| 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 4 December 2023 No.600 |
| Top Stories |
| 600th Not So Daily Bulletin! 443 written under Provincial Wealth since 18/10/2018 when the ASX was at 5942. Monday, 4 December 2023, the ASX 200 gained 52 points or 0.7% to finish at 7125 (highest point since 21 Sept). The markets are feeling Central Banks are on pause and are even starting to price in rate cuts as early as next year. We aren’t on that page (rate cuts), and if Central Banks do cut in the first half of 2024, it’s because the economy is in recession, and that’s not a good thing. US Federal Reserve chair Powell said on Friday that any rate-cut discussion is “premature”. Our Investment committee is meeting in Deni on Thursday with chairman Brad Matthews visiting Deni, so that we will update the outcomes of that meeting on Friday. One market that keeps on defying logic is the Australian residential housing market. In the face of rising interest rates, prices have moved higher. This suggests that interest rate rises aren’t impacting the buyers. This has seen cash-only buyers (not borrowing money) as the most significant buying group. As we know, immigration is very strong this year, with 500k plus coming to Australia. The chart below may explain why prices have maintained these heights. It shows the movement of global millionaires, with Australia having the highest number of millionaires migrants, 5,200 in 2023. We lost this title to the UAE in 2022, as we held this position from 2015-2019. Cash-up buyers are certainly supporting the market, especially when there is a shortage of accommodation. Other events this week – RBA is expected to be on hold tomorrow. KEVIN is calling a HOLD. – Australia’s GDP on Wednesday. Expecting a small positive. – US employment on Friday, expecting 180,000 jobs created. 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. |
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| November market review After three months of sliding markets, we finally saw a strong rebound in November. There were two main reasons. 1. Seasonal – November is historically a strong month, especially when coming off the back of a lower October & 2. Markets sensed Central Banks are finished raising interest rates and a falling Bond market assisted in this conclusion with 10 year Bond rates falling up to 0.5% during the month. This saw a rally in all the major global markets apart from Hong Kong which had a slight fall. The best performers were the US markets and Japan, with the NASDAQ up 10.7% for the month. The NASDAQ holds the best performer title for all the time periods in the graph below 1 month, 6 months 1, 5 10, 15 and 20 years. First time I can recall that happening in 600 bulletins. Over 6 months and 12 months, most markets are positive with 12 better than 6, but the ASX has struggled and has we have been suggesting, has been trading sideways for a year. |
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| Global growth for 2024 I have summarised Citigroup’s updated view of the global economy for 2024. 2023 Global growth is 2.6%, which was better than expected. (expectations were sub-2% growth and “rolling recessions.”) Inflation has fallen while employment remains tight. These surprises have increased the probability of a soft landing for the global economy. However, the journey isn’t over and the “last mile” of the global inflation fight is likely to be a tough slog. Citigroup expects the lag effect of interest rate rises will have an effect on the labour market, with unemployment rising and slower economic growth in 2024. Developed Markets (DM) economies are likely to see several falling into recession Figure 6 shows UK, Sweden, Canada and Euro Area -EA. Offsetting this is still strong growth from China 4.6% India 5.7% and Indonesia 4.9%. Citigroup sees global growth in 2024 retreating to 1.9% before rebounding to 2.5% in 2025. The heart of the global economy’s resilience has been a self-reinforcing dynamic between strong consumer spending and tight labour markets. Coming out of the pandemic, global consumers had pent-up demand. The strong spending, in turn, increased demand for workers, with the unemployment rate falling and wages growing. The tight market and strong wage growth, in turn, have further fueled consumer spending. Citigroup believes the path of services inflation in the year ahead is the key (we would agree) As shown in Figure 8, Goods inflation has dropped very quickly as this was probably the transitory inflation that the US Federal Reserve believed was the main driver of inflation, but it’s the course of services inflation (wages and rents) that will shape the economic views over the next year. The restrictive interest rates, coupled with an expected step down in global services spending, will allow services inflation to gradually cool. If not, central banks will be faced with the unpleasant prospect of maintaining tight policies for longer than expected or, perhaps, even hiking further. Each major area (US, China & Europe) has unsynchronized from each other over the last year. A major question is the extent to which this desynchronization continues in 2024?—With the envisioned slowing in global growth—and a projected US downturn—cyclical performance is likely to become more similar. Citigroup notes a raft of elections will have an impact on the global economy in 2024.—Elections will be held this year in countries including Taiwan (January), Russia (March), India (April-May), the United Kingdom (likely April or May), Mexico (June), the European Parliament (June), Venezuela (H2), and the United States (November). The outcome of these elections will influence the tone and trajectory of economic performance in these countries and frame major features of the geopolitical landscape. |
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| What works after the RBA pauses? There is a growing view that either the RBA has finished or there is one more rate hike (February). Macquarie has penned a research piece discussing what companies benefit from a pause in rate hikes. • Hikes all but done. The US Fed’s last hike was in July, and except for Australia, the last hike in the developed world was in September. These pauses suggest central banks increasingly see the risks shifting from high inflation to slowing growth as they wait to see the lagged impact of past hikes. While there is still a risk of another RBA hike in February 2024, market movements last month suggest investors are positioning as if the RBA is done. • Pauses a short-term relief. In the current inflation-targeting regime, the RBA paused four times before a pivot to easing. This includes two cases for which a US recession (2000, 2008) and two soft landings (1995, 2010) followed. A pause often drives a relief rally in equities as cost of capital headwinds ease. • What works after a pause? Bond yields typically fall after a pause, which drives the outperformance of bonds over stocks. Whether a soft landing or a US recession, the slower growth that drives central banks to pause (and later ease) also tends to drive the expectation of earnings downgrades and the outperformance of defensives over cyclicals. Health, Staples and Gold outperformed after an RBA pause when there was a US recession, with earnings growth usually the key driver of their outperformance. • Past outperformers. There are some stocks that outperformed in all past RBA pauses (at least the ones while they were listed). This includes CSL, SHL, RHC, MTS, EVN, TCL, APA, DMP, and NHF. The Banks (BEN, ANZ, CBA, WBC, NAB) all outperformed after all four RBA pauses. The strong historical returns for Banks were driven by strong expected EPS growth (that was largely realised). Today, EPS for Banks is forecast to decline, suggesting they are less likely to outperform after the current RBA pause. In this cycle, we prefer Insurers over Banks given Insurers are the key positive driver of Australian market earnings growth in FY24E. • Buy ideas. Outperform-rated ASX 100 stocks in sectors that tend to outperform in the year after an RBA pause are RMD, CSL, COL, EDV, NST, NEM, ORA, NXT, TLS, TLC, and TCL. Of these stocks, TLS, COL, ORA, TLC, EDV, and RMD are the most oversold, • Sell ideas. REA, NEC, JBH, SCG, VCX, SGP, RGN, and LLC are Neutral- or Underperform-rated and in sectors that tend to underperform in the year after an RBA pause. |
