During the recent US Q2 results, earnings growth from the US Energy sector soared almost 300% from the year ago period.
Australian Share Market (ASX200) – down 0.15% and breaking a 5 week winning streak but outperforming global peers and bucking weak offshore leads. The ASX full year reporting season moved into full swing last week with the bulk of ASX200 companies having now released results that could be best described as “resilient”. With the market weakness in June there were a raft of downgrades coming into the reporting season with the results in many cases being not as bad as feared, with a still strong demand backdrop being reported by many companies. The full year results are clouded by weak 1st halves that were impacted by covid lockdowns, and strong 2nd halves as demand bounced back strongly with neither being a great indicator of how the underlying businesses are really travelling. With the impacts of the rapid pace of interest rate hikes late in the 2nd half yet to play out, this has also seen a larger than normal number of companies deciding not to issue guidance for FY2023 although most companies have reported the first 2 months of the new financial year are off to a good start. Companies are reporting that consumers seem to be in particularly good shape, despite the weaker sentiment readings, helped no doubt by the 48 year low unemployment rate that is also keeping mortgage delinquencies very low. Company balance sheets overall remain in excellent health although companies with higher levels of debt are increasingly under scrutiny as interest costs rise. Some companies reported an easing in input costs for the first time in a while which was positive development, and the recovery in business conditions for those most heavily impacted by the 2 years of lockdowns continued. Tech earnings were OK but the market just isn’t prepared to pay the sort of multiples of recent years for these companies. Resources remained a standout although conditions have turned more challenging with the softer commodities prices of recent months but it has probably been the Energy companies that produced the earnings highlights with a disproportionately large contribution to profits and dividends from the sector as energy markets have staged a remarkable comeback over the past 2 years.
US Share Market (S&P 500) – down 4.02%, with the Dow (-4.22%) and Nasdaq (-4.44%) also lower for the 2nd week in a row. Much of the damage was done on Friday night as US Federal Reserve Chair Powell struck a hawkish tone during his highly anticipated speech at the Jackson Hole Symposium. Although the speech itself didn’t contain anything new, it was more likely markets were looking for a reason to sell off following an impressive 2 month rally in US equities which has been looking a bit tired the past couple of weeks. US equities markets also seemed to be struggling to hold the rally highs with the 10. yr. bond yield creeping back above 3% for this first time in 6 weeks. Headlines during the week also underwhelmed with reports that the US is probably in a housing recession in terms of declining home sales, retailers struggling with excess inventories, and recent retail results show inflation pressures weighing heavily on low income consumers as sentiment did appear to turn less positive than it’s been in recent weeks. The US housing data continued to weaken with the near term impacts from the aggressive rate hikes continuing to be concentrated in this highly interest rate sensitive sector with new home sales slumping a worse than expected 12.6% for the month and now down 29.6% for the year. Other data was soft but OK with the Richmond Fed manufacturing index dropping more than expected as did the August flash manufacturing and services PMI’s although the reports highlighted input prices rose at the slowest pace in 18 months and respondent optimism actually hit a 3 month high due to strong client demand and new customer acquisition hopes. The Personal Consumption Expenditures index added weight to the peak inflation narrative to be up a still high 6.3% for the year, but down from the 6.8% annual increase last month.
Ramsay Healthcare (RHC) reports full year results – Rejects revised KKR consortium alternative takeover offer Ramsay reported fairly solid full year results last week with revenue of $13.74b that was ahead of the $13.65b expected and EBITDAR of $1.97b that was also a slight beat on expectations $1.95b. The company expects a gradual recovery through FY23 and more normalised conditions from FY24 with earnings growth in FY23 to benefit from the additional capacity created over the last few years combined with full year contributions from Elysium and recent acquisitions in Europe. Inflationary and COVID related pressures on costs remain and Ramsay will focus on negotiating improved terms with payors (both health funds and governments) to reflect this the company said. But the main headlines were about the KKR consortium pulling the $88 per share takeover offer they made back in April and wanting to negotiate new terms which it looks like Ramsay has rejected but is still open to discussions. Not sure the market will be too concerned about this with Ramsay already trading around 20% below the offer price for much of the past 3 months.
Wesfarmers (WES) full year profit falls – but outlook upbeat as FY23 gets off to good start. Wesfarmers reported full year results on Friday and is a good example of the decent, but messy results coming through with much of the first half of the year spent in lockdowns. Full year profit was down 2.9% to $2.35b and a bit than the $2.2b expected with particular strength in the 2nd half which was up 13% on the first half once lockdowns ended. The company said Bunnings sales had increased in the first seven weeks of the new fin year without giving more detailed profit guidance which is another broader feature of the current reporting season (lack of guidance). Wesfarmers has been hit along with other discretionary retailers although as CEO Rob Scott said, “The nature of the products in Bunnings, it’s not all discretionary. There’s a lot of repair and maintenance spend”. Wesfarmers had previously noted it was exposed to rising prices of timber, cotton and plastic resin which have since eased adding “These decreases in some of the raw materials prices will ultimately start to flow through to consumers over the next six to nine months”
Qube (QUB) delivers better than expected FY result – shares rally. Qube reported strong full year results and a positive outlook statement underpinned by ongoing strength in the operating division. Underlying NPAT of $185.7m was ahead of consensus $183.6m and revenue of $2.57b was well ahead of the $2.44b estimates. From the year ago period net profit attributable to members jumped 39% and revenue from ordinary activities rose 28%. With the receipt of the Moorebank Logistics Park proceeds and the positive earnings outlook Qube announced a 0.7 cps fully franked special div in addition to the record ordinary dividend of 6.3 cps for the full year. “The strong result reflected continuing high volumes across most of Qube’s core markets, including containers, grain, steel, most mining bulk commodities, and general cargo. It also demonstrates Qube’s ability to effectively mitigate cost pressures through scale, operational performance and productivity initiatives, as well as through contractual mechanisms.” The company said in a statement.
The Week Ahead
Domestic data releases this week include retail sales today, private sector credit on Wednesday and the AIG manufacturing index, Q2 capital expenditure and housing finance on Thursday.
Internationally, we have Eurozone consumer and business confidence tomorrow night, US consumer confidence Wednesday night along with a host of Eurozone country GDP and CPI reports, Chinese manufacturing PMI on Thursday and US quarterly labour costs and productivity on Thursday night. The highlight of the week will likely be the US jobs reports with the JOLTS job openings report on Wednesday night and the monthly non-farm payrolls report on Friday night. The Federal Reserve has said they want to get the historically high number of job vacancies down as they see this adding to wage pressures while the unemployment rate is expected to hold at the very low 3.5%.
Corporate reporting slows down this week with half year results from Woodside and full year results from VGI Partners tomorrow, and full year results from VGI Partners Asia on Friday.
Saward Dawson Wealth Advisors Pty Ltd, a Corporate Authorised Representative of Akambo Pty Ltd t/a Accountants Private Advice
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