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ASX News LIVE | XJO Opens Higher; Cettire, Zip, AGL, QBE, Boral, AMP All Feature

Some light reading on Cettire

Cettire is a very interesting stock, operating in luxury retail’s grey market.

Here’s some reading on the matter.

  • NYT: Luxury’s gray market is emerging from the shadow’s
    • ‘Cettire could be seen as a case study in how a company operates around the gray market. It claims to sell about 160,000 goods from around 1,300 high-end fashion brands on its “unique proprietary platform” via a process known as dropshipping. Dropshippers are online sellers that don’t keep any products in stock. Instead, when an item is purchased, they buy the item from overseas and ship it to the customer.

      ‘Cettire takes a commission on the sales, which are mostly of products made and priced in Europe to customers in the United States and Asia. Like Farfetch, a London-based site, Cettire is a middleman between boutiques and customers. Cettire has no direct relationship with the luxury brands.’

  • AFR: Cettire shares soar despite working in a ‘cloud of mystery’
    • ‘Investors fear brand owners might eventually crack down on Cettire’s suppliers and stymie its ability to source and sell at a discount.‘Cettire has geoblocked IP addresses originating from parts of Europe including France and Italy, preventing brand owners from seeing the products and prices it offers.’
  • Cettire’s own prospectus
    • ‘Cettire operates an entirely online model, whereby its technology platform integrates with suppliers’ enterprise resource planning (ERP) systems enabling the efficient fulfilment of Cettire’s customers’ orders directly from suppliers. Goods are delivered directly to the customer from the supplier. Cettire’s model, where no physical inventory is held by Cettire, enables the Company to offer one of the largest collections of luxury goods available online globally, without incurring inventory risk or requiring a capital‑intensive physical store footprint or warehousing facilities. Further, Cettire’s model enables capital efficient growth, a favourable (negative) working capital profile and strong margins.’

Source: Cettire

ASX 200 closes 0.26% higher on Thursday

The ASX 200 gained 0.26% on Thursday, fueled by the energy sector, which rallied 2.27%.

Cettire and Lake Resources were the best performers on the day, rising 12% and 27%, respectively.

That sentence has probably not been uttered since 2021.

Lake Resources rebounds ~30%

Dead-cat bounce? Or something more?

Bombed out lithium hopeful Lake Resources [ASX:LKE] is up nearly 30% in late Thursday trade.

Lake is set to present details on its Kachi Project in Argentina at the XII International Seminar on Lithium in the South American Region.

LKE is sponsoring this ‘important industry event’.

Part of the details Lake is set to divulge will be on Lilac Solutions’ direct lithium extraction process.

Unveiling its plans for the next six months, Lake said it will ‘commence negotiations on binding offtake agreements’. Presumably, these negotiations will be with SK On and WMC Energy.

Last year, LKE signed offtake conditional framework agreements withe the pair.

In the December 2022 quarterly, Lake said:

‘Following the close of the September quarter the company entered into two Conditional Framework Agreements covering offtake for up to 50,000 tpa lithium carbonate with WMC Energy and SK On. Both agreements also provided for each company to make a strategic equity investment in Lake Resources of up to 10 percent of the company’s issued capital adding circa A$358m prior to Final Investment Decision subject a number of condition precedents being met including due diligence by the parties. The signing of these agreements brings to an end discussion regarding offtake with a number of interested parties that had expressed interest in securing Kachi product.‘

Both CFAs are subject to LKE finalising the DFS.

Lake Resources rebounds ~30%

Dead-cat bounce? Or something more?

Bombed out lithium hopeful Lake Resources [ASX:LKE] is up nearly 30% in late Thursday trade.

Lake is set to present details on its Kachi Project in Argentina at the XII International Seminar on Lithium in the South American Region.

LKE is sponsoring this ‘important industry event’.

Part of the details Lake is set to divulge will be on Lilac Solutions’ direct lithium extraction process.

Unveiling its plans for the next six months, Lake said it will ‘commence negotiations on binding offtake agreements’. Presumably, these negotiations will be with SK On and WMC Energy.

Last year, LKE signed offtake conditional framework agreements withe the pair.

