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Rudi’s View: Hope Trumps Uncertainties

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Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Feb 12 2025

This story features DOMINO'S PIZZA ENTERPRISES LIMITED, and other companies. For more info SHARE ANALYSIS: DMP

The company is included in ASX200, ASX300 and ALL-ORDS

Hope Trumps Uncertainties

By Rudi Filapek-Vandyck, Editor

Pay attention to short positions.

The February result season for corporate Australia has hardly gained any traction thus far, as the bulk of releases occurs in the second half of the month, but already some market watchers have noted the outsized responses post market updates by Domino’s Pizza ((DMP)) and Nick Scali ((NCK)).

Prior to last week’s updates, some 12.85% of shares in Domino’s Pizza were positioned for a further fall in the share price while the percentage of short positions in the furniture retailer stood only a smidgen short of 5%.

Both shares have rocketed higher following another weak performance from Domino’s, but with management announcing further reductions in underperforming outlets, and following better-than-expected financials from Nick Scali, with further improvement to follow from the UK operations.

Other companies with large short positions include IDP Education ((IEL)), Star Entertainment ((SGR)), Megaport ((MP1)), Lifestyle Communities ((LIC)), Droneshield ((DRO)), Cettire ((CTT)), Johns Lyng ((JLG)), and Corporate Travel Management ((CTD)), outside of uranium companies and smaller cap resources companies.

If these two early examples prove indicative of what is yet to follow next over the coming three weeks, there will be a lot of fireworks in case financial releases prove not-as-bad-as-feared, or better.

FNArena keeps track of local shorts data as compiled by ASIC via a dedicated segment on the website: https://fnarena.com/index.php/analysis-data/the-short-report/

Analysts at Macquarie highlighted on Monday other consumer-related companies such as Eagers Automotive ((APE)), Endeavour Group ((EDV)), Lovisa Holdings ((LOV)) and BRG Group (Breville) ((BRG)) equally have sizable short positions.

In particular the latter company is currently the subject of a lively public debate among analysts. Has the share price rallied too far, too quickly in the face of potential headwinds from US import tariffs?

Some analysts have nominated BRG Group for a positive surprise when the company reports on February 11 (tomorrow), while others seem convinced the risk is to the downside.

The shares are up some 40% since mid last year, so this pre-result set up could prove interesting.

UBS’ Picks For February

Analysts at UBS nominated Breville for a negative outcome, alongside packaging company Orora ((ORA)) and recycler Sims ((SGM)).

The broker’s list for potential upside surprises is a lot larger: Amotiv ((AOV)), Downer EDI ((DOW)), Temple & Webster ((TPW)), BlueScope Steel ((BSL)), GPT Group ((GPT)), Cleanaway Waste Management ((CWY)), Servcorp ((SRV)), Worley ((WOR)), Light & Wonder ((LNW)), Dicker Data ((DDR)), and Life360 ((360)).

Here the inclusion of Dicker Data stands out as the leading distributor of IT hardware and software across the Tasman Sea has been identified elsewhere for downside potential.

The conference call between management at JB Hi-Fi ((JBH)) and analysts on Monday revealed some interesting on-the-ground insights, potentially, regarding BRG Group and Dicker Data.

JB HiFi’s financial performance yet again beat market forecasts, although there was no reward for a share price that had already rallied by some 80% since April last year.

JB Hi-Fi has seen vacuum cleaner sales pick up post the collapse of Godfreys some 11 months ago while the coffee category has equally been a strong performer.

Its computing category is back into growth post two years of post-covid normalisation, assisted by new AI driven demand, but competition is fierce and consumers are looking for price discounts and bargains.

JB Hi-Fi’s business in New Zealand continues to struggle with the overall downbeat environment and will remain loss-making in H2.

As also pointed out last week, a number of less-than-perfect market updates feature disappointment from US-based operations, including from Car Group ((CAR)) on Monday.

Ansell ((ANN) was included in UBS’s positive selection too and this proved prescient when the manufacturer of latex products reported on Monday.