| Macquarie Interest rates Macquarie has increased the rates on their bank accounts Cash Management Account (transaction account) increased to 3% Accelerator Account increased to 4.75%. |
| 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 – Goldman Sachs doesn’t expect any further interest rate rises, while UBS says it is probably on hold, but there is a risk of a hike in Feb. – Shane Oliver believes Wednesday’s GDP of 0.4% has some upside after stronger economic data released today. – Origin Energy takeover vote failed. |
| Broker Target Price changes – Ord Minnett Morgans South 32 (S32) decreased from $5.15 (highest broker) to $4.80 (still highest broker) Morgan Stanley Nine Entertainment (NEC) decreased from $2.40 to $2.30 Macquarie Bell Potter/Citigroup UBS Tracking changes for 2023 Upgrades 318 Downgrades 340 |
| Today’s ASX sector Movements Best – IT +1.9% Worst – Utilities -2.5% |
| 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 89.93% to 90.32%. Just above the buying signal, usually below 90%. 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). FY23 increased from 3.39 to 3.44% FY24 decreased from 6.27% to 6.12% Most expensive – CBA 116.2% Least expensive – Lend Lease 54.1% The CORE Watchlist has 6 (6) stocks trading above 100%; they are; BHP CBA JBH NAB RIO WES, lowest number ever is 0, highest 9. While 8 (8) are trading below 85% (highest 18), while the lowest is 5. CSL LLC NEC ORA RMD S32 SHL 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). 13 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest for some time 5. ALL current price $40.44 Broker range $43 to $46.50 AMC current price $14.29 Broker range $14.50 to $17.50 CPU current price $23.36 Broker range $24.50 to $29 CSL current price $264.17 Broker range $321 to $340 LLC current price $6.72 Broker range $7.95 to $14.45 NEC current price $1.94 Broker range $1.95 to $2.80 ORA current price $2.57 Broker range $3.00 to $4.10 ORI current price $15.65 Broker range $16.23 to $19.50 RMD current price $24.29 Broker range $26 to $40 S32 current price $3.12 Broker range $3.40 to $480 SHL current price $28.91 Broker range $31.15 to $38 STO current price $6.82 Broker range $8.10 to $12.30 TLS current price $3.79 Broker range $4.15 to $4.75 Added Removed |
| 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 101.9% to 102.3%. Over 100% suggests the banks are fully priced. They have run up into the results. 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 7.16% 162.2 6.63% 163.3 6.68% CBA 450.0 4.28% 458.0 4.36% 469.8 4.47% NAB 167.7 5.85% 162.8 5.68% 162.8 5.68% WBC 142.0 6.64% 144.0 6.73% 174.2 8.14% MQG 750.0 4.44% 683.2 4.04% 726.2 4.30% 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 5.41% 226.50 4.80% 261.2 5.54% RIO 617.33 4.86% 668.17 5.26% 609.4 4.80% 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 12.98 to 12.63. The VIX is near 12 month low. Showing calm. – Iron Ore increased from $128.20 to $131.15. ALL-TIME HIGH of $237.57. Av expected for 2023 is $113.9, while dropping to $102 for 2024. – Copper increased from $3.80 to $3.88. – Gold increased from $2046 to $2105. New RECORD HIGH SET TODAY $2152, previous high $2063. – AUD/USD decreased from 66.44c to 66.57c. Recent low point 62.9c. $A strengthening – Asian markets – MIXED – US 10 year Bonds decreased from 4.28% to 4.25%. recent high 5% (20/10 highest since 2006). The FED looks like it’s on HOLD. US 30 year Bond decreased from 4.45% to 4.42%. Hit a 17-year high of 5.12%. The US 2 year rate has decreased from 4.65% to 4.60% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.35%. It was -0.37% 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 as the long end of the yield curve increases (higher for longer). – German Bonds decreased from 2.42% to 2.36%. Hit 3% in October highest since 2008. – Japanese Bonds increased from 0.68% to 0.69%. Highest in 10 years is 0.956%. – Aussie Bonds 10 year Bonds increased from 4.40% to 4.47%. Recent high 4.95% – Other Aussie Bonds 1 year 4.36% 2 year 4.14% 4 year 4.07% 5 year 4.12% 15 year Bonds 4.69%. – Oil prices decreased from $78.08 to $73.57. – Tungsten – China remains at $305 to $315mtu. |
| This week & next week Last “Not So” opened in 7 Aust states (excl NT ), US 3 states (California, Massachusetts, Ohio), Sweden & Israel 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 7 November 2023 No.595 |
| Top Stories |
| Tuesday, 7 November 2023, the ASX 200 fell 20 points after rising 19 yesterday to finish at 6977. The market has tried to break above 7000 but couldn’t hold it. The Melbourne Cup winner – Without a fight was probably a signal for the RBA rate rise (only in hindsight does it look obvious). Hopefully, it was the last rate hike and brings the RBA in line with the ECB (Europe) and the Fed (US Federal Reserve) with talk of further rate hikes but no actions. As discussed over the last few weeks, we are still at a crossroads, as mixed signals are everywhere. Bond rates are falling, Oil is down to $80, Gold is near $2000, Consumer is less confident & spending savings, China and Europe are sluggish, and Cash rates are high and elevated geopolitics issues. On the flip side, unemployment rates are historically low, company profits are okay, iron ore price remains elevated, US GDP was 4.9%, the fear index (VIX has retreated to a calm 14.89), retail sales are up, mortgage defaults are below 1%, and we are entering the best period of the year where US companies can undertake share buybacks to provide a Santa Claus rally. Bank results from NAB Nov 9 and ANZ Nov 13. WE ARE STILL CAUTIOUS in the short term but are moving back to our favour, 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. |
| RBA hikes, Without a fight! The RBA meeting was held today, as Kevin Hanson and most economists predicted a rate rise occurred. Below are the important points from the RBA Governor Michele Bullock’s statement. The Board decided to raise the cash rate target by 25 basis points to 4.35 per cent. Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago. The latest reading on CPI inflation indicates the prices of many services are continuing to rise briskly. While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected. CPI inflation is now expected to be around 3½ per cent by the end of 2024 and at the top of the target range of 2 to 3 per cent by the end of 2025. The Board had indicated that it would be paying close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market. The weight of this information suggests that the risk of inflation remaining higher for longer has increased. While the economy is experiencing a period of below-trend growth, it has been stronger than expected over the first half of the year. Conditions in the labour market have eased but they remain tight. Housing prices are continuing to rise across the country. At the same time, high inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment. Given that the economy is forecast to grow below trend, employment is expected to grow slower than the labour force and the unemployment rate is expected to rise gradually to around 4¼ per cent. Returning inflation to target within a reasonable timeframe remains the Board’s priority. High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality. And if high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case. Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome. Chart from AMP and RBA |