In the December 2022 quarterly, Lake said:

‘Following the close of the September quarter the company entered into two Conditional Framework Agreements covering offtake for up to 50,000 tpa lithium carbonate with WMC Energy and SK On. Both agreements also provided for each company to make a strategic equity investment in Lake Resources of up to 10 percent of the company’s issued capital adding circa A$358m prior to Final Investment Decision subject a number of condition precedents being met including due diligence by the parties. The signing of these agreements brings to an end discussion regarding offtake with a number of interested parties that had expressed interest in securing Kachi product.‘

Both CFAs are subject to LKE finalising the DFS.

Sony falls after signalling waning smartphone demand

Electronics and entertainment giant Sony Group is down over 6% — its biggest intraday plunge in a year — after indicating smartphone demand is waning.

Sony also issued guidance that undershot expectations.

Not a good combo; hence the intraday plummet.

Source: Sony Group

While Sony’s consolidated sales for the latest quarter rose a material 33% YoY, consolidated operating income fell an equally material 31%.

Sony fingered its Financial Services segment as the biggest drag on operating performance.

Here are some interesting performance breakdowns by segment.

PlayStation 5:

‘Total game play time during the quarter was only 2% higher year-on-year, and we see the year-on-year growth in software sales as being driven mainly by a considerable increase in spending per play hour by the expanding PS5 user base.’

Music:

‘In Recorded Music, we are continuing to deliver hits at a high level. During the quarter, 38 of our songs on average ranked in the Spotify weekly global top 100 songs.

‘More than 70% of songs listened to in the music streaming market in the U.S. are catalog songs that were released more than 18 months ago. So, creating continuous hits in the short-term simultaneously leads to an enhancement of future catalog and an increase in sales and market share over the mid- to long-term.’

Film:

‘Spider-Man: Across the Spider-Verse, which was released theatrically in June, has become a huge hit with box office revenue exceeding 680 million U.S. dollars worldwide as of August 7th, making it our highestgrossing animated film ever.’

Technology products:

‘The market environment for major product categories in the current quarter continued to be the same as the previous quarter, with televisions and smartphones facing severe conditions, while the market for digital cameras, headphones and other products remained strong.

‘As the business environment for televisions and smartphones is expected to continue to be severe, we will pay close attention to cost and inventory control. We also plan to proceed with the early reaping of income in the digital camera space by keeping up with recent strong demand.’

Smartphone sensors:

‘Recently, the smartphone product market is worsening compared with our expectations due to a delayed market recovery in China, a prolonged slump in the European market, and a slowdown in the North American market.

‘In our previous forecast, we assumed a gradual market recovery from the second half of the current fiscal year, but we have postponed that to the beginning of next calendar year or the next fiscal year and have incorporated this revised timing into our sales forecast.

‘In addition, in light of such product market conditions, smartphone manufacturers are making even further adjustments to their parts procurement, and this is having a significant impact on the second quarter following on the first quarter.’

Sony falls after signalling waning smartphone demand

Electronics and entertainment giant Sony Group is down over 6% — its biggest intraday plunge in a year — after indicating smartphone demand is waning.

Sony also issued guidance that undershot expectations.

Not a good combo; hence the intraday plummet.

Source: Sony Group

While Sony’s consolidated sales for the latest quarter rose a material 33% YoY, consolidated operating income fell an equally material 31%.

Sony fingered its Financial Services segment as the biggest drag on operating performance.

Here are some interesting performance breakdowns by segment.

PlayStation 5:

‘Total game play time during the quarter was only 2% higher year-on-year, and we see the year-on-year growth in software sales as being driven mainly by a considerable increase in spending per play hour by the expanding PS5 user base.’

Music:

‘In Recorded Music, we are continuing to deliver hits at a high level. During the quarter, 38 of our songs on average ranked in the Spotify weekly global top 100 songs.

‘More than 70% of songs listened to in the music streaming market in the U.S. are catalog songs that were released more than 18 months ago. So, creating continuous hits in the short-term simultaneously leads to an enhancement of future catalog and an increase in sales and market share over the mid- to long-term.’

