From Jonathan Bayes, Investment Consultant, Bentleys Wealth Advisors.
Lots and lots this week.
And more to come next week too with the Australian banks reporting interim profit figures and Woolworths (WOW) due to post quarterly sales figures too.
In spite of more disappointment on Trump policy, this time on tax, the U.S. economy continues to rage for now.
Consumer confidence in the U.S remains as strong as its been in 15 years, employment is strong and corporate earnings in the stocks that matter (Google and Amazon in particular) are coming in above expectations.
Locally as I have said time and again we have our issues insofar as consumer indebtedness and absent employment growth and this will hobble us and our market more so as the year progresses, however on a positive note this week we finally saw politicians on either side of the fence offering some genuine leadership.
The Treasurer’s plan to underwrite significant infrastructure spend in the coming years is a genuinely positive move and his decision to articulate the differences in government debt (good and bad) is the first time in a long time I feel like a politician has spoken to the electorate as adults.
Equally, there is real merit in the Labor opposition’s emerging policy on housing, including the curtailment of negative gearing, capital gains tax relief and borrowing inside superannuation funds.
Another component relating to increased penalties on property owners that leave their property dormant, and higher stamp charges on foreign investment also have merit.
Whichever side you are on, finally we seem to be getting some policy leadership in this country, and not before time.
Stocks in the news this week
Blackmores (BKL) post quarterly sales which were OK, but not the positive surprise I had hoped for.
BKL has done a good job at reducing inventory but this has come at a cost to margin in some respects. Similarly the business invested heavily to accommodate the spike in sales during 2016, and this has now become a drag on profitability until such time as sales play catch-up again.
We continue to like BKL a lot because we feel the trend of strong sales into Asian markets will be a long one, and will ultimately drop into BKL’s bottom line sooner than later.
Wesfarmers (WES) reported quarterly sales, which as the headlines said, showed the Coles supermarket chain to be growing at its slowest rate since late 2007.
WOW have clearly regained the ascendancy from WES within food, so it will be interesting to see how Coles responds, if at all, during the remainder of 2017. Elsewhere in the WES business Bunnings continues to trade well (+6% comparative sales growth), whilst Target remains a basket-case (-16% sales).
Though WOW now have the momentum (quarterly sales for WOW due next Tuesday), all is not lost for WES since the spike in coal prices this year has provided an unexpected but sizeable boon for cashflows.
WES are currently looking at selling off the volatile coal division, and though this would be earnings dilutive, it opens up the possibility for WES for a return of capital.
For now we are on the sidelines.
Bunnings sales growth will surely slow dramatically alongside house prices in the coming 12 months, so this will soon be a drag.
Australia in a global context
We have spoken at length about our concerns for the performance of investment portfolio’s too heavily skewed towards Australian shares, and this week were interested to see comments from Vanguard (world’s largest fund manager) that they would be reducing the allocation to Australian shares by 10% for their diversified fund portfolios.
Vanguard intend to raise their allocation to international shares at the expense of Australia.
That’s it from us. Fingers crossed for WOW and the bank results next week.
The main feature from overseas this week was the corporate reporting season across the U.S and Europe.
Perhaps the most significant of these were the results Thursday night from Alphabet (formerly Google) and Amazon, both of whom beat market expectations and popped to fresh highs in after-market trading.
In Europe the ECB Governor confirmed expectations of a ‘solidifying’ economic recovery and that current record low interest rates would remain well beyond any completion of the ECB’s own asset purchase program.
Thursday 11am Values
|S&P / ASX 200||5907||+52||+0.9%|
|Property Trust Index||1416||-20||-1.4%|
Wednesday Closing Values
|U.S. S&P 500||2389||+33||+1.4%|
Key Dates: Australian Companies
|Mon 1st May||N/A|
|Tue 2nd May||Results – ANZ (ANZ), Woolworths (WOW)
|Wed 3rd May||AGM – QBE (QBE)
|Thu 4th May||Results – National Australia Bank (NAB)
Investor Day – Transurban (TCL)
AGM – Rio Tinto (RIO)
|Fri 5th May
|Results – Macquarie Bank (MQG)
AGM – Woodside (WPL)
For more information on the above please contact your Bentleys Wealth Advisor directly or on 02 9220 0700.