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| 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 $144k(couple) $95k (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 – Goodman Group (GMG) 4th quarter confirmed 9% profit growth for FY24. $127bn of developments in pipeline. – South Korea bans short selling (good idea) market up 10% in the first 6 days of Nov. – Chinese exports fell 6.4% in USD terms but imports rose 3%. |
| Broker Target Price changes – Ord Minnett Morgans Amcor (AMC) increased from $14.25 (lowest broker) to $15.20 Macquarie Group (MQG) decreased from $194.40 to $182.80 Westpac (WBC) decreased from $21.61 to $21.58 Morgan Stanley MQG decreased from $215 (highest broker) to $202 (still highest broker) WBC increased from $20 (lowest broker) to $20.70 Macquarie AMC decreased from $14.83 to $14.80 BHP increased from $47 to $47.50 Woodside (WDS) decreased from $34 to $32 (equal lowest broker) Bell Potter/Citigroup BHP increased from $44 to $45 Goodman Group (GMG) increased from $24.50 to $25.50 (equal highest broker) MQG decreased from $175 (equal lowest broker) to $161 (lowest broker) WBC increased from $21.80 to $23.60 UBS Sonic Health (SHL) increased from $34 to $36.50 Wesfarmers (WES) decreased from $57 (equal highest broker) to $56 Tracking changes for 2023 Upgrades 307 Downgrades 309 (we have noticed the overall trend is down, but the CORE stocks are seeing upgrades. It probably reflects the quality of stocks in our 30 CORE stocks). |
| Today’s ASX sector Movements Best – IT +1.4% Worst – Financials -1% |
| 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 87.04% to 88.34%. This is usually a good BUYING signal when the CORE index is below 90%. Interestingly Bank Index is still above 100%, which suggests (not a good buying time). As mentioned before, this is the first time in 12 years these to indices have been providing opposite calls. It first happened on 21/9/23 when ASX was at 7065. We haven’t moved far. 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). FY23 decreased from 3.23% to 3.11% FY24 decreased from 8.04% to 7.98% Most expensive – CBA 109.5% Least expensive – Lend Lease 51.2% The CORE Watchlist has 6 (5) stocks trading above 100%; they are; BHP CBA JBH NAB RIO WES, lowest number ever is 0, highest 9. While 11 (12) are trading below 85% (highest 18), while the lowest is 5. CSL LLC NEC NXT ORA ORI RMD S32 SEK SHL 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). 13 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest for some time 5. ALL current price $39.74 Broker range $42.80 to $46.50 AMC current price $13.98 Broker range $14.50 to $17.50 CPU current price $23.88 Broker range $24.50 to $29 CSL current price $248.12 Broker range $321 to $340 LLC current price $6.36 Broker range $7.95 to $14.45 MQG current price $159.29 Broker range $161 to $202 ORA current price $2.47 Broker range $3.00 to $4.10 ORI current price $14.90 Broker range $16.23 to $19.50 RMD current price $23.76 Broker range $26 to $40 S32 current price $3.25 Broker range $3.40 to $5.15 SHL current price $29.81 Broker range $32 to $38 STO current price $7.33 Broker range $8.10 to $12.30 TLS current price $3.87 Broker range $4.14 to $4.75 Added CPU Removed TCL |
| 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 98% to 100.9%. Over 100% suggests the banks are fully priced. They have run up into the results. Westpac’s result was better than expected. Full-year $7.195bn Div 72c (up on same period last year) and a buyback of $1.5bn. Mortgage loans 90 days behind rose from 0.8% to 0.86% (still not a crisis). Macquarie’s profit was down 39% on last year which was below expectations. Dividends $2.55 was below last year, but announced a $2bn share buyback. ANZ cheapest at 94.9% 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 162.8 6.39% 163.7 6.43% 163.7 6.43% CBA 450.0 4.50% 457.7 4.58% 469.5 4.69% NAB 167.7 5.77% 168.2 5.79% 168.8 5.81% WBC 142.0 6.66% 142.7 6.69% 174.8 8.20% MQG 750.0 4.71% 683.2 4.29% 726.2 4.56% 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 5.60% 226.50 4.97% 261.2 5.73% RIO 617.33 5.07% 668.17 5.49% 609.4 5.00% 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 18.14 to 14.89. The VIX is showing the market is reasonably calm. – Iron Ore increased from $119.25 to $123.75. ALL-TIME HIGH of $237.57. Av expected for 2023 is $114.1, while dropping to $99.4 for 2024. – Copper increased from $3.64 to $3.69. – Gold decreased from $1983 to $1979. Record high $2063. – AUD/USD decreased from 63.27c to 64.38c. Recent low point 62.9c. $A strengthening – USD/CNY remains at $7.30 Lowest $6.31 Highest in recent years $7.35. – Asian markets – DOWN – US 10 year Bonds decreased from 4.97% to 4.64%. recent high 5% (20/10 highest since 2006). The FED may or may not be on HOLD. US 30 year Bond decreased from 5.07% to 4.81%. Hit a 17 year high of 5.12%. US Federal Reserve on hold at 5.5% but maybe more to come in November. The US 2 year rate has increased from 5.07% to 4.92% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.28%. It was -0.10% 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 as the long end of the yield curve increases (higher for longer). – German Bonds decreased from 2.83% to 2.75%. Hit 3% in October highest since 2008. – Japanese Bonds decreased from 0.956% to 0.88% highest in 10 years is 0.956%. – Aussie Bonds 10 year Bonds decreased from 4.95% to 4.71%. Recent high 4.95% – Other Aussie Bonds 1 year 4.48% 2 year 4.31% 4 year 4.29% 5 year 4.35% 15 year Bonds 4.96%. Rates have decreased after the days RBA rate rise. Maybe on hold. – Oil prices decreased from $81.05 to $80.43 – Tungsten – China remains at $305 to $315mtu. |
| This week & next week Last “Not So” opened in 7 Aust states (excl NT ), US 5 states (California, Massachusetts, New York Colorado & South Carolina), Sweden, Israel & Malawi (45th country and 4th in Africa). 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 17 October 2023 No.590 Top Stories Tuesday, 17 October 2023, the ASX 200 gained 30 points to finish at 7056. Still at the lower end of the trading range of 7000 to 7500 that the market has been in for most of the year. I’ve read two different views saying we are still in the Bear Market rally (Morgan Stanley) and another one (Bell Potter Coppo report) saying last week is the one-year anniversary of the new bull market. Please take a look at the chart below. The truth probably lies somewhere in between; unfortunately, only hindsight confirms it. Shane Oliver is suggesting we may have seen the bottom, and while the US inflation figures were a little higher than expected, the market took them reasonably well. The Middle East continues to be a problem for markets, especially the energy market, but it’s probably sabre-rattling unless it spreads outside of Gaza. The US has bought some insurance by doing an oil deal with Venezuela regarding more oil supply. The RBA minutes released today suggested the last meeting nearly raised rates. This has led to Bond rates increasing again and puts a high chance of a rate rise on Melbourne Cup day. The start of US 3rd quarter profit season has started well, with the big banks delivering better than expected profits. This will indicate whether the interest rate increases have affected profit margins and slowed consumer demand. We expect to see a choppy market that will likely grind higher over the coming weeks and months. WE ARE STILL CAUTIOUS in the short term but markets likely see a pick-up towards the end of the year. Selective about the areas we like. 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. AND This week marks five years of PROVINCIAL WEALTH. Thank you for your continued support!  