Film:

‘Spider-Man: Across the Spider-Verse, which was released theatrically in June, has become a huge hit with box office revenue exceeding 680 million U.S. dollars worldwide as of August 7th, making it our highestgrossing animated film ever.’

Technology products:

‘The market environment for major product categories in the current quarter continued to be the same as the previous quarter, with televisions and smartphones facing severe conditions, while the market for digital cameras, headphones and other products remained strong.

‘As the business environment for televisions and smartphones is expected to continue to be severe, we will pay close attention to cost and inventory control. We also plan to proceed with the early reaping of income in the digital camera space by keeping up with recent strong demand.’

Smartphone sensors:

‘Recently, the smartphone product market is worsening compared with our expectations due to a delayed market recovery in China, a prolonged slump in the European market, and a slowdown in the North American market.

‘In our previous forecast, we assumed a gradual market recovery from the second half of the current fiscal year, but we have postponed that to the beginning of next calendar year or the next fiscal year and have incorporated this revised timing into our sales forecast.

‘In addition, in light of such product market conditions, smartphone manufacturers are making even further adjustments to their parts procurement, and this is having a significant impact on the second quarter following on the first quarter.’

Ansell served with shareholder class action

Ansell [ASX:ANN] was served with a shareholder class action by Slater & Gordon on behalf of lead plantiff, Michael Gary Warner.

The claim revolves around the period between August 2021 and January 2022 when Ansell allegedly ‘failed to comply with its continuous disclosure obligations and engaged in misleading and deceptive conduct prior to the release of its FY22 Trading and Business Update on 31 January 2022.’

Ansell denied any liability, saying it will ‘vigorously defend the claim.’

In a summary statement shared by Slater & Gordon, the firm said:

‘The group proceeding alleges that because of this conduct, the Plaintiff and group members paid more for shares in Ansell than would have been the case had the company complied with its obligations. Alternatively, the group proceeding alleges that some group members would not have purchased shares in Ansell had the alleged wrongdoing not occurred.’

In that 31 January 2022 update, Ansell issued a major earnings downgrade that precipitated a 17% share price fall on the day of the release. Since then, ANN shares are down 20%.

Ansell served with shareholder class action

Ansell [ASX:ANN] was served with a shareholder class action by Slater & Gordon on behalf of lead plantiff, Michael Gary Warner.

The claim revolves around the period between August 2021 and January 2022 when Ansell allegedly ‘failed to comply with its continuous disclosure obligations and engaged in misleading and deceptive conduct prior to the release of its FY22 Trading and Business Update on 31 January 2022.’

Ansell denied any liability, saying it will ‘vigorously defend the claim.’

In a summary statement shared by Slater & Gordon, the firm said:

‘The group proceeding alleges that because of this conduct, the Plaintiff and group members paid more for shares in Ansell than would have been the case had the company complied with its obligations. Alternatively, the group proceeding alleges that some group members would not have purchased shares in Ansell had the alleged wrongdoing not occurred.’

In that 31 January 2022 update, Ansell issued a major earnings downgrade that precipitated a 17% share price fall on the day of the release. Since then, ANN shares are down 20%.

Commonwealth Bank is ditching fossil fuels: should you? | Ryan Clarkson-Ledward

The Commonwealth Bank of Australia’s [ASX:CBA] $10 billion profit raised a lot of eyebrows yesterday.

You can certainly find plenty of opinions on the pros and cons of this result too.

But while most are fixated on their bottom line, the bigger story may be within CBA’s climate report. Because while lending is their bread and butter, our biggest bank has decided to withhold money from one sector in particular…

Oil and gas explorers, it seems, aren’t welcome to do business with CBA.

Having revised its climate goals, the bank has ruled out lending for new fossil fuel projects. On top of that, existing fossil fuel borrowers with the bank will need to detail their emission-cutting plans from 2025 onward.

It’s a big decision to make, but not a totally unexpected one.

Back in 2021, the bank went through the same internal debate. The only difference then was that they actually asked their investors what they thought.

Only 14% of CBA shareholders backed the fossil fuel lending ban at the time. I can’t imagine opinion has changed that drastically in the two years since…

Which begs the question, why go ahead with it now?

