ASX 200 Falls in Line with Global Markets

Tonight we look at GenusPlus Group (ASX.GNP) raising FY24 EBITDA guidance, secures major contracts, and undervalued with strong growth across essential services: We are issuing a “Buy” rating

GenusPlus is a prominent player in Australia's power and communications infrastructure sector. The company specializes in designing, building, and maintaining electrical networks, substations, and battery systems, while integrating new technologies to support a carbon-neutral economy. Additionally, GenusPlus provides communication network solutions, including network design and both fixed and wireless infrastructure, with real-time management capabilities.

Recently, GenusPlus revised its EBITDA guidance for FY24 upwards, forecasting a growth of 20%-25% compared to the previous estimate of 10%-15%. This adjustment is attributed to better-than-expected performance in the March 2024 quarter, with current projects ahead of schedule and new projects commencing earlier than planned.

A major milestone for the company is securing a five-year maintenance and upgrade contract with Western Power, a Western Australian state government entity. This contract, valued at approximately $50 million for its first year, continues GenusPlus' long-standing partnership with Western Power and involves significant work on the Southwest Interconnecting System (SWIS) electricity network, which serves over 2.3 million people.

GenusPlus has obtained contracts worth around $50 million for constructing a 220 kV transmission line and civil foundations for Fortescue Ltd’s Solomon and Eliwana Mines. These contracts contribute to Fortescue’s decarbonization goals, showcasing GenusPlus’ expertise in supporting large-scale infrastructure developments crucial for the energy transition.

We view GenusPlus as an attractive investment opportunity, with its stock potentially undervalued at current levels and an estimated fair value above $2.50 per share. The company’s strong earnings growth, essential service offerings, and robust financial position underscore its potential. GenusPlus boasts a solid balance sheet, characterized by more cash than debt, impressive gross profit margins, and a favourable P/E ratio relative to its earnings growth.

Given GenusPlus’ potential undervaluation, strong earnings growth, positive stock price momentum, and solid financial standing, we believe the company presents a compelling investment opportunity. We recommend a long-term ‘buy’ rating with a target price above $2.50 per share.

Click here to access the report

Market Movers

On the final trading day of the week, Australian stocks mirrored the downward trajectory observed in global markets. The ASX 200 index experienced a notable drop, falling 0.81% to close at 7,971.6 points. This decline came as part of a broader retreat across international exchanges, reflecting growing concerns over economic and geopolitical developments.

Adding to the market's turbulence, the ASX website and various other Australian and international platforms encountered a significant technical outage. The disruption, which affected crucial systems including payments and bookings, was traced back to a problematic software update. This technical glitch complicated efforts for investors to track closing numbers and assess their holdings accurately.

Within the ASX, the financials, mining, and technology sectors were among the hardest hit. In the mining sector, gold miners were particularly affected. Newmont and Evolution, both significant players in the gold market, saw their shares fall by more than 3%. Similarly, Block's ASX-listed shares suffered their largest one-day drop since May. This downturn in the tech sector was notable given the broader context of global market shifts.

Beach Energy also faced headwinds, with its stock declining by 0.6% following a Q4 sales report that fell 7% short of broker Citi's estimates. In contrast, Accent Group, a footwear retailer, saw its shares rise by 2%. This increase followed a substantial 10% jump on Thursday, driven by upgraded price targets from both Morgan Stanley and UBS. Adore Beauty also reported positive results, with its shares gaining 3% after delivering upbeat FY24 results.

Across the Pacific, China's stock markets showed some resilience despite broader economic concerns. The Shanghai Composite Index inched up 0.17% to close at 2,982, while the Shenzhen Component increased by 0.27% to 8,920.3

These modest gains came after the conclusion of China's Third Plenary Session, which, while highlighting the need for market reforms and effective regulations, fell short of providing detailed policy steps. President Xi Jinping's emphasis on leveraging market potential and addressing economic challenges did little to reassure investors, who were hoping for more concrete measures.

