Morning Note: Market news and an update from finance software company Intuit.

Market News

US equities ran out of stream last night to close in the red after getting close to an all-time high – S&P 500 (-0.9%); Nasdaq (-1.7%). A raft of economic data was released in the build-up to Jerome Powell’s speech planned today. Traders will be looking for clues as to the size and frequency of forthcoming US rate cuts. The 10-year Treasury currently yields 3.85%, while gold is $2,492 an ounce.

In Asia this morning, equities were mixed – Nikkei 225 (+0.4%); Hang Seng (-0.4%); Shanghai Composite (-0.1%) – with Chinese tech shares underperforming following a set of disappointing earnings. In Japan, the yen rose to 145.40 versus the dollar, while government bond futures fell. The FTSE 100 is currently trading 0.3% higher at 8,307. UK energy bills are set to rise 10% in October. Sterling continue to move higher, and currently buys at $1.3122 and €1.1788.

The oil price bounced off its recent lows despite lingering demand concerns. Brent Crude currently trades at $77.30 a barrel. Morgan Stanley cut its Brent price estimate for the fourth quarter and through 2025 and also trimmed its global demand growth forecast.

Kazatomprom, the world’s largest uranium producer has cut its 2025 production guidance as continuing uncertainty in relation to the supply of sulphuric acid (a key input) has significantly impacted its plans. Volume is now expected to be between 25,000 and 26,500 tU, 17% below its initial intentions 30,500-31,500 tU. Having been in the doldrums over recent months, the uranium price is expected to rally in response.

High-yield debt duration has plummeted to a record low, suggesting a more muted impact on prices when the Fed eases. Less junk issuance, fewer bonds being called, and a smaller concentration of high-yield debt from better quality companies contributed to the drop, according to junk bond guru Marty Fridson.

Source: Bloomberg

Company News

Last night, Intuit released results for the financial year to 31 July 2024 which were slightly ahead of market expectations. The group also issued guidance for the new financial year which was also better than expected as the business banks on growing demand for its AI-driven financial management tools. However, the shares were marked down slightly in after-hours trading due to the market’s response to a muted forecast for revenue growth in the current quarter.

Intuit supplies finance software to individuals, small companies, and accountants. With its strong brands (QuickBooks and TurboTax), the company is the de facto standard for consumer tax preparation software and small business financial management software in the US, and increasingly overseas. The company is focused on expanding its share in DIY, transforming the assisted tax preparation category, and expanding beyond tax with a consumer platform. Growth prospects remain attractive, with large cross-selling opportunities in the US as the group migrates its customer base to the cloud, while underpenetrated international markets provide a growth opportunity. The group also owns Credit Karma (consumer credit) and Mailchimp (marketing automation platform) taking it deeper into personal finance and small business marketing services. With data and AI core to its strategy, the group is accelerating innovation across its global financial technology platform to power the prosperity of consumers and small businesses.

In the near term, there is some risk of customer churn if business failures pick up and from increased bad debts from working capital loans made by the company. However, over the medium term, with its suite of online products, Intuit believes it has an addressable market of $300bn+ driven by the shift to virtual solutions, the acceleration to online and omnichannel capabilities, digital money offerings, and the need to help consumers improve their financial health. The group is aiming to grow its revenue by double-digits in organic terms and expand its operating margin.

In the year to 31 July 2024, total revenue grew by 13% to $16.3bn, a touch above the company guidance of $16.18bn. During the final quarter, growth was 17% to $3.18bn, versus the consensus forecast of $3.08bn.

In the Small Business & Self-Employed division (now renamed Global Business Solutions Group), revenue grew 20% in the final quarter to $2.6bn, split between Online Ecosystem (+18% to $1,832m) and Desktop Ecosystem (+25% to $725m). Within the Online Ecosystem, QuickBooks Online Accounting grew 17%, driven primarily by customer growth, mix-shift, and higher effective prices. Online Services grew 19%, driven by growth in payroll, capital, and Mailchimp. Total international online revenue grew by 11% on a constant currency basis.

In the Consumer division, revenue declined by 12% to $113m in the (always quiet) final quarter but was up 7% to $4.4bn in the full year. ProTax grew by 4% to $29m. Credit Karma, the consumer credit business, is treated as a separate division. During the final quarter, the unit generated revenue of $485m, up 14%, primarily reflecting growth in Credit Karma Money, credit cards, personal loans, and auto insurance.

Full-year operating income grew by 16% to $6.4bn, while adjusted EPS rose 18% to $16.94, above the top end of the company guidance of $16.79-$16.84. In the final quarter, EPS was up 21% to $1.99, well above the $1.84 consensus forecast and company guidance of $1.80-$1.85.

The business is highly cash generative and ended the financial year with net debt of $1.9bn. Intuit takes a disciplined approach to capital management, investing cash in opportunities that yield an expected return on investment greater than 15%. The group repurchased $2.0m of shares during the financial year and has $4.9bn remaining of its authorisation. A quarterly dividend of 104c has been declared, 16% higher than last year.

The company issued new guidance for the financial year to July 2025. Revenue is expected to grow by 12%-13% to c. $18.25bn, while adjusted EPS is expected to grow by between 13% and 14% to $19.16-$19.36.

For the current quarter, the group is targeting revenue growth of 10% to 11% and EPS of $1.94-$2.00.

It expects first-quarter revenue growth to be between 5% and 6%. This is below market expectations of 13.1% growth, as Intuit transitions QuickBooks desktop products to a recurring subscription model.

EPS is expected to be between $2.33 and $2.38.

Source: Bloomberg