| The Not So DAILY BULLETIN 28 March 2022 No.467 Top Stories Today, Monday, March 28, the ASX continued its recent rally with another gain of 6 points to finish at 7412. It was up 40 points during the day but faded in the afternoon. This is the highest level since January 17 and continues the strong bounce for the month. Not all ASX boats (companies) are rising as today’s gain was BHP which was up 2.3% of 20 points. As noted in previous Not So, the gains are mainly in the financial, energy and materials sectors. It seems the Australian safe haven view is continuing for global investors. A number of the research houses have upgraded their commodity forecasts over the last week with the prolonging of the global supply chain issues. The ASX has performed reasonably well in recent weeks compared to other major markets, as shown by the graph below from the Coppo report. A raft of economic data is being released this week, so markets are likely to remain volatile, especially with the Russian conflict continuing and the Chinese COVIDS lockdown. Optimism is on hold for the time being.  Overweight Australian Equities Ord Minnets head of Institutional research Malcolm Wood provided the following. We remain overweight Australian equities despite our concerns that the US Federal Reserve is dramatically “behind the curve” in this tightening cycle. We see six positives for the Australian market. First, world-leading performance during the COVID crisis that we do not believe is reflected in markets. Second, strong positioning and fundamentals should drive an extended boom, but without the inflationary excesses confronting the US and other Anglo Bloc peers. Third, these factors should drive double-digit earnings growth over the next year and increase the chances of soft-landing. Fourth, liquidity conditions are likely to remain supportive for longer than in the US, as the Reserve Bank can lag well behind the US Fed, and China is easing liquidity. Fifth, net inflows into super funds have rebounded to the 2nd highest level on record, whilst signs of speculative excess are mainly absent. Finally, valuation is at a large discount to the US and better prepared for rising bond yields. All of these point to a reasonable outlook. Citigroup Analyst survey Citigroup surveys their research analysts quarterly regarding their views on specific Australian stocks. They ask a range of generic questions. I have made a list of the responses related to the CORE Watchlist stocks. 1. Will an increase in the AUD be a benefit to profit – YES. AMC BHP BXB CPU NXT ORA 2. Will an increase in the AUD detract from profits – YES. CSL GMG MQG RIO RMD SHL TCL WPL 3. Is the company likely to have a capital share buyback next year. AMC ANZ CBA NAB RMD SHL WBC 4. Is the industry outlook improving. BHP BXB CSL LLC ORI RIO RMD WPL. 5. Is the Industry outlook worsening GMG MQG NAB 6. Upside surprise to profits BHP BXB COL CPU GMG JBH LLC ORA RIO WOW WPL 7. Increased Capital Expenditure COL LLC NXT ORA RIO TCL WES WPL There is a range of answers, but overall the survey provided a positive view of some of the storm clouds such as inflation, interest rates, supply chain and Russian invasion. Commodities Morgan Stanley’s research said Inflation + supply disruption drives commodities upgrades: Inflation expectations, rising input costs (particularly energy), and supply impacts (from Ukraine/Russia)have tipped several commodities into larger deficits than past forecasts (in the near term), which has led to significant commodity price upgrades across a raft of hard and soft commodities. Upgrades have also occurred from UBS Ords, Macquaire and Morgans in the last week. The RBA commodities index may push above the 2010 highs in the coming weeks. At the same time, there is an increasing chance (from a low base) of a resolution in the Ukrainian crisis over the next month or so. The knock-on effects in commodity markets are likely to be felt for many months after.  