully long period.’

Why did Humm tank yesterday?

Remember Humm [ASX:HUM]?

Humm was a solid consumer finance fintech but caught retail investor attention a few years back by offering buy now, pay later payment options.

It rode the BNPL wave up like the Afterpays, Zips, Sezzles, Laybuys, and Splitits. And the wave down.

Yesterday, it posted its interim FY24 report and shares fell ~20%.

Why?

Humm pointed to rising interest rates.

HUM swung to a statutory net loss of $6 million in 1H24, down from a statutory net profit of $7.5 million in 1H23.

The fintech said it was hurt by a $61.7 million increase in interest rate expenses, up 88% on the prior corresponding period.

Higher interest rates offset the continued growth in Humm’s receivables, which rose 23% to $4.65 billion.

CNBC running a Nvidia earnings countdown

These are the times we live in now…

The Magnificent Seven turns into the Terrific Two

Lovisa’s short interest hits 4-year high

This took me by surprise.

The Australian Financial Review reported that hedge funds are shorting jeweller Lovisa [ASX:LOV].

AFR’s Joshua Peach wrote:

‘Short sellers are piling into Lovisa at the highest level in almost four years ahead of what could prove to be a pivotal market update on the health of the discount jewellery retailer on Thursday.

‘Hedge funds betting against the stock now make up around 4 per cent of the share float, the most since 2020, when short positions topped 7 per cent amid sweeping pandemic-induced store closures and a global retail slump.’

4% is material. But not enough to get Lovisa to the ten most shorted stocks on the ASX.

That (dis)honour goes to:

  • Pilbara Minerals, with a short interest of 21.1%
  • Syrah Resources, at 18.2%
  • Core Lithium, at 12.3%
  • IDP Education, at 10.7%
  • Sayona Mining, at 10.4%
  • Deep Yellow, at 9.9%
  • Genesis Minerals, at 9.2%
  • Chalice Mining, at 9.2%
  • Weebit Nano, at 8.5%
  • Flight Centre, at 8.3%

Lovisa’s ~4% short interest puts it just outside the top 50 most shorted stocks. The retailer is down 7% from its all-time high registered in April 2023.

AFR’s Peach quoted a fund manager who said Lovisa is coming into earnings season with lofty embedded expectations:

‘“Expectations are very high coming into this result,” one local long-short fund manager betting against the stock told The Australian Financial Review, who was not authorised to speak publicly about the trade.

‘“It’s been priced for perfection,” they added, citing the stocks historically high share price, mounting global headwinds for retailers and declining same store sales as rationales behind their short bet.

‘“Some of the new stores may not be achieving the level economics that the market analysts have been expecting.”’

 

Are obvious trades better than clever trades?

The investing community on Twitter is vocal, intelligent, and opinionated.

A few days ago, one fintwit member — Citrini — made a big claim. Obvious ideas are better than clever ideas.

But is that true?

Asked if obvious ideas can have any alpha left, Citrini replied:

‘How obvious was it that artificial intelligence would become a great fundamental story after chatGPT was released? Or that Eli Lilly would make mountains of cash with a successful weight loss drug? Or even that growth stocks would fall precipitously as the Fed raised rates off zero?

‘The clever trades that work are amazing. And they make you feel better than anything. But the money from the obvious ones spends just as good.’

I’m still sceptical.

But it’s true that ‘obvious’ ideas worked well in the last 6-12 months.

Take Nvidia.

Nvidia hit the big-time in late May of last year after the ChatGPT hype. Enough for Greg Canavan and I to say on the very first episode of What’s Not Priced In that the easy money has been made. The picks and shovel thesis was priced in.

But since May 2023, Nvidia has nearly doubled.

Pretty obvious trade. Pretty good returns.

But how far does Citrini’s thesis generalise?

Some big moves in spot Bitcoin ETF land

Time to look at ASX gold explorers?

Did you hear Bitcoin is edging nearer to all-time highs?! It’s ‘only’ 30% off November 2021’s record!

Did you hear this chipmaker called Nvidia is worth more than Amazon and Google?!

Did you hear artificial intelligence is going to be huge?!

Yeah. Duh.

But did you hear gold explorers might be in deep value territory?

Uh…

Who the hell is talking about gold stocks now?

Brian Mr Gold Chu.

Yes, Now Is the Time to Look at ASX Gold Explorers

Nvidia’s upcoming results have markets on tenterhooks

Chipmaker Nvidia — the face of the artificial intelligence bull run — will release earnings tomorrow.

And the world is anxious.

Will the latest results continue to exceed expectations? Or will Nvidia’s accounts reveal a tempering of AI capital expenditure?

Here’s WSJ summing up the mood:

‘Investors are keying in on Nvidia’s earnings report Wednesday for clues about whether the artificial-intelligence-fueled frenzy that powered the market’s monster 2023 can continue. Although the three major stock indexes are back near record levels, all three posted declines last week.

‘Shares of the chip maker slid 4.4% Tuesday, their steepest decline since October, while options traders are wagering on even wider swings in the coming days. Even so, many investors doubt that short-term turbulence could derail any of the “Magnificent Seven” tech stocks that occupy an outsize portion of the market.’

Nvidia’s upcoming results are drawing the memes out.

Corporate Travel down 20% on profit guidance

Let’s peek at Corporate Travel’s interim results.

Corporate Travel engages in ‘procurement and delivery of travel and accommodation agency services’ for clients. And these activities yielded the firm the following fruits in 1H24:

  • Revenue up 24% to $361.5 million, a record
  • Profit before tax up 208% to $67.5 million
  • Net profit up 210% to $49.4 million

Why the sell-off?

Markets expect and markets look forward. Investors clearly expected better and didn’t like what’s next for Corporate Travel.

Despite the record half-year revenue, Q2 sales waned, leading to ‘softer than expected 1H revenue and EBITDA’.

Q2 saw a ‘decline in activity versus seasonal norms’. CTM blamed two factors: negative travel sentiment and tighter corporate budgets:

‘Negative travel sentiment as the conflict in the Middle East escalated. And corporate customer budgets being fully utilised by September 2023, due to unsustainably high-ticket prices, which was most acute in the northern hemisphere, particularly in the USA.’

 

Step One is up 400% in the last 12 months

What a recovery.

In November 2021, bamboo fibre undies retailer Step One [ASX:STP] debuted on the ASX, popping 80% higher than its issue price of $1.53 on the first day.

But the stock soon s**t its pants.

STP fell 90% in six months and shares dipped below 25 cents.

It languished there until around April 2023.

Then, Step One staged a recovery.

Since April 2023, the stock is up 485%. Step One is up 320% in the last six months alone.

Quite an interesting turnaround.

Good morning and what a news day

Good morning.

Kiryll here.

Wow, what a day it’s turning out to be.

We’ve got jitters over Nvidia’s earnings. We’ve got the fallout out from that Four Corners interview. We’ve got big moves for Step One, Humm, The Star, and others.

Let’s get to it!

Kiryll Prakapenka

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