| Top Stories Friday, 3 May 2024, the ASX gained 42 points to finish at 7629. This ended a mixed week as the market was waiting for the bank updates and the data from the US. The NAB half-yearly profit was in line with expectations, and they increased an on-market buyback, and bad debts only slightly increased from 0.75% to 0.79%. Macquarie’s profit was expected to drop, but it came in below expectations, mainly from the lower profits from commodities and green investments. Other notable company updates during the week. Woolworths (WOW) delivered a worse-than-expected quarterly sales update, which saw the share price fall by 5%. Amcor (AMC) provided their 3rd quarter results, which were better than expected and saw them rally 9% this week. The US Federal Reserve left interest rates on hold at 5.50% and indicated that rates will stay at this level until they are confident inflation is moving back to their target of 2%. Over the last couple of months, inflation has moved sideways above 3%. Markets have moved their expectations of rate cuts from 6 at the beginning of the year to 0-2 for 2024. Last night, the US jobs report delivered 175,000, which was lower than the expected 240,000 and saw the unemployment rate rise from 3.8% to 3.9%. The market took a half-glass full view as the DOW gained 1.1%, NASDAQ gained nearly 2%, and the US 10-year Bond dropped 7 points to 4.50%. The reason for this view was the softer jobs report suggested the next move by the US Federal Reserve would be a rate cut rather than a rate rise, and it could be as soon as July or August (if the economic data continues to soften. However, the creation of 175,000 also showed the US economy is still growing and does not look recessionary. While the unemployment rate increased, it’s still below 4% for the 27th straight month—the longest run since the 1960’s. This should bode well for our market at the start of the week as the Macquarie conference hears from 108 of Australia’s top companies. Let’s hope there are not too many confessions. Markets are focused on stock-specific stories. Not all boats will rise with the tide until the inflation genie is back in the bottle. The next “Not So” might not be until May 13. We are happy for you to share our Not So Daily Bulletin with family and friends, and if we can help them, we are also happy to chat. April Market review April saw markets have a breather after 5 strong months. All markets were negative apart from the Chinese markets, which lagged behind all the others and the UK. The US, led by Dow Jones, was the worst, down 5%, but that’s after hitting new ALL TIME HIGHS in March. Apart from 5 positive months in a row, the main catalyst for markets to drift back was the expectation that interest rates would remain higher for longer as inflation has steadied around 3% as opposed to continuing to fall. This has seen expectations of interest rate cuts reduce from 6 times in the US to only 1 and maybe none for 2024. The ASX was down nearly 3%, with AUD changing little against the USD. Over the last six months, most major markets have been in a BULL market where returns are still double-digit returns. THE ASX is mid-pack at 13%, while the World Index (MSCI) is at 18%. Over the 12 months, the picture is similar, with Japan at 33% and Nasdaq at 28%, which are the best. The ASX is only up 4% as we lack the technology companies and our exports are linked to China. The Chinese markets have been negative. Over 5, 10, 15 and 20 years, NASDAQ has continued to lead the pack. Interestingly, the AUD has been weaker against the USD over those longer timeframes. Speaking of currency, the AUD hit a high of $1.10 against the Kiwi and the highest against the Yen since Oct 2007.  Bank profits, will they meet expectations? 3 of the major banks & Macquarie report their profits at the start of May. Citigroup, the most bearish of the brokers on the banks with SELL recommendations on the 4 majors and the lowest target prices, updated their expectations. NAB reports on May 2.Half Yearly results Expecting cash profit $3,545m Earnings per share (EPS) 114c and Dividend 84c. ACTUALS: Cash profit $3,548m and a dividend of 84c. Unexpectedly, they announced an increase of their on-market buyback by $1.5bn Macquarie reports on May 3. Full results Expecting cash profit $3,673m EPS 966c and Dividend 630c ACTUALS: Cash profit $3,522m a 32% drop on FY23. Full year dividend of $6.40. 55th consecutive year of profitability since founded. Westpac reports May 6 Half Yearly results Expecting $3,319m EPS 95c and Dividend 83c ANZ reports May 7 Half Yearly results Expecting $3,573m EPS 119c and Dividend 83c CBA reports May 9, 3rd quarter trading results. expecting $2,400m. Should the results exceed Citigroup’s expectations, then we could see the target prices increase. However, as shown in the table below, the Banking index is already trading well above 100%, representing the view from the brokers that the banks are fully priced. The other key indicator to watch is the level of bad and doubtful debts. These are the loans that are more than 90 days in arrears. These are still below pre-COVID levels at less than 1%. The Banking Index from last week was at 112.7%. All the brokers have target prices below the current share price. UBS 109% Morgans 114% Morgan Stanley 112% Macquarie 107% and Citigroup 124%.  Australia’s super – Worlds best This is not a headline you will see in Australian media, but it was an article from Bloomberg. This is an excerpt from the article. Between BlackRock’s Larry Fink and UK Chancellor Jeremy Hunt, it’s official: Australia’s A$3.7 trillion ($2.4 trillion) retirement system is the envy of the wealthy world. In his budget speech to Parliament in March, Hunt cited Australia’s private pensions, known as super funds, as delivering “better returns for pension savers with more effective investment strategies.” Three weeks later, in his annual letter to investors, BlackRock’s Chief Executive Officer directed American policymakers to “study and build on” Australia’s model, suggesting it could be an antidote to the deeply stressed US Social Security system. Australians have become some of the world’s wealthiest retirement savers in large part because the law that created the super funds also established a steady source of funding: Employers are required to make contributions equivalent to 11% of workers’ salaries. There’s no such requirement in the US and the UK only recently made some minimum contributions compulsory. But in a sign of the enormity of the looming global retirement crisis, even Australia’s enviable pile of cash won’t completely sustain the country’s aging population. After 32 years of mandatory employer funding, almost two-thirds of younger 60-somethings’ accounts had less than A$200,000 at the end of 2023. There’s very little guidance about how to stretch that money over three more decades, or what to do when it almost inevitably runs out.Left to their own devices, many workers don’t set money aside—or if they do, it’s not nearly enough. The UK only recently made minimum contributions compulsory at a level of 5% of salary from employers, plus 3% from workers. In the US, it’s optional for all parties, though within the last 15 years employers have been given more freedom to divert some of workers’ money into retirement investments. “It’s a chance for us to look into the future, really,” said Director of Market Oversight at The Pensions Regulator, a UK agency tasked with overseeing work-based pension schemes in that country’s retirement system. The UK is roughly 20 years behind Australia in its move to make contributions compulsory, he said, but “fundamentally I think we’re really trying to do very similar things.” Australia’s now-celebrated retirement system—officially, the Superannuation Guarantee—was started in 1992. The new laws required all employers to make contributions to workers’ retirement accounts, starting at the equivalent of 3% of salaries in the first year and growing steadily. Today employees get 11% deposited into their accounts. That sum is scheduled to rise to 11.5% in July and top out at 12% next year. The article finished with Australia is world-class good at: Mining, swimming, and superannuation.” Macquarie Cash Management Accounts Macquarie has advised there are changes occurring with their bank account. From Monday 20 May 2024 You won’t be able to: access over the counter services at Macquarie offices deposit or collect cheques at a Macquarie office order new chequebooks. From Friday 1 November 2024 You won’t be able to: write or deposit personal cheques deposit or request bank cheques deposit cash or cheques over the counter at NAB branches make a super contribution or payment via cheque. Please note that any cheque received after 31/10/24 will be returned to the sender. Please let us know if you have any questions about any of the above. Financial Planning Snippets PLEASE BE VIGILANT regarding financial scamming. If anyone is requesting financial information from you (via phone, email, text, or social media), please contact us first or ask them for their ABN. Super Guarantee (SGC) for employees increases to 11.5% from 1/7/24 Concessional super contributions increases from $27.5k to $30k from 1/7/24 Commonwealth Seniors Health Care card has seen the income limit increase to $152k(couple) $95.4k (single). If you are of Age Pension age and don’t have the card, please let us know. Account Based Pension minimum pension payments normal from July 2023. Amended Stage 3 tax cuts starting from 1 July 2024. Other Stories – RBA meetings are May 6 Jun18 Sept 24 Nov 5 (Cupday) and Dec 10. Broker Target Price changes Ord Minnett/Morningstar suspending the Morningstar research. Morgans Amcor (AMC) increased from $15.65 to $15.95 (highest broker) Coles (COL) increased from $18.70 to $18.95 NAB decreased from $30.02 to $29.94 Seek.com (SEK) increased from $27.30 (lowest broker) to $27.70 (still lowest broker) Morgan Stanley NAB increased from $30.60 to $31.50 Macquarie AMC increased from $14.90 to $15.40 Bell Potter/Citigroup NAB increased from $25.75 to $26.50 UBS AMC increased from $15.60 to $15.85 COL increased from $17.50 to $18.25 Tracking changes for 2024 Upgrades 153 Downgrades 105 Core Watchlist Index (changes since last Not So) The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE Macquarie price $176.95 Av. Target Price $205.96= 85.9% (meaning 14.1% upside over next 12 months) + income 4.35% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. We have removed Morningstar research from our calculations as Ord Minnett is in the process of changing to another research house. The Core index decreased from 94.07% to 93.50% Overall Earnings Per Share (EPS) FY24 increased from 1.15% to 1.29% FY25 decreased from 8.75% to 8.68% Most expensive – CBA 122.9% Least expensive – Nine Entertainment (NEC) 74.7% The CORE Watchlist has 7 (6) stocks trading above 100%; they are; ANZ CBA GMG JBH NAB WBC WES, lowest number ever is 0, highest is 11. While 8 (6) is trading below 85% (highest 18), the lowest is 1. ALL CSL NEC NXT ORA SEK SHL TLS (Figures in brackets is last Not So). STOCKS TRADING BELOW ALL BROKER FORECASTS ARE AS FOLLOWS; (it has been a handy indicator in the past). 13 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest is 2. ALL current price $39.92 Broker range $44.20 to $52.70 COL current price $16.12 Broker range $16.50 to $19 CSL current price $275.80 Broker range $305 to $350 LLC current price $6.30 Broker range $6.90 to $8.03 NEC current price $1.46 Broker range $1.65 to $2.20 NXT current price $16.53 Broker range $19.75 to $20.10 ORA current price $2.17 Broker range $2.30 to $2.90 ORI current price $17.71 Broker range $18.50 to $19.40 RMD current price $32.91 Broker range $33.70 to $36 SEK current price $23.79 Broker range $27.30 to $29.20 SHL current price $26.12 Broker range $27.85 to $36.50 TLS current price $3.58 Broker range $4 to $4.50 WOW current price $30.59 Broker range $32 to $39 Added COL WOW Removed AMC Banking Index (changes since last Not So) Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this indicates the Banks are fully priced. The Banking index increased from 112.7% to 113.8%. ANZ cheapest at 103.8% Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is slightly increased dividend payments and still attractive yields. PLUS FRANKING. FY 23 % FY 24 % FY 25 % ANZ 175.0 6.14% 160.8 5.65% 162.3 5.70% CBA 450.0 3.91% 459.7 3.99% 469.8 4.08% NAB 167.0 4.85% 165.3 4.81% 165.0 4.80% WBC 142.0 5.37% 144.0 5.45% 171.4 6.49% MQG 750.0 4.08% 601.6 3.27% 656.8 3.57% Dividend expectations for BHP and RIO. The forecasts below are for the full year. FY23 cps % FY24 cps % FY25 cps % BHP 255.00 6.01% 234.17 5.52% 276.8 6.53% RIO 620.50 4.80% 773.67 5.99% 709.8 5.49% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). Other Indicators (changes since last Not So) US VIX (Fear) Index decreased from 14.67 to 13.49. Was near 20 last week. The normal levels is (10 to 17). Iron Ore decreased from $117.45 to $117.25. Av expected for 2024 is $112. Copper decreased from $4.66 to $4.57. New 12 month hight. Expecting an increase over 2024. The BHP bid for Anglo America confirms this. Gold decreased from $2334 to $2310. New ATH $2,408.50. Central Bank buying has increased the price. AUD/USD increased from 65.23c to 66.08c. Recent low point 62.9c. Maybe low 70c in 2024 Asian markets – MIXED US 10 year Bonds decreased from 4.61% to 4.50%. recent high 5% (20/10 highest since 2006). The FED looks like it’s on HOLD. US 30 year Bond decreased from 4.73% to 4.66%. Hit a 17-year high of 5.12%. The US 2 year rate has decreased from 4.97% to 4.81% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.16%. It was -0.36% but still inverted, historically suggesting a recession. Widest inverse gap is -1.3%. The gap is narrowing. -0.16% is the lowest for some time. (higher for longer). German Bonds decreased from 2.53% to 2.49%. Hit 3% in October highest since 2008. Japanese Bonds increased from 0.871% to 0.901%. Highest in 10 years is 0.956%. Aussie Bonds 10 year Bonds decreased from 4.56% to 4.43%. Recent high 4.95% Other Aussie Bonds 1 year 4.31% 2 year 4.07% 4 year 4.02% 5 year 4.07% 15 year Bonds 4.59%. Oil prices decreased from $82.31 to $77.99 Tungsten – China remained at $330mtu. The European range increased again from $310-$339 to $320-$345mtu. This week & next week Last “Not So” opened in 7 Aust states (excl NT), US 5 states (California, Massachusetts, New York, Connecticut & South Carolina) Sweden. This week – Kevin and Scott away until Friday (conference in Hobart). Next week – May reviews Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
| Top Stories Happy Easter Thursday, 28 March 2024, the ASX gained 77 points to finish at 7897, a new ALL TIME HIGH (ATH). It hit a new INTRADAY ATH of 7901.2 during the day. The market was driven higher by resources that had been absent in the ATH set earlier in the month. The Aussie market is picking up the global sentiment, which is seeing ATH monthly closing highs in Europe, US and Japan. This week is the big dividend week, with over $19bn hitting the bank & super accounts. China finally dropped the Wine tariff, which was removed on Thursday. This should benefit Treasury Wines (TWE) and Orora (ORA) makers of wine bottles. Happy Easter!! We are happy for you to share our Not So Daily Bulletin with family and friends, and if we can help them, we are also happy to chat. March market review Markets continued to move higher as most hit ALL TIME HIGHS (ATH) and confirmed a new BULL MARKET as they are 20%+ higher from the lows last September. The best markets over the month were Europe, Germany up 4.6%, the UK up 4.2%, and France up 3.5%. The US S&P500 was up 3%, along with the World Index (MSCI) up 3%. The ASX 200 was up 2.5%, along with Japan, which broke its 34-year record at 40,000. China, again, was the only market not to see new ATH during the month and struggled to hold last month’s bounce. Over the last six months, most markets have bounced off the lowest established last September with gains of 15% plus. Japan is leading the way up 26%. China was negative over the period as investors were focused on the debt-laden property sector and ongoing trade wars. The ASX gained 12%. Over the last year, a similar pattern to the 6-month figures as the risk of inflation and higher interest rates has been offset by continued demand for skills and workers and the continued development of Artificial Intelligence. Japan is up 43%, the Nasdaq is up 34% & World Index (MSCI) is up 23%. ASX up 10%. The best performer over 5, 10, 15 & 20 years is still the NASDAQ. The 15-year figure is up by a staggering 971%, which happens to be from March 2009. This was the bottom of the Global Financial Crisis (GFC). It reinforces the view that the best time to invest is when everything looks the darkest.  