Good Evening,

Welcome to Equity Espresso. We’re here to catch you up on the day’s important stock market news in Australia and abroad. Here’s a sample of today’s top stories:

1. 💼 Unemployment Steady

2. 💊 Telix Sinks on Trial Update

3. ✈️ Qantas Grounds Takeover Deal

4. 📝 Syrah Resources - Analyst Report

5. 💸 Netwealth Reports High Client Withdrawals

The Recap

ASX Records Largest One-Day
Drop for October

There was nowhere to hide today as the ASX200 index posted its worst one-day performance since mid-September, shedding 96.0 points or 1.36% to 6,981.60 after a sell-off on Wall Street with similar percentage drops.

All 11 sectors finished in the red as October is proving not to be the rebound month on markets after a terrible September. Tech (-1.84%), Staples (-1.63%), Real Estate (-1.51%) were some of the worst performers dragging markets lower.

Released Employment data showed that Unemployment unexpectedly dropped to 3.6% as the labour market proves resilient. The number of employed people in Australia increased slightly by 6,700 to reach 4.11 million. This figure fell short of market expectations of a 20,000 increase and represents a significant drop from the August gain of 63,200.

Part-time employment increased by 46,500 to 4,304,800, while full-time employment decreased by 39,800 to 9,806,400.
Over the year leading up to September, employment in Australia rose by 394,300, equivalent to a growth rate of 2.9%.

Outlook

The S&P 500 (-0.16%) and NASDAQ (-0.17%) futures are trading slightly lower this afternoon.

Key economic data being reported in the U.S. tonight includes initial jobless claims and existing home sales. Fed chair Jerome is set to speak at the Economic Club of New York.

Some of the larger global companies reporting overnight include TSMC, Blackstone, AT&T, and American Airlines.

Economic Data

• Australian Unemployment fell to 3.6% from August 3.7%, with the number of unemployed individuals dropping by 19,800 to 520,500.

• Total employment in Australia increased by 6,700 during September, below estimates of an 18,000 climb.

• U.K. inflation remained stable at 6.7% in September 2023, holding at August's 18-month low and beating market expectations of a slight decrease to 6.6%

• Housing starts in the U.S. rose 7% month-over-month to a seasonally adjusted annualised rate of 1.36 million in September 2023, rebounding from the three-year low of 1.27 million in August.

• Eurozone YoY CPI for September landed in line with expectations of 4.3%, well down from 5.2% in August.

Wall Street

U.S. markets fell sharply on Wednesday as Treasury fields rose amidst the latest round of company earnings reports. The S&P500 (-1.34%) and NASDAQ (-1.62%) fell sharply.

Bond yields extended their overnight surge. The two-year yield hit a 17-year high of 5.24%, and the 10-year jumped to 4.94%, a level last seen in 2007.

Quarterly Earnings:

• Netflix shares rose nearly 7% in after-hours trade as it raised subscription prices for streaming plans. The company added 9 million new customers globally as earnings per share came in at US$3.73.

• Tesla's Gross Margins shrank to 17.9% in Q3 from 25.1% a year earlier, lowering its earnings. Revenue was 9% higher to $US23.35 billion, slightly below analysts expectations of $US24.1 billion

• United Airlines stock fell 9.7% after warning that pricier jet fuel and a halt to Tel Aviv flights will negatively affect profits in the last three months of the year.

• Morgan Stanley stock slid nearly 7% after the firm’s wealth management division reported $6.4 billion in revenue, below the estimates by more than $200 million.

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Quick Singles

🪃 Local News

• Australian dessert company Sara Lee has gone into administration, with consulting firm FTI Consulting bought in to restructure and sell the company while its operations continue.

🌏 Around The Globe

• Apple released a new version of their iPad accessory, the Apple Pencil, which now costs $79. The updated version no longer supports pressure sensitivity and wireless pairing, but the cost of entry has dropped from $129.

• As part of its "Not A Bot" program aimed at reducing spam and bot activity, Social App ‘X’ will begin charging new users in New Zealand and the Philippines $1 per year.

• Goldman Sachs CEO David Solomon has reportedly decided to stop DJing because it was creating a distraction for the Wall Street firm.

• According to four sources from the Organisation of Islamic Cooperation (OIC), Iran's foreign minister has urged the group's members to impose an oil embargo and other sanctions on Israel. However, Reuters reports that OPEC has no immediate plans to act.

• Qatar has signed a 27-year deal to supply 3.5 million metric tons of liquefied natural gas annually to the Netherlands.

• Adobe has launched Project Primrose, an interactive dress that can easily change its design with the press of a button. The dress can detect the wearer's movements and displays animated tiles with content created using Adobe's suite of design programs.

• General Motors is delaying the production of all-electric trucks at Orion Assembly in suburban Detroit until late 2025.

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Markets

ASX200 Company Movers

Index & Commodity Prices

Sector

Bond Prices

ETF Watch

ASX News

🗞️ Company Announcements

ARB Corp (ARB) rose after it provided a Q1 trading update at its AGM today, reporting 0.7% sales growth, while underlying profit after tax increased by 10% from the pcp.

Australian Ethical Investment (AEF) reported FUM of $9.20bn at the end of September, which was in line with June’s figure. Total net inflows rose by $114 million during the quarter, offset by poorer investment performance (-$124m).

Avita Medical (AVH) reported a 50% increase in preliminary commercial review to $13.5 million at a Gross Margin of 84.5%. The company also confirmed it had secured $90 million in debt funding.

Corporate Travel Management (CTD) provided a Q1 update today, reporting a 36% increase in revenue to $187.9m and a 157% increase in underlying EBITDA to $56.6m.

