Positive sentiment outshines slight declines
September 2, 2022ASX wrap up
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The Australian small caps continued to fall as global economic sentiment weighed on international markets. Meanwhile, the ASX fell by 2.8 per cent for the week. Despite Monday’s losses, the stock market was relatively steady for the week, but economic issues remain. The decline was primarily led by mining and energy stocks, and small caps witnessed a similar fate as weakness in China, which continued to weigh on stocks. ASX was down a further 0.78 per cent into the close on Friday as global sentiment remained negative.
But the week had some good news as well, despite a fall in mining stocks, where the index fell by close to .78 per cent, but the underlying sentiment remained relatively robust due to several stocks that rallied during the week. Stocks such as American West Metals rallied by over 88% during the week, and several other companies such as NickelX, Alto Metals, and Culpeo minerals were in the headlines on the back of various positive news. Mining shares continue to be in the centre of news as record capital expenditure of $1 billion is now being allocated towards mining operations.
Commodities, in general, continue to see substantial price increases; nickel, copper, lithium, and iron ore have witnessed strong demand as several key global themes continue to push economies away from traditional energy.
Lanthanein Resources (ASX: LNR) also rallied as the company announced plans to drill from the company were finally announced.
Meanwhile, several technology stocks also witnessed a significant increase, as results were much better than expected. One such company was TZ Limited (ASX: TZL) which has an intelligent locker and innovative technology company whose EBITDA surged to $1.3 million, up from $130,000 during the same period in the previous year. The company’s revenue increased by 31 per cent, and management reiterated that the company’s fortunes were primarily a result of getting its product mix correct.
The CEO stated the following:
“The management team developed a product that is being positively accepted in the marketplace.” “In 2022, we have begun the process of rebuilding a team capable of developing and maintaining an integrated stack of core software and translating it into use case-based application modules that are readily adaptable to each new client application.”
“As the focus shifts to operational information management solutions, we are also strengthening our application programming interface capabilities to ensure more efficient and painless integration into each client’s own operational software systems.”
The company now has monthly recurring revenue of $260,000, and within the next 12-18 months, it could witness revenue rise to $500,000. The stock continues to trade at a very low valuation, with price-to-earnings currently at 0.66. Considering management seems to have found a way to get operations in order, the stock could see a significant rally in the coming months.
Several stocks also fell during the week because of negative news flow. Cettire (ASX: CTT) a luxury fashion company, witnessed its stock drop by 14% during the week as news of a cash burn, despite a significant increase in sales (127%). Cettire has been facing headwinds due to the global slowdown, and management is looking to stem cash flow issues and expand globally as it enters markets such as China.
“In FY22, Cettire continued its rapid scaling. Sales revenues have increased almost 10x in the last two years as our proposition has gained traction, and we have invested in capturing the global market opportunity. We finished the FY22 year with much stronger foundations than at the beginning of the period.
During FY22, we made significant advancements to our technology platform. We now own the technology stack across the end-to-end customer journey, having launched and migrated all traffic to our proprietary storefront software. This is a major milestone and provides significant incremental functionality and flexibility to support our global growth.”
Meanwhile, the DGL group also witnessed a significant correction of 45%, as the stock continued to fall throughout the week. DGL Group is a logistics company providing various environmental and chemical solutions.
Looking ahead to the coming week
Inflation and global energy prices are likely to continue to dominate the news. Energy prices have been rising rapidly globally, affecting everything from food supplies to manufacturing and small businesses. But as prices continue to increase, that is likely to affect demand for commodities such as lithium, which have been in order due to consumers preferring alternative methods to gasoline-based transportation.
Meanwhile, Chinese real estate development firms have increasingly shown weakness, with major real estate developers starting to witness a significant profit decline. The decline of the Chinese real estate market will likely result in a fall in commodity demand, as weakness will spread beyond real estate and into the public infrastructure space. Australian equities are considerably exposed to demand from China, and small caps could see liability in their results moving forward.
Investors will continue to wait and watch as economic numbers come through in the coming weeks, as consumer demand, inflation, and manufacturing/mining continue to be in the headlines. Investors continued to be on the back foot as interest rates are likely to continue to head upwards globally. This is likely to result in significant declines in liquidity in general, and wherever there have been excesses, you are likely to see issues.
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