Turning Laggards Into Winners

The quarterly reporting season in the US hasn’t been a negative experience to date, with underlying statistics merely trending back to previous trends, but one observation stands: a better-than-forecast result is no longer by definition a trigger for further outperformance while any ‘misses’ will receive instant punishment.

The early balance in Australia is showing similar dynamics, with investors seemingly prepared to look beyond short-term headwinds for companies whose share price hasn’t performed well and whose operations might benefit from RBA rate cuts.

For good measure, we are still talking about a minuscule sample size with the FNArena Results Monitor on Monday only including twelve results delivered and assessed, but market responses to financial reports from JB Hi-Fi, Pinnacle Investment Management ((PNI)) and ResMed ((RMD)) have been less than enthusiastic, to say the least.

It certainly hasn’t been a black and white experience thus far with both REA Group ((REA)) and Nick Scali ((NCK)) being rewarded for strong performances.

But after two years of seeing the local index perform on a small selection of companies, and with the RBA preparing for rate cuts and local earnings seemingly having bottomed, it seems but plausible investors are keen to see a remontada from those share prices that have been lagging.

Positive share price responses to results released by Amcor ((AMC)), Ansell and News Corp ((NWS)), as well as by Domino’s Pizza, only further fuel expectations for better times ahead for yesterday’s laggards.

A weaker share price for outperforming Growth stocks does not by definition need to be a negative either as many should have many more years of strong growth ahead, offering a cheaper entry point for those looking to get on board.

Notes From Nominations

Apart from the aforementioned UBS analysts, many have communicated their favourites and best-to-avoid lists of stocks for the season ahead (see also bottom of today’s story).

Below are some observations from those nominations.

JB Hi-Fi was many a forecaster’s favourite for a very strong performance beforehand. Recent ABS data into consumer sales late in 2024 underpinned such positive expectations, pushing the share price above $100 last week.

Similar as with ResMed, that proved a bridge too far in terms of short-term share price potential.

Those same expectations have kept a strong bid under the share price of major competitor Harvey Norman ((HVN)) too.

Harvey Norman shares weakened on Monday in sympathy with the retreat in JB Hi-Fi shares.

Other consumer-related companies that feature regularly for a positive surprise are Guzman y Gomez ((GYG)), Temple & Webster ((TPW)), and Universal Store Holdings ((UNI)).

The opposite dynamic applies for manufacturer of car accessories ARB Corp ((ARB)) for whom general expectation seems to favour a disappointing market update on February 18.

This is why the share price is below $37.50 versus above $40 only weeks ago.

A decline in local light commercial vehicle sales, with plenty of signals around of a budget-constrained consumer postponing large expenses, plus fierce competition in the US market seems to have analysts worried about ARB’s short-term prospects.

Two sectors seem dominated by a strong divide between Winners and Losers; healthcare and telecommunication.

Five years post the covid pandemic and the broader healthcare sector is still struggling to rediscover its former self.

On my observation, analysts’ confidence ahead of February results is probably as low as it has been in multiple years with the likes of Ramsay Health Care ((RHC)), Sonic Healthcare ((SHL)) and Cochlear ((COH)) –all former market darlings– surrounded by lots of caution and hesitancy.

Management at CSL ((CSL)) better take some guidance from the margin turnaround over the year past by ResMed too.

The sector still contains a number of strong performers, of course, but the likes of ResMed, Pro Medicus ((PME)) and Telix Pharmaceuticals ((TLX)) are vastly outnumbered nowadays.

Two nominations for a positive performance and outlook that may not be on investors’ radar just yet are Australian Clinical Labs ((ACL)) and Integral Diagnostics ((IDX)).

Over at the healthcare research desk of Citi, for example, confidence is so high in a positive surprise from Australian Clinical Labs, the analysts have opened a so-called Positive Catalyst Watch on the shares pre-results release.

Recent medicare data support the analysts’ conviction with Citi’s target price of $4 still some 9% above the share price.

The medium-term case for owning shares in Integral Diagnostics was explained in our story from December: https://fnarena.com/index.php/2024/12/18/diagnostic-imaging-radiates-opportunity/

Followers of my research also know the stock is now held inside the All-Weather Model Portfolio.