March review for CORE and ETFs As noted above. Markets have continued to move higher, but it isn’t a case of all boats rising with the tide. Some sectors haven’t benefited from the new bull market yet; however, there have been signs in recent days that this might be broadening out (ie commodities). CORE WATCHLIST (30 stocks) The best performers for the month were Resmed (RMD), up 13% (rebounding after a sell-off last year). Goodman Group (GMG) up 13% (continuing to move higher on data centres and AI). It’s now the 12th biggest company on the ASX, and Santos (STO) is up 9% on a better oil & gas price outlook. The worst for the month were Aristocrat Leisure’s (ALL) – competition in gaming, Seek (SEK) ‘s strong recent run, and Transurban’s (TCL) interest rate, which is likely to be cut later in the year. Over the quarter, GMG, up 33% and NextDC (NXT), up 30%, continued the strong data centre growth, and they happen to be the best of the group over the calendar year (nine months). The laggards over the quarter are Nine Entertainment (NEC), falling ad revenue, Lend Lease (LLC), still waiting for profit delivery & BHP, and commodity price drop. Over the financial year (nine months), South 32 (S32) has been impacted by falling commodity prices, Orora’s (ORA) Chinese wine ban and negative response to the takeover of French bottle maker and Sonic Health (SHL) reduced income after COVID-19. EXCHANGE-TRADED FUNDS (ETF) The best ETF for the month was Vanguard Aust Property (VAP), which was up 9.8%, mainly driven by Goodman, the biggest property trust. Global Semiconductors – SEMI (computer chips) is up 6.3%, the biggest holding is NVIDIA. and Global Quality Small Companies (QSML) is up 5.8%. The laggards for the month – Cybersecurity (HACK) is down 2.1% after a recent strong run. Aust Fixed Interest (XARO) and Cloud Computing (CLDD) after a recent strong run. Over the quarter, the best has been SEMI, up 31%; QSML, up 19%; and Global Robotics & AI (RBTZ), up 19%, while the worst for the quarter was Aust Resources (MVR), down 4.6% and Magellan Infrastructure (MICH) down 1%. Over the financial year (9 months), the best was SEMI, up 45%, VAP, up 26% and HACK, 26%. The worst were the Chinese ETFs IZZ -9%, CNEW -7%, and Aust Resources (MVR) -5%.  Global Financial Crisis We are now 15 years from the bottom of the GFC in March 2009. It’s all good now, but that wasn’t the case then. As I mentioned, it’s probably the only time in history when the US, UK, Germany, France, China and Russia agreed on anything. They agreed to back the global financial system with a series of bail-outs (too big to fail). Some were heavily criticised, such as the Troubled Asset Relief Program (TARP) and rescue of mortgage providers Fannie Mae and Freddie Mac (FMFM), as a waste of taxpayers money. The result was the opposite: the US Government made a profit and protected millions of jobs. TARP cost $700 billion and made a profit for the US Government of $15bn. FMFM cost $187 billion, but the US Government was in front by $58 billion by 2019. Why did CBA hit $120? For months, CBA has been the most expensive stock on the Core Watchlist by some margin. The average target price is $93 with the highest broker at $105. It closed above $120 at the end of the month. The following article (edited) from the Australian Financial Review provides some insight. Like most things in Australian banking, the torchbearer for share prices is the Commonwealth Bank of Australia (CBA). Its shares have shot to record highs this year, seemingly defying gravity at times, to trade at three-times book value or 20.4-times forecast earnings per share on S&P Global Markets Research numbers. Up at $120, its usually rich premium is at new heights. Why? “It’s just the best bank,” veteran banking analyst Brian Johnson, now working for boutique firm MST Financial, says. You will not hear Johnson recommending clients buy CBA shares – he was surprised by the run, like all of his peers. But his explanation of how CBA shares got to $120 was worth noting. Like most things in markets, it is all about demand and supply. Johnson says you have to go back to October last year, when institutional investors wanted as few Australian bank shares as they could get. Credit growth was slowing, net interest margins were falling and banks were signing off on 5 per cent a year pay rises that would increase their already hefty labour costs. Institutional investors were positioned rationally. Funds had either sold Australian bank shares to underweight positions, or were short-selling shares to try to make money from their expected fall. CBA shares finished October at $96.56. In November, the US Federal Reserve pivoted to a pretty clear signal it would cut interest rates. The Australian dollar jumped against the United States dollar, which made those underweight positions held by global funds even bigger. At the same time, a change in the interest rate outlook meant global funds underweight the banks on fears about Australian house prices had to rethink their calls. So global funds started buying with their ears pinned back – both to keep up with the Australian dollar and to ease off bets against the housing market. That created a squeeze in CBA shares, making it a risky bet for short-sellers and sent them scrambling to cover positions. By then, it was December, bank shares were running and domestic and offshore long-only fund managers were worried about their December 31 unit pricing dates. So they also buy bank shares in a bid to protect those December 31 numbers. It was classic FEAR OF MISSING OUT (FOMO). Meanwhile, growing fears about the Chinese economy early this year had big investors with Asia mandates rethink their broader Asia exposure and had them looking for markets outside of China. Where did they head? India and Australia – and when coming to Australia, they bought the big banks. Who was selling? Not many people. CBA’s sticky share register, plenty of who are retail shareholders that have owned the company since its early days on the ASX, are unwilling to trigger a capital gains tax bill and continue to hold. Add all that together – all things that are hard to predict when you’re a sell-side analyst of a fund manager thinking about the fundamentals – and you get an unexpected run to $120 a share. CBA’s highest close was $121.45 on March 8. “CommBank has always been expensive – best management, generates the most capital and no one owns it which means you perpetually get in these periods where people have to buy it and get squeezed up,” he says. Analysts, like Johnson, have had to decide whether to double down on their CBA calls. “If you think about every single one of those drivers, has anything changed?” Johnson asks. “The credit growth outlook is still slow, we still see outrageous competition coming through on both sides [mortgages and deposits]. Not much has really changed except the share prices are a lot higher.” Commodities Morgans have updated their view on commodities. ▪ Oil and copper are our top picks. Fundamentals in both the oil and copper markets look set to continue to benefit from decades of underinvestment. Both markets have seen deterioration in supply from aging production, and a lack of new supply sources or investment significant enough to satisfy future demand. ▪ Iron ore healthy – for now. Iron ore and nickel are two completely different markets, but iron ore could soon face a similar supply dynamic with large cheap high-quality new supply on the horizon at Simandou. Simandou’s initial production of +150mtpa will be enough to remove the majority of high-cost supply we see sitting with cost bases in the range of US$80-$100/t, which would trigger an aggressive flattening of the cost curve and likely iron ore prices with it. ▪ Gold sector vs gold price. The Australian equity market is largely ignoring the fact that gold prices have pushed to all-time highs, although this might not be the case for long. We see real potential for a ‘catch up’ rally across the gold sector if miners can avoid any operational issues in next month’s quarterlies. Weakening USD would support commodities ▪ In the short term global commodity investors continue to focus on the strained prospects for global/China growth as the key driver for investor demand for commodities, but we believe the potential support from a weakening US dollar could be powerful and should not be overlooked – especially as US inflation shows signs of stabilising and the Fed considers its monetary policy settings. Implications for the Australian economy from commodity swings ▪ Australia’s economy continues to be uniquely pressurised by energy inflation, while the rest of the world has been enjoying material energy deflation. The result of state and federal policies is encouraging an aggressive energy transition. ▪ We see the energy problem as likely to expand on the east coast in coming years, which painfully could unfold at the same time we expect prices of Australia’s three largest exports (coal, iron ore and LNG) to moderate back toward long-term averages. ▪ This presents some challenges for Australia’s economy, which has benefitted from high commodity prices in its key markets over the last ~eight years. The global picture looks much healthier ▪ We expect China’s property market to remain depressed in 2024, although infrastructure and manufacturing could prove positive on growth. We also see an increased likelihood of a return to growth from advanced Western economies. This presents a more balanced outlook for global growth, which we expect will see commodities remain in healthy ranges through the year. ▪ Our top preferences across diversified mining and oil & gas are Woodside (WDS) and South 32 (S32), while we also upgrade BHP and Beach Energy (BPT) ▪ Our order of preference between the three big iron ore producers remains BHP, RIO and FMG. Financial Planning Snippets PLEASE BE VIGILANT regarding financial scamming. If anyone is requesting financial information from you (via phone, email, text, or social media), please contact us first or ask them for their ABN. Super Guarantee (SGC) for employees increases to 11.5% from 1/7/24 Concessional super contributions increases from $27.5k to $30k from 1/7/24 Commonwealth Seniors Health Care card has seen the income limit increase to $152k(couple) $95.4k (single). If you are of Age Pension age and don’t have the card, please let us know. Account Based Pension minimum pension payments normal from July 2023. Amended Stage 3 tax cuts starting from 1 July 2024. Other Stories – Chinese factory data better than expected. – Broker Target Price changes Ord Minnett/Morningstar suspending the Morningstar research. Morgans Rio Tinto (RIO) increased from $127 to $128 South 32 (S32) increased from $4 (highest broker) to $4.10 (still highest broker) Santos (STO) increased from $7.90 to $8.10 Woodside (WDS) increased from $34.20 (highest broker) to $36.20 (still highest broker) Morgan Stanley BHP increased from $44.50 to $47 Macquarie Group (MQG) increased from $202 (highest broker) to $225 (still highest broker) Rio Tinto (RIO) increased from $138 (highest broker) to $140 (still highest broker) South 32 (S32) decreased from $3.60 to $3.35 (lowest broker) Macquarie Bell Potter/Citigroup UBS Tracking changes for 2024 Upgrades 122 Downgrades 88 Core Watchlist Index (changes since last Not So) The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE Macquarie price $176.95 Av. Target Price $205.96= 85.9% (meaning 14.1% upside over next 12 months) + income 4.35% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. We have removed Morningstar research from our calculations as Ord Minnett is in the process of changing to another research house. The Core index increased from 96.40% to 97.43% (near recent high). Overall Earnings Per Share (EPS) FY24 decreased from 1.32% to 1.06% FY25 increased from 8.67% to 9.27% Most expensive – CBA 129% Least expensive – South 32 (S32) 80.2% The CORE Watchlist has 9 (8) stocks trading above 100%; they are; ANZ BXB CBA GMG JBH MQG NAB WBC WES, lowest number ever is 0, highest is 11. While 1 (1) is trading below 85% (highest 18), the lowest is 1. S32 (Figures in brackets is last Not So). STOCKS TRADING BELOW ALL BROKER FORECASTS ARE AS FOLLOWS; (it has been a handy indicator in the past). 10 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest is 2. ALL current price $43 Broker range $44.20 to $52.70 AMC current price $14.44 Broker range $14.50 to $15.65 CSL current price $287.92 Broker range $305 to $350 LLC current price $6.43 Broker range $6.90 to $8.03 NXT current price $17.79 Broker range $19.75 to $20.10 RIO current price $121.76 Broker range $125 to $140 RMD current price $30.15 Broker range $31.80 to $34 SEK current price $25.05 Broker range $27.30 to $29.20 S32 current price $3.00 Broker range $3.50 to $4 TLS current price $3.86 Broker range $4 to $4.50 Added Removed ORA STO Banking Index (changes since last Not So) Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this indicates the Banks are fully priced. The Banking index increased from 115.8% to 116.1%. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is slightly increased dividend payments and still attractive yields. PLUS FRANKING. FY 23 % FY 24 % FY 25 % ANZ 175.0 5.95% 160.8 5.47% 162.2 5.52% CBA 450.0 3.74% 459.7 3.82% 469.8 3.90% NAB 167.7 4.84% 165.2 4.77% 165.0 4.76% WBC 142.0 5.44% 144.3 5.53% 172.6 6.61% MQG 750.0 3.76% 601.6 3.01% 656.8 3.29% Dividend expectations for BHP and RIO. The forecasts below are for the full year. FY23 cps % FY24 cps % FY25 cps % BHP 255.00 5.76% 234.17 5.29% 276.8 6.25% RIO 620.50 5.10% 771.00 6.33% 701.2 5.76% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). Other Indicators (changes since last Not So) US VIX (Fear) Index decreased from 13.67 to 13.01. The VIX is within the normal levels (10 to 17). Iron Ore decreased from $108.05 to $96.70. Dropped below $100 again. Av expected for 2024 is $112. Copper increased from $4.02 to $4.04. Expecting an increase over 2024. Highest in 11 months Gold increased from $2166 to $2281. New ATH $2,286.40. AUD/USD decreased from 65.19c to 65.17c. Recent low point 62.9c. Maybe low 70c in 2024 Asian markets – UP US 10 year Bonds decreased from 4.21% to 4.19%. recent high 5% (20/10 highest since 2006). The FED looks like it’s on HOLD. Expecting 2024 to finish 3ish US 30 year Bond decreased from 4.39% to 4.35%. Hit a 17-year high of 5.12%. The US 2 year rate has decreased from 4.73% to 4.60% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.41%. It was -0.39% but still inverted, historically suggesting a recession. Widest inverse gap is -1.3%. This is the most it has been inverted in 42 years. The gap is narrowing (higher for longer). German Bonds decreased from 2.33% to 2.29%. Hit 3% in October highest since 2008. Japanese Bonds increased from 0.732% to 0.739%. Highest in 10 years is 0.956%. But will the negative rate policy finish tomorrow? Aussie Bonds 10 year Bonds decreased from 4.02% to 4%. Recent high 4.95% Other Aussie Bonds 1 year 3.98% 2 year 3.67% 4 year 3.61% 5 year 3.66% 15 year Bonds 4.19%. Oil prices increased from $80.92 to $83.48 Tungsten – China remained at $305 to 315mtu. The European increased range from $302-$325 to $305-$327. This week & next week Last “Not So” opened in 7 Aust states (excl NT), US 5 states (California, Massachusetts, New York, Connecticut & South Carolina) Sweden UK & Israel. This week – March reviews Next week – March reviews Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
