ASX News LIVE | XJO Opens Higher; Origin, IGO, Lynas, Bubs Feature

Betmakers [ASX:BET] finished nearly 17% lower on Monday after its June quarter accounts showed the wagering firm has not tamed its cash burn.

Betmakers burned through ~$15 million in negative free cashflow during the quarter, despite spending only $183,000 on marketing.

Staff costs of $15.8 million accounted for a huge chunk of BET’s customer receipts of $24.8 million for the quarter.

In FY23, BET’s customer receipts grew only 6% on FY22, to $99.1 million.

The business now has about $40 million in the bank on a market cap of $170 million.

The Price to Book ratio of 0.86 suggests the market is dubious the cash burn can be quelled any time soon.

Based on FY24 consensus estimates, Apple looks set to generate a return on equity (ROE) of 157%. This is incredible for a company of its size.

We can use Dupont ROE analysis to break the return down and see just where and how Apple is generating such a strong return.

The Dupont method uses profit margin, asset turnover, and the equity multiple as components of ROE.

Here’s how it works in Apple’s case….

• Profit margin: 24.5% ($100.55 billion in net profit dividend by $410.68 billion in sales)
• Asset turnover: 1.17x ($410.68 billion in sales divided by $351.2 billion in assets)
• Equity multiplier: 5.49x ($351.2 billion in assets divided by $63.9 billion in equity)

Now, multiply all those together and you get the ROE: 24.5%x 1.17x 5.49 = 157%

The surprising aspect of this breakdown is how high the equity multiplier is.

This provides a big boost to Apple’s return. So, any change to profit margins or sales will have a big impact on ROE due to the multiplier effect.

Comparing other big tech stocks shows just how high the multiplier is.

Microsoft’s multiplier is 1.89x, while Nvidia’s is 1.61x. Apple’s share price performance has benefited big time from this leverage. But it makes it sensitive to downside surprises, too.

The point I’m making here is that each stock has individual characteristics. Try not to get too carried away by what ‘the market’ is doing and focus on the companies that make up the market.

The following is an excerpt from Greg Canavan’s latest Insider piece.

***

I’m cautious about this rally. The market is celebrating lower inflation without considering that it’s due to weaker demand.

This brings me to the other reason why the odds of a rate hike tomorrow are now quite small. Retail sales fell by 0.8% month-on-month in June. Over the past three months, retail sales are down 0.1%.

While that doesn’t sound like much, consider that these are nominal, not real growth rates. That is, they haven’t been adjusted for inflation.

To give you an example of how much inflation is boosting growth, in the March quarter, nominal economic growth (annualised) was 8.4%, compared to just 0.8% real growth.

In real terms, retail sales are crashing. And it’s not going to get any easier. There is $60 billion worth of fixed price mortgages resetting to variable rates in this quarter alone.

No wonder the market thinks the RBA should hold rates steady tomorrow. The lagged impact of monetary policy means past tightening will continue to have an impact for months to come.

Meanwhile, the stock market keeps marching higher. Animal spirits have awakened. The dominant narrative is that the US economy remains resilient.

That certainly appears to be the case. But I would caution against chasing this market higher. Now more than ever, it’s a time to focus on stocks, not stock markets.

What’s good value and under-owned versus what’s expensive and popular? Buy the former and avoid the latter and you should do OK.

What does Warren Buffett get up to in his daily capacity as the Oracle of Omaha?

This interview by one of his biographers offers a clue.

How Warren Buffett spends his day pic.twitter.com/m4wRRVttgp

— Clark Square Capital (@ClarkSquareCap) July 30, 2023

You can read the full archived interview with Alice Schroeder here.

The Reserve Bank board meets tomorrow.

Will it hold rates steady or hike by another 25 basis points?

As of last Friday, the ASX 30 Day Interbank Cash Rate Futures August 2023 contract was indicating only a 8% chance of a hike to 4.35% at the upcoming meeting.

While we can see the market’s bets on what the RBA is likely to do, another question is what the central bank should do. Should it continue to hike?

The #RBA Board meets tomorrow.

Will it hold rates steady or hike by another 25 basis points?#auspol #ASX

— Fat Tail Daily (@FatTailDaily) July 31, 2023

China July offical composite PMI -1.2pts with manufacturing +0.3 to a still soft 49.3 and services -1.7pts to 51.1. The reopening recovery is continuing to disappoint. pic.twitter.com/vyAw1R15BP

— Shane Oliver (@ShaneOliverAMP) July 31, 2023

Digital speakers developer Audio Pixels [ASX:AKP] is down 8% after its June quarter report.

The quarterly report was like a smudged watercolour painting, light on detail and blurry in outline.

Audio Pixels began its report by stating ‘achievements during the reporting period were predominantly technical in nature.’

