| The Not So DAILY BULLETIN 29 July 2021 No.409 Top Stories Thursday saw the ASX 200 gain 38 points to finish at 7417, which is higher than the last Not So but is lower than the NEW ALL-TIME HIGH reached on Tuesday of 7431.4 (closing high). The market reached 7447.9 on Tuesday to be the NEW ATH intraday level. This was again set on the strength of BHP, RIO, WES & WOW and the healthcare sector. Markets are trying to look through the lockdowns as they should be short term headwinds. The delta variant is continuing to rise, but it just re-enforces the need for the vaccine to combat it. The RIO result was a beauty that hopefully sets the scene for healthy profits and increased dividends. I will have an outline of when the companies are expected to report in the next Not So. We are still Optimistic, but volatility is likely to persist. Outlook for markets AMP’s Shane Oliver provided an update on his overall view of markets. – Shares remain vulnerable to a short-term correction, with possible triggers being the upswing in global coronavirus cases, the inflation scare and US taper talk and geopolitical risks. But looking through the inevitable short-term noise, the combination of improving global growth and earnings helped by more fiscal stimulus, vaccines allowing reopening once herd immunity is reached. Still, low interest rates augur well for shares over the next 12 months. – Still, ultra-low bond yields and a capital loss from rising yields are likely to result in negative returns from bonds over the next 12 months. – Unlisted commercial property may still see some weakness in retail and office returns, but industrial is likely to be strong. Unlisted infrastructure is expected to see solid returns. -Australian home prices look likely to rise 15 to 20% this year before slowing to around 5% next year, being boosted by ultra-low mortgage rates, economic recovery and FOMO (fear of missing out), but expect a progressive slowing in the pace of gains as poor affordability impacts; government home buyer incentives are cut back, fixed mortgage rates rise, macro-prudential tightening kicks in and immigration remains down relative to normal. The lockdowns have increased short term uncertainty, though. -Cash and bank deposits are likely to provide abysmal returns, given the ultra-low cash rate of just 0.1%. We remain of the view that the RBA won’t start raising rates until 2023. Rio Tinto profit RIO announced a huge $US12bn profit yesterday for six months on the back of high iron ore prices. The cost of production was $17 to $18 per tonne, whereas the average sale price was US $168.40, up from US$85.40 last year. This enabled a large dividend of US$3.76 plus a US$1.85 special dividend, giving a total of US$5.61 or $A7.60 or 5.75% per share plus franking. US Technology quarterly Yesterday, some of the largest companies in the world had their quarterly results. These are held in Global Quality (QUAL), Nasdaq (NDQ) and S&P 500 (IVV) Apple – quarterly revenue $81.4bn v $73.3bn expected. Up 36% Earnings per share (EPS) $1.30 v $1.01 expected. Return on Equity (ROE) 103.4% Dividend Yield 0.60% Price /Earnings 28.38 Microsoft – quarterly revenue $46.15bn v $44.24nn expected. Up 21% Earnings per share (EPS) $2.17 v $1.92 expected. Return on Equity 44.99% Dividend Yield 0.78% Price /Earnings 35.4 Google – quarterly revenue $61.88bn v $56.16bn expected. Return on Equity 23.69% Dividend Yield 0.00% Price /Earnings 31.87 They did say the outlook is a little soft due to the ongoing supply chain issues relating to computer chips. As a guide, the average ROE for the ASX 200 is 11%. Financial Planning News Employer Super Guarantee Contributions (SGC) From 1/7/21. The SGC compulsory super payment is increasing from 9.5% to 10%. Minimum Pension payment kept at half normal for FY22 The Federal Govt has extended the temporary halving of minimum pension payment to 30/6/22. Minimum pension payments from Account-Based Pensions were expected to return to normal from 1/7/21, but the PM announced the extension due to ongoing COVID issues. Super Concessional Contributions The maximum contribution is increasing from $25,000 to $27,500 from 1/7/21. This includes the employer SGC, salary sacrifice or personal tax-deductible contributions. Super Non-Concessional Contributions The maximum contribution is increasing from $100,000 to $110,000 from 1/7/21. These are only contributions made where you aren’t receiving a tax benefit. Other Stories – Aust vaccinated 11,795,236 (10,654,563) 7 day average 162.9k – highest (146.1k). Highest daily total vaccines is 201,470 (Today, July 29). 