| Top Stories Friday, 1 March 2024, the ASX gained 46.90 points to finish at 7745.90. A NEW ALL TIME HIGH. The market rallied on the back of the NASDAQ, which closed this morning at a NEW ALL-TIME HIGH of 16,091. As noted later, this is over 1000% higher than the bottom that occurred 15 years ago in the GFC. The ASX opened higher and pushed to a new high in the morning but gave up all the rally until it successfully rallied again in the afternoon, probably on the Chinese PMI numbers as resources stocks were the best sector up 2%. Japan also hit a new all-time high, nearing 40,000 points. Japanese companies are benefiting from a lower Yen and increased interest in technology. The US, Australian, and European markets are also doing well with interest rates expected to move lower at some point in 2024. Below is the February market and investment review and Morgan Stanley’s updated market outlook. They had been the most bearish of the brokers but have now become cautiously optimistic. The market is likely to climb a WALL OF WORRY, with bouts of volatility. We are happy for you to share our Not So Daily Bulletin with family and friends, and if we can help them, we are also happy to chat. February Market review The end-of-2023 rally has continued into February with strong gains across most major markets, with only the UK slightly in the red. The Chinese markets were up 8% as they finally bounced, with interest rate cuts and short-selling bans providing a boost. There is an increasing need for stimulus, especially in the property sector. This is having an impact on the commodity prices and the materials sector in Australia. Japan hit an ALL TIME HIGH (ATH), finally breaking the 1990 high (it only took 34 years). Other markets were buoyed by the US profit season and continued delivery from technology companies (exceeding expectations). This saw the Nasdaq up 6%, the S&P500 up 5%, Germany up 4.5% and the World 4% (MSCI). The ASX struggled to close in positive territory with a gain of just 0.23%. Over the last six months, Japan is up 20%, the US, Germany & the World are up by double-digit returns, while China (HK and Shanghai) are negative. A similar picture over 12 months with the upside gains even higher Japan up 42%, and Nasdaq up 40%. Nasdaq has remained the dominant player over the 5, 10, 15, and 20 years. The 15-year figure is interesting; February 2009 was the bottom of the market in the GFC. For those old enough to recall, the global financial system was at risk until all the global Central Banks agreed to back the system. It’s still the only time in history that the US, UK, Germany, France, Russia and China agreed on anything. Since then, the Nasdaq has increased by a staggering 1,067%.  Core Watchlist and ETF February review The February reporting season allowed investors to bid up or sell down stocks based on the last six months. CORE WATCHLIST Over the last month, from the CORE Watchlist of 30 ASX stocks we track, the best performers were NextDC (NXT), up 25% based on cloud computing and AI data storage needs. Goodman Group (GMG) was up 16% as they have also pivoted over a 1/3 of their business to data storage. While Wesfarmers (WES) was up 14%, the consumer was still buying from Bunnings and Kmart. Other notable gains are Westpac (WBC) up 9% & Coles (COL) up 6%. At the other end was Lend Lease (LLC), down 13% after downgrading property values and profit expectations—currently one of the favourite short stocks. Nine Entertainment (NEC) is down 13% on slower advertising and cost pressures. Channel Seven (SVW) was very similar, and South 32 (S32) was down 12% as soft commodity prices impacted the resources sector. Over the calendar year (2 months), the same stocks are the best, while BHP has replaced S32 in the three worst. Over the financial year (8 months), GMG was up 49%, JB HiFi (JBH) was up 40%, and NXT was up 40%. While S32 is down 21%, Resmed (RMD) is down 18% on the weight loss drug. It was down much further, but its profit result was much better than expected, and Orora (ORA) was down 18% after the market didn’t like its acquisition of a premium French bottle maker. EXCHANGE-TRADED FUNDS (ETF) The ETF performance was much better in February, with only a few negative returns. The best for the month were the Chinese funds IZZ, up 11%; CNEW, up 9.6%; and Korea (IKO), up 8%. Other notable mentions are Australian Mid Cap (MVE), up 7.6%, Emerging Markets (EMKT), up 6%, and FEMX, up 5.4%. Asia (IAA) is up 6.7%, Global Quality (QUAL) is up 5.8%, Global Quality Small (QSML) is up 5.8%, and Global Robotics and AI (RBTZ) is up 7.5%. The worst for the month is Australian Resources (MVR), down 1.6% and two fixed interest investments, Inflation-linked bonds (ILB), down 0.24% and Vanguard Aust Fixed Interest (VAF), down -0.18%. Over the calendar year (2 months). The best 3 are RBTZ, up 16%; QUAL, up 13.% and QSML, up 12.9%, while the worst was MVR and Global Infrastructure IFRA & MICH, down 2.5%. Over the financial year (8 months), The best 3 were Global Cybersecurity (HACK), up 30%; QUAL, up 20%; and QSML, up 19%. While the Chinese funds are still lagging, we may have seen the bottom with the bounce over the last month.  Market outlook Morgan Stanley (MS) updated their market commentary. Below is an edited summary Markets continued to rally in February with the S&P 500 now trading above 5000 points. • Earnings releases in the US have remained below recent trends. However, Nvidia Corp. (Nvidia) exceeding sales and upgrading guidance provides steady support for Artificial Intelligence (AI), technology and even global equities. • MS believe rate cuts, the AI ‘boom’ and a mild economic rebound in 2H24 will likely keep supporting stock markets this year. MS continues to focus on sectors and regions that offer secular tailwinds (AI, segments of Health Care, Japan) and earnings resilience (Quality and Defensives).That said, in the short term, MS believes markets could pause after strong rallies and the end of reporting season which usually happens as their are limited catalysts to drive the market higher. • The strength of US markets, and the weakness of Chinese equities have drawn flows into Australian equities as a local proxy of a regional higher-quality market. However, Australia faces a slowing economy and a still hawkish central bank. Current valuations are hard to justify, and MS doesn’t believe the slightly positive tone out of the earnings season will be enough to lift stocks higher in the absence of i) further strength in the US and/or ii) weaker data raising the odds of earlier cuts. • MS continue to monitor the key risks with regards to i) the geopolitical situation, ii) lagged impact of monetary tightening, iii) headwinds for the US consumer, and iv) US commercial property, but recent data flow has continued to validate the ‘soft landing’ narrative, which remains the base case. • Bonds continue to offer an attractive combination of yield, capital gains and downside protection potential. In addition to attractive income, yields will either come down moderately when central banks likely start to lower rates in less than 6 months, or significantly if the bear case (i.e. recession) materializes. • The economy remains in a late-cycle pattern and cannot completely dismiss recession risks, but MS acknowledge the signs of a ‘soft landing’ have increased noticeably. Financial Planning Snippets PLEASE BE VIGILANT regarding financial scamming. If anyone is requesting financial information from you (via phone, email, text, or social media), please contact us first. Super Guarantee (SGC) for employees increases to 11% from 1/7/23 Commonwealth Seniors Health Care card has seen the income limit increase to $152k(couple) $95.4k (single). If you are of Age Pension age and don’t have the card, please let us know. Account Based Pension minimum pension payments will revert back to normal from July 2023 (from half normal, which were put in place due to COVID in 2020). Amended Stage 3 tax cuts starting from 1 July 2024 after Coalition agrees to pass. Other Stories – MS sees the Australian dollar weaker throughout 2024. Low 60’s. – Chinese PMI readings were slightly better than expected for the Chinese economy. Manufacturing 50 and Services 51.4. A number above 50 means expanding and below means contracting. – US Federal Reserve’s preferred inflation gauge. PCE came in as expected overnight. Broker Target Price changes Ord Minnett/Morningstar suspending the Morningstar research. Morgans NextDC (NXT) increased from $14.50 (equal lowest broker) to $20 (equal highest broker) Woodside (WDS) decreased from $34.30 (highest broker) to $34.20 (still highest broker) Morgan Stanley Rio Tinto (RIO) decreased from $144.50 (highest broker) to $138 Sonic Health (SHL) decreased from $33.60 to $31.65 Macquarie NXT increased from $17 to $20 (equal highest broker) Bell Potter/Citigroup NXT increased from $15.45 to $19.75 UBS Coles (COL) increased from $16.25 (lowest broker) to $17 WDS decreased from $32.60 to $31 Tracking changes for 2024 Upgrades 93 Downgrades 81 Core Watchlist Index (changes since last Not So) The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE Macquarie price $176.95 Av. Target Price $205.96= 85.9% (meaning 14.1% upside over next 12 months) + income 4.35% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. We have removed Morningstar research from our calculations as Ord Minnett is in the process of changing to another research house. The Core index increased from 96.71% to 96.99% Overall Earnings Per Share (EPS) CY23 remained at 3.61% FY24 decreased from 1.61% to 1.44% Most expensive – CBA 127.8% Least expensive – Resmed (RMD) 80.9% The CORE Watchlist has 9 (9) stocks trading above 100%; they are; ALL ANZ CBA GMG JBH MQG NAB WBC WES, lowest number ever is 0, highest is 11. While 3 (3) are trading below 85% (highest 18), while the lowest is 3. LLC RMD S32 (Figures in brackets is last Not So). STOCKS TRADING BELOW ALL BROKER FORECASTS ARE AS FOLLOWS; (it has been a handy indicator in the past). 8 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest is 2. AMC current price $14.04 Broker range $14.50 to $15.65 CSL current price $282.35 Broker range $305 to $350 LLC current price $6.33 Broker range $6.90 to $8.50 RMD current price $26.72 Broker range $31.80 to $34 SEK current price $26.10 Broker range $27.30 to $29.20 S32 current price $3.02 Broker range $3.10 to $4 STO current price $7.20 Broker range $7.75 to $9.95 TLS current price $3.81 Broker range $4 to $4.50 Added Removed BHP ORA Banking Index (changes since last Not So) Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this indicates the Banks are fully priced. The Banking index increased from 117.8% to 118.8%. A new record high at 118.8%. The market is enjoying the banks but the analysts are struggling with some of the values. Macquarie Research said the values for the banks were pricing profit growth, where the expectations are for bank profits to fall or be flat for the next couple of years Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is slightly increased dividend payments and still attractive yields. PLUS FRANKING. FY 23 % FY 24 % FY 25 % ANZ 175.0 6.09% 160.8 5.59% 162.2 5.64% CBA 450.0 3.83% 459.7 3.92% 469.8 4.00% NAB 167.7 4.93% 165.2 4.85% 165.0 4.85% WBC 142.0 5.38% 144.3 5.47% 172.6 6.54% MQG 750.0 3.86% 608.6 3.13% 655.8 3.37% Dividend expectations have been cut for BHP and RIO. Yields are still expected to be very strong. The forecasts below are for the full year. I have added FY25. BHP and RIO results will see some changing forecasts with the likelihood of further reduction. FY23 cps % FY24 cps % FY25 cps % BHP 255.00 5.68% 234.50 5.22% 272.6 6.07% RIO 620.50 4.97% 774.67 6.20% 709.7 5.68% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). Other Indicators (changes since last Not So) US VIX (Fear) Index decreased from 13.43 to 13.40. The VIX is within the normal levels (10 to 17). Iron Ore decreased from $1117.40 to $116.70 ALL-TIME HIGH of $237.57. Av expected for 2024 is $112. Copper increased from $3.82 to $3.85. Expecting an increase over 2024. Gold increased from $2040 to $2053. Had a new record in December of $2152. Couldn’t hold it. AUD/USD decreased from 65.17c to 65.08c. Recent low point 62.9c. $A strengthened to 68c but has fallen back. Maybe low 70c in 2024 Asian markets – UP US 10 year Bonds decreased from 4.29% to 4.25%. recent high 5% (20/10 highest since 2006). The FED looks like it’s on HOLD. Expecting 2024 to finish 3ish US 30 year Bond decreased from 4.43% to 4.38%. Hit a 17-year high of 5.12%. The US 2 year rate has decreased from 4.69% to 4.63% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.35%. It was -0.40% but still inverted, historically suggesting a recession. Widest inverse gap is -1.3%. This is the most it has been inverted in 42 years. The gap is narrowing (higher for longer). German Bonds decreased from 2.47% to 2.42%. Hit 3% in October highest since 2008. Japanese Bonds increased from 0.699% to 0.716%. Highest in 10 years is 0.956%. Aussie Bonds 10 year Bonds decreased from 4.18% to 4.16%. Recent high 4.95% Other Aussie Bonds 1 year 3.98% 2 year 3.75% 4 year 3.74% 5 year 3.80% 15 year Bonds 4.37%. Oil prices decreased from $78.57 to $78.53. Tungsten – China remained at $305 to 315mtu. The European midpoint is $312.50. This week & next week Last “Not So” opened in 7 Aust states (excl NT), US 7 states (California, Massachusetts, South Carolina, Ohio, Colorado, New York and Washington DC) & Sweden. This week – West Wyalong, Ungarie, Condobolin & Tullamore, in office Thursday-Friday Next week – Brisbane – Monday-Wednesday Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
| Top Stories Friday, 2 February 2024, the ASX gained 111.20 points to finish at 7699—a new ALL-TIME CLOSING HIGH. A new high was reached on Wednesday, but after US Federal Reserve Governor Powell said no rate cut in March (which is what we had been saying), the market fell back yesterday. However, this morning’s strong profit results from Meta (Facebook) and Amazon have buoyed the market to bounce higher, and this fed into the Australian market. Meta is up 15% in the US aftermarket, and Amazon is up 8% (these gains will be reflected in the US market overnight). Before today’s US profit results, AMP’s Shane Oliver said 50% of US companies had reported an average profit growth of 6.2%. This has been a good signal for the market as it experiences falling inflation and expectations of lower interest rates. The NO LANDING economic picture is now the favourite. Let’s hope the upcoming Australian reporting season delivers similar numbers, which may mean the brokers can catch up to the market. There are now 11 stocks (the highest ever) trading above their target price (see below). The Core Watchlist, at 97.37, hasn’t been this high since President Biden was elected. Only two stocks are trading below the lowest broker (CSL and LLC). The ASX reached a new INTRA DAY ATH of 7703.6 as Goodman Group (GMG) was up 6% and NextDC (NXT) was up 3%, increasing the prospect of more cloud data being stored from the growing world of AI. Of the five major US companies to report this week. Microsoft, Meta and Amazon delivered better than expected, while Alphabet (Google) and Apple were below expectations. Additionally, other economic information may impact markets this week. Friday – US jobs. The market is likely to climb a WALL OF WORRY, with bouts of volatility. We are happy for you to share our Not So Daily Bulletin with family and friends, and if we can help them, we are also happy to chat. January Market review The Santa rally continues into January for most global markets, with only China and the UK being negative. Japan stood out and continued its recent strength with an 8% gain after hitting 34-year highs. Hitting new monthly closing all-time highs included US (Dow Jones & S&P500), German DAX, French CAC and ASX200. A positive sign for 2024 is the January effect. The saying is that the market’s direction for January is usually the direction for the year. Since 1980, positive Januarys have seen a positive return in that year 85% of the time. The 6-month returns are in single digits, with China being the main laggard, while the 12-month returns are double digits in the US, Germany, Japan and the World Index (MSCI). The ASX is only up 2.73% over this period (plus income). The Nasdaq has retained its lead for 5, 10, 15 and 20 years. The World Index (MSCI) holds a strong lead over the ASX over these timeframes, again re-emphasising the need for diversification and investing offshore.  Core & ETF Watchlists in January The Core Watchlist of 30 ASX stocks gained 2.68% for the month compared to the ASX 1.19%. The best performers were Resmed (RMD), up 14% after their quarterly results were better than expected and saw little impact from the weight loss drug. JB Hi-Fi (JBH) was up 7% after retail sales were up for Christmas, and they saw several broker upgrades. Other notable mentions were NAB, up 6%, WBC, up 5.5%, CBA and ANZ, up 5%, as was CSL. BHP dropped 6% at the other end, mainly due to the Brazillian court case and coming off a record high in December. Maybe the Woolworths (WOW) Australia Day protest had some impact as the share fell 3% for the month. Over the financial year (7 months), the best performer was JBH, up 30%, which has recovered from a sell-off as the assumption was higher interest rates would impact retail sales. JBH has shown a quality business model and faithful buyers who like the latest technology. Goodman Group (GMG), up 27%, has branched out into building data centres with increased global expansion plans. Even today, they were up another 6%. NAB is up 23%. The worst over the seven months is Orora (ORA), down 15% as the market doesn’t like the French bottle acquisition. The market will get this one wrong and is paying an excellent yield of 6.5%. Coles (COL) is down 13% as pressure on supermarkets from populist positions looking for government enquiries into profits. Resmed (RMD) was sold off last year based on the threat from the weight loss drugs but is now rebounding solidly. Exchange Traded Funds (ETF) and one Listed Investment Co (LIC) Over the month, the best performances were from the technology areas, particularly AI with Global Cybersecurity (HACK), up 10.7%, and Global Robotics and AI (RBTZ), up 8.6%. The 3rd place went to the LIC – Spheria Emerging (SEC) companies that gained 7.5%, plus it traded without a 2.9c fully franked dividend (about 10% for the month). The Chinese funds IZZ and CNEW are at the other end, as the foreign money exit outweighs the local buying. This is overdone; at some stage, it will turn, as noted in the last Not So. The other laggard was Australian Resources (MVR) -5.7% as other non-iron ore minerals suffered, again as pointed out in the previous Not So. Over the seven months, the technology areas have still been dominant. HACK is up 27%, Nasdaq (NDQ) is up 14%, and Global Quality (QUAL) is up 13.5%. No surprises at the other end, China and Asia. The question is, for how long?  Aussie market outlook Most major markets have run hard since November 2023 and hitting new ATH today. While the market is assuming all is good with the world. There is a need to give contrarian views. UBS has updated their view of the market for 2024 from earlier in the week with the follow research piece titled. Share price ascent shows excitement that all is now good… we’re sceptical. Since touching its 2023 low point on 30 October, the ASX200 has jumped 11.6%. This rebound has meant that our year-end 2024 target of 7660 is already within striking distance (written earlier this week). We believed that rate cut optimism justified an equity re-rate through 2024. But the speed at which this is now playing out is giving us concern that equity market pricing has become overly optimistic, given the challenging environment companies still face as a result of:1) a slowing top line, and 2) broadening cost pressures. 