In particular, semiconductor stocks led the gains in China, with companies like StarPower Semiconductor and Semiconductor Manufacturing International Corporation posting significant increases of 8.5% and 5%, respectively. These gains reflected ongoing optimism about China's focus on boosting domestic technology and innovation, despite the lack of detailed policy implementation.

Iron ore prices also experienced a decline, falling 0.19% to US$108.73 per tonne. This drop marks the third consecutive session of losses for the commodity.

The decline can be attributed to the lack of substantial policy changes following China's Third Plenary Session and weak seasonal demand for steel. The increase in iron ore inventories at Chinese ports, which have risen to nearly 150 million tonnes, added to the bearish sentiment. Despite BHP Group's report of record annual production due to favourable weather conditions and increased output from its South Flank operations, the broader market sentiment remained cautious.

In Europe, the STOXX 50 and STOXX 600 indices continued their downward trajectory, falling 0.4% and 0.5%, respectively. This marked their fifth consecutive session of losses, the longest streak since October of the previous year. European markets were particularly affected by a retreat from big tech stocks amidst expectations of interest rate cuts and growing concerns over US trade restrictions on China. The impact of these restrictions was felt across various sectors, including semiconductor manufacturers, which have been grappling with supply chain issues.

The European market also faced disruptions due to a Microsoft IT outage, which affected services across a range of industries, including airlines and banks. This technical issue further compounded market woes, with travel and leisure stocks taking a hit. Ryanair, Accor, and Air France KLM saw declines of 2.9%, 1%, and 0.9%, respectively. Additionally, Deutsche Bank, Saint-Gobain, and Societe Generale experienced declines of 2%, 1.4%, and 1.2%. In the earnings season, Sartorius faced a nearly 13% drop after revising its full-year guidance, while Ubisoft's shares fell 9% following disappointing guidance and bookings. For the week, the STOXX 50 sank 3.4%, and the STOXX 600 declined by 2%.

In the energy markets, crude oil prices faced downward pressure for the second consecutive week. The decline was primarily driven by a stronger US dollar, which made oil less attractive to investors.

The dollar's strength was a result of robust US labour data, which indicated potential economic slowing and led to speculation about the Federal Reserve's interest rate policies. A rise in US unemployment claims, which unexpectedly increased by 20,000 to 243,000, added to the uncertainty about oil demand.

China's economic slowdown and limited stimulus measures also contributed to the bearish sentiment in the oil markets. As the largest importer of crude oil, China’s slower growth and the government's decision to maintain its current policies created additional uncertainty regarding future oil demand. The European Central Bank's decision to keep interest rates unchanged further complicated the oil market outlook.

On the supply side, the OPEC+ Joint Ministerial Monitoring Committee is set to meet on August 1 to review the oil market. However, it is expected that the committee will maintain its current output policies. While Canadian oil sands fires have provided some short-term support for prices, overall trends remain weak, with slower crude stock draws and rising global fuel stocks.

Gold prices retreated to near US$2,420 per ounce on Friday, moving further away from recent record highs.

The rebound of the dollar, induced by robust US economic data, contributed to this decline. Despite the drop, gold is on track for its fourth consecutive weekly gain, driven by expectations of Federal Reserve interest rate cuts. Markets are currently anticipating a 98% chance of a rate cut at the Fed's September meeting, according to CME's FedWatch Tool.

The final trading day of the week underscored a prevailing cautious sentiment across global markets, with major indices, reflecting a broad-based decline amid technical disruptions and economic uncertainties. Aussie stocks mirrored the global retreat, pressured by losses in key sectors such as mining, financials, and technology. Internationally, the ongoing impact of geopolitical tensions, technical issues, and mixed economic signals contributed to a fifth consecutive day of losses for European indices and a weaker oil market. As investors await clearer policy directions and navigate ongoing economic challenges, the market remains in a fragile state, with volatility expected to persist in the near term.

Regards,

Mark Elzayed

Investor Pulse

*General Advice. If seeking advice, please consult your financial planner or advisor. Past Performance is not indicative of future performance.