Have we seen the bottom? Over the weekend, AMP’s Shane Oliver penned the following – Was that it? Have we seen the bottom in shares? The rebound in share markets from their recent lows after falls of around 8% is impressive given the wall of worries around Israel, US politics, recession risk, share market valuations, China, etc. However, it is consistent with several key positives: – First, shares had become oversold technically and had fallen to levels of technical support (in particular, the 200 day moving average for the US S&P 500) that can attract buying interest. – There are reports that China is considering expanding its budget deficit by issuing 1 trillion (or $A214bn) for infrastructure spending. This sounds over the top (as it would be 5.6% of GDP) and may not eventuate. But its possible something is on the way. Of course, fiscal stimulus is no panacea for China’s structural problems but it would provide a near term boost. – The upcoming US profit reporting season may also provide a boost given the tendency for results to surprise on the upside. Fourth, and most importantly numerous US Fed speakers have moved to acknowledge the tightening in financial conditions from the rise in bond yields which are “going to do some of the work for us.” This suggests that as things stand now the Fed will leave rates on hold in November. While the “high for longer” rates message remains in place the Fed seems to have shifted from being happy to just let bond yields keep rising to now acknowledging the tightening they bring. This in turn removes some of the upside pressure on bond yields which reduces a key worry we had in terms of share market valuations. – The risk of a further leg down or re-test of the lows in global and Australian shares remains high though. – So far the rally has lacked the breadth often seen out of major bottoms and sentiment was not washed up at the low, the upside surprise in US inflation in September will keep the Fed on edge, share valuations remain stretched without a further fall in bond yields, the risk of recession remains high, uncertainty remains high around the China’s economy and property markets, the US remains at high risk of a shutdown next month and the risk of an escalation to involve Iran in the Israeli conflict which would directly threaten oil supplies is high. So, the ride for shares is likely to remain volatile. – …but several things should help shares by year end: seasonality will start to become positive from mid-October; inflation is likely to continue to fall which should take pressure of central banks allowing them to ease through next year; and any recession is likely to be mild. So, while near term uncertainties remain high our 12-month view on shares remains positive. US inflation US inflation on Friday night was slightly higher than expected at 0.4% monthly and +3.7% yearly. The Core CPI gained +0.32%, translating into a +4.1% yearly gain. The graph below shows the four areas of US inflation. 1. Services inflation (blue) remains consistently higher and stronger. This is a genuine concern for Central Banks. 2. Food inflation (gold) is starting to reduce. 3. Energy (red) has a deflationary effect, but this could change with the volatility in the oil price. 4. Goods inflation has disappeared as the effects of COVID and supply chains have disappeared. Betashares chief economist David Bassanese suggests that if the market can absorb the current inflation rate and with the global backdrop of concerns from Israel and Ukraine, interest rates might have peaked on both the official rates and the Bond market. However, a peak in rates doesn’t indicate that rate cuts are on the agenda anytime soon, as Central Bankers are still concerned that inflation could have the ability to kick up again, as was seen in the 1970s, as illustrated in the 2nd graph below.   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 $144k(couple) $90k (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 – SEC announce 2.7c quarterly dividend. Trade ex-div 19/10. Dividend based on $2.14 NTA. SP $1.86. Yield 5.8% plus franking. Broker Target Price changes – Ord Minnett BHP increased from $39.50 (lowest broker) to $41 (still lowest broker) Rio Tinto (RIO) increased from $107 (lowest broker) to $111 (still lowest broker) South 32 (S32) decreased from $4.10 to $3.90 Morgans Morgan Stanley Rio Tinto (RIO) decreased from $135 (highest broker) to $134.50 (still highest broker) Macquarie Telstra (TLS) decreased from $4.39 to $4.14 (lowest broker) Bell Potter/Citigroup UBS Tracking changes for 2023 Upgrades 290 Downgrades 274 (we have noticed the overall trend is down, but the CORE stocks are seeing upgrades. It probably reflects the quality of stocks in our 30 CORE stocks). Today’s ASX sector Movements Best – IT +1.3% Worst – Healthcare -1.2% 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 decreased from 89.94% to 89.18%. This is usually a good BUYING signal when the CORE index is below 90% 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). FY23 increased from 3.32% to 3.36% mainly currency FY24 increased from 7.50% to 7.71% mainly currency Most expensive – CBA 111.2% Least expensive – Lend Lease 54.5% The CORE Watchlist has 5 (5) stocks trading above 100%; they are; BHP CBA JBH NAB WES, lowest number ever is 0, highest 9. While 9 (7) are trading below 85% (highest 18), while the lowest is 5. CSL LLC NEC NXT ORA RMD S32 SHL 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). 10 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest for some time 5. ALL current price $39.64 Broker range $42.80 to $46.50 CSL current price $236.40 Broker range $325 to $340 LLC current price $6.76 Broker range $8.03 to $14.45 MQG current price $168.60 Broker range $175 to $209 ORA current price $2.60 Broker range $3.00 to $4.10 ORI current price $15.58 Broker range $16.23 to $19.50 RMD current price $22.16 Broker range $27.70 to $39 SHL current price $29.69 Broker range $32 to $38 STO current price $7.70 Broker range $8.10 to $12.30 TLS current price $3.88 Broker range $4.20 to $4.75 Added Removed 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 decreased from 102.8% to 102.6%. ANZ cheapest at 95.6% 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 162.8 6.32% 163.7 6.35% 163.7 6.35% CBA 450.0 4.45% 457.7 4.52% 469.5 4.64% NAB 167.3 5.70% 167.5 5.70% 168.0 5.72% WBC 141.3 6.58% 142.2 6.62% 143.2 6.67% MQG 750.0 4.45% 677.0 4.02% 719.2 4.27% 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 5.60% 223.17 4.90% 261.8 5.75% RIO 603.17 5.15% 667.00 5.70% 609.0 5.20% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). Other Indicators (changes since last Not So) – US VIX Index increased from 16.09 to 17.21. The market fears is bouncing around. – Iron Ore decreased from $112.55 to $117.25. ALL-TIME HIGH of $237.57. Av expected for 2023 is $114.1, while dropping to $99.4 for 2024. – Copper decreased from $3.62 to $3.56. – Gold increased from $1892 to $1928 Record high $2063. – AUD/USD decreased from 64.14c to 63.54c. Recent low point 62.9c. – USD/CNY remains at $7.30 Lowest $6.31 Highest in recent years $7.35. – Asian markets – UP – US 10 year Bonds increased from 4.57% to 4.75%. recent high 4.88% (4/10 highest since 2006). The FED maybe on HOLD. US 30 year Bond increased from 4.70% to 4.91%. Hit a 17 year high of 5% last week. US Federal Reserve on hold at 5.5% but maybe more to come in November. The US 2 year rate has increased from 4.99% to 5.11% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.36%. It was -0.42% 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 as the long end of the yield curve increases (higher for longer). – German Bonds increased from 2.71% to 2.79%. Hit 3% last week highest since 2008. – Japanese Bonds increased from 0.76% to 0.78% highest in 10 years is 0.804%. – Aussie Bonds 10 year Bonds increased from 4.38% to 4.56%. Recent high 4.67% – Other Aussie Bonds 1 year 4.32% 2 year 4.17% 4 year 4.14% 5 year 4.21% 15 year Bonds 4.81%. Rates have reversed last weeks drop. Seem to be pricing in one more. – Oil prices increased from $84.66 to $86.49. Rumours of US /Venezuela oil deal. – Tungsten – China remains at $305 to $315mtu. EQR in a trading halt (material acquisition). This week & next week Last “Not So” opened in 7 Aust states (excl NT ), US 6 states (California, Massachusetts, Virginia, New York Colorado & South Carolina) & Sweden 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 19 September 2023 No.584 |