1. The recent equity rally has been almost entirely bond driven The recent run-up in stock prices has not been driven by either earnings upgrades or better macro data. Instead it has been almost entirely driven by the strong rally in bond yields. Right now the correlation between daily moves in the ASX200 and daily moves in the local bond yield is at its strongest since pre-GFC times. 2. Prices ‘looking through’ the cycle… but where are the earnings? Sectors such as Banks and Retail have seen prices run up hard over recent months, even as as both FY24 and FY25 earnings estimates have remained relatively static. 3. Recent stock winners look most vulnerable on valuation. Recent positive sentiment towards James Hardie, JB Hi-fi, CBA, Cochlear, and REA Group has seen their share prices potentially move ahead of earnings. Right now, these stocks look rather stretched versus outer-year earnings growth. 4. The compensation for taking on equity risk has fallen over recent months, we have seen the eERP in Australia fall to a decade low. Finding marginal buyers of equities may be a challenge until a higher ERP is on offer. 5. Aussie stocks look expensive vs global. A common pushback against Aussie stocks accused of being overvalued is that US stocks look even worse. However, if US sector weights are applied to Aussie stock valuations, the Australian equity market would sit at a 20% PE premium to the S&P500. 6. Covid distortions still linger, where are trend sales? The Australian economy is still experiencing retail sales sitting above trend. By contrast, arrivals of international tourists into Australia still sit well below the pre-Covid trend. 7. Aussie equities have typically bottomed after the RBA starts cutting On average, the Australian equity market haven’t bottomed until after the RBA has resumed its rate-cutting cycle. Interestingly, the Banks, Consumer Discretionary and REIT sectors staged rallies in the 3 to 5-month period after the last rate hike, only to subsequently give these gains back over the subsequent 6 to 12 months. 8. Foreigners have been sellers over last year… can they return? Global investors have stepped away from the Australian equity market over the last 12 months. We have reason to believe they may be coming back in 2024… PW view – the upcoming profit season will be important for these valuations. Banks The banks have also run hard in the last couple of months, with CBA hitting new ATH. However, according to the brokers it trading well above its fair value. As noted below the Banking index is trading above 111%. Morgan Stanley has updated their view of the Banks. Major banks had a mixed year in 2023, but rallied into year-end as investors anticipated the benefits of rate cuts and a more rational competitive environment in 2024. We believe trading multiples are now pricing in upgrades to consensus forecasts for earnings, dividends and buybacks. We are less optimistic about the outlook, and we think trading multiples are too high given earnings and returns will likely decline this year and material consensus upgrades are unlikely. We believe key issues for 2024 include: 1) the potential for RBA rate cuts and a ‘soft’ landing; 2) the expectation of more rational competitive behaviour in retail banking and the opportunity for ‘back book’ mortgage re-pricing; 3) retail bank strategies and performance at each of the banks; 4) the growing need for new productivity initiatives to offset persistent inflation; 5) underlying loan loss rates and the size and timing of provision releases (bad debts) and 6) the potential for new buybacks and a further increase in dividends. Order of preference ANZ Given our views on the outlook for the Australian economy and industry competition, ANZ is our preferred major bank and we are Overweight. This reflects its supportive trading multiples, recent underperformance, benefits of diversification, positive franchise momentum, cost discipline, material improvement in its risk profile, a strong proforma capital position and the pending regulatory decision on the proposed acquisition of SUN’s bank. NAB NAB offers sound retail and business bank franchise performance, consistent cost management, excess provision levels and strong capital. With downside economic risks moderating, we think its recent track record and improving return on equity (ROE) will provide support for current trading multiples, so we are Equal-weight. At current prices, NAB would also be the cleanest way to play a ‘soft’ landing scenario for the Australian economy and banks industry in 2024. WBC WBC’s performance met relatively low investor expectations in 2H24, helping to drive a strong share price recovery and outperformance relative to the ASX and the major bank average since the start of November. However, we believe the path to a lower CTI and a double-digit ROE still looks difficult, with execution risks relating to franchise performance, margin management, and the outlook for cost growth. With the P/E multiple having re-rated back to the pre and post COVID average, and material ROE improvement unlikely before FY26, we are Underweight. CBA CBA’s ROE and capital generation are better than the other major banks. However, we believe retail bank profitability has re-set at a lower level, while its balance sheet settings and risk profile are broadly similar to peers. At the same time, its share price and P/E multiple are near record highs in response to its message of mortgage pricing discipline in the 1Q24 trading update and investor perception that it would be the biggest beneficiary of potential rates cuts and a ‘soft’ landing in 2024. Against this backdrop, we believe current multiples remain hard to justify based on financial metrics and the premium for ‘quality’ is too high. We are Underweight. Australian reporting season The December 2023 reporting season is nearly here. Before that we are in confession season where companies provide the market with any updates that are likely to disappoint. So far we’ve only had a few. Woolworth had a $1.7bn writedown of it’s NZ operation. Domino’s reduced profit expectations and IGO said lithium sales were below expectations. I have listed when the CORE Watchlist shares are due to report. 25/1 Resmed (RMD) revenue up 12%. Dividend up 6/2 Amcor (AMC) 8/2 Transurban (TCL) 12/2 JB Hi-Fi (JBH) 13/2 CSL Seek.com (SEK) 14/2 CBA 15/2 Goodman Group (GMG) Telstra (TLS) Wesfarmers (WES) 19/2 Lend Lease (LLC) Orora (ORA) 20/2 BHP Next DC (NXT) Sonic Health (SHL) 21/2 Rio Tinto (RIO) Woolworths (WOW) 22/2 Nine Entertainment (NEC) 23/2 Brambles (BXB) 27/2 Coles (COL) Woodside (WDS) These profit results should provide some direction to the market over the coming months. Interest rates In a sign that interest rates have peaked. Macquarie has reduced its Accelerator interest rate from 4.75% to 4.65. The CMA remains at 3%. Financial Planning Snippets Super Guarantee (SGC) for employees increases to 11% from 1/7/23 Commonwealth Seniors Health Care card has seen the income limit increase to $152k(couple) $95.4k (single). If you are of Age Pension age and don’t have the card, please let us know. Account Based Pension minimum pension payments will revert back to normal from July 2023 (from half normal, which were put in place due to COVID in 2020). Other Stories – Spheria Emerging Companies (SEC) previously announced that it would convert to an ETF if the share price doesn’t narrow the margin to the net tangible assets (NTA) to less than 5%. NTA as at 30 Jan was $2.30. Share Price closed at $2.13. That’s a discount of 7.4%. SEC is up 7.5% in January plus a 2.9c full franked dividend. – Tesla has also suffered over the last month, dropping 24% as Chinese EV makers passed Tesla’s sales. On a personal note, Elon had a US judge say his US$56bn payment as the CEO was “unfathomable”. It may mean he drops to number 3 on the richest list. Broker Target Price changes Ord Minnett Morgans Morgan Stanley Macquarie Bell Potter/Citigroup UBS Tracking changes for 2024 Upgrades 37 Downgrades 26 Core Watchlist Index (changes since last Not So) The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE Macquarie price $176.95 Av. Target Price $205.96= 85.9% (meaning 14.1% upside over next 12 months) + income 4.35% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index increased from 96.16% to 97.37% That’s the highest level since 17 Dec 2020 when Biden was President-elect. Iron ore was $160 per ton Overall Earnings Per Share (EPS) We could see an uptick in overseas company earnings (BHP MQG CSL RIO STO WDS RMD AMC BXB) as they will benefit from a lower current assumption. We have been using 70c. Moved to 68c (still conservative). CY23 decreased from 3.62% to 3.57% FY24 increased from 6.29% to 6.38% Most expensive – CBA 126.1% (there must be some changes to TP’s or the share price). Least expensive – Lend Lease 58.7% (hopefully a good profit result will narrow this gap). The CORE Watchlist has 11 (10) stocks trading above 100%; they are; ANZ BHP CBA GMG JBH MQG NAB RIO SEK WBC WES, lowest number ever is 0, highest is now 11. While 3 (3) are trading below 85% (highest 18), while the lowest is 3. LLC NEC STO (Figures in brackets is last Not So). STOCKS TRADING BELOW ALL BROKER FORECASTS ARE AS FOLLOWS; (it has been a handy indicator in the past). 4 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest is NOW 2. CSL current price $299.79 Broker range $321 to $340 LLC current price $7.33 Broker range $8.25 to $14.45 Added Removed AMC ORI Banking Index (changes since last Not So) Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this indicates the Banks are fully priced. The Banking index increased from 111.1% to 111.8%, with all banks above 100%. Over 100% suggests the banks are fully priced. The analysts think bad debts will appear, but there are no signs. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is slightly increased dividend payments and still very attractive yields. PLUS FRANKING. FY 23 % FY 24 % FY 25 % ANZ 175.0 6.42% 160.8 5.90% 162.2 5.95% CBA 450.0 3.89% 457.3 3.95% 468.5 4.05% NAB 167.7 5.20% 165.2 5.12% 162.8 5.05% WBC 142.0 5.90% 143.7 5.97% 171.6 7.14% MQG 750.0 3.99% 619.2 3.29% 658.2 3.50% Dividend expectations have been cut for BHP and RIO. Yields are still expected to be very strong. The forecasts below are for the full year. I have added FY25. BHP and RIO results will see some changing forecasts with the likelihood of further reduction. FY23 cps % FY24 cps % FY25 cps % BHP 255.00 5.36% 232.17 4.88% 270.0 5.67% RIO 598.17 4.53% 785.50 5.95% 710.7 5.38% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). Other Indicators (changes since last Not So) US VIX (Fear) Index increased from 13.60 to 13.88. The VIX is within the normal levels (10 to 17). Iron Ore decreased from $135.60 to $131.20 ALL-TIME HIGH of $237.57. Av expected for 2024 is $112. Copper decreased from $3.86 to $3.84. Expecting an increase over 2024. Gold increased from $2031 to $2072. Had a new record in December of $2152. Couldn’t hold it. AUD/USD decreased from 66.06c to 65.91c. Recent low point 62.9c. $A strengthened to 68c but has fallen back. Maybe low 70c in 2024 Asian markets – UP US 10 year Bonds decreased from 4.05% to 3.90%. recent high 5% (20/10 highest since 2006). The FED looks like it’s on HOLD. Expecting 2024 to finish 3ish US 30 year Bond decreased from 4.29% to 4.13%. Hit a 17-year high of 5.12%. The US 2 year rate has decreased from 4.32% to 4.23% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.33%. It was -0.27% but still inverted, historically suggesting a recession. Widest inverse gap is -1.3%. This is the most it has been inverted in 42 years. The gap is narrowing (higher for longer). German Bonds decreased from 2.23% to 2.16%. Hit 3% in October highest since 2008. Japanese Bonds decreased from 0.716% to 0.676%. Highest in 10 years is 0.956%. Aussie Bonds 10 year Bonds decreased from 4.15% to 3.99%. Recent high 4.95% Other Aussie Bonds 1 year 4.02% 2 year 3.67% 4 year 3.56% 5 year 3.60% 15 year Bonds 4.23%. Oil prices decreased from $77.06 to $74.15. Tungsten – China increased from $305 to 315mtu. The European midpoint is $312.50. EQR announced Spanish resources which increased overall resources by 45%. This week & next week Last “Not So” opened in 7 Aust states (excl NT), US 5 states (California, Massachusetts, South Carolina, Indiana and Virginia) & Sweden. This week – In Melbourne Wednesday afternoon and Thursday morning. Next week – Preparing for February reviews Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
| Top Stories Hello, 2024! I was planning the first “Not So” to be on Monday, but after a lovely holiday, I tested positive for COVID-19, which has delayed my return. Back on deck on Monday, 15th. The team has suggested I stay on holiday as the markets have rallied strongly over the period. The last Not So on December 12 saw the ASX 200 close at 7235. Today, it closed at 7498—a gain of 3.6% for the previous month. On the 2nd of January, the ASX pushed within 0.1 of the ALL-TIME HIGH of 7628. However, since then the market has drifted back as the expectations of 4 to 6 interest rate cuts in 2024 are being damped down by consistent inflation and economic growth. The rally was very nice, but not much has changed from our fundamental views. I have outlined our expectations for 2024, which we expect to be similar to 2023. There will be good and bad periods throughout the year, but we don’t see a recession in Australia or the US (but things can change). The ASX may break out of the 7000 to 7500 trading range, but at this point, we have some of the largest companies trading above 100%. BHP CBA NAB WBC WES RIO and MQG. It will be difficult for the market to push higher when the large caps are already fully priced. We will need to see some target price and profit upgrades to break the ceiling and move towards 8000. We are likely to climb a WALL OF WORRY. WE ARE STILL CAUTIOUS in the short term but are moving back to our favourite saying, BUY THE DIP. We are happy for you to share our Not So Daily Bulletin with family and friends, and if we can help them, we are also happy to chat. December & 2023 review The Santa Claus rally finally turned up and continued the strong gains made in November. The full-year numbers below show that 2023 was a good year, but that masks the real story as most of the year was a struggle for most markets apart from 7 significant stocks in the US, which drove most of their return. For example, ASX was up 7.1% in December (best market) but only gained 7.8% for the year. Based on Nov 22 to Nov 23 numbers, the ASX was -2.4%, so there was a significant turnaround for the ASX in one month (that’s why it’s best to be mainly invested, as you can never time the market). US DOW and S&P, Germany, France and the ASX have reached new monthly closing ALL-TIME HIGHS. The previous closing monthly high for ASX was Aug 21 at 7535. For December, all markets except China were positive. While the Chinese economy is recovering, an investment strike is going on with Western money being removed from Chinese markets. It has been pretty rough over the last six months, with the middle three months (Aug, Sept and Oct) negative and November and December strongly positive, with the US Dow Jones the best but still in single digits. Over the 12 months, it’s back to the regular leading market of the NASDAQ, up 43% for the year, with Japan at 28% and nearing a 34-year high. The Chinese markets were negative for the year. The World Index (MSCI) finished up 21%. This is a good result given that the outlook from many forecasters at the beginning of the year was for a recession and the continuation of the BEAR MARKET due to inflation and interest rates. The 2nd table below shows the total return (capital growth and income in USD) for 48 global markets; only 6 were negative. Australia finished 29 from 48, showing the importance of having a spread of investment from an asset class perspective and geographically. The AUD/USD only fell 0.1% over the year. The NASDAQ continues to shine over the longer time frames of 5,10, 15 and 20 years. It also shows that all markets are positive over 15 and 20 years, and only Hong Kong is negative over 5 and 10 years. This also reinforces our view that risk is reduced over time. IE Investing in shares is a long-term proposition.   Core Watchlist and ETF’s review The Core Watchlist stocks gained 6.4% for the month, slightly below the ASX. The best performers were Property Stocks LLC, up 12.6%, and GMG, up 11.21% while Amcor was the only negative.Over the last year NextDC -NXT (data centres) was up 50% and GMG up 45% (who have allocated 30% of their new projects into data centres – cloud computing). Other notables for the year JB Hi Fi (JBH) up 26%, Wesfarmers (WES) is up 24%, Rio Tinto (RIO) 16% and Brambles (BXB) up 12%. On the negative side, the worst CORE stocks for the year were Amcor (AMC) -19% Resmed (RMD) -17% and South32 (S32) -16%. Exchange Traded Funds (ETF) The best ETFs for December were Aust Property (VAP), up 11.5% (LLC and GMG) and Spheria Emerging Companies (SEC) up 10.3%, still trading at a 10% discount to NTA (hit a new 52-week high today). Over the year the International markets and technology themes dominated. Nasdaq (NDQ) is up 49%, Cybersecurity (HACK) is up 37%, and Robotics & AI is up 33%. Other notables Global Quality (QUAL) up 30.5%, Global Quality Small (QSML) is up 26%, Global 100 (IOO) up 25% & US S&P500 (IVV) up 24%. At the other end were the Chinese markets IZZ, CNEW and IAA (Asia) for reasons noted earlier.  