Morning Note: Market news and an update from Intuit.

Market News

US equity markets hit new all-time highs – S&P 500 (+2.1%), Nasdaq (+3.0%) – pushed on by technology stocks. This morning in Asia, stocks were more mixed: Nikkei 225 (holiday); Hang Seng (-0.1%); Shanghai Composite (+0.6%). The FTSE 100 is little changed at 7,689. Following the release of its results and the launch of a new share buyback programme, Standard Chartered is currently trading 6% higher this morning.

The 10-year Treasury currently yields 4.34%. The Fed’s Christopher Waller said January’s jump in CPI warrants caution in deciding when to start cutting rates. Patrick Harker also warned against easing prematurely, while Lisa Cook and Neel Kashkari said more still needs to be done to bring down inflation. However, Barry Sternlicht warned that US regional banks’ exposure to commercial real estate is a “giant skeleton in the closet” and a reason for the Fed to cut rates.

UK consumer confidence slipped to -21 in February, GfK said, suggesting households are not ready to splash out. Sterling trades at $1.2670 and €1.1702. Brent is $82.30 a barrel, while gold slipped to $2,020 an ounce.

The US and China are discussing new measures to prevent a wave of emerging market sovereign defaults, people familiar said, one of the most significant attempts in years at economic cooperation between the rival superpowers.

Source: Bloomberg

Company News

Last night, Intuit released results for the three months to 31 January, the second quarter of its financial year to July 2024. The group highlighted another strong quarter, with earnings coming ahead of market expectations. However, full-year guidance was left unchanged and the outlook for the current quarter is slightly more muted than forecast. In response, the shares were marked down 1% in after-hours trading.

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. During the latest quarter, total revenue grew by 11% to $3.4bn, in line with the consensus forecast.

In the Small Business & Self-Employed division, revenue grew 18% to $2.2bn, split between Online Ecosystem (+21% to $1.7bn) and Desktop Ecosystem (+10% to $557m). Within the Online Ecosystem, QuickBooks Online Accounting grew 19%, driven primarily by customer growth, mix-shift, and higher effective prices. Online Services grew 24%, driven by growth in payroll, Mailchimp, and payments. Total international online revenue grew by 16% on a constant currency basis.

In the Consumer division, revenue fell 5% to $492m, driven by the later IRS opening this year. The IRS began accepting and processing returns starting January 29, compared to January 23 last year. ProTax grew by 8% to $274m, reflecting the timing of when tax forms were delivered.

Credit Karma, the consumer credit business, is treated as a separate division. During the quarter, the unit generated revenue of $375m, in line with last year primarily reflecting growth in Credit Karma Money, credit cards, and auto loans, offset by a decline in home loans, personal loans, and auto insurance.

Operating income grew by 17% to $1,000m, while adjusted EPS rose 20% to $2.63, topping the $2.30 consensus forecast. The business is highly cash generative and ended the quarter with net debt of $4.5bn. 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 $536m of shares during the quarter and has $2.7bn remaining of a new authorisation. A quarterly dividend of 90c has been declared, 15% higher than last year.

The company reiterated its guidance for the financial year to July 2024. Revenue is expected to grow by 11%-12% to c. $16bn, while adjusted EPS is expected to grow by between 12% and 14% to $16.17-$16.47. For the current quarter, the group is targeting revenue growth of 10% to 11% and EPS of $9.31-$9.38, slightly below the market forecast of $9.69.

On the call, the group highlighted once again that it is taking a prudent approach with guidance, given the continued macroeconomic uncertainty. The group has previously highlighted that 80% of Small Business and Self-Employed Group revenue is subscription-based and mission critical. The other 20% transaction-based portion includes revenue from QuickBooks payments, capital, and per employee pricing for time tracking and payroll. In a mild recessionary environment, the group believes it may see an impact on these transactional businesses.

Source: Bloomberg