32.1% have had one shot, 14.2% have had two shots. The figures in brackets are from the last Not So update. – Australian inflation 3.8% Broker Target Price changes Goldman Sachs NextDC (NXT) decreased from $15 (highest broker) to $14.80 (still highest broker) Rio Tinto (RIO) increased from $144 to $147.50 Ord Minnett/JP Morgan Computershare (CPU) increased from $14.60 (lowest broker) to $15 Orora (ORA) increased from $3 to $3.30 RIO decreased from $165 to $161 Morgans BHP increased from $44.70 (lowest broker) to $45.50 (still lowest broker by $8) RIO increased from $120 (lowest broker) to $123 (still lowest broker by $4) Morgan Stanley BHP increased from $51 to $53.95 CBA decreased from $89.50 to $89 Macquarie Origin Energy (ORG) increased from $4.88 (equal lowest broker) to $5.08 Bell Potter/Citigroup Coles (COL) increased from $17.20 to $18.10 NAB increased from $26.75 to $27.50 Wesfarmers (WES) increased from $45 (lowest broker) to $47 (still lowest broker by $5). Woolworths (WOW) decreased from $44.50 to $37.50 (ex Endeavour). Today’s Sector Movements Best – IT +2.6% Worst – REIT’s (Listed Property) -1.3% 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 94.77% to 94.34%. The last time we reach the ALL-TIME closing HIGH of 7386 on 16 June 2021, the CORE was at 96.6% This means the brokers have raised their target price and expectations over the last month. Overall Earnings Per Share (EPS) FY21 increased from 34.44% to 35.35% (commodity increases) FY22 increased from 9.20% to 9.47% (commodity increases) Most expensive – Resmed 116.1% Least expensive – Crown 70.4% The CORE Watchlist is still mixed with 7 (8) stocks trading above 100% while 4 (5) are trading below 85% (CWN NEC ORG WPL ) Stocks trading below all broker forecasts are as follows; (it has been a handy indicator in the past). AMC current price $15.76 Broker range $16.56 to $19.00 AMP current price $1.07 Broker range $1.15 to $1.35 BXB current price $11.68 Broker range $12.11 to $13.84 CWN current price $8.78 Broker range $10.50 to $15 NAB curret price $25.77 Broker range $26.75 to $29.97 NEC current price $2.82 Broker range $3.31 to $3.75 NXT current price $12.84 Broker range $13.95 to $15 ORG current price $4.46 Broker range $4.88 to $6.50 TLS current price $3.78 Broker range $4 to $4.25 WBC current price $24.52 Broker range $26.50 to $30 WPL current price $22.09 Broker range $24.34 to $34 Banking Index Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this is indicating the Banks are fully priced. The Banking Index decreased from 96.5% to 95.4%. The table below shows the forecast dividends have also had massive increases. Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING. FY20 % FY21 % FY 22 % FY 23 % ANZ 60.0 2.16% 140.8 5.08% 146.2 5.27% 153.3 5.53% CBA 298.0 3.00% 358.8 3.61% 392.7 3.95% 413.2 4.15% NAB 60.0 2.33% 123.2 4.78% 132.0 5.12% 139.7 5.42% WBC 31.0 1.26% 117.0 4.77% 123.7 5.04% 134.3 5.48% MQG 430.0 2.74% 470.0 2.99% 537.2 3.42% 577.0 3.67% And referring to nice dividends. Below is the expectation from brokers regarding BHP & RIO. They have increased after the quarterly production reports were announced this week. RIO dividend is $A7.60 or 5.75% plus franking for this dividend alone. Ex dividend 12/8/21 FY21 cps % FY22 cps % FY23 cps % BHP 371.67 7.22% 494.33 9.61% 361.50 7.03% RIO 1681.00 13.19% 1285.00 10.09% 951.67 7.47% Please note RIO is Calendar Year (CY). Cents per share (CPS) Other Indicators – US VIX Index increased from 17.91 to 18.31 Above the normal range of 10-17. – Iron Ore decreased from $214.79 to $202.68. Prices still remaining elevated. ALL-TIME HIGH of $237.57. – Copper increased from $4.30 to $4.52. Reduced from ALL-TIME HIGH of $4.90 – Gold increased from $1800 to $1816. Record high $2063. – AUD/USD increased from 73.70c to 73.85. – USD/CNY decreased from $6.49 to $6.47. Strongest in 3 years at $6.37. – Asian markets – UP STRONGLY after a few down days. – US 10 year Bonds decreased from 1.28% to 1.25%. The lowest point in a number of months was 1.17%, but has rebounded. The recent high of 1.79% The US 30 year Bond decreased from 1.93% to 1.90% The highest level 2.47% for 18 months. – German Bonds decreased from -0.41 to -0.45% Hit a low of -0.9%. Highest for some time -0.11% – Japanese Bonds decreased from 0.015% to 0.014% Close to negative. – Aussie Bonds 10 year Bonds decreased from 1.20% to 1.16%. Lowest point 0.68% Recent high is 1.91% – Other rates 1 year 0.002% (nearly negative) 2 year 0.027% 4 year 0.45% 5 year 0.59%. 15 year Bonds 1.55%. Global interest rates have fallen again as the Delta variant is having a short term impact on the economy. – Oil prices decreased from $70.27 to $72.78. – Tungsten increased again from $292mtu to $295mtu. Mid June the price was $265. This week & next week Last “Not So” opened in 7 Aust states (excl Tas), US 2 states (California, Virginia & South Carolina) & Singapore This week – In office (wearing a mask) July reviews. Next week – I was planning to be on holiday’s and preparing for my father’s memorial service. It has been delayed again due to COVID. For a future time. 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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