Provincial Wealth Asset Class Outlook The Australian and global economies continue to grow but at a slower pace. Inflation has reduced with the global supply chain normalising, meaning energy and good inflation has returned to zero; however, services (sticky) remain problematic for Central Banks as it’s reducing but at a slower pace and still risks rising; that’s why the CB’s are unlikely to cut rates too aggressively this year (unless a major downturn in the economy). Demand for jobs and skills is STILL STRONG, which means consumer spending is supporting the economy and, at this point, looks like it will assist in avoiding a recession. This is the main difference from previous slowing economic cycles, where rising interest rates usually end in a recession.So, our base case on the asset classes is as follows; Cash – The US, UK and Euro CB have finished raising rates, and the next move is likely down (but not until mid to late this year). The RBA is also likely to be finished at 4.35%, but will be reluctant to cut for fear of restoking inflation. They may cut rates in the 2nd half of the year. If looking for a defensive position, cash is still preferred as the income is similar to Bonds and term deposits, but you retain liquidity and have no capital volatility. Fixed Interest – Bond rates look to have peaked in October, with US and Australia 10-year rates reaching 5%. They have dropped back to around 4%, and the likelihood of being lower (closer to 3%) by the end of 2024. This will provide positive capital returns for Bonds. Others in the Fixed-interest space. Term Deposit – rates have likely reached their highest point. Either lock in for 1 to 2 years or move to other fixed interest areas. Hybrids – these are float rate bank notes. They performed very well when rates were rising. Their capital growth will be limited as rates drift lower; however, yields with franking are well above Bonds & Term Deposits. Property (ex-residential) – has lagged other markets over the last year or two due to work from home and rising interest rates. Good quality assets will retain value and be sorted by renters; however, lower grade property (shopping, commercial & industrial) will struggle as the full change in interest rates hasn’t flowed through to valuations yet, and the vacancies may rise as the economy slows. Listed Property – still selective about the areas. Goodman Group (GMG) continues to deliver based on higher quality site warehouses and has moved into data storage. Lend Lease (LLC) cheapest on the CORE. Needs to deliver for the market to believe, but will jump if they do. Resi–cashed–up buyers and immigration are keeping property prices buoyant. Interest rates and a slowing economy haven’t impacted and are unlikely to see a sell-off due to the strong overall debt position of homeowners; however, banks have tightened credit, which means borrowers will be able to borrow less based on the same income, which eventually has an impact on prices. By then increased supply from loosening of local and state govt regulation might help (but that might be wishful thinking). Australian Shares – traded within a range of 7000 to 7500 for most of 2023, with the market nearing an all-time high in early 2024 of 7628 as the market hoped for early interest rate cuts. We think this is too soon for cuts. However corporate earnings have held up well in the face of rising interest rates as the economy and consumer backed by strong employment continue to allow a soft or no landing scenario. However, we think, we are likely to see more volatility this year as the economy continues to slow and the impact of previous rate rises impacts different parts of the economy. Unemployment (u/e) is the key. If job demand remains strong, then the economy will keep rolling, and so will the market; however, if u/e starts to rise meaningfully, it could provide a market drop. The Core Watchlist index (30 stocks representing over 50% of the ASX) was below 90% (meaning at least an average of 10% from the current price to the target price. Under 90% has traditionally been a good entry point) in October. However, it has risen with the Santa Rally to start 2024 around 95%, its highest point since Aug 2021 (when the ASX was at 7583). There are currently 10 of the 30 stocks trading above 100% of their target price, which makes us a little cautious about the market pushing higher from here. Most researchers have been on holiday for the past six weeks, so it will be interesting to see whether we see upgrades or downgrades to target prices and earnings over the next few weeks/months. We still think the small company space is undervalued. The banking index (4 major banks) is trading well above 100% at 109%, which is an indication of overpricing and suggests some caution should be warranted across the market. Highest ever point 116%. We are selective about the stocks and sectors we like at this point based on valuations and are more likely to look to buy any dips. International Shares – international markets outperformed the ASX by a reasonable margin in 2023, mainly based on a strong US, but also a reasonable Europe and Japan. The only real lagging area was China and some parts of Asia. The weak AUD also helped over the year, but it actually finished only down 0.1% against the USD in 2023. We are again being selective regarding our international choices, but we think some International markets will continue to outpace the ASX, as was the case in 2023. We are still trying to use our fundamentals to assess value. This shows reasonable relative value in Global Quality (large and small), Europe, Asia and emerging Markets, and we are still strong on the long-term themes of cybersecurity, health and robotics/AI. We probably would look to buy the dips, and should the Chinese economy recover, then the AUD may continue to strengthen, so are looking to hedge some of the International exposure. Summary We think markets will provide a positive return in 2024 as the economy transitions into a higher interest rate world (albeit with some cuts) and a slowing inflation which only returns to target by 2025. This means a slowing economy, which will affect companies and sectors differently and provide a reasonable amount of volatility and dips as buying opportunities. This year’s theme is probably – patience is a virtue!! Financial Planning Snippets Super Guarantee (SGC) for employees increases to 11% from 1/7/23 Commonwealth Seniors Health Care card has seen the income limit increase to $152k(couple) $95.4k (single). If you are of Age Pension age and don’t have the card, please let us know. Account Based Pension minimum pension payments will revert back to normal from July 2023 (from half normal, which were put in place due to COVID in 2020). Other Stories – US inflation last night was a little stronger than expected at 0.3%. – US/UK bombed the Houtis. Broker Target Price changes since Dec 12 Ord Minnett Morgans Computershare (CPU) decreased from $28.28 to $27.21 JB Hi Fi (JBH) increased from $49 (highest broker) to $51 Orora (ORA) decreased from $3 (lowest broker) to $2.70 (still lowest broker) Morgan Stanley ANZ increased from $26.30 to $26.80 CBA increased from $86 to $86.50 Lend Lease (LLC) increased from $7.95 (lowest broker) to $8.25 (still lowest broker) Resmed (RMD) increased from $26 (lowest broker) to $28.60 (still lowest broker) Rio Tinto (RIO) decreased from $146 (highest broker) to $145 (still highest broker) Westpac (WBC) increased from $20.70 to $20.90 Macquarie JBH increased from $45 to $55 (highest broker) ORA decreased from $3.40 to $3.30 Bell Potter/Citigroup UBS ORA decreased from $3.75 (highest broker) to $2.84 Tracking changes for 2024 Upgrades 7 Downgrades 5 Core Watchlist Index (changes since last Not So) The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE Macquarie price $176.95 Av. Target Price $205.96= 85.9% (meaning 14.1% upside over next 12 months) + income 4.35% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index increased from 91.94% to 95.83% on the strong Santa rally. Can it hold this level? Overall Earnings Per Share (EPS) We could see an uptick in overseas company earnings (BHP MQG CSL RIO STO WDS RMD AMC BXB) as they will benefit from a lower current assumption. We have been using 70c. Moved to 68c (still conservative). CY23 remained at 3.57% FY24 increased from 6.65% to 6.77% Most expensive – CBA 125.5% (there have to be some changes to TP’s or the share price). Least expensive – Lend Lease 59.1% The CORE Watchlist has 9 (6) stocks trading above 100%; they are; BHP CBA GMG JBH MQG NAB RIO WBC WES, lowest number ever is 0, highest 9. While 4 (6) are trading below 85% (highest 18), while the lowest is 4. LLC ORA RMD STO (Figures in brackets is last Not So). STOCKS TRADING BELOW ALL BROKER FORECASTS ARE AS FOLLOWS; (it has been a handy indicator in the past). 8 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest for some time 5. ALL current price $40.48 Broker range $43 to $46.50 CSL current price $290.40 Broker range $321 to $340 LLC current price $7.39 Broker range $8.25 to $14.45 ORA current price $2.62 Broker range $2.70 to $3.80 ORI current price $15.96 Broker range $16.23 to $19.50 RMD current price $26.45 Broker range $28.60 to $40 STO current price $7.55 Broker range $8.10 to $12.30 TLS current price $3.91 Broker range $4 to $4.75 Added Removed BXB CPU S32 Banking Index (changes since last Not So) Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this indicates the Banks are fully priced. The Banking index increased from 104.7% to 110.20%. Over 100% suggests the banks are fully priced. The analysts think that bad debts will appear, but there are no signs at this stage. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is slightly increased dividend payments and still very attractive yields. PLUS FRANKING. FY 23 % FY 24 % FY 25 % ANZ 175.0 6.76% 162.2 6.26% 163.3 6.31% CBA 450.0 3.96% 458.0 4.03% 469.8 4.13% NAB 167.7 5.42% 162.8 5.27% 162.8 5.27% WBC 142.0 6.12% 144.0 6.21% 174.2 7.51% MQG 750.0 4.11% 619.2 3.39% 658.2 3.60% Dividend expectations have been cut for BHP and RIO. Yields are still expected to be very strong. The forecasts below are for the full year. I have added FY25. BHP and RIO results will see some changing forecasts with the likelihood of further reduction. FY23 cps % FY24 cps % FY25 cps % BHP 255.00 5.34% 241.17 5.05% 275.2 5.77% RIO 648.33 5.02% 730.67 5.66% 648.6 5.02% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). Other Indicators (changes since last Not So) US VIX Index decreased from 13.06 to 12.44. The VIX is near 12 month low. Showing calm. Iron Ore increased from $133.75 to $134.35. ALL-TIME HIGH of $237.57. Av expected for 2023 was $116.9.Defined all expectations of reducing. Will it happen in 2024. The average expected price is $110.80. Copper decreased from $3.81 to $3.80. Expecting an increase over 2024. Gold decreased from $2047 to $2038. Had a new record in December of $2152. Couldn’t hold it. AUD/USD increased from 66.16c to 67.02c. Recent low point 62.9c. $A strengthening over the year. Maybe low 70c in 2024 Asian markets – UP. Japan 34 year highs. US 10 year Bonds decreased from 4.16% to 3.98%. recent high 5% (20/10 highest since 2006). The FED looks like it’s on HOLD. Expecting 2024 to finish 3ish US 30 year Bond decreased from 4.26% to 4.18%. Hit a 17-year high of 5.12%. The US 2 year rate has decreased from 4.61% to 4.27% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.29%. It was -0.45% but still inverted, which historically has suggested a recession. Widest inverse gap is -1.3%. This is the most it has been inverted in 42 years. The gap is narrowing (higher for longer). German Bonds decreased from 2.20% to 2.19%. Hit 3% in October highest since 2008. Japanese Bonds decreased from 0.77% to 0.39%. Highest in 10 years is 0.956%. Aussie Bonds 10 year Bonds decreased from 4.31% to 4.08%. Recent high 4.95% Other Aussie Bonds 1 year 4.11% 2 year 3.82% 4 year 3.69% 5 year 3.74% 15 year Bonds 4.31%. Rates have moved lower as market is expecting cuts in 2024. Maybe 2? Oil prices increased from $70.34 to $73.31. Gained 2% after US attack on Houthis. Tungsten – China reduced from $305 to $315mtu to $300 to 305mtu. This week & next week Last “Not So” opened in 7 Aust states (excl NT), US 4 states (California, Massachusetts, Colorado & South Carolina), Sweden & Israel This week – COVID Next week – Back in office. Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
| The Not So DAILY BULLETIN 28 September 2021 No.426 Top Stories Tuesday saw the ASX 200 fall 109 points to finish at 7276; however, this is 21 points lower than the last Not So, so the market seems to be trading in a range. We have been indicating that we were likely to see more volatility in the market, and we have seen three one per cent drops this month. There have only been six for the year. While the market was overreacting to the Chinese Evergrande issue last week, it seems to be looking for headwinds rather than the tailwinds we’ve enjoyed in the past 18 months. There were a few reasons for today’s move. 1. Iron ore had rallied over the last couple of days from $93 to $119 (up 7% last night), but Singapore future dropped the price 7% due to 80 Chinese steel mills being closed for maintenance. 2. Strong oil price is putting energy pressure on significant consumers. 3. Some researchers are reducing Chinese GDP forecasts. 4. US Bond rates have climbed 0.2% to 1.50% in recent days. The last time Bonds rose quickly in Feb/Mar 21, high PE stocks reduced (technology & healthcare). 5. US Senate GOP blocking debt ceiling legislation. 6. September is breaking the 11 months in a row of positive markets. Down about 3.5% for the month. There have been some bright patches, Woodside, up 23%, Macquarie Group up 8.5% this month. We are still Optimistic, but volatility is likely to persist. Morgan Stanley (MS) – Peak earnings. Overall market profits or earnings continue to fall – MS look at what this has meant for positioning in the past. Defensive factors perform well, but so does momentum stocks. On the sector side, Consumer Staples, Healthcare and Real Estate outperform, while Materials lag. Last month, MS noted that earnings headwinds were emerging despite a solid results season – with iron ore price collapsing, lockdown-related disruptions for domestic industrials, and incremental headwinds for the Banks. They asked, Have Earnings Peaked? A month later, the answer to this question is clearly “yes”. Earnings revisions remain negative, and EPS levels are falling, both across forward years and on a 12MF basis. In growth terms, weakness is most apparent in FY22, which has fallen from 20.7% to 18.4%, but MS top-down models suggest a growth rate of 12% may be more appropriate. This means further profit downgrades are likely. Transurban Rights issue – existing shareholders only Transurban Group (TCL) has announced a renounceable entitlement offer to raise approximately $4.0 billion in additional shareholder capital. The proceeds of the offer will be predominantly directed towards the acquisition of the remaining 49% equity stake in the WestConnex project from the NSW Government. This project covers 70 kms in road network connecting Sydney’s western suburbs with Sydney Airport, the CBD and Port Botany. Major terms of offer announced by TCL are as follows: – The offer will be renounceable, thereby allowing eligible shareholders the option to sell their entitlements should they decide not to take up the entitlement. – Eligible retail shareholders will be able to subscribe for 1 new Transurban securities for every 9 securities held on the 23rd September 2021. – The price of shares under the entitlement offer is $13.00. This is an 8.1% discount to the current market price of $14.14. – A Retail Shortfall Bookbuild will take place whereby eligible shareholders will receive proceeds for any entitlements not taken up or sold on the secondary market. Shareholders have the following 4 options in relation to the offer: 1. Take up some or all entitlements via the standard retail offer, closing 8th October. 