Federal Budget Treasurer Josh Frydenberg will hand down a pre-election budget on Tuesday night. Part of the pre-budget announcements included – the extension of the COVID minimum pensions from super funds. This is where 50% of the normal pension amount is paid based on your age. This has been extended for 1 more year until June 2023. – temporary freezing of petrol excise. – more on infrastructure. Semiconductors (computer chips) and changing globalism U.S. Investor Howard Marks – newsletter Capitalism is based on the desire to maximize income. Globalization allows production to be performed where the costs are lowest. The combination of these two powerful forces has had a profound influence on the world over the last half-century. Semiconductors present an outstanding example of this trend. Many of the most important early developments in electronics – transistors, integrated circuits, and semiconductors – took place at U.S. companies such as Bell Labs and Fairchild Semiconductor. In 1990, the U.S. and Europe were responsible for over 80% of global semiconductor production. By 2020, their share was estimated to be only around 20%. Taiwan (led by Taiwan Semiconductor Manufacturing Company (TSMC)) and South Korea (essentially Samsung) have taken the place of the U.S. and Europe as the largest producers of semiconductors. Today, “TSMC and Samsung are the only companies capable of producing today’s most advanced 5-nanometer chips that go into iPhones.” The upshot is well known: While pandemic-induced shutdowns have hampered supply, the demand for chips has continued surging with reopening economies. The resulting chip shortage has rattled several industries with lead times – the gap between when a semiconductor is ordered and when it is delivered is at a record high of 22 weeks. The chip shortage is a boon to semiconductor companies, but downstream firms are struggling. Global automakers are set to make 7.7 million fewer cars in 2021, which translates into a $210 billion hit to their revenues. Consumer electronics have taken a blow as well, with popular products like the PlayStation 5 console in short supply. While this is likely to impact the short term, main companies are reassessing their supply chains which may change the expanding globalisation as we have known for the last 50 years. Many are looking to other sources and domestic markets which may not be the cheapest option, but more reliable. Time will tell. Macquarie Cash Management Accelerator interest rate RISE! Macquarie has informed us they have increased the interest rate for the Macquarie Accelerator account to 0.6% from 0.4%. This is ahead of the RBA making any changes to the cash rate with most expecting to still happen in the latter part of the year (data-dependent). This rate is also higher than most term deposits and doesn’t lock the investment in for a period of time. This rate is likely to move higher over the coming year. – Morgans Stanley expects the RBA to increase rates by 0.75% this year and be at 1.75% by Dec 23. – Goldman Sachs expects the RBA to eventually increase cash rates to 2.5% by Dec 2024. Provincial Wealth Management – New Licensee No new news. Timeline for exit 1/4/22. We will notify you of any other changes. Other Stories – Russian Ruble rallied to 98 from 102 to the USD over the last week. 12 months ago it was 67. Hit a low of 140. Russia has been paying interest on a number of loans. Talk of India buying cheap Russian oil. – Dividends coming. $36bn of dividends ($26bn same time last year) will be paid by Australian companies in the next two weeks. Mainly thanks to resources (BHP & RIO). BHP paying $10bn tonight. CBA $2.9bn & Fortescue $2.6bn Wednesday, – Yemen rebels attacking Saudi oil facility. Broker Target Price changes Ord Minnett/JP Morgan JB Hi Fi (JBH) increased from $57 to $62 (highest broker) Resmed (RMD) decreased from $38 to $37 Morgans BHP increased from $48.70 to $51.80 JBH increased from $57 to $58 NAB increased from $30 (lowest broker) to $30.50 (still lowest broker) Morgan Stanley Rio Tinto (RIO) increased from $122.50 to $130 Macquarie RMD decreased from $38.50 to $37.50 Santos (STO) increased from $10 to $10.50 (highest broker) Bell Potter/Citigroup JBH increased from $54 to $55 NAB increased from $32.50 to $34.50 (highest broker) STO increased from $7.20 (lowest broker) to $8.19 (still lowest broker) Woodside (WPL) increased from $25 (lowest broker) to $29.35 UBS BHP increased from $42 (lowest broker) to $43 (still lowest broker) Computershare (CPU) increased from $25 (equal highest broker) to $27 (highest broker) Rio Tinto (RIO) increased from $90 (lowest broker) to $104 (still lowest broker) Today’s ASX sector Movements Best – Materials 1.3% Worst – IT -2.7% Core Watchlist Index The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE BHP price $38.56 Av. Target Price $39.73= 97.1% (meaning 2.9% upside over next 12 months) + income 7.11% (including franking). To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know. The Core index decreased from 91.76% to 91.63%. – UBS research included Overall Earnings Per Share (EPS) FY22 decreased from 15.06% to 16.08% More commodity upgrades. FY23 increased from 6.24% to 6.96% More commodity upgrades Most expensive – CBA 109.5% Least expensive – Aristrocrat (ALL) cheapest at 75.2% The CORE Watchlist is still mixed with 5 (3) stocks trading above 100% while 8 (8) are trading below 85% (highest 17). ALL AMC CSL GMG NEC NXT 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). 