Inside telecommunication, expectations remain ultra-low for TPG Telecom ((TPG)), though, similar to Domino’s Pizza, one should never underestimate the surprise that might stem from management’s determination to achieve a better outcome.

There might be news forthcoming on the proposed sale of the company’s fibre assets to Vocus?

Superloop ((SLC)) is often isolated for continued outsized growth (out)performance, while for Telstra ((TLS)) the debate is all about the size of the dividend.

A recent report by Jarden stated Telstra needs to secure more franking credits or face limited ability to raise its dividend.

When it comes to capital management through bonus dividend payments and share buybacks, everybody’s favourite sector are the local insurers.

All of them, as outlined here: https://fnarena.com/index.php/2025/01/24/insurers-to-pamper-shareholders-with-buybacks/

Lastly, Worley ((WOR)) seems to be a popular choice too for a cyclical company whose share price implies below-consensus growth numbers, while analysts consider the likelihood of a positive margin surprise.

Earnings risk is considered low and there’s scope for capital management on the back of better cash generation.

All shall be revealed in the three weeks ahead.

****

See also last week: https://fnarena.com/index.php/2025/02/05/rudis-view-earnings-optimism-on-the-rise/

FNArena’s Result Monitor (updated daily): https://fnarena.com/index.php/reporting_season/

More on potential candidates for ‘beats’ and ‘misses’ in February:

https://fnarena.com/index.php/2025/02/06/rudis-view-agl-energy-bega-cheese-brg-harvey-norman-imdex-superloop/

https://fnarena.com/index.php/2025/01/30/rudis-view-cochlear-guzman-y-gomez-siteminder-wesfarmers-xero/

https://fnarena.com/index.php/2025/01/23/rudis-view-feb-seasons-best-buys-key-picks/

https://fnarena.com/index.php/2025/01/16/rudis-view-best-buys-convictions-for-2025/

All-Weather Model Portfolio

2024 review for the All-Weather Model Portfolio: https://www.fnarena.com/index.php/download-article/?n=E5B69B1F-9B20-764B-A717E0FF14F11FFE 

See also:

FY24: https://www.fnarena.com/index.php/download-article/?n=DE2A4552-E2C7-4DC7-0A896CE5CF68ACD8

FY23: https://www.fnarena.com/index.php/download-article/?n=DFC11150-CB36-C777-1AA3EDA640E2F5BF

FY22: https://www.fnarena.com/index.php/download-article/?n=DFE7241B-9CD8-61F1-1602C581A8E539C4

FY21: https://www.fnarena.com/index.php/download-article/?n=DFF82691-E53E-3CF5-17A2337D72CDB54F

Model Portfolios, Best Buys & Conviction Calls

This section appears from now on every Thursday morning in a separate update on the website. See Rudi’s Views for the archive going back to 2006 (not a typo).

FNArena Subscription

A subscription to FNArena (6 or 12 months) comes with an archive of Special Reports (21 since 2006); examples below.

(This story was written on Monday, 10th February, 2025. It was published on the day in the form of an email to paying subscribers, and again on Wednesday as a story on the website).

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculations are provided for educational purposes only. Investors should always consult with their licensed investment advisor first, before making any decisions. All views are mine and not by association FNArena’s see disclaimer on the website.

In addition, since FNArena runs a Model Portfolio based upon my research on All-Weather Performers it is more than likely that stocks mentioned are included in this Model Portfolio. For all questions about this: contact us via the direct messaging system on the website).