2. Sell entitlements on the ASX prior to the close of business 1st October. (code TCLR) 3. Do nothing and receive any proceeds created from the sale of entitlements in the retail shortfall book build. Investment Considerations The fundamentals of TCL remain sound, and the company has an impressive track record of value creation via developments of a similar nature to the WestConnex project. Current broker recommendations are 2 BUY 4 HOLD 0 SELL. If not taking up the rights, waiting for option 4 where the rights will be sold and the money paid to shareholders with no brokerage. Any participation in the Entitlement Offer should be subject to an assessment of individual circumstances and tax positions, as well as advice and transaction costs. Chinese property The Evergrande property default has receded from the headlines of the Australian media. There are still ongoing issues but not the scale that the media were running last week when comparing this to a Lehman’s moment and the start of a new Global Financial Crisis (GFC). Updated view from AMP’s Shane Oliver There are basically four reasons why a restructure of Evergrande is likely: – The Government can’t allow a collapse in property prices as it would destroy much of the wealth of Chinese households. – A collapse in the economy and property sector on the back of the pandemic could trigger a surge in social unrest. – A collapse in property construction would be contrary to the Government’s desire to make housing more affordable. – And the Chinese Government saw the damage allowing Lehman to go bust caused and will have learnt from that. – The “resolution” of a Renminbi debt payment due on 23rd September and the relative calm in China’s own debt markets are possibly signs that the Chinese authorities are working towards a restructuring. While a default on its $20bn in US dollar debt would be big, it’s not out of line with corporate bond defaults in recent years and well below Lehman’s $140bn default. If Evergrande does collapse, it’s likely to have a knock-on effect which could slow Chinese growth, but that’s a BIG IF and it assumes the Chinese government doesn’t have the ability to provide assistance through changing rules or financial injections. There are some researchers who have started down grading China’s GDP. Financial Planning News Insurance changes New Income Protection policies are changing from October 1. APRA has legislated changes due to financial losses the industry has occurred in recent years. APRA has said the policies must be profitable for insurers to offer them. Therefore there is a raft of changes being made to new policies as the benefits offered weren’t viable. We are also seeing premium increases to existing policies. Employer Super Guarantee Contributions (SGC) From 1/7/21. The SGC compulsory super payment is increasing from 9.5% to 10%. Minimum Pension payment kept at half normal for FY22 The Federal Govt has extended the temporary halving of minimum pension payment to 30/6/22. Minimum pension payments from Account-Based Pensions were expected to return to normal from 1/7/21, but the PM announced the extension due to ongoing COVID issues. Super Concessional Contributions The maximum contribution is increasing from $25,000 to $27,500 from 1/7/21. This includes the employer SGC, salary sacrifice or personal tax-deductible contributions. Super Non-Concessional Contributions The maximum contribution is increasing from $100,000 to $110,000 from 1/7/21. These are only contributions made where you aren’t receiving a tax benefit. Other Stories – Aust vaccinated 27,109,766 (25,445,232) 7 day average 285.2k – highest (297.5k). The highest daily total vaccines is 389,182 (16 Sep). 76.7% (over age 16) have had one shot, 52.6% (over age 16) have had two shots. The figures in brackets are from the last Not So update. – Australian retail sales decreased 1.7% for the month. This is the 3rd negative month in a row (lockdowns). – Origin Energy’s value in UK energy provider trebles to $1bn. ORG is only worth $7-$8bn. – The US political circus continues with Senate Republicans (GOP) blocking a bill to raise the debt ceiling. This could cause some concerns as the US Government could shut down by year-end if this isn’t dealt with. Broker Target Price changes Goldman Sachs Ord Minnett/JP Morgan Origin Energy (ORG) increased from $4.60 to $4.65 Morgans Morgan Stanley Macquarie Sonic Health (SHL) increased from $40.50 (lowest broker) to $41.50 Bell Potter/Citigroup Brambles (BXB) decreased from $13.58 to $13.35 Today’s Sector Movements Best – Energy +4.3% Worst – Helathcare -3.6% Core Watchlist Index The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE BHP price $38.56 Av. Target Price $39.73= 97.1% (meaning 2.9% upside over next 12 months) + income 7.11% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index increased from 89.62% to 89.9%. The CORE fell below 90% for one day, but then rose again. After 3 days it has again fallen below 90%. History has shown this is a reasonable entry point from a buying perspective. The market can fall further in the short term but when the index falls below 90%, it’s provided good value over the last 12 years. Brokers are continuing to raise their target prices. Overall Earnings Per Share (EPS) FY21 decreased from 34.83% to 34.81% FY22 decreased from 6.23% to 5.9% Most expensive – CBA 112.8% Least expensive – BHP 68.5% The CORE Watchlist is still mixed with 4 (4) stocks trading above 100% while 8 (8) are trading below 85% (AMP BHP BXB CWN LLC NEC ORI RIO). (Figures in brackets is last Not So). Stocks trading below all broker forecasts are as follows; (it has been a handy indicator in the past). 15 out of the 30 CORE stocks are trading below the lowest broker target price. Value to be found. AMC current price $16.29 Broker range $17.50 to $20 AMP current price $1.03 Broker range $1.15 to $1.35 ANZ current price $27.62 Broker range $28 to $34.50 BHP current price $36.87 Broker range $45.90 to $60 CWN current price $9.47 Broker range $10.35 to $15 GMG current price $21.55 Broker range $24 to $26 JBH current price $44.34 Broker range $46 to $55 LLC current price $10.79 Broker range $11.40 to $16.52 NAB current price $27.49 Broker range 27.50 to $31 NEC current price $2.67 Broker range $2.80 to $3.50 NXT current price $12.46 Broker range $14 to $15.50 ORI current price $11.69 Broker range $13 to $15.70 RIO current price $97.47 Broker range $117 to $153 TLS current price $3.93 Broker range $4 to $4.50 WBC current price $25.31 Broker range $26.50 to $30 ORG removed Banking Index Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this is indicating the Banks are fully priced. The Banking Index decreased from 97.7% to 97.7%. The table below shows the forecast dividends. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING. FY20 % FY21 % FY 22 % FY 23 % ANZ 60.0 2.17% 140.8 5.10% 146.2 5.29% 153.3 5.55% CBA 298.0 2.87% 350.0 3.37% 397.2 3.82% 418.2 4.02% NAB 60.0 2.18% 123.2 4.48% 132.0 4.80% 137.2 4.99% WBC 31.0 1.22% 117.0 4.62% 123.7 4.89% 134.3 5.31% MQG 430.0 2.37% 470.0 2.60% 554.2 3.06% 577.4 3.19% And referring to nice dividends. Below is the expectation from brokers regarding BHP & RIO. FY21 cps % FY22 cps % FY23 cps % BHP 371.67 10.08% 476.17 12.91% 339.00 9.19% RIO 1628.33 16.71% 1199.83 12.31% 936.33 9.61% Please note RIO is Calendar Year (CY). Cents per share (CPS) Plus franking. Other Indicators – US VIX Index decreased from 24.36 to 18.76. The index dropped back to pre Evergrande levels, suggesting market isn’t worried about knock-on effects. Normal range of 10-17. – Iron Ore increased from $93.03 to $119.31. The price has rebounded over the last 3 days. $93.03 was the recent low. Brokers expecting an average in 2022 of $129 fallen from $138.5. ALL-TIME HIGH of $237.57. – Copper increased from $4.22 to $4.29. Reduced from ALL-TIME HIGH of $4.90 – Gold increased from $1781 to $1751. Record high $2063. – AUD/USD increased from 72.52 to 72.68. It may go lower if China is slowing and iron ore reduces? – USD/CNY decreased from $6.47 to $6.46. Strongest in 3 years at $6.37. – Asian markets – MIXED – US 10 year Bonds increased from 1.31% to 1.51%. Bond yields starting to rise again. The lowest point in a number of months was 1.12% but has rebounded. The recent high of 1.79% The US 30 year Bond increased from 1.87% to 2%. The highest level 2.47% for 18 months. – German Bonds increased from -0.31% to -0.22% Hit a low of -0.9%. Highest for some time -0.11%. The negative European rates are likely to be a headwind for higher US rates. – Japanese Bonds increased from 0.028% to 0.057% – Aussie Bonds 10 year Bonds increased from 1.26% to 1.48%. Lowest point 0.68% Recent high is 1.91% – Other rates 1 year 0.023% 2 year 0.031% 4 year 0.59% 5 year 0.79%. 15 year Bonds 1.9%. Global interest rates have jumped sharply in the last couple of days. – Oil prices increased from $71.60 to $76.14. Higher point in a while. – Tungsten remained at $303mtu. EQR updated their resource with much higher grades. This week & next week Last “Not So” opened in 7 Aust states (excl NT) & US 2 states (California South Carolina) This week – Completing review meetings Next week – Doing the same. Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
| The Not So DAILY BULLETIN 30 June 2021 No.402 Top Stories Wednesday was the end of the financial year, and the ASX 200 managed to gain 12 points to finish at 7313. It was up 60 points during the day but drifted lower as the lockdown expanded across the country. The ASX hasn’t reached new highs in the last week, but it has managed to hold 7300, and this is the highest monthly close of all time for the ASX 200. We are also seeing new highs being reached on the US market, with the S&P 500 and NASDAQ just reaching new highs again overnight. This comes at the start of their quarterly profit reporting season. So it will be interesting to see if the markets can hold onto recent gains. In Australia, we will be entering the confession season as companies check their results for the full year or half year (depending on their reporting). It will be interesting to see if supply chain issues are causing problems or other forms of inflation. At this point, the expectation is for a good profit season in August, with some lovely dividends expected from banks and resources in particular. We are still Optimistic, but volatility is likely to persist. June & Financial Year Investment markets While international markets finish out the month tonight, the ASX had its best financial year since 1987, gaining 23.99% (plus income). This is a remarkable result given the uncertain outlook a year ago where the virus was still running wild with no sign of a vaccine and global lockdowns (maybe some things haven’t changed). However, the future outlook is rosier and global governments are backing the financial and health system of the world. The table below shows the best and worst performers for the month, six months (2021) and financial year from our investment stable of CORE stocks and Exchange Traded Funds (ETF’s). As usual, it showed performances were varied. An interesting observation was Nine Entertainment (NEC) was the best over the FY, up 110%. This stock was the least expensive on the CORE Watchlist in June 2020 at 77%. The current least expensive is Woodside(WPL). Other notable performances for the financial year were CBA 44% NAB 44% WBC 43% Goodman Group (GMG) 43% BHP 35% Macquarie Group 32% Wesfarmers (WES) 32% & Orora (ORA) 31%. While in the ETF space, the best weren’t as high, but the worst was better than the CORE. A selection from our Investment Strategist (Brad Matthews) has been the best performer over the FY and the last 6 months. This is a small company fund Spheria Small Companies (SEC). This sector of the market has performed very well. Other notable performance for the financial year from the stable of ETF’s were Fidelity Emerging Markets (FEMX) 36% (another selection from Brad). Global Quality Hedged (QHAL) 34% ASX Mid Cap (MVE) 31% Nasdaq (NDQ) 30% Global Robotics (RBTZ) 30% & Vanguard Property 30%.  ASX 200 target change Ord/JP Morgan updated their view on the overall market. They said the sentiment would be soft until an end to lockdown is in sight, but overall believe the situation is ultimately a temporary and manageable one. There previous ASX 200 target for 2021 of 6700–7300 was based on a 12-month forward EPS (profit) estimate of $380 per share (earnings back to pre-COVID-19 levels). However, EPS estimates have now surpassed this level, and it was last at $404 per share. On this basis, assuming low-interest rates can support an 18–19x PE multiple on the market, it would imply an index valuation of 7200–7600. Real economic expansion on rising inflation and interest rates An update from Perpetual suggests we are moving to a changing investment world where we are likely to see higher inflation, rising interest rates, higher debt and backed by a stronger economy. These combinations of factors haven’t been seen for 30 to 40 years. In the short term, Central Banks are suggesting rising inflation is transitory (temporary). Still, the likely outcome in the medium term from rising commodity prices, high consumer & business confidence, and record injections of liquidity is higher inflation and higher interest rates. Perpetual believes we aren’t likely to see a rebound but a real economic expansion as forward business orders are at all-time highs, capacity utilisation is at pre-COVID levels. There’s plenty of fuel for the recovery as the stimulus that has been injected into the global economy to offset COVID to the tune of 15% of global GDP or $20 trillion with more to come. From an investment perspective, companies that can pass on any input costs and maintain their profit margin are the best suited in this environment. This would include many “blue chip” or brand names that consumers are prepared to pay for QUALITY products and services. Perpetual says commodity stocks (resources or material stocks) are very well-insulated from input costs increases. From an interest rate perspective, where Central Banks will keep the short end of the yield curve down, the long end (5 years plus) will be driven by the market, providing a steepening yield curve or duration risk. Those who benefit from that type of environment include financials (banks), insurers, and domestic cyclicals from a strong Aussie economy, including builders, construction, and retailers. Perpetual believes that interest rates will slowly move higher as policymakers look for some inflation over the next decade. These are investment characteristics that investment managers haven’t seen for more than a generation. What are the medium-term implications? If the medium-term outlook is higher for rates, then investment returns will probably be muted because we will start seeing discount rates going up. That will impact equities property and other high flying growth assets. If assets are heavily geared, the cost of debt will go up; therefore, investors will be less likely to pay up for the promise of future cash flow and look for companies that have profit and cash flow today—growth at a Reasonable Price (GARP). Financial Planning News Employer Super Guarantee Contributions (SGC) From 1/7/21. The SGC compulsory super payment is increasing from 9.5% to 10%. Minimum Pension payment kept at half normal for FY22 The Federal Govt has extended the temporary halving of minimum pension payment to 30/6/22. Minimum pension payments from Account-Based Pensions were expected to return to normal from 1/7/21, but the PM announced the extension due to ongoing COVID issues. Super Concessional Contributions The maximum contribution is increasing from $25,000 to $27,500 from 1/7/21. This includes the employer SGC, salary sacrifice or personal tax-deductible contributions. Super Non-Concessional Contributions The maximum contribution is increasing from $100,000 to $110,000 from 1/7/21. These are only contributions made where you aren’t receiving a tax benefit. Chinese Pig herd recovering. An interesting story from the Wall St Journal says that prices for pigs in the U.S. are tumbling in the wake of China’s announcement that the country’s herd number is near pre-African swine fever levels of 420 million. US hog futures contract trading on the Chicago Mercantile Exchange fell 17%, bringing the price down to 99 cents a pound—the first time it has fallen under a dollar since March. Driving the decline is the Chinese government’s declaration that it has rebuilt hog herds devastated by an outbreak of African swine fever in 2018. The outbreak forced the nation’s hog producers to cull roughly 40% of its hog population. The recovery comes well ahead of schedule, as China wasn’t projected to complete this rebuild until 2023. There is a question regarding the reliability of the data from the Chinese ministry. Still, if it is true, it could have knock effects on other protein markets as a decline in the Chinese pig numbers was a major catalyst for meat prices to increase in Australia. Other Stories – Aust vaccinated 7,645,585 7 day average 112.2k (111.4k). Highest daily total vaccines 153,338 (Friday June 11). – Amazon, Google, Facebook, and Microsoft are four of the top six corporate buyers of publicly disclosed renewably energy agreements, accounting for 30% (25.7GW) of the total from corporations globally. – Major US banks pass the US Federal Reserves stress test. Lifts confidence of increasing dividends and buybacks. In the start of the reporting season, Morgan Stanley doubled their dividend, while Goldman Sachs increased by 60%. – Telstra has sold 50% of their towers business to the Future Fund and other super fund for $2.8bn. This saw TLS rise 4.5% to a new 12 month high. – Woolworths has demerged Endeavour Group (EDV). Estimated value $6. Each WOW share held, will receive 1 EDV share. – AGL updated market on it’s demerger with the new company call Accel Energy. Market didn’t like it, AGL down nearly 10%. Broker Target Price changes Goldman Sachs Ord Minnett/JP Morgan Morgans Morgan Stanley Macquarie Bell Potter/Citigroup Resmed increased from $28.50 to $32.50 Today’s Sector Movements Best – Communications +2.7% Worst – Utilities -3.2% Core Watchlist Index The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE BHP price $38.56 Av. Target Price $39.73= 97.1% (meaning 2.9% upside over next 12 months) + income 7.11% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index increased from 94.29% to 94.81%. Overall Earnings Per Share (EPS) FY21 decreased from 34.17% to 33.91% FY22 increased from 7.68 to 8.04% Most expensive – CBA 116.4% (Broker range is $73 to $95). Least expensive – Woodside 77.7% The CORE Watchlist is still mixed with 10 (9) stocks trading above 100% while 6 (4) are trading below 85% (AMP LLC NEC NXT ORG WPL ) Stocks trading below all broker forecasts are as follows; (it has been a handy indicator in the past). AMC current price $15.13 Broker range $16.42 to $19.00 AMP current price $1.13 Broker range $1.25 to $1.50 BXB current price $11.44 Broker range $11.70 to $13.84 CWN current price $11.91 Broker range $12 to $15 LLC current price $11.46 Broker range $12.80 to $16.77 NAB curret price $26.22 Broker range $26.25 to $29.97 NEC current price $2.91 Broker range $3.31 to $3.75 NXT current price $11.86 Broker range $13.95 to $15 ORG current price $4.51 Broker range $4.88 to $6.50 WBC current price $25.81 Broker range $27.25 to $29.50 WPL current price $22.21 Broker range $25.04 to $33.85 Banking Index Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this is indicating the Banks are fully priced. The Banking Index increased from 97.6% to 98.1% since the last Not so. The banks had a HUGE financial year. They start 30/6/21 at ANZ $18.64 CBA $69.42 NAB $18.22 & WBC $17.95 Finished with gains of ANZ 51% CBA 44% NAB 44% WBC 44%, plus the income. As the table below shows the forecast dividends have also had massive increases. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING. FY20 % FY21 % FY 22 % FY 23 % ANZ 60.0 2.13% 140.8 5.00% 145.2 5.16% 152.7 5.42% CBA 298.0 2.98% 358.8 3.59% 392.7 3.93% 413.2 4.14% NAB 60.0 2.29% 123.2 4.70% 132.0 5.03% 139.7 5.33% WBC 31.0 1.20% 117.0 4.53% 123.7 4.79% 134.3 5.20% MQG 430.0 2.75% 470.0 3.00% 537.2 3.43% 577.0 3.69% Other Indicators US VIX Index decreased from 16.32 to 16.02. Still in the normal range of 10-17. Iron Ore decreased from $216.01 to $212.33. Some talk of China releasing strategic stockpile. ALL-TIME HIGH of $237.57. Copper increased from $4.27 to $4.29. Reduced from ALL-TIME HIGH of $4.90 Gold decreased from $1775 to $1759. Record high $2063. AUD/USD decreased from 75.71c to 75.2c. USD/CNY decreased from $6.48 to $6.46. CNY weakening. Strongest in 3 years at $6.37. Asian markets – MIXED US 10 year Bonds decreased from 1.49% to 1.48%. Recent high of 1.79% The US 30 year Bond decreased from 2.11% to 2.08% The highest level 2.47% for 18 months. German Bonds increased from -0.18% to -0.17% Hit a low of -0.9%. Highest for some time -0.11% Japanese Bonds increased from 0.047% to 0.06% Aussie Bonds 10 year Bonds decreased from 1.53% to 1.49%. Lowest point 0.68% Recent high is 1.91% Other rates 1 year 0.004% 2 year 0.072% 4 year 0.67% 5 year 0.85%. 15 year Bonds 1.90%. Global interest rates are still below recent highs. Oil price increased from $73.20 to $73.48. First time over $70 for a number of years. Tungsten increased from $270mtu to $272mtu. This week & next week Last “Not So” opened in 7 Aust states (excl ACT), US 3 states (California, Georgia & Virginia) & Singapore This week – In office (wearing a mask) Next week – In office (wearing a mask) Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
| Top Stories Today, March 18, the ASX fell for the 2nd day in a row to finish at 6746. We are up 1% for the month, but it seems we are back in a trading range where we move between 6650 and 6900. This has been the case for much of this year, even though we had a good reporting season, a positive economic recovery (drop in the unemployment rate) and likely global stimulus in a post-vaccine world. So we are likely to break on the upside, assuming the Bond traders don’t want to take on the Central Banks. Got to go. Footy is back. We are still cautiously Optimistic. Annual Advice Agreements (AAA) – Existing clients These agreements will replace the 2 YEAR OPT-IN forms and the Fee Disclosure statements. The AAA is mandatory for all ongoing clients and the legislation provides little leniency regarding the timeframe of the agreements. We will send these agreements out each year, 1-2 months before they are due to expire. IF THEY ARE NOT RETURNED BEFORE THE DUE DATE WE HAVE TO TERMINATE OUR ONGOING SERVICES AND FEES which may mean a new statement of advice (SOA) and additional cost. Should you have any questions, please contact Chris Pyle. US Federal Reserve – rate forecast unchanged The US Federal Reserve (Fed) met overnight, as the market was expecting an update on when the US Fed was likely to raise interest rates. The Fed had previously said not before 2024. The market didn’t believe in this and moved the Bond rates higher to tempt the Fed to decide. However, the Fed held firm and re-stated their plan of waiting until 2024. There is a key change in strategy from the old Fed to the current Fed. Previously, they were trying to regulate inflation by being “in front of the curve”, meaning they would increase rates on the prospect of inflation, which would then become a headwind for any economic recovery. However, in the last 20 years, inflation has been materially low, so the Fed wants to see some inflation before acting, therefore moving to be “behind the curve” as they don’t want to stop the recovery from the Pandemic. Markets are having trouble with this change. It could lead to bouts of volatility as market players try to 2nd guess the Fed, especially now with the economic data starting to improve and the vaccines rolling out. Below is a chart showing the 10 year Bond rate rising above the Cash rate. It indicates that if the Fed is holding rate firm for an extended period of time, then Bond rates aren’t likely to push much higher, which means there could be a rally back into Equities, especially those providing profit growth and a dividend.  All-Time Highs The Australian market is still 5% below the All-Time Highs (ATH) peak before the pandemic. However, the US markets continue to hit new ATH, with the Dow Jones hitting a new one last night. While ATH can be a sign of a pricey market, it’s not always a sign of an overpriced or a bubble market, as the chart below shows that ATH are reached most years. Over the last 40 years (since 1980), ATH have been reached in 27 years which suggest the market continue to grow over time as company profits and returns increase. In fact, since 2013, there have been 260 new ATH established. Therefore new ATH’s are part of the journey. Let’s hope for many more!  Australian Market CITIGROUP’s (Citi) research update on the Aussie Market The Australian sharemarket continues to lag global peers due to a lack of exposure to Growth industries, despite successfully navigating the pandemic so far. Australia is currently trading at PE 18.0x compared to the US at PE 21.9x. At a sector level, Citi is positive on resources, building materials and retail. In resources, they expect elevated commodity prices, strong cash flow, and high dividends to continue. Conversely, building materials and retail upside come from underperforming the market YTD despite earnings upgrades. Citi expects earnings growth and the utilisation of healthy balance sheets for dividends and M & M&A to be the main source of upside for the year ahead. Australian market underperforms due to lack of Growth — The Australian sharemarket continues to lag behind its global peers, particularly the US. This underperformance is driven by the structural differences in the two markets. In contrast, Australia lacks the same exposure to technology and health care stocks but over indexes in resources and banks. The Australian share market, trading at 18x 12 month forward PE, is above its long-term average but consistent with a low-interest-rate environment. Banks have re-rated in the past three months, but resources are below their long-term PE relative. Drivers of sector performance mixed — Strong year-to-date performance for resources has been driven by upward revisions to FY22 earnings. Banks performance has been driven in equal parts by both earnings upgrades and a re-rate to the sector. Conversely, strong earnings revisions have been offset by a de-rating in building materials, on concerns about a weaker rebound in infrastructure and multi-residential, despite strong detached housing. Citi’s preferred sectors — While the market is near fair value in Citi’s view, they see the potential for earnings growth; they expect resources and banks to be the market’s key drivers in the next twelve months. Additionally, many companies are sitting on very healthy balance sheets. Dividends, mergers and acquisitions will be key thematics creating upside risk. The chart below shows the different sectors of the ASX market and how they have performed since 2008. The best performer has been growth sectors led by health care and technology. This is starting to wane from the rising Bond rates. This is probably a dip rather than a structural change. Resources and Banks have started to move higher after having a period of under-performance. The yield stocks (utilities, transport property trusts) have a poor time with the pandemic and rising bond prices. While there has been plenty of talk about switching from Growth to Value stocks, this hasn’t appeared in the Value stocks (apart from Resources and Banks which are considered Value sectors).  Global Market Summary Morgans provided a summary of the market position. US equities dipped in late February after the 10-year US Treasury note yield rose above the S&P 500 dividend yield, erasing the stock market yield’s advantage and driving weakness in equities. The NASDAQ also saw a sharp fall. Technology stocks are particularly sensitive to rising yields because their value rests heavily on future earnings, which are discounted more deeply when rates go up. While bond market volatility is disconcerting, the move up in (depressed) bond yields is a positive signal around economic growth, which is ultimately positive for markets. Other tailwinds are Joe Biden’s $1.9 trillion economic aid package, the latest US economic data pointing to a solid consumer recovery and better than expected earnings for cyclical companies both overseas and domestically. The S&P500 finished 2.6% higher while the ASX200 finished up around 1% in February. Other Stories – $25.8bn of dividends will be paid to ASX shareholders in the coming weeks. – The Australian unemployment rate fell unexpectedly to 5.8% from 6.3%. The market was expecting 6.3% Broker Target Price changes Goldman Sachs BHP increased from $47.50 to $53.40 Rio Tinto (RIO) increased from $114.60 t $118.80 Ord Minnett/JP Morgan Morgans Morgan Stanley Computershare (CPU) decreased from $16.50 to $16.30 Nine Entertainment (NEC) increased from $3.42 to $3.50 Macquarie – Bell Potter/Citigroup Goodman Group (GMG) increased from $20.50 to $21 Today’s Sector Movements Best – Materials +0.1% Worst – Healthcare -1.7% Core Watchlist Index The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE BHP price $38.56 Av. Target Price $39.73= 97.1% (meaning 2.9% upside over next 12 months) + income 7.11% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index decreased from 92.01% to 91.63%. Overall Earnings Per Share (EPS) FY21 Increased from 25.76% to 25.79% Most expensive – Seek.com (SEK) 115.8%. Least expensive – Next DC (NXT) is the cheapest at 75.1%. NXT is where “cloud computing” is stored. The CORE Watchlist is still mixed with 2 (3) stocks trading above 100% while 6 (3) are trading below 85% (AMC BXB COL NEC NXT & ORG) Stocks trading below all broker forecasts are as follows; (it has been a handy indicator in the past). AMC current price $14.67 Broker range $17.00 to $19.00 AMP current price $1.41 Broker range $1.45 to $1.80 BXB current price $9.89 Broker range $11.70 to $13.84 COL current price $15.57 Broker range $17.30 to $20.70 CSL current price $256.09 Broker range $261 to $310 NEC current price $2.87 Broker range $3.25 to $3.80 NXT current price $10.64 Broker range $13.50 to $14.80 ORG current price $4.63 Broker range $4.76 to $6.85 ORI current price $13.40 Broker range $13.60 to $16.20 SHL current price $32.35 Broker range $33 to $39.70 WOW current price $38.75 Broker range $40.65 to $44.50 WPL current price $24.92 Broker range $25.91 to $34.10 AMP added Banking Index Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this is indicating the Banks are fully priced. The Banking Index decreased from 100.3% to 99.6%. Banks have continued to rally on the back of rising bond rates which is good for them. ANZ is up 7.5% in March (market up 1%), CBA 5% NAB 5.6% and WBC 2.6%. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING. SUMMARY FY20 % FY21 % FY 22 % FY 23 % ANZ 60.0 2.13% 127.5 4.53% 139.3 4.95% 149.0 5.29% CBA 298.0 3.48% 337.5 3.94% 377.8 4.41% 385.3 4.49% NAB 60.0 2.31% 106.5 4.09% 122.3 4.70% 132.0 5.07% WBC 31.0 1.27% 115.3 4.72% 127.5 5.22% 137.5 5.63% MQG 430.0 2.84% 475.2 3.14% 548.4 3.62% 609.4 4.02% Other Indicators – US VIX Index decreased from 20.69 to 19.23. first time below 20 in a couple of weeks. Returning to near normal – Iron Ore increased from $165.44 to $166.19. Hit a nine-year high of $177.98. – Copper decreased from $4.13 to $4.11. Near ten year high of $4.35. A good sign for a commodity boom!! – Gold increased from $1724 to $1749. Bounced off 9 month lows. Record high $2063. – AUD/USD increased from 77.47c to 78.18c. Some forecast 80c+ – USD/CNY remained at $6.50 The lowest point $6.45 in 2.5 years Asian markets – UP – US 10 year Bonds decreased from 1.64% to 1.68%. Rates are rising again. Hit a low of 0.31%. A recent high of 1.69% The US 30 year Bond increased from 2.20% to 2.45% The highest level 2.47% for 18 months. – German Bonds increased from -0.31% to -0.30%. Hit a low of -0.9%. Highest for some time -0.2% – Japanese Bonds decreased from +0.10% to 0.10% – Aussie Bonds 10 year Bonds increased from 1.79% to 1.80%. Lowest point 0.68% Recent high is 1.91% – Other rates 1 year 0.051% 2 year 0.10% 4 year 0.48% 5 year 0.77%. 15 year Bonds 2.17%. Global interest rates have moved slightly higher on inflation expectations. – Oil price decreased from $66.14 to $64.19 US inventory levels higher than expected. – Tungsten rose again from $263-$268mtu to $268-$275mtu. This week & next week Last “Not So” opened in 5 Aust states (missing ACT SA WA), US 3 states ( South Carolina California & Georgia) & Singapore This week – March reviews Next week – March reviews Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
| Top Stories Today, March 10, saw the ASX rollercoaster continue after two positive days; the market dropped 57 points to close at 6714, which was slightly less than 61 points gained over the last two days. We are still positive for the month, but the main drops came from banks and resources, which have been the positive areas of late. The NASDAQ jumped after several down days on Wall St, so it was back to technology stocks hit late during to rising Bond rates. We need to note the US 10 year Bond rate is still lower than it was pre-COVID, so it isn’t a major concern given it’s still at 1.5%. Market traders are likely to get excited about the smallest moves as it gives them volatility to trade with, giving the finance media something to “scare the punters” with. So, we still think this volatility will be a dip rather than a market changer. However, at the moment, the dips don’t seem to last long. We are still cautiously Optimistic. Investment Committee Kevin and I had our regular meeting this morning. We noted the following: Economics – Global vaccines are providing economic confidence, but economies still require Govt support fiscal and monetary. – Interest is being kept down by Central Banks. RBA saying not moving until 2024. – Bond rates are starting to rise due to fear of inflation. – Australian GDP grew faster than expected by 3.1%. Economic confidence at 11 yr high. Markets – Markets continue to be supported with liquidity and a lack of returns from fixed interest. – Bond rates increasing have sparked some volatility as markets believe CB won’t hold off until 2024 before raising rates. The difference between 10 yr rates and cash are at their widest levels in some time. It’s likely to limit the 10 yr rather than force CB’s to increase rates. “Don’t bet against the Fed”. See charts below. – Frothy parts of the market are coming off with Tesla down 37% this year and other non-profit techs and high priced IPO’s giving up ground. – Rotation from growth to value with DOW hitting a new record high and the NASDAQ down 2% on the same day (Monday 8th) – Valuations are above historic levels but so are interest rates. Relative valuations remain reasonable, with an economic recovery picking up as the Vaccine outlook improves. – Still being selective as volatility likely to increase with the Bond rates moving. – A successful reporting season has given a clearer view in Australia, better virus controls and strong business confidence.   