27 May 2024 | Weekly Snapshot

Did you know?

If computers are replacing humans, how much more electricity do we need? The below diagram puts some numbers around this ‘AI’ trend, which predicts a 20% increase in electricity demand from 2024 to 2030.

Market Movements

The Australian markets fell 1.9% this week. Consumer stocks (down 5.2%) and health stocks (down 3.3%) were the worst performers. Leading this fall was Wesfarmers, down 8% on no news. Wesfarmers is still trading within 10% of all-time highs and has been a market leader over the past 12 months. James Hardie fell 16% this week after a quarterly profit update, which showed earnings growth and an outlook which predicted a softening in building activity in the USA. Xero was among the stronger performers, having released full year earnings results, which included 22% growth in revenue to $1.7bn and ‘adjusted earnings’ of $527m (75% growth). Xero has a market value of A$20bn.

BHP lodged a 3rd and final improved offer for Anglo America at an equivalent price of 31 pounds per share or 67% higher relative to the value Anglo traded pre offer. Anglo has rejected this improved offer and instead will offload their ‘non-core’ assets (coal/diamond/platinum) and refocus the business around their copper and premium iron ore exposures. What’s next for BHP? Having already acquired Australia’s largest copper company (Oz Minerals), BHP is obviously keen to expand their copper portfolio. Buying assets is currently seen to be cheaper than building mines. BHP also has a 5% stake in Canadian listed Filo Mining, which is shaping up as, potentially, one of the largest copper discoveries in many years.

In the USA, shares fell 0.6%, which was broad based across all sectors except IT, which was up 2%. Nvidia led the market higher once again. In terms of macro news, the Global PMI reading came in at 50.9, which was slightly ahead of expectations of 50. A reading above 50 means an expanding manufacturing sector and a reading below 50 is contraction.

Nividia reported another strong quarter, whereby revenues rose 18% on the quarter to US$26bn and profits grew 21% (q-o-q) to $5.98/share. Guidance was for 8% revenue growth to next quarter, gross margins at 75% (down from 78%) and a tax rate of 17% (up from 12%), which on the face of it, does not imply earnings growth for the coming quarter. Nvidia shares marched higher above $1,000. Nvidia’s guidance has been on the conservative side over the last year as per below chart. The grey dots are company guidance. The green/red dots are the results. More green dots above the grey dots of late.

Portfolio Movements

Telstra to slash up to 2800 jobs (9% of workforce).

  • Telstra announced big job cuts after announcing measures to improve productivity. They also flagged investments to upgrade the capability of their data networks.
  • FY2024 guidance was reiterated and guidance for FY2025 underlying EBITDA of $8.4-8.7 billion was given.
  • Telstra said it expected to achieve $350M in cost savings by the end of the year but also forecasts restructuring costs of $200-250M spread across the coming years to achieve those ongoing savings.

Microsoft shows off new AI

  • Microsoft has announced a new category of PCs, called Copilot+. It will be equipped with AI PC chips, running on the latest version of Windows 11 and its Copilot AI software. This allows computers to handle more AI related tasks without calling on cloud data centres.
  • The PC market is showing signs of a turnaround after 2 years of decline. Shipments grew 1.5% in the first quarter after dropping 28.7% during the same time last year and now has a compelling reason for upgrades. MSFT expects over 50 million PCs to be purchased over the next year as people upgrade to include direct AI.
  • Microsoft has jumped the gun on rival Apple ahead of their WWDC developer event on June 10 where they are expected to debut their own AI features across product lines. The new MSFT computers will start at $1,000 and begin shipping from June 18.

Sonic Healthcare drops on profit warning

  • Sonic Healthcare fell 7% this week on news that it expects full-year earnings will be $100M lower on previous estimates, with an updated guidance to $1.6B.
  • The downgrade was attributed to inflation and foreign exchange headwinds (with only 23% of revenue generated in Australia). Sonic noted that several margin improvement initiatives had been slower to deliver but would contribute to earnings growth in FY25.
  • The CEO said “The 2024 financial year has been one of transition for SHL, moving away from pandemic conditions to a more normal business environment… making forecasting earnings difficult this year”.

The Week Ahead

  • Tuesday: Australia retail sales for April. The march reading was for a 0.4% decline. Australia’s employment and savings ratios are strong (overall). Consumer confidence, in comparison, is near record lows. So this will be interesting.
  • Wednesday: Australia CPI. The march reading was for 3.5% p.a.
  • Thursday: Earnings results from Cosco, which will give good insight into the performance of the US consumer. The market is expecting year-on-year, same-store-sales growth of 5.9% and earnings of $3.71 for the quarter.
  • Friday: In the USA, we get the price index for personal consumption expenditures, which is the Fed’s preferred inflation measure. The previous March reading was an increase of 0.3% (3.6% annualised inflation)

Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice

The information presented in this publication is general information only, and is not intended to be financial product advice. It has not been prepared taking into account your investment objectives, financial situation or needs, and should not be used as the basis for making an investment decision. Before making any investment decision you need to consider (with your financial adviser) your particular investment needs, objectives and financial circumstances.

Some numerical figures in this publication have been subject to rounding adjustments. Akambo Pty Ltd (including any of its directors, officers or employees) will not accept liability for any loss or damage as a result of any reliance on this information. The market commentary reflect Akambo Pty Ltd’s views and beliefs at the time of preparation, which are subject to change without notice.