| 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 |
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