Annual Advice Agreements (AAA) – Existing clients These agreements will replace the 2 YEAR OPT-IN forms and the Fee Disclosure statements. The AAA is mandatory for all ongoing clients and the legislation provides little leniency regarding the timeframe of the agreements. We will send these agreements out each year, 1-2 months before they are due to expire. IF THEY ARE NOT RETURNED BEFORE THE DUE DATE WE HAVE TO TERMINATE OUR ONGOING SERVICES AND FEES which may mean a new statement of advice (SOA) and additional cost. Should you have any questions, please contact Chris Pyle. Other Stories – China iron ore imports rise by 2.8% for the first two months. – US warning companies about Chinese computer hacking following the recent attack on Microsoft. Looks like more money being spent on cybersecurity (HACK) – Macquarie changed the forecast for copper from 247k t global surplus to 226k t global deficit, mainly due to increased global manufacturing incl. increased electric vehicle demand. They have lifted their copper price forecasts by more than 20% for the next 4 years. Benefit BHP, RIO, OZL, SFR or MVR. – US auctioning $38bn of US 10 year notes at 5am AEDT. If lacking demand it could send rates higher with knock-on effect into equity markets. Broker Target Price changes Goldman Sachs Ord Minnett/JP Morgan Morgans Morgan Stanley BHP decreased from $48.05 to $47.50 Macquarie BHP increased from $50 to $55 Rio Tinto (RIO) increased from $135 to $142 Woodside (WPL) decreased from $28.25 to $28.20 Bell Potter/Citigroup Today’s Sector Movements Best – Technology 3.2% Worst – Materials -2.5% Core Watchlist Index The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE BHP price $38.56 Av. Target Price $39.73= 97.1% (meaning 2.9% upside over next 12 months) + income 7.11% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index decreased from 91.29% to 91.13%. The CORE below 90% has shown in the past to be a good entry point to the market. Overall Earnings Per Share (EPS) FY21 Increased from 25.55% to 25.57% Most expensive – CBA 110.5%. Least expensive – Next DC (NXT) is now the cheapest at 73.6%. NXT had a good result and saw increases in the TP. For those who don’t know. NXT is where “cloud computing” is stored. The CORE Watchlist is still mixed with 4 (4) stocks trading above 100% while 6 (6) are trading below 85% (BXB COL NXT ORG SHL & TLS ) Stocks trading below all broker forecasts are as follows; (it has been a handy indicator in the past). AMC current price $15.17 Broker range $17.00 to $19.00 BXB current price $10.11 Broker range $11.70 to $13.84 COL current price $15.45 Broker range $17.30 to $20.70 CSL current price $252.21 Broker range $276 to $310 JBH current price $47.65 Broker range $48 to $55.10 NEC current price $3 Broker range $3.25 to $3.80 NXT current price $10.43 Broker range $13.50 to $14.80 ORG current price $4.50 Broker range $4.76 to $6.85 ORI current price $12.48 Broker range $13.60 to $16.20 SHL current price $30.55 Broker range $33 to $39.70 WOW current price $38.90 Broker range $40.65 to $44.50 WPL current price $24.96 Broker range $25.91 to $34.10 AMP removed Banking Index Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this is indicating the Banks are fully priced. The Banking Index decreased from 101.3% to 100.6%. Banks have continued to rally on the back of rising bond rates which is good for them. ANZ is up 10% in March (market up 1%), CBA 7% NAB 7% and WBC 4%. Based on Monday’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING. FY20 % FY21 % FY22 % FY23 % ANZ 60.0 2.09% 127.5 4.44% 139.3 4.85% 149.0 5.19% CBA 298.0 3.41% 337.5 3.87% 377.8 4.33% 385.3 4.41% NAB 60.0 2.27% 106.5 4.03% 122.3 4.63% 132.0 4.99% WBC 31.0 1.25% 115.3 4.66% 127.5 5.15% 137.5 5.56% MQG 430.0 2.90% 475.2 3.21% 548.4 3.70% 609.4 4.11% Other Indicators – US VIX Index decreased from 24.66 to 24.03. – Iron Ore decreased from $174.11 to $164.41. Dropped 5.7% Hit a nine-year high of $177.98 last week. – Copper decreased from $4.03 to $4.01. Near ten year high of $4.35. A good sign for a commodity boom!! – Gold increased from $1705 to $1710. Bounced off 9 month lows. Record high $2063. – AUD/USD decreased from 76.99c to 76.76c. Some forecast 80c+ – USD/CNY increased from $6.50 to $6.51 The lowest point $6.45 in 2.5 years – Asian markets – MIXED – US 10 year Bonds decreased from 1.58% to 1.54% Hit a low of 0.31%. A recent high of 1.61% The US 30 year Bond decreased from 2.30% to 2.25% The highest level 2.34% for 18 months. – German Bonds decreased from -0.31% to -0.31%. Hit a low of -0.9%. Highest for some time -0.2% – Japanese Bonds increased from +0.11% to 0.12% – Aussie Bonds 10 year Bonds decreased from 1.78% to 1.72%. Lowest point 0.68% Recent high is 1.91% – Other rates 1 year 0.055% 2 year 0.11% 4 year 0.49% 5 year 0.77%. 15 year Bonds 2.07%. Global interest rates have moved slightly lower, but inflation expectations are still around. – Oil price decreased from $67.42 to $63.50. – Tungsten increased again from $260-$265mtu to $263-$268mtu This week & next week Last “Not So” opened in 5 Aust states (missing Tas ACT SA), US 2 states ( South Carolina California) & Singapore This week – March reviews Next week – March reviews Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
| Top Stories Today, February 26, saw the ASX have a large drop of 161 points or 2.4% to finish the month at 6673. The month of February was positive up 1% but it was well above 4% a week ago. Interestingly, this is the 3rd Friday in a row where the market has a reasonable drop. We have been mentioning the rising Bond rates and whether it would or not cause an equity sell-off. Well, we didn’t have to wait too long as the US markets fell from recent highs due to rising rates. The 10 year Bond rates are still below 2%, so there is little to really fear, but market sentiment is probably looking for a volatility event as markets have been lacking some in recent months. The Bond market saw rates rise on the “fear” of rising inflation. The market is fearful of inflation, as have Central Banks in the past, and they have raised rates in front of inflation happening. However, this time Central Banks have said they want to see inflation and are happy for inflation to be even higher than the 2-3% target. US Federal Reserve Chairman Powell said during the week; he’s comfortable with rising Bond rates. So, I think this volatility will be a dip rather than a market changer. However, not sure whether it will last a day, a week or a month. We are seeing more weakness in the COVID winners which are the technology areas. This is likely to provide a good entry point for medium-term growth as the global recovery story isn’t being unwound by rising rates. The rates are rising because of economic recovery. Annual Advice Agreements (AAA) These agreements will replace the 2 YEAR OPT-IN forms and the Fee Disclosure statements. The AAA is mandatory for all ongoing clients and the legislation provides little leniency regarding the timeframe of the agreements. We will send these agreements out each year, 1-2 months before they are due to expire. IF THEY ARE NOT RETURNED BEFORE THE DUE DATE WE HAVE TO TERMINATE OUR ONGOING SERVICES AND FEES which may mean a new statement of advice (SOA) and additional cost. Should you have any questions, please contact Chris Pyle. Market Outlook AMP’s Shane Oliver provided his weekly market outlook. As noted in yesterday’s Not So regarding the Bond sell off, Shane has been close to the market movements. – Shares remain at risk of a further short-term correction after having run up so hard in recent months – with the back up in bond yields possibly being a trigger. But looking through the inevitable short-term noise, the combination of improving global growth helped by more stimulus, vaccines and still low interest rates augurs well for growth assets generally in 2021. – We are likely to see a continuing shift in performance away from investments that benefitted from the pandemic and lockdowns – like US shares, technology and health care stocks and bonds – to investments that will benefit from recovery – like resources, industrials, tourism stocks and financials. – Global shares are expected to return around 8% this year but expect a rotation away from growth heavy US shares to more cyclical markets in Europe, Japan and emerging countries. – Australian shares are likely to be relative outperformers helped by: better virus control enabling a stronger recovery in the near term; stronger stimulus; sectors like resources, industrials and financials benefitting from the rebound in growth; and as investors continue to drive a search for yield benefitting the share market as dividends are increased resulting in a 4.5% grossed up dividend yield. Expect the ASX 200 to end 2021 at a record high of around 7200. – Ultra-low yields and a capital loss from rising bond yields are likely to result in negative returns from bonds this year. – Unlisted commercial property and infrastructure are ultimately likely to benefit from a resumption of the search for yield but the hit to space demand and hence rents from the virus will continue to weigh on near term returns. – Australian home prices are likely to rise another 5% to 10% this year and next being boosted by record low mortgage rates, government home buyer incentives and the recovery in the jobs market but the stop to immigration and weak rental markets will likely weigh on inner city areas and units in Melbourne and Sydney. Outer suburbs, houses, smaller cities and regional areas will see relatively stronger gains in 2021. – Cash and bank deposits are likely to provide very poor returns, given the ultra-low cash rate of just 0.1%. – Probably now taking the $A up to around $US0.85 by year end. Profit results The profit results have finally been delivered and the overall position is quite positive and better than expected. On February 8 the ASX was 6881. Today it closed at 6834 or 0.6% lower, however this amount may be due to some trading without their dividend. Over the same time frame, the CORE Watchlist was trading at 96% of target prices. This has now dropped to 91%. This shows that over the time of the reporting season, the market has virtually moved side but the target prices have increased 5%. Additionally, the profit expectations have increased by nearly 10% which provides fundamental support and suggests the Aussie market can cope with higher bond yields. The CORE Watchlist stocks reported their profits on the following dates; Jan 29 Resmed (RMD) – the quarterly result was up 12% Feb 10 CBA Profit dropped 20% but increased dividend to $1.50. Price -1% Feb 11 – AMP Profit dropped 33% No dividend Price -10% – Telstra (TLS) Profit dropped 2.2% maintained 8c dividend. price +2.5% – Transurban (TCL) dropped to a loss of $448m given the reduction in COVID traffic. Price -0.67% Feb 15 – JB Hi Fi (JBH) up 86% to $317m Dividend doubled to $1.80. Price up 3% Feb 16 – BHP $3.8bn but this was after a one-off write-down of $2bn from coal assets. Dividend US $1.01 which is up 55%. Price increased 2% – Brambles (BXB) profit $465m up 7% Dividend 13.08c Price up 1.5% Feb 17 – Coles (COL) $560m up 14.5% Dividend 33c up 10% Price down 5% – Rio Tinto (RIO) results after market. Profit $9.7bn up 22% for full year. Record dividend including special of $US4.02. Feb 18 – CSL Profit 1.8bn up 44% Dividend US$1.04 up 9%. Price 2.79% – Crown (CWN) net loss & no dividend. Price up 0.41% – Origin Energy (ORG) underlying profit of $224m Dividend of 12.5c 0% franking. Price Down 2.17% – Wesfarmers (WES) Profit $1.41bn up 25% Dividend 88c up 17.3% Price up 0.63% – Woodside (WPL) underlying profit $447m (large write down) Dividend US$0.12. Price Down 2.39% – Orora (ORA) Profit $91m up 19% Dividend 6.5c 0% franking, up on last year. Price up 5.5% – Sonic Health (SHL) Profit $678m up 166% on 18m COVID tests, ex-COVID revenue down 1%. Dividend 36c up 6%. Price up 1.16% Feb19 – Goodman Group (GMG) profit $615m up 16% Dividend 15c remained the same. Gearing dropped to 4.8%. Feb 22 – Lend Lease (LLC) profit $205m down 26%. Dividend 15c 50% franking ex-Feb 26. Still $100bn+ in work pipeline. Price up 2.8% Feb 24 – Woolworths (WOW) profit $1.1bn up 16% Dividend 53c up 15%. ex Mar 4. Price up 1%. Nine Entertainment (NEC) profit $178m up 50%. Dividend 5c 100% franked up 100%. Price up 6%. Feb 25 – NextDC (NXT) – the cloud computer storage facility. $3m loss, mainly depreciation. $66m before EBITDA. which is up 20%. Upgraded FY21 guidance. Not all companies report at this time of year.   Other Stories AMP and US-based Ares Management enter into a joint venture. The market liked it with AMP up 10% today. Broker Target Price changes Goldman Sachs NextDC (NXT) increased from $13.20 (lowest broker) to $13.50 (still lowest broker) Ord Minnett/JP Morgan Morgans NXT increased from $13.89 to $14.02 Morgan Stanley Macquarie Bell Potter/Citigroup Today’s Sector Movements Best – Materials +1.7% Worst – Industrials -0.7% Core Watchlist Index The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE BHP price $38.56 Av. Target Price $39.73= 97.1% (meaning 2.9% upside over next 12 months) + income 7.11% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index decreased from 91.76% to 89.63%. The CORE has fallen below 90% for the first time since 2 October when the ASX was at 5792 and Trump caught COVID. The CORE below 90% has shown in the past to be a good entry point to the market. We will have a look next week. Overall Earnings Per Share (EPS) FY21 26.42% Most expensive – CBA 104.2. Seek was the most expensive but after their results the market sold it off. It shows the analysts were right again. Least expensive – Next DC (NXT) is now the cheapest at 78%. NXT had a good result and saw increases in the TP. For those who don’t know. NXT is where the “cloud computing” is stored. The CORE Watchlist is still mixed with 4 (4) stocks trading above 100% while 5 (6) are trading below 85% (AMC BXB COL NXT & ORG) Stocks trading below all broker forecasts are as follows; (it has been a handy indicator in the past). AMC current price $14.24 Broker range $17.00 to $19.00 ANZ current price $26.17 Broker range $26.50 to $31 BXB current price $9.90 Broker range $11.70 to $13.84 COL current price $15.33 Broker range $18.00 to $20.70 CSL current price $262.59 Broker range $276 to $310 JBH current price $43.41 Broker range $50 to $55.10 NAB current price $24.64 Broker range $24.75 to $28.73 NEC current price $2.87 Broker range $3.25 to $3.80 NXT current price $11.20 Broker range $13.50 to $14.80 ORG current price $4.50 Broker range $4.76 to $6.85 ORI current price $12.56 Broker range $16.50 to $19.00 SHL current price $31.73 Broker range $36 to $39.70 WBC current price $23.82 Broker range $24.50 to $27.50 WOW current price $39.40 Broker range $40.65 to $44.50 WPL current price $25.43 Broker range $25.91 to $34.10 AMP removed ANZ JBH NAB WOW added Banking Index Like the CORE Watchlist index, the Banking index is the average target price of the four major Banks based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this is indicating the Banks are fully priced. The Banking Index decreased from 97.6% to 95.4%. Over the month, the index started at 97.9%, so it has slightly fallen, however, the target prices have been moved higher as ANZ NAB & WBC are up 10.4 4.7% and 12.7% respectively. While CBA traded ex-dividend and fell 2.3% for the month. Based on yesterday’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING FY20 % FY21 % FY 22 % FY 23 % ANZ 60.0 2.24% 128.3 4.79% 139.0 5.19% 148.7 5.55% CBA 298.0 3.56% 337.5 4.03% 377.5 4.51% 385.3 4.60% NAB 60.0 2.39% 106.5 4.23% 122.0 4.85% 131.7 5.24% WBC 31.0 1.27% 117.0 4.80% 127.2 5.22% 137.2 5.63% MQG 430.0 2.96% 475.2 3.27% 548.4 3.77% 609.4 4.19% Other Indicators – US VIX Index increased from 21.34 to 28.89. That’s a 35% increase. – Iron Ore decreased from $ – Copper decreased from $4.35 to $4.21. Near ten year high of $4.35. A good sign for commodity boom!! – Gold increased from $1797 to $1766. Record high $2063. – AUD/USD decreased from 79.73c to 78.29c. Some forecast 80c+ – USD/CNY increased from $6.46 to $6.47 The lowest point $6.45 in 2.5 years – Asian markets – DOWN 2% – US 10 year Bonds increased from 1.40% to 1.49% Hit a low of 0.31%. A recent high of 1.49% The US 30 year Bond increased from 2.27% to 2.29% (if this one start to rise, then it could provide inflation and volatility sign). The highest level for the 18 months. Volatility happened today. How long for? – German Bonds increased from -0.31% to -0.20%. Hit a low of -0.9%. Highest for some time -0.2% – Japanese Bonds increased from +0.133% to 0.16% – Aussie Bonds 10 year Bonds increased from 1.74% to 1.87%. Lowest point 0.68% Recent high is 1.91% – Other rates 1 year 0.056% 2 year 0.12% 4 year 0.58% 5 year 0.84%. 15 year Bonds 2.24%. Global interest rates have moved higher over the week on more liquidity from US COVID funding and a growing expectation of inflation. – Oil price decreased from $63.46 to $62.83. – Tungsten remained at $250 to $255mtu. This week & next week Last “Not So” opened in 7 Aust states (missing NT) US 3 states ( Virginia, South Carolina & California) & Singapore This week – Back from Central NSW. Next week – Catching up! Contact details PO BOX 149 Deniliquin NSW 2710 125 End St Deniliquin NSW 2710 Ph. 03 58950100 Fax 03 58950101 Mobile 0412113524 scottm@provincialwealth.com.au kevinh@provincialwealth.com.au chrisp@provincialwealth.com.au maddyl@provincialwealth.com.au |
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