I wish I could provide a logical answer to the CBA’s decision, but it is hard to find one.

Perhaps the bank hopes by distancing themselves from fossil fuels they’ll be able to win more business from energy transition projects. But even then, this policy decision is likely to amount to a simple PR stunt.

Either way, what’s done is done it seems.

The irony of it all, however, must be the timing of this decision.

On the same day that CBA announced this new plan, gas prices spiked by 30% or more in Europe.

The catalyst?

Potential strikes from local Chevron and Woodside workers could delay Aussie LNG exports. A stark and clear example of the influence and importance of our oil and gas industry. And a firm reminder of why fossil fuels are still vital to powering much of the world.

Because while transitioning to more renewable fuels is a noble goal, it is still going to take time.

You can’t rush something this big without breaking markets. This is why oil and gas will continue to be relevant as transitionary fuel sources. But if we don’t invest in new exploration and wells, then Europe won’t be the only one facing steeper prices…

https://www.moneymorning.com.au/20230810/the-commonwealth-bank-is-giving-up-on-fossil-fuels-should-you.html

Commonwealth Bank is ditching fossil fuels: should you? | Ryan Clarkson-Ledward

The Commonwealth Bank of Australia’s [ASX:CBA] $10 billion profit raised a lot of eyebrows yesterday.

You can certainly find plenty of opinions on the pros and cons of this result too.

But while most are fixated on their bottom line, the bigger story may be within CBA’s climate report. Because while lending is their bread and butter, our biggest bank has decided to withhold money from one sector in particular…

Oil and gas explorers, it seems, aren’t welcome to do business with CBA.

Having revised its climate goals, the bank has ruled out lending for new fossil fuel projects. On top of that, existing fossil fuel borrowers with the bank will need to detail their emission-cutting plans from 2025 onward.

It’s a big decision to make, but not a totally unexpected one.

Back in 2021, the bank went through the same internal debate. The only difference then was that they actually asked their investors what they thought.

Only 14% of CBA shareholders backed the fossil fuel lending ban at the time. I can’t imagine opinion has changed that drastically in the two years since…

Which begs the question, why go ahead with it now?

I wish I could provide a logical answer to the CBA’s decision, but it is hard to find one.

Perhaps the bank hopes by distancing themselves from fossil fuels they’ll be able to win more business from energy transition projects. But even then, this policy decision is likely to amount to a simple PR stunt.

Either way, what’s done is done it seems.

The irony of it all, however, must be the timing of this decision.

On the same day that CBA announced this new plan, gas prices spiked by 30% or more in Europe.

The catalyst?

Potential strikes from local Chevron and Woodside workers could delay Aussie LNG exports. A stark and clear example of the influence and importance of our oil and gas industry. And a firm reminder of why fossil fuels are still vital to powering much of the world.

Because while transitioning to more renewable fuels is a noble goal, it is still going to take time.

You can’t rush something this big without breaking markets. This is why oil and gas will continue to be relevant as transitionary fuel sources. But if we don’t invest in new exploration and wells, then Europe won’t be the only one facing steeper prices…

https://www.moneymorning.com.au/20230810/the-commonwealth-bank-is-giving-up-on-fossil-fuels-should-you.html

Bank of America: ‘soft landing’ IS possible!

In the long run, we are all dead.

It’s also true that the longer the run, the more historical examples pile up to substantiate any which claim.

This week, Bank of America’s Michael Gapen used post-World War II inflation to make the case for America pulling off a soft landing.

Cettire now up 18% approaching midday

Luxury retailer Cettire [ASX:CTT] is now up 18% approaching midday on Thursday.

The online purveyor of luxury brands like Gucci and Louis Vuitton is also nearing its 52-week high of $3.72 a share, currently trading at $3.31 a share.

At its current price and a FY23 NPAT of $16 million, Cettire is trading on a trailing P/E ratio of 66.5.

Is that too high, is that too low?

Like I found out from Terry Smith’s recent book, high P/E stocks are not always expensive; just as low P/E stocks are not always cheap.