The firm concluded by saying ‘management is increasingly confident that the company’s commercial objectives can commence sometime in 4Q of this year.’

However, ‘much will depend on the timely receipt and fabrication success of the initial MEMS-GEN-II wafers and chips’.

Audio Pixels started the quarter with only $668,000 in cash and cash equivalents and was technically in the red before a $2.5 million convertible debt issue.

Biotech firm Starpharma [ASX:SPL] is down 30% and hit a new 52-week low after the release of its June quarterly.

What are the bad news to draw such a market reaction?

Probably less to do with its June quarter results and more to do with a separate note released today.

Pharmaceutical giant AstraZeneca will discontinue the development of one of its treatments after a ‘small number of asymptomatic adverse events’.

How does this relate to Starpharma?

Starpharma had a deal with Astrazeneca to provide it with dendrimer drug delivery technology. In SPL’s words:

‘Dendrimers are man made, nanoscale compounds with unique properties that make them useful to the health and pharmaceutical industry as both enhancements to existing products and as entirely new products.

‘Starpharma’s dendrimers can be used to enhance the properties of other drugs. The approach is known as “drug delivery” because it is about working to ensure that the drug is delivered to the right part of the body at the right time. Starpharma’s dendrimer drug delivery technology is known as DEP^®.’

This drug delivery technology was being used by Astrazeneca in the development of the now discountinued treatment AZD0466.

However, and unsurprisingly, Starpharma wanted it known that the decision by Astrazeneca to discontinue development of AZD0466 was ‘unrelated to Starpharma’s dendrimer drug delivery technology.’

Starpharma CEO, Jackie Fairley commented on the news:

‘Whilst this decision is clearly not what Starpharma would have hoped for, we note that it relates to haematological malignancies and at the highest three dose groups of AZD0466 and was not due to our dendrimer technology.

‘This development with AZD0466 does not impact Starpharma’s DEP platform, the Company’s internal clinical and preclinical DEP programs, or DEP partnerships. Starpharma’s multi-product DEP License agreement with AstraZeneca remains in effect.’

As for the June quarter, Starpharma collected $920,000 in customer receipts, with a negative free cashflow of ~$3.5 million.

As a result, the biotech firm closed the quarter with $35.2 million in cash.

Last Friday, the ABS released the latest retail sales numbers.

Australian retail turnover fell 0.8% in June, following a 0.8% rise in May.

The Bureau’s Ben Dorber said June’s retail turnover ‘fell sharply … due to weaker than usual spending on end of financial year sales.’

Even juicy discounts were not enough to entice disciplined shoppers watching their budgets.

Dorber said there was more discounting than usual in recent months, to meager returns:

‘There was extra discounting and promotional activity in May, leading up to mid-year sales events. This delivered a boost in turnover for retailers, but that proved to be temporary as consumers pulled back on spending in June.’

One of my counterintuitive beliefs is *almost* every active investor deeply underestimates how challenging active investing is. Almost nobody is immune from this.

Why?

— Mostly Borrowed Ideas (@borrowed_ideas) July 30, 2023

How can you value stocks?

One way is to use Return on Equity to appraise a stock’s worth.

To find out the ROE stock valuation formula, listen back to our latest What’s Not Priced In episode.

How can investors value a stock?

Listen to the latest #WNPI episode as @gcanavan2 explains his Return on Equity (ROE) valuation approach.

The ROE formula is applied to three stocks — $CBA, $TLS and $AAPL. https://t.co/HnWVWuT8e7

— Fat Tail Daily (@FatTailDaily) July 29, 2023

Miner Silver Lake Resources [ASX:SLR] is down over 20% after releasing its June quarterly, hitting a new 52-week low.

That’s despite Silver Lake reporting record June quarter production of 81,616 ounces gold and 642 tonnes copper. SLR sold 83,540 ounces of gold at an average sales price of $2,874/oz, at a AISC of $1,598/oz.

For the full year, SLR produced 261,604 ounces of gold, achieving sales guidance with 260,372 ounces sold at an average price of $2,697/oz.

So why the steep fall?

The market is ruthlessly forward looking. So what’s in store for Silver Lake that the market doesn’t like?

FY24 guidance is well below FY23 numbers — both for sale volumes and the average sales price.

Silver Lake expects sales to be between 210,000 and 230,000 ounces at an AISC of $1,850 to $2,050 per ounce.

So less sales at lower margins.

Not a good combo.

Silver Lake also announced the company’s chief financial officer Diniz Cardoso will retire next month.

The miner then said it will ‘pivot its focus in FY24 to prioritise the acquisition of drill data to deliver the step change in ore body knowledge necessary in ensuring a more predictable and valuable long term operation.’