| Top Stories |
| Tuesday, 19 September 2023, the ASX 200 dropped 34 points to finish at 7197. After finishing last week on a high, the first two days have dropped 83 points. As noted in a paragraph below, we are in the worst month of the year, and this week has been some of the weakest days over the last 20 years. Markets are focussed on a raft of Central Bank meetings with the US Federal Reserve, the main one on Thursday. The expectation is for a HOLD, but the commentary about the outlook will guide market sentiment. Other banks meeting include the Bank of England (BOE), Swiss National Bank (SNB), Bank of Japan (BOJ), Sweden’s Riksbank (SEK) and Norway’s Norges Bank (NOR). Rate hikes expected from BoE, SEK and NOR. In particular, market watchers will be looking for signs that rates have finished increasing as this was the takeaway message from the European Central Bank (ECB) last Thursday, hence the rally on Friday. Another interesting piece below is the observation that under-investment in commodities might lead to a new commodities BULL market. El Nino has finally been called today, so the season is warming and changing. The ASX is still trading within the 7000 to 7500 trading range. Will it break out, or will the rollercoaster continue? WE ARE LESS CAUTIOUS AND EVEN A LITTLE MORE OPTIMISTIC. Selective about the areas we like. |
| September is the weakest month. Historically, September is not a great month for markets. The chart below from Bell Potter’s Coppo shows the average movement over 20 years for the US S&P 500. This week (4-5 days) has been statistically the weakest group of days for the year over the 20 years. Why is that? It is a combination of factors over time. Still, it is the period just after reporting season, and many stocks are trading without their dividend, but investors haven’t received their money. It’s also towards the end of the 3rd quarter of the year when some pension/mutual funds are tidying up their books. Also, there is a change of season, and then it is just September, which starts to build a reputation for weakness. The 2nd chart below shows the average return for the different months over the last 20 years. While the average is a nice 0.47% per month or 5.64% plus income, September is the worst by some distance. However, we could look at this another way. The time to buy is when the market is unloved and down, and as can be seen in the chart, the next three months have been solid as the Santa Claus rally gets going in late October and November. So our old mantra still applies (BUY THE DIP). |
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| Commodity underinvestment – a new bull market? Callum Thomas from Topdown Charts has provided an interesting observation regarding capital expenditure in commodities. The chart below shows a significant under-investment (compared to the long-term average) in new commodity supply since the commodity bear market of 2015-16. But another way of looking at it, is a decade-long bear market in commodities from the peak in 2011 to the trough in 2020. New supply has struggled in many sectors for various reasons, including regulatory changes and investor sentiment through climate change. The underlying demand for most commodities only continues to grow. At some point, the increased demand and limited supply due to low capital expenditure only has one implication. HIGHER PRICES. Thomas believes we may have seen commodities hit a price floor, and we may be building towards a new cyclical bull market in commodities as the highly forecast recession fails to materialise and demand increases. |
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| Smart Beta ETFs Number 2 – we like them! Smart Beta combines the best of active and passive investing: having the potential for better investment outcomes while being rules-based, transparent and cost-efficient. In our portfolio construction, we use several smart beta ETFs that have delivered results over the short, medium and long term. The second one in the series is the VanEck MSCI International Quality (QUAL) or (QHAL) – hedged version. This fund gives access to the world’s highest-quality companies based on key fundamentals (filters). (i) high return on equity (ROE), (ii) earnings (profit growth) stability and (iii) low financial leverage Morgan Stanley Capital Index (MSCI), the world’s largest index provider and the creator of the first international index, states, “Quality growth companies tend to have high return of equity (ROE), stable earnings that are uncorrelated with the broad business cycle and strong balance sheets with low financial leverage. Many active strategies emphasise Quality growth as an important factor in their security selection and portfolio construction.” The top holdings are Apple, Nvidia, Microsoft, Meta, Eli Lilly, Visa Alphabet (Google), Visa Novo Nordisk United Health Group and Mastercard. The stock selection process starts with the top 1500 stocks in the world by market value. This is the MSCI index. The algorithm then applies the three filters above to reduce the stocks in QUAL to 300. To illustrate QUAL – return on equity is 35.96% on Price/Earning ratio of 24.7, whereas the MSCI World index of 1500 has a ROE of 21.10% on a PE of 18.7. To compare, the ASX 200 ROE is 15.83%. These stocks are re-assessed every six months to ensure they continue delivering and providing solid returns. The table below shows the return over various time frames compared to the index. QUAL has beaten the index (MSCI) over every period apart from the 1-month result, and the returns are well above the ASX over the past five years. I have kept in the MVW from the last Not So. |
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| Orora (ORA) acquisition and capital raising Existing shareholders only Orora (ORA) has acquired global premium glass maker Saverglass (France) for $2.1bn. They make high-end wine and spirit bottles for brands including Glenfiddich, Don Julio, Jose Cuervo, Grey Goose and Hennessy. Existing shareholders can purchase one new share for every 2.55 existing shares for $2.70. The shares have started trading again and have fallen to near the issue price. Closed at $2.75. The offer opens 12/9 and closes 25/9. Paperwork should be received next week. We will provide more information when we receive it from the brokers. |
| Macquarie Bank Accounts Macquarie has advised they are making the following changes to the usage of their accounts. From January 2024 You won’t be able to: – order a cheque book for a new cash management account. From March 2024 You won’t be able to: – make a payment using our automated telephone banking service. From May 2024 You won’t be able to: – deposit or withdraw cash or cheques over the counter at Macquarie branches – order a cheque book on an existing account. Clients can continue to withdraw cash from their transaction account via ATMs across Australia and overseas without fees. However, cash deposits and branch withdrawals will no longer be available. From November 2024 You won’t be able to: – write cheques or request bank cheques – deposit or withdraw cash or cheques over the counter at NAB branches – make a super contribution or payment via cheque. Provincial Wealth summary In our reviews, we will be discussing with your usage of the account and whether these will have any impacts and if required, provide guidance on work around. |