Here’s the chart that amazed me:

PE of 126 for Colgate. A PE of 63 for Coca-Cola

Source: Terry Smith

What does the chart show? Here’s an excerpt from Smith’s book explaining:

‘[The chart] looks at the period 1973 to 2019 when the MSCI World Index produced an annual return of 6.2% and works out what PE an investor could have paid at the outset for those stocks and still returned 7% p.a. over the period, so beating the index.

‘You could have paid 281 times earnings for L’Oréal in 1973 and beaten the index return. Or a PE of 126 for Colgate. A PE of 63 for Coca-Cola. Clearly this approach would not fit the mutation of value investing in which the rating must simply be low. Yet it is hard to argue with the fact that these stocks would have been good value even on some eye-watering valuation metrics.’

Cettire opens 10% higher on continued revenue growth

Luxury retailer Cettire [ASX:CTT] is bucking the consumer discretionary trend with continued top-line growth.

Cettire’s FY23 revenue rose 98% on FY22 to $416.2 million, generating a net profit of $16 million, a $35 million turnaround from the prior year.

CTT’s chairman Kerry Robert East said the retailer’s ‘growth potential is significant’, expecting further growth in FY24 as Cettire pursues markets like China.

Source: Cettire

Cettire acts as an online platform for hundreds of luxury brands but does not hold any inventory itself, operating as a drop shipper.

Drop shippers are intermediaries who don’t own any stock themselves. Instead, when a customer orders an item, the drop shipper will purchase the item directly from a supplier and ship it to the customer, taking a commission.

Cettire, like Farfetch, is a middleman with no direct relationship to luxury brands like Gucci or Louis Vuitton.

 

Why is deflation bad?

With China’s latest CPI falling into negative territory, some may be asking why deflation is a problem. Surely a falling aggregate price level is a good thing?

Not so.

Here’s Paul Krugman explaining the dangers in his macro textbook:

‘In a famous analysis at the beginning of the Great Depression, Irving Fisher (who described the Fisher effect on interest rates) suggested that the effects of deflation on borrowers and lenders can worsen an economic slump. Deflation, in effect, takes real resources away from borrowers and redistributes them to lenders. Fisher argued that borrowers, who lose from deflation, are typically short of cash and will be forced to cut their spending sharply when their debt burden rises. Lenders, however, are less likely to increase spending sharply when the values of the loans they own rise. The overall effect, said Fisher, is that deflation reduces aggregate demand, deepening an economic slump, which, in a vicious circle, may lead to further deflation. The effect of deflation in reducing aggregate demand, known as debt deflation, probably played a role in the Great Depression.’

 

China falls into deflation

First China’s exports and imports both fell sharper than expected in July.

Now China’s inflation is going backwards.

China’s economy fell into deflation for the first time since February 2021. The country’s consumer price index slumped 0.3% YoY in July.

Source: Financial Times

Cornell University professor Eswar Prasad bleakly said:

‘The Chinese economy is now at serious risk of sliding into a deflationary episode that could spark a self-reinforcing downward spiral in growth and private sector confidence. The government needs to act quickly and decisively to put a floor on growth and limit deflation before matters get out of hand.’

Commonwealth Bank FY23 recap: interest rate hikes being felt unevenly

Commonwealth Bank’s FY23 presentation contained some illustrative charts.

While Australia’s aggregate household saving rate fell below its pre-pandemic level, rising interest rates are having uneven effects by segment.

Those under 34 experienced a negative change in savings year on year while the 65+ group saw its savings rise 5%. The under 34s are the only cohort to curb spending in the last 4 weeks.

Excess savings measured by deposit balances fell for the 35-44 cohort between FY20 and FY22. The 65+ cohort enjoyed the biggest boost to excess savings in the period.

Good morning — a busy day ahead

Good morning.

I feel like I’ve got a lot to cover today — macro and micro.

Lots of big earnings releases today from heavyweights like AGL and QBE along with retail favourites Cettire and Zip.

And we’ve got the China data to unpack. While Australia is striving for disinflation, China’s got itself deflation.

There’s also the US CPI data expected tomorrow. How exciting!

The rapid interest rate hike cycle has certainly reinvigorated interest in macroeconomics. When was the last time CPI prints were so eagerly awaited?

Kiryll Prakapenka

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