Netwealth (NWL) reported a FUM increase of $1.7 billion in the September quarter to $72.0 billion. Net Inflows rose to $2.1 billion, while negative market movement reduced funds by $0.4 billion. Shares fell after the company experienced higher-than-expected client withdrawals from high-net-worth accounts.

Northern Star Resources (NST) sold 369koz of gold during the September quarter at an All-In Sustaining Cost (AISC) of A$1,939/oz. Northern Star maintained its FY24 guidance of 1,600-1,750koz gold sold at an AISC of A$1,730-1,790/oz

Nick Scali (NCK) said that NPAT in H1 FY24 will be between $40 million - $42 million, which is 4% - 9% ahead of estimates.

Santos (STO) reported Q3 production of 23.3mmboe, slightly higher than the previous quarter, driving US$1.4 billion in revenue. Free Cash Flows from operations was around US$470 million.

Qantas (QAN) has terminated its proposed takeover of Alliance Aviation but will still hold an almost 20% stake in the company. The acquisition was formally opposed by the ACC back on April 23.

Telix Pharmaceuticals (TLX) fell by 11.5% after it released preliminary results from a prostate cancer trial.

Transurban (TCL) reported its highest-ever quarterly average daily Traffic of 2,469 million daily trips.

Post of The Day

Deep Dive

Middle East Tensions Fuel
Oil Market Uncertainty

The conflict outbreak between Israel and Hamas has created another significant geo-political risk to oil prices. While oil output has not been affected to date, several risks threaten supply, which could increase prices.

1. The Iran Factor - The extent of Iran's involvement in the conflict remains uncertain, with varying opinions on the matter. Should Iran be implicated, the U.S. might intensify sanctions against the country, which would strain supply. Iran’s crude exports and oil output have hit new highs throughout 2023, exceeding 1.5 million barrels per day (bpd.) during May, the highest rate since 2018. This makes up about 3% of the global supply.

2. Saudi Arabia & Israel - The second major concern revolves around a potential U.S.-brokered deal aimed to normalise relations between Saudi Arabia and Israel. This deal could see Saudi Arabia bolstering its oil output, helping supply levels. The ongoing conflict might hinder this agreement, which might have bridged a crucial avenue for U.S.-Saudi collaboration.

Global Brent Oil prices have climbed nearly 10% since the outbreak of the conflict, reversing prior declines. Though neither Israel nor the Gaza Strip boasts significant oil and gas infrastructures, the broader Gulf region plays a pivotal role in global oil production and transportation. Key transit routes, such as the Strait of Hormuz, are known as the world’s most important “oil chokepoint.” An escalated conflict in this area could curtail worldwide oil supply, increasing prices. Iran holds a vital position as it controls the Strait of Hormuz – a route responsible for around 15% of global oil transit.

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Analyst Report

Syrah Resources - Buy

Code: SYR | Market Cap: $301m | Current Price: $0.45 | Price Target: $1.12
Sector: Materials & Mining | Broker: Foster Stock Broking

Syrah Resources engages in the exploration, evaluation, and development of mineral properties in Mozambique. The company operates through Balama and Vidalia segments. Its flagship project is the Balama graphite and vanadium project in Cabo Delgado Province, Mozambique.

Syrah reported September quarterly activities and cash flow report on Tuesday.
The broker points to the below highlights:

• External shipments of 23kt during the quarter exceeded the broker’s forecast of 16kt and the June quarter’s 15kt due to increased fines demand. Balama mined for only 32 days during the quarter, which has continued into October, with Syrah guiding to 20kt production in the December quarter if demand is sustained.

• Cost improvement - C1 costs FOB during campaign mining were US$484/t for the quarter, below the US$565/t in June, and the broker’s estimates forecast US$546/t. However, it was above the company’s targeted US$378-436/t.

• Cash Flow - Net operating cash flow was (US$6M) for Balama and (US$8M) for Vidalia. Capex of US$37M was principally Vidalia expansion. Cash on hand at the end of September was US$81M.

• Fine Flake Graphite Prices - The weighted average Balama CIF price was US$528/t, lower than the broker’s forecast of US$608/t due to lower fines prices. While China demand may improve, reported benchmark China fines prices continue falling.

The broker maintains a Buy Rating but cuts their 12-month price target from $1.47 to $1.12.

You can access the full report for free here.

Daily Quiz

Test Your Knowledge

Yesterday’s Daily Quiz Question. Who founded the Vanguard Group, known for its low-cost index funds?

Answer: John Bogle created the first index investment trust in 1976 as one of the first index mutual funds available to the public. Well done to the 50% who got that question correct.

A Little Extra

📉 Going Down?

Top-10 shorted stocks on the ASX - as of October 13

📊 Broker Ratings

What do the brokers have to say?'

1. AMP (AMP) - Downgrade to Hold from Accumulate (Ord Minnett)

2. Mirvac Group (MGR) - Upgrade to Buy from Neutral (Citi)

3. Netwealth Group (NWL) - Downgrade to Sell from Neutral (Citi)

👨‍💼 Director Transactions

What are the insiders doing? (On-market trade only)

💲Dividends

Companies trading ex-dividend today

1. The Reject Shop (TRS) - $0.16

2. Cosol (COS) - $0.0146

3. Spheria Emerging Companies (SEC) - $0.027

DISCLAIMER: None of the information provided in this newsletter should be constituted as financial advice. This newsletter is strictly for educational purposes only. It should not be taken as investment advice or a solicitation to buy or sell assets or make financial decisions. Please do your research.