| 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 $144k(couple) $90k (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) NTA $2.15 ($2.12) as at 15/9/23. Share Price $1.90 ($1.90). That’s a 11.6% (11.4%) discount. (brackets previous number). Gross yield 7.96% paid quarterly. – Japan’s stockmarket hit 30 year high yesterday. – NSW Govt budget. Hitting property investors. – BHP warns the Federal government’s new “same work, same pay” legislation could cost $1.3bn, which will mean less company profits, corporate taxes and impact dividends. |
| Broker Target Price changes – Ord Minnett Morgans Morgan Stanley Macquarie Bell Potter/Citigroup UBS Tracking changes for 2023 Upgrades 263 Downgrades 256 (we have noticed the overall trend is down but the CORE stocks are seeing upgrades. It probably reflects the quality stocks in our 30 CORE stocks). |
| Today’s ASX sector Movements Best – Energy +0.2% Worst – Materials -0.8% |
| 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 decreased from 91.73% to 90.85%. Overall Earnings Per Share (EPS) FY23 decreased from 2.93% to 2.90% (new low) FY24 increased from 6.61% to 6.7% Most expensive – CBA 112.1% Least expensive – Lend Lease 57.4% The CORE Watchlist has 7 (8) stocks trading above 100%; they are; BHP CBA JBH NAB RIO WDS WES, lowest number ever is 0, highest 9. While 9 (7) are trading below 85% (highest 18), while the lowest is 5. CSL LLC NEC NXT ORA RMD S32 SEK 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). 11 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest for some time 5. ALL current price $41.04 Broker range $42.80 to $46.50 CSL current price $263.60 Broker range $325 to $340 LLC current price $7.31 Broker range $8.03 to $14.45 MQG current price $172.92 Broker range $175 to $209 ORA current price $2.75 Broker range $3.00 to $4.10 ORI current price $15.88 Broker range $16.50 to $20.30 RMD current price $22.72 Broker range $27.70 to $39 S32 current price $3.40 Broker range $3.60 to $5.15 SHL current price $30.45 Broker range $32 to $38 STO current price $7.85 Broker range $8.10 to $12.30 TLS current price $3.87 Broker range $4.20 to $4.75 Added 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 indicates the Banks are fully priced. The Banking index decreased from 103.2% to 102.3%. Still fully priced! 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 162.5 6.37% 163.0 6.39% 163.0 6.39% CBA 450.0 4.41% 457.7 4.48% 469.5 4.60% NAB 167.3 5.70% 167.5 5.70% 168.0 5.72% WBC 140.0 6.45% 141.0 6.50% 142.8 6.58% MQG 750.0 4.34% 677.0 3.92% 719.2 4.16% 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 258.00 5.72% 226.33 5.02% 213.6 4.74% RIO 569.17 4.80% 651.00 5.49% 547.8 4.62% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS). |
| Other Indicators (changes since last Not So) – US VIX Index increased from 12.82 to 14. Bounced off 52 week low. Markets are pretty calm. – Iron Ore increased from $121.60 to $121.75. Highest level in months. ALL-TIME HIGH of $237.57. Av expected for 2023 is $113, while dropping to $94 for 2024. – Copper decreased from $3.84 to $3.77. – Gold increased from $1941 to $1952. Record high $2063. – AUD/USD decreased from 64.67c to 64.32c. Has the AUD bottomed, mid 63.5c? – USD/CNY increased from $7.27 to $7.30 Lowest $6.31 Highest in recent years $7.35. – Asian markets – DOWN – US 10 year Bonds increased from 4.29% to 4.32%, hit 4.35% (13 year high) Rate moving higher on the issuance of BONDS. US 30 year Bond increased from 4.38% to 4.40% The highest level was 4.47%. US Federal Reserve raised rates to 5.5% but maybe on hold in September. The US 2 year rate has increased from 5.02% to 5.06% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.77%. It was -0.73% 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. – German Bonds increased from 2.61% to 2.71%. 2.94% highest since 2008 as the ECB increased rates last week. – Japanese Bonds increased from 0.712% to 0.72.1% highest in 10 years. – Aussie Bonds 10 year Bonds increased from 4.11% to 4.18%. Recent high 4.32% – Other Aussie Bonds 1 year 4.10% 2 year 3.92% 4 year 3.91% 5 year 3.94% 15 year Bonds 4.42%. Rates flattening. Given the cash rate is 4.10%, there is not a lot of suggestion that rates are falling over the next couple of years. – Oil prices increased from $90.84 to $92.86. Will the rally in oil put pressure on inflation again? – Tungsten – China remained at $305 to $315mtu. |
| 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 August 2023 No.578 Top Stories Monday, 28 August 2023, the ASX 200 gained 45 points or 0.6% to finish at 7160. Over that period, the ASX 200 has increased 12 points and is at the lower end of the trading range of 7000 to 7500. This financial year (nearly two months), we have traded between 7004 and 7456 is down -0.6%. Over 2023, we have traded between 6899 and 7558 as the market seems to need help to digest the impacts of higher inflation and interest rates and is only up 1.72% for the year to date. August has been weaker by 3% after a good July. We are seeing companies trade without dividends, which usually sees the market lower (generally also in September). Reporting season has nearly finished in Australia, and it’s been OK. There are not too many disasters, but some concerns about interest rates and inflation (especially wages) remain. See below. The US Federal Reserve Jackson Hole meeting suggested interest rates may have further to rise IF inflation doesn’t continue to fall and emphasised that rates would remain elevated for longer. (This has been Provincial Wealth’s view as well). Economic data continues to be mixed with global PMI (purchasing manager indexes) showing slowing economies, but retail sales in Australia were up 0.5% in July (maybe FIFA World Cup). We are still waiting for a meaningful stimulus from China, which is causing domestic weakness, especially in commodities. Today, China announced a reduction in the stamp duty on share trade. This boosted Chinese markets, up 1.5% and should hold the AUD, Copper and iron ore. It probably accounted for some of the gains in our biggest stocks today, with BHP up 1.2%, CBA up 1.2%, CSL up 1.7%, NAB 1.3% and WES 2.1%. Watching this week for; Wednesday Aust monthly inflation figures Friday US payroll figures WE ARE LESS CAUTIOUS AND EVEN A LITTLE MORE OPTIMISTIC. But what will be the catalyst to take markets higher and out of the trading range? Australia Profit Season Part 1 This is the last week of profit results for most of the ASX. I’ve tried to summarise Macquarie’s view from the table below. It shows the ASX results and whether their research was beaten (dark blue) by the profit results, inline (light blue) or missed expectations (orange). For the Jun 2023 period (Jun half), it shows 31% of companies beat their expectations by more than 5%. 42% were in line with expectations, and 27% missed expectations by more than 5%. So overall, they are happy that the beats are more than the misses. However, the profit outlook in the next six months (December half), FY24 and FY25 are causing a little concern as the analysts are revising their forecasts lower, with only 10% in Dec half beating expectations while 45% were misses. While FY24 and FY25 weren’t as bad, they still had misses exceeding beats. Some of the downgrades have come from company guidance, and even in the CORE watchlist of 30 stocks, we have seen profit expectation of FY24 number reduce by 2% in the last two weeks. Macquarie says this is due to companies being a little conservative as the full effect of interest rates and wages is yet to play out.  