Rudi's View | May 15 2024
In this week's Weekly Insights:
-More Positives Than Negatives
-New Market Leadership?
-2024 The Year Of Gold Miners?
-All-Weathers Welcome Soul Pattinson
-Model Portfolios, Best Buys & Conviction Calls
By Rudi Filapek-Vandyck, Editor
More Positives Than Negatives
Judging from corporate updates, both internationally and locally, the general context has created a tricky framework for investors, as also yet again confirmed by Fletcher's Building's ((FBU)) disappointing trading update on Monday.
It's not as if management and shareholders look over their shoulders feeling lots of excitement, but on Monday the shares dived yet another -10% for a total loss in capital since August 2021 in excess of -60%. The fact the New Zealand builder regularly pays out a dividend hardly compensates for the suffering endured.
Last week offered similar experiences from Sims ((SGM)), GrainCorp ((GNC)), Baby Bunting ((BBN)), Lindsay Australia ((LAU)), and Tourism Holdings ((THL)), among others.
Yet, the impact on consensus profit forecasts in Australia has almost been negligible. That's because for every disappointing market update there seems to be another one that manages to surprise on the upside. Think of REA Group ((REA)), Orica ((ORI)), and AGL Energy ((AGL)), but also Westpac ((WBC)) and National Australia Bank ((NAB)), and others.
The out-of-season results reporting in Australia is about to hit the accelerate button with companies including CSR ((CSR)), Aristocrat Leisure ((ALL)), and Incitec Pivot ((IPL)) scheduled to release operational financials this week, followed by ALS Ltd ((ALQ)), Elders ((ELD)), James Hardie ((JHX)), Nufarm ((NUF)), TechnologyOne ((TNE)), Webjet ((WEB)), and Xero ((XRO)), among others, before the end of the month.
Add-in the fact Australian companies are increasingly updating through quarterly trading updates and there's a fair argument to be made investors locally nowadays are subjected to semi-quarterly reporting seasons a la Wall Street.
Face value experiences to date are mixed at best, see also the examples mentioned, but analysts and market strategists, both here and in the USA, are nevertheless of the view things are looking better than previously forecast.
Earnings forecasts in the US have risen as a result of March quarterly corporate updates. The underlying picture in Australia remains more volatile, also because mining operations and agricultural businesses have been impacted by bad weather, but so far it appears the balance is tilted towards more positives than negatives.
On Morgan Stanley's assessment, consensus is still forecasting average EPS to fall for the ASX200 by -6.8% for FY24, then to rise by 4.7% and by 4.6% in respectively FY25 and FY26. These numbers have only changed minimally over recent weeks.
While concerns over inflation, bond yields and delayed interest rate cuts, in combination with markets trading on above-average multiples, are dominating sentiment and financial news headlines, corporate updates have likely contributed to the cautiously optimistic tone that has returned post April's correction (if we can call it that).
Analysts at Macquarie have come to the same conclusion having witnessed 114 companies presenting and updating over three days the week prior (7-9 May) at the Macquarie Australia Conference. This year marks the 26th edition of what has arguably become Australia's most important corporate event.
Retail proved the stand-out negative surprise of this year's conference, suggest Macquarie analysts, as market updates from the likes of JB Hi-Fi ((JBH)), Temple & Webster ((TPW)), Endeavour Group ((EDV)), Super Retail ((SUL)), Coles Group ((COL)) and Vicinity Centres ((VCX)) either implied market forecasts won't be met, or confirmed Australian households are spending less or buying cheaper alternatives.
But net-net this year's conference was positive, concludes Macquarie, with companies including AGL Energy, HMC Capital ((HMC)), AUB Group ((AUB)), and Medibank Private ((MPL)) lifting their guidance, while trading updates from the likes of PolyNovo ((PNV)), Pinnacle Investment Management ((PNI)) and Regis Healthcare ((REG)) proved better-than-expected.
Macquarie's forecast is for the net positive trend for Australian companies, that looks to have started in the last AGM season in late 2023, to continue into the August results season. Daily evidence suggests, however, there remains plenty of room for disappointments, reflective of the polarised dynamics that nowadays characterise the global economic picture.
As far as the outlook for the share market goes, I am still siding with the optimists, as I have since October last year, though I also believe investors should be prepared for a lot more volatility.
Anticipating exactly where the next corporate disappointment might come from is a mug's game, so it's probably best portfolios have exposure to companies that should perform well medium-to-longer term, irrespective of the potential for an unexpected short-term set-back.
I'd be inclined to think my recent writings offer plenty of background and ideas:
-https://fnarena.com/index.php/2024/05/09/rudis-view-arcadium-lithium-goodman-group-paladin-pexa-treasury-wine/
-https://fnarena.com/index.php/2024/05/08/rudis-view-opportunity-in-data-centres/
-https://fnarena.com/index.php/2024/05/01/rudis-view-quality-reigns-and-how-to-identify-it/
FNArena's Corporate Results Monitor only covers actual financial results, and we do our best to keep up with the pace throughout the rest of the month: https://fnarena.com/index.php/reporting_season/
At the macro-level, I remain of the view that the prospect of interest rate cuts, delayed or otherwise, remains a positive carrot for markets, unless economies stumble into recessions.
Below are some of the more interesting views and research updates I came across recently. Things to consider?
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