Aussie Reporting Season Wrap - March 2018
- A Solid Reporting Season with an Improving Outlook: Reporting season saw more beats than misses for the ASX 200 on both EPS (54% vs 38%) and Revenue (50% vs 38%). Analysts revised up full-year EPS growth by 0.4%pts to 7.9%, while FY19 estimates were also revised up by 1%pt to 6.6%, but this still looks too low, in our view, given the improving domestic economic backdrop.
- Hard to Get Too Excited About the Two Key Sectors of the Market. The Banks remain shackled by the Royal Commission and the ongoing AUSTRAC investigation and the earnings outlook is only modest, but provisioning remains a large risk. The miners were a little disappointing in managing costs, given the generally positive commodity price environment. RIO was a positive surprise and is outperforming AWC, ILU and OZL produced strong results, but S32 and FMG were disappointing.
- Housing and Infrastructure Touch-points were Solid. CIM and WOR beat, BLD was solid along with WES’ Bunnings (Australia) business. DOW and MND both missed on EPS, but DOW received a solid earnings upgrade. The developers such as LLC, WFD, saw solid revaluations of land and property inventory, but this should ease during the year. Global cyclicals such as AMC and BXB don’t seem to be seeing strong benefits from the synchronization of global growth – grappling with competition and improving technology seems to be the focus. The gas producers are taking different paths to distributing to Asia. WPL is investing in a new project, OSH undertaking JV arrangements and STO is onboarding its largest shareholder for assistance.
- Discretionary Consumer Remains Weak. The JBH, HVN, MYR and SUL results highlight the difficulties the sector faces, but stocks such as FXJ, SEK, WOW, SWM and FLT show that turnaround stories can occur even in sectors with structural headwinds such as media and travel and supermarkets. RFG is struggling to remain solvent and it remains way too early to hunt for value in in a beat-up sector such as discretionary retail. Growth stocks again outperformed Value.
- Model Portfolio Implications: The Aussie market outperformed the US during reporting season due to better-than-expected results in Industrials. We expect this outperformance to continue, led by sectors such as industrials where the improving domestic economy is becoming an under-estimated tailwind. We will update our model portfolio within 2 weeks.
CIMIC Group is a construction company and the contract miner. Co. provides construction, mining, engineering, public-private partnerships (PPP), and operation and maintenance services to the infrastructure, resources and property markets. Co. comprises the following main segments: construction, contract mining, PPP, engineering, Habtoor Leighton Group, and commercial and residential. Co. delivers its services through several companies: CPB Contractors Pty Ltd, Leighton Asia Limited, Thiess Pty Ltd, Pacific Partnerships, and EIC Activities Pty Ltd. Co. operates across the Australia Pacific, Asia, Middle East and Americas regions in the infrastructure, resources and property markets.
Commonwealth Bank of Australia provides integrated financial services including retail, business and institutional banking, funds management, superannuation, life insurance, general insurance, broking services and finance company activities. Co. operates in seven segments, Retail banking Services, Business and Private Banking, Institutional Banking and Markets, Wealth Management, New Zealand, Bankwest, as well as International Financial Services and Other Divisions. As of June 30 2016, Co. had total assets of A$933.1 million and total deposits of A$588.0 million.
JB Hi Fi is engaged in the retailing of home consumer products. Co. provides a range of brands with particular focus on consumer electronics, software including music, games and movies, whitegoods and appliances.
About us:
- The business is a Proprietary Limited Australian company that is owned and fully operated by Shane Lee from a small office in Sydney’s CBD.
- Shane worked for 17 years in Sydney-based senior research roles (economist, equity strategist and bond strategist) in global and regional investment banks and a domestic commercial bank prior to starting Macro Strategy Advisors. These roles straddled the asset classes making him uniquely positioned to advise multi-asset investors. He worked for the Reserve Bank of Australia (RBA) for 3 years as a housing, commercial property and equity market analyst and a liquidity forecasting specialist. He worked as a structural engineer in Queensland for 10 years prior to his career at the RBA.
Aim of our business:
- To partner with our clients in their aim to maximise returns. We provide timely, independent and thought-provoking research on thematic macro issues that are impacting or could impact financial markets. We aim to produce research that prompts our clients to question their assumptions.
Services:
- A fortnightly research note.
- Regular presentations and data support delivered by understanding our clients interests and investment process.
- We also in work in confidence to investigate, analyse and report on issues at our clients direction. This work is done on a project-by-project basis.
- As an Australian based business, the main focus is analysing how domestic and global issues impact Australian investors. However, our global and domestic insights are also valued by our offshore clients.
Our Edge:
- Our low cost base relative to our competitors allows us to provide a quality product at a reasonable cost.
- We are fully independent and don’t support a banking function or any third party. We have no interests other than providing our clients with the best possible research.
- Our focus is not point forecasting, but providing rigorous analysis and insight. We don’t routinely focus on the top or bottom 10% of likely outcomes to create a headline.
- Shane’s background in engineering has provided clients with unique insights into global infrastructure and domestic housing issues.
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