Profit Season Part 2 UBS has also summaries their view of the profit season. Company profit results through August saw earnings (profits) beats outnumber misses by a ratio of 5:3, which illustrates the underlying strength the domestic economy. Amongst sectors, Materials (ex-mining) and Communication Services saw the strongest beat rate, while the Consumer Staples & Information Technology saw the biggest skew towards earnings misses. Soft guidance from companies, saw analysts revise down FY24 earnings at a ratio of 2 downgrades for each upgrade Persistent and broad-based domestic cost pressures. The most prevalent headache for companies this profits season has been on cost management. Across sectors, management teams are pointing to the cost growth they are seeing from labour, rent, energy, transport and technology spend. The broad-based stickiness in cost inflation that we saw in company results, maps with recent business survey data, and suggests that input costs pressures will likely remain elevated. Profit margins are still holding up. The cost pressures that companies continue to face are still being largely passed onto customers, which is allowing companies to defend their profit margins. As was the case in the February results period, Telcos and Insurers were again able to push through price increases to their customers without damaging sales. This outcome again illustrates how ultra tight labour markets have diluted the impact of the interest rate hikes we have seen over the last 12 months. In the 3/8/23 Not So, we noted UBS wanted to know the answer to 4 key questions for the reporting season. This is what they found. 1. Is the consumer crunch now happening? August results showed that recent activity levels from the consumer have not proved as bad as feared. That said, stocks where a consumer or economic slowdown was noted include: Adairs, Amcor, Centuria, Dominos Pizza, G8 Education, HomeCo Daily Needs, JB Hi-Fi, Pinnacle Investment, Region Group, Super Retail, Seven West Media, Telstra, Vicinity Centres and Woolworths. 2. Are labour costs beginning to break out? Versus what has been seen in most other advanced economies, wage inflation in Australia over the past 12 months has proved relatively contained. But recent data points show wage restraint may now be starting to wane, with various labour cost surveys having surged since the minimum wage decision on 2 June. Stocks where labour costs (or shortages) are proving a headwind to profitability included: Boral, Coles, G8 Education, JB Hi-Fi, Netwealth, Sims, Sonic Healthcare, Super Retail, Seven West Media, Telstra and Woolworths. 3. Can profit margins be maintained? The fact that most Australian companies have had little trouble passing on high input costs over the past year has actually not surprised us, and reflected an end customer that has been able (although reluctant) to digest higher prices. Results through August show this dynamic is mostly continuing. Stocks where profit margin compression was observed included: ASX, Bapcor, Bendigo Bank, Carsales, Commonwealth Bank, Corporate Travel, GPT Group, Insignia Financial, JB Hi-Fi, Mirvac Group, National Australia Bank, Pinnacle Investment, Resmed, Steadfast, Sims, Stockland and Seven West Media. 4. Are interest expenses manageable? Stocks that showed an uncomfortable growth in interest expenses included: Autosports Group, Aurizon, Bapcor, Carsales, Charter Hall Long Wale REIT, Endeavour Group, IVE Group, Mirvac, Sims, Seven West Media and Vicinity. Jackson Hole The global Central Bankers met at the annual Jackson Hole, Wyoming meeting last week. This annual meeting provides an opportunity for global Central Bankers to discuss the global outlook and policy setting. A speech from US Federal Reserve chair Powell usually dominates it. Betashares chief economist David Bassenese made the following comments. Powell’s speech suggested that while the US Federal Reserve retains a tightening bias (more rate rises), it’s in no hurry to raise rates again. Instead, it’s prepared to “proceed carefully” and assess incoming inflation and activity data for the time being. This likely rules out a September rate rise, though keeps in play a potential hike at the next meeting in November – if either inflation surprises on the upside and/or there are further signs of a rebound in economic activity, especially consumer spending. Thankfully, markets took Powell’s speech well, and there was little volatility, which hasn’t been the case in the past. China lack of growth and lack of stimulus Over recent weeks, the economic news hasn’t been great coming out of China. The economic re-opening miracle hasn’t happened, and the property sector has seen a slowdown with increasing stories of Chinese property developers in trouble. GDP is still likely to grow at 3-4% without stimulus and probably 5% with, but this is lower than we have seen in the past 20 years (shown in the graph below). While we’ve heard slow-down and property collapse stories before, they are usually followed by a strong economic stimulus package from the Chinese Government which has continued to see the Chinese economy be the world’s growth engine for the last 30-plus years. AMP’s Shane Oliver has written a piece about the Chinese slowdown, structural challenges and implications for Australia In summary, he says – China’s economy is slowing not helped by a property collapse and longer-term structural constraints around poor demographics and threats to productivity growth. – China needs to save less and spend more, and this requires significant fiscal stimulus. So far policy stimulus has been tepid, but a more forceful response is likely. While China has a high level of debt, it also has a high level of savings, and most of the debt is funded domestically. This means the debt problems are very different to the previous debt crisis. – Chinese shares are cheap trading on a PE of 7.7 and are likely to bounce, should a stimulus package be announced, but short-term risks are high. – The risks around China’s outlook mean Australia can’t rely on the China/commodity boom indefinitely. Australia still exports 30% to China (was 42% before trade dispute). A sharp downturn to the China (worse case) would be a double whammy as Australia also deals with higher interest rates. This highlights the need to do more to boost our longer-term growth potential.  Core Watchlist profit season During the last profit season, 24 of the 30 CORE watchlist stocks increased their dividend. It will be interesting to see whether this can be maintained. So far, 13 have increased, 4 stayed level and 6 decreased out of 23 ( 6 have profit announcements in November). Below are CORE watchlist stock and when they are reporting. Not all companies report as at end of June. For example, ANZ MQG NAB and WBC report end of Sept. Jul 26 – RIO – profit was $US 51bn down 43% while dividend was also down. This was expected as coming from high levels. Aug 4 – Resmed (RMD) – profit up 8% and quarterly dividend up 9%. But didn’t appease investors, have sold off the stock. Looking like a buying opportunity as now the cheapest stock in the CORE WATCHLIST. Aug 9 – CBA – profit up 5%. Record dividend. Increased on market buyback by $1bn. Brokers raised dividend expectations. Aug 14 – JB Hi Fi (JBH) – profit $524m. Dividend down but from high level. Lend Lease (LLC) – statutory loss but an operating profit of $257m. 7% lower property valuations. The pipeline of work $126bn. Dividend slightly higher. Aug 15 – CSL full year profit $2.61bn up 10%. Dividend Full year $A3.59 which is also higher. Seek.com (SEK) full year profit $202m down 16% Dividend 23c for half year, which is higher than one year ago. Aug 16 – Transurban (TCL) traffic up 20% Distribution for FY 24 up 6.8% Computershare (CPU) profit $258m Dividend 40c up 33% Aug 17 – Amcor (AMC) full year profit $1,048m with dividend slightly higher. Goodman (GMG) profit $1,783m up 17% Forecast to grow 9% in FY24. Dividend the same. Reinvesting in growth Orora (ORA) profit $203m up 8.5% Dividend 9c up 5.9%. Consistent performance. Sonic Health (SHL) profit $685m down 53% due to drop in COVID testing. Up 19% compared to pre-pandemic. Dividend increased 3% to 62c. Telstra (TLS) Full year Profit $2.1bn up 13%. Dividend 8.5c remaining the same. Not spinning out the infrastructure assets into separate company. Aug 22 – BHP profit was $US12.9bn a drop of 58% from record profit last year. The dividend of US80c or $1.25 was 55% lower than the record last year. Yield is still 5.9% plus franking. Coles (COL) full year net profit of $1.042bn. 30c dividend was the same as last year. Woodside (WDS) profit $1.896bn. up 4%. Dividend US 80c is down 26% from record last year but still equivalent to 6.9%. Aug 23 – STO Profit of $790m down 37%. Dividend 8.7c which is up 14% from last year. WOW profit of $1.618bn for full year which is up 4.6%. The dividend was 58c which is 9% on the same time last year. Aug 24 – Nine Entertainment (NEC) $262m down 25%. Dividend 5c down 21% South 32 (S32) core profit $916m. Dividend 5c, well down on last year due to fall in commodity prices. Aug 25 – Wesfarmers (WES) profit $2.4bn up 4.8%. Dividend $1.03 up 6.1%. Aug 29 – NextDC (NXT) reported a EBITDA of $193m up 15% on last year. No dividend (reinvesting profits for future growth in data centres). Aug 30 – BXB NAB Capital Notes (Hybrid) NAB is raising approximately $1bn via a capital note (debt). This is similar to the CBA and ANZ raising over the last few months. The details are; The code will be NABPJ and likely to have a yield of 6.90%-7.10%, which is a floating rate. The capital price is $100 per security. The first income payment date is 17/12/2023, and the first optional call date is 17/9/2030, with a mandatory conversion or maturity date of 17/6/2033. While they have a 10-year maturity date, they can be traded on the market anytime. At the beginning of 2023, we only expected ANZ to issue a new note as they had one maturing. Based on CBA and NAB issues, new hybrids. Westpac is likely to be considered a note as well. 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 $144k(couple) $90k (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 – Australian retail sales up 0.5%. – Spheria Emerging Companies (SEC) NTA $2.19 as at 24/8/23. Share Price $1.88 – Orora (ORA) in trading halt. Expecting to purchase a French bottle maker and a $1bn cap raise. Broker Target Price changes – Ord Minnett Coles (COL) increased from $14 (lowest broker) to $14.50 (still lowest broker) Goodman Group (GMG) increased from $18.60 (lowest broker) to $19.40 (still lowest broker) Woolworths (WOW) increased from $27 (lowest broker) to $27.50 (still lowest broker) Morgans COL decreased from $19.85 to $16.90 GMG increased from $24 to $24.50 Santos (STO) decreased from $8.45 (lowest broker) to $8.10 (still lowest broker) Westpac (WBC) decreased from $24.22 to $23.02 Wesfarmers (WES) decreased from $55.50 (equal highest broker) to $55.15 Woodside (WDS) decreased from $38.60 to $38.50 WOW increased from $38.30 to $41.30 Morgan Stanley ANZ increased from $25.20 to $26.20 South 32 (S32) increased from $3.90 to $4.15 WBC decreased from $21 (lowest broker) to $20.60 (still lowest broker) Woodside (WDS) increased from $40 (highest broker) to $41 (still highest broker) WOW increased from $30.50 to $33 Macquarie COL decreased from $20 to $18.50 Nine Entertainment (NEC) decreased from $2.14 (lowest broker) to $1.96 (still lowest broker) STO increased from $9.45 to $9.90 S32 decreased from $4.40 to $3.60 (lowest broker) WBC decreased from $21.50 to $21 WES increased from $52 to $54 WDS decreased from $35 to $34 Bell Potter/Citigroup BHP decreased from 445 to $44 COL decreased from $20.20 to $18.30 STO increased from $8.50 to $9 S32 decreased from $4.05 (lowest broker) to $3.80 (still lowest broker) WES increased from $40 (lowest broker) to $44 UBS Amcor (AMC) decreased from $16.30 to $15.50 BHP decreased from $37 (lowest broker) to $36 (still lowest broker) NAB increased from 425 to $26 NEC decreased from $2.50 to $2.28 Orora (ORA) increased from $3.50 to $3.75 S32 decreased from $4.60 to $4.30 Telstra (TLS) decreased from $4.75 (equal highest broker) to $4.65 WES increased from $55.50 (equal highest broker) to $57 (highest broker) Tracking changes for 2023 Upgrades 248 Downgrades 248 (we have noticed the overall trend is down but the CORE stocks are seeing upgrades. It probably reflects the quality stocks in our 30 CORE stocks). Today’s ASX sector Movements Best – Healthcare +1.5% Worst – IT -0.7% 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 decreased from 92.64% to 92.49%. Overall Earnings Per Share (EPS) FY23 increased from 3.11% to 3.16% FY24 decreased from 7.35% to 6.56% (this has dropped 2% in 2 weeks) Most expensive – CBA 110.6% Least expensive – Resmed (RMD) 68.6%. The CORE Watchlist has 6 (6) stocks trading above 100%; they are; CBA JBH NAB WDS WES WOW, lowest number ever is 0, highest 9. While 7 (6) are trading below 85% (highest 18) this is the lowest for a while. CSL LLC NEC ORI RMD S32 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). 9 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Lowest for some time 5. ALL current price $40.52 Broker range $42.80 to $46.50 CSL current price $267.95 Broker range $325 to $340 LLC current price $7.57 Broker range $8.03 to $9.75 ORA current price $3.52 Broker range $3.75 to $4.10 ORI current price $15.03 Broker range $16.50 to $20.30 RMD current price $25.30 Broker range $31.40 to $39 S32 current price $3.43 Broker range $3.60 to $5.15 STO current price $7.63 Broker range $8.10 to $12.30 TLS current price $4.01 Broker range $4.20 to $4.75 Added ORA Removed NEC SHL 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 indicates the Banks are fully priced. The Banking index increased from 98.9% to 99.7%. Nearly fully priced. 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 162.5 6.61% 163.0 6.63% 163.0 6.63% CBA 450.0 4.47% 457.7 4.54% 469.5 4.66% NAB 167.3 5.92% 167.5 5.93% 168.0 5.94% WBC 140.0 6.55% 141.0 6.59% 142.8 6.68% MQG 750.0 4.35% 677.0 3.93% 719.2 4.17% 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 258.00 5.92% 226.33 5.20% 213.6 4.90% RIO 569.17 5.24% 651.00 5.99% 547.8 5.04% 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 17.89 to 15.68. Jackson Hole meeting settled the cattle (market) – Iron Ore increased from $105.25 to $111.75. ALL-TIME HIGH of $237.57. Av expected for 2023 is $113, while dropping to $94 for 2024. – Copper increased from $3.69 to $3.76. – Gold increased from $1922 to $1945. Record high $2063. – AUD/USD increased from 64.10c to 64.30c. Is this the bottom? – USD/CNY decreased from $7.30 to $7.28 Lowest $6.31 Highest in recent years $7.35. – Asian markets – UP on Chinese small stimulus. – US 10 year Bonds increased from 4.20% to 4.22%, hit 4.29% last night (13 year high) Rate moving higher on issuance of BONDS. US 30 year Bond decreased from 4.34% to 4.27% The highest level was 4.34%. US Federal Reserve raised rates to 5.5% but maybe on hold in September. The US 2 year rate has increased from 4.90% to 5.08% (5.37%, highest since 2006). The gap between the 2 yr and 10 years an inverse -0.86%. It was -0.68% 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. – German Bonds decreased from 2.60% to 2.56%. 2.94% highest since 2008 as the ECB increased rates last week. – Japanese Bonds increased from 0.63% to 0.663% 0.663% highest in many years. – Aussie Bonds 10 year Bonds decreased from 4.24% to 4.16%. Recent high 4.28% – Other Aussie Bonds 1 year 4.09% 2 year 3.92% 4 year 3.89% 5 year 3.93% 15 year Bonds 4.40%. Rates moving lowers as market thinks RBA on HOLD are . – Oil prices decreased from $80.66 to $79.99. – Tungsten – China remained at $305 to $315mtu. 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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