16 out of the 30 CORE stocks are trading below the lowest broker target price. Highest 24. Good value to be found. ALL current price $36.09 Broker range $46 to $49 AMC current price $14.88 Broker range $18.14 to $18.83 ANZ current price $27.79 Broker range $28.050 to $30.50 CSL current price $261.86 Broker range $295 to $335 GMG current price $22.13 Broker range $24.66 to $29.50 JBH current price $53.95 Broker range $54 to $57.80 LLC current price $10.81 Broker range $11.40 to $14.37 MQG current price $200.09 Broker range $209 to $245 NXT current price $11.08 Broker range $13.50 to $15.00 ORA current price $3.62 Broker range $3.70 to $4.07 RMD current price $31.26 Broker range $33.10 to $40.46 SEK current price $28.97 Broker range $32 to $35 SHL current price $35.03 Broker range $37.30 to $40 TCL current price $13.13 Broker range $13.55 to $15.40 TLS current price $3.87 Broker range $4.00 to $4.90 WES current price $49.74 Broker range $50 to $59 Added RMD WES Removed NEC Banking Index Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this is indicating the Banks are fully priced. The Banking Index remained at 100.8% Banks have bounced strongly. CBA 113.6% NAB 99.5% WBC 96.6% ANZ 93.4% Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING. FY20 % FY21 % FY 22 % FY 23 % ANZ 60.0 2.16% 142.0 5.11% 143.4 5.16% 152.4 5.48% CBA 298.0 2.81% 350.0 3.30% 381.2 3.59% 410.4 3.87% NAB 60.0 1.88% 127.0 3.98% 139.0 4.36% 149.6 4.69% WBC 31.0 1.29% 118.0 4.91% 120.2 5.00% 130.8 5.44% MQG 430.0 2.15% 470.0 2.35% 603.8 3.02% 596.5 2.98% Demand for commodities and potential reduction of supplies occurring. Commodity prices and Resources usually do well in higher inflation & rising interest rate environment. FY21 cps % FY22 cps % FY23 cps % BHP 334.17 6.56% 413.80 8.13% 308.40 6.06% RIO 1444.00 12.19% 1331.33 11.24% 1083.50 9.15% Plus franking. Please note RIO is Calendar Year (CY). Cents per share (CPS) Other Indicators (movement since the last Not So) – US VIX Index decreased from 22.94 to 20.81. After the initial spike, Russia/Ukraine war has seen the index come down from a high of 38. Normal range of 10-17. – Iron Ore increased $143.40 to $150.80 Brokers expect an average in 2022 to be $138 up $125 last month. ALL-TIME HIGH of $237.57. – Copper decreased from $4.70 to $4.66. However, it hit a NEW ALL-TIME HIGH earlier this month of $5.03 – Gold increased from $1922 to $1943. Climbed above $2000 at the start of the Russian invasion. Record high $2063. – AUD/USD increased from 74.62 to 75.29. AUD is seen as a safe haven and a stronghold for commodities, which may move higher. – USD/CNY remained at $6.37. $6.31 lowest since 20014. USD stronger – Asian markets – MIXED. – US 10 year Bonds increased from 2.41% to 2.53%. Higher inflation pushing rates up. The recent high was 2.53%. The lowest point in a number of months was 1.12%. The US 30 year Bond remained 2.63% The highest level was 2.63%. US Federal Reserve increasing rates and may increase by 0.5% at the next meeting. The yield curve is flattening which means the shorter-term rates (1 to 5 years) have been increasing more than the longer rates (10-15 years). The US 2 year rate has increased from 2.17% to 2.37% The gap between the 2 yr and 10 year was 0.24% now 0.16%. – German Bonds increased from 0.50% to 0.59%. The highest point in several years. 1yr to 2yr Bonds are still negative. Higher spending, higher inflation. – Japanese Bonds increased from 0.22% to 0.25% 0.25% highest in some time. – Aussie Bonds 10 year Bonds increased from 2.77% to 2.89%. Lowest point 0.68% Recent high is 2.89% – Other Aussie Bonds 1 year 1.06% 2year 1.79% 4 year 2.57% 5 year 2.67. 15 year Bonds 3.08%. Rates have moved higher. – Oil prices decreased from $110.79 to $110.52. It reached $125. If sanctions are placed on Russian oil and gas, prices might move higher. – Tungsten – China remained at $335-$347. Europe remains at $345-$352 mtu This week & next week Last “Not So” opened in 5 Aust states (excl Tas, ACT & NT) US 3 states (California Massachusetts & South Carolina) This week – Working on licensee change over & March reviews. Next week – New licensee 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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