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CHARTS

360 ACL AMC AOV APE ARB BRG BSL CAR COH CSL CTD CTT CWY DDR DMP DOW DRO EDV GPT GYG HVN IDX IEL JBH JLG LIC LNW LOV MP1 NCK NWS ORA PME PNI REA RHC RMD SGM SGR SHL SLC SRV TLS TLX TPG TPW UNI WOR

For more info SHARE ANALYSIS: 360 - LIFE360 INC

For more info SHARE ANALYSIS: ACL - AUSTRALIAN CLINICAL LABS LIMITED

For more info SHARE ANALYSIS: AMC - AMCOR PLC

For more info SHARE ANALYSIS: AOV - AMOTIV LIMITED

For more info SHARE ANALYSIS: APE - EAGERS AUTOMOTIVE LIMITED

For more info SHARE ANALYSIS: ARB - ARB CORPORATION LIMITED

For more info SHARE ANALYSIS: BRG - BREVILLE GROUP LIMITED

For more info SHARE ANALYSIS: BSL - BLUESCOPE STEEL LIMITED

For more info SHARE ANALYSIS: CAR - CAR GROUP LIMITED

For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED

For more info SHARE ANALYSIS: CSL - CSL LIMITED

For more info SHARE ANALYSIS: CTD - CORPORATE TRAVEL MANAGEMENT LIMITED

For more info SHARE ANALYSIS: CTT - CETTIRE LIMITED

For more info SHARE ANALYSIS: CWY - CLEANAWAY WASTE MANAGEMENT LIMITED

For more info SHARE ANALYSIS: DDR - DICKER DATA LIMITED

For more info SHARE ANALYSIS: DMP - DOMINO'S PIZZA ENTERPRISES LIMITED

For more info SHARE ANALYSIS: DOW - DOWNER EDI LIMITED

For more info SHARE ANALYSIS: DRO - DRONESHIELD LIMITED

For more info SHARE ANALYSIS: EDV - ENDEAVOUR GROUP LIMITED

For more info SHARE ANALYSIS: GPT - GPT GROUP

For more info SHARE ANALYSIS: GYG - GUZMAN Y GOMEZ LIMITED

For more info SHARE ANALYSIS: HVN - HARVEY NORMAN HOLDINGS LIMITED

For more info SHARE ANALYSIS: IDX - INTEGRAL DIAGNOSTICS LIMITED

For more info SHARE ANALYSIS: IEL - IDP EDUCATION LIMITED

For more info SHARE ANALYSIS: JBH - JB HI-FI LIMITED

For more info SHARE ANALYSIS: JLG - JOHNS LYNG GROUP LIMITED

For more info SHARE ANALYSIS: LIC - LIFESTYLE COMMUNITIES LIMITED

For more info SHARE ANALYSIS: LNW - LIGHT & WONDER INC

For more info SHARE ANALYSIS: LOV - LOVISA HOLDINGS LIMITED

For more info SHARE ANALYSIS: MP1 - MEGAPORT LIMITED

For more info SHARE ANALYSIS: NCK - NICK SCALI LIMITED

For more info SHARE ANALYSIS: NWS - NEWS CORPORATION

For more info SHARE ANALYSIS: ORA - ORORA LIMITED

For more info SHARE ANALYSIS: PME - PRO MEDICUS LIMITED

For more info SHARE ANALYSIS: REA - REA GROUP LIMITED

For more info SHARE ANALYSIS: RHC - RAMSAY HEALTH CARE LIMITED

For more info SHARE ANALYSIS: RMD - RESMED INC

For more info SHARE ANALYSIS: SGM - SIMS LIMITED

For more info SHARE ANALYSIS: SGR - STAR ENTERTAINMENT GROUP LIMITED

For more info SHARE ANALYSIS: SHL - SONIC HEALTHCARE LIMITED

For more info SHARE ANALYSIS: SLC - SUPERLOOP LIMITED

For more info SHARE ANALYSIS: SRV - SERVCORP LIMITED

For more info SHARE ANALYSIS: TLS - TELSTRA GROUP LIMITED

For more info SHARE ANALYSIS: TLX - TELIX PHARMACEUTICALS LIMITED

For more info SHARE ANALYSIS: TPG - TPG TELECOM LIMITED

For more info SHARE ANALYSIS: TPW - TEMPLE & WEBSTER GROUP LIMITED

For more info SHARE ANALYSIS: UNI - UNIVERSAL STORE HOLDINGS LIMITED

For more info SHARE ANALYSIS: WOR - WORLEY LIMITED

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