The Not So DAILY BULLETIN 30 June 2021 No.402

The Not So DAILY BULLETIN 30 June 2021  No.402
Top Stories  

Wednesday was the end of the financial year, and the ASX 200 managed to gain 12 points to finish at 7313. It was up 60 points during the day but drifted lower as the lockdown expanded across the country. The ASX hasn’t reached new highs in the last week, but it has managed to hold 7300, and this is the highest monthly close of all time for the ASX 200.

We are also seeing new highs being reached on the US market, with the S&P 500 and NASDAQ just reaching new highs again overnight. This comes at the start of their quarterly profit reporting season. So it will be interesting to see if the markets can hold onto recent gains. 

In Australia, we will be entering the confession season as companies check their results for the full year or half year (depending on their reporting). It will be interesting to see if supply chain issues are causing problems or other forms of inflation. At this point, the expectation is for a good profit season in August, with some lovely dividends expected from banks and resources in particular.  

We are still Optimistic, but volatility is likely to persist.   

June & Financial Year Investment markets 
While international markets finish out the month tonight, the ASX had its best financial year since 1987, gaining 23.99% (plus income). This is a remarkable result given the uncertain outlook a year ago where the virus was still running wild with no sign of a vaccine and global lockdowns (maybe some things haven’t changed). However, the future outlook is rosier and global governments are backing the financial and health system of the world.

The table below shows the best and worst performers for the month, six months (2021) and financial year from our investment stable of CORE stocks and Exchange Traded Funds (ETF’s). As usual, it showed performances were varied. 

An interesting observation was Nine Entertainment (NEC) was the best over the FY, up 110%. This stock was the least expensive on the CORE Watchlist in June 2020 at 77%. The current least expensive is Woodside(WPL).

Other notable performances for the financial year were CBA 44% NAB 44% WBC 43% Goodman Group (GMG) 43% BHP 35% Macquarie Group 32% Wesfarmers (WES) 32% & Orora (ORA) 31%.

While in the ETF space, the best weren’t as high, but the worst was better than the CORE. 

A selection from our Investment Strategist (Brad Matthews) has been the best performer over the FY and the last 6 months. This is a small company fund Spheria Small Companies (SEC). This sector of the market has performed very well. 

Other notable performance for the financial year from the stable of ETF’s were Fidelity Emerging Markets (FEMX) 36% (another selection from Brad). Global Quality Hedged (QHAL) 34% ASX Mid Cap (MVE) 31% Nasdaq (NDQ) 30% Global Robotics (RBTZ) 30% & Vanguard Property 30%.     ASX 200 target change  Ord/JP Morgan updated their view on the overall market. 

They said the sentiment would be soft until an end to lockdown is in sight, but overall believe the situation is ultimately a temporary and manageable one.

There previous ASX 200 target for 2021 of 6700–7300 was based on a 12-month forward EPS (profit) estimate of $380 per share (earnings back to pre-COVID-19 levels). However, EPS estimates have now surpassed this level, and it was last at $404 per share.

On this basis, assuming low-interest rates can support an 18–19x PE multiple on the market, it would imply an index valuation of 7200–7600.  
Real economic expansion on rising inflation and interest rates An update from Perpetual suggests we are moving to a changing investment world where we are likely to see higher inflation, rising interest rates, higher debt and backed by a stronger economy. These combinations of factors haven’t been seen for 30 to 40 years. 

In the short term, Central Banks are suggesting rising inflation is transitory (temporary). Still, the likely outcome in the medium term from rising commodity prices, high consumer & business confidence, and record injections of liquidity is higher inflation and higher interest rates. 

Perpetual believes we aren’t likely to see a rebound but a real economic expansion as forward business orders are at all-time highs, capacity utilisation is at pre-COVID levels. There’s plenty of fuel for the recovery as the stimulus that has been injected into the global economy to offset COVID to the tune of 15% of global GDP or $20 trillion with more to come. 

From an investment perspective, companies that can pass on any input costs and maintain their profit margin are the best suited in this environment. This would include many “blue chip” or brand names that consumers are prepared to pay for QUALITY products and services.  Perpetual says commodity stocks (resources or material stocks) are very well-insulated from input costs increases.

From an interest rate perspective, where Central Banks will keep the short end of the yield curve down, the long end (5 years plus) will be driven by the market, providing a steepening yield curve or duration risk. Those who benefit from that type of environment include financials (banks), insurers, and domestic cyclicals from a strong Aussie economy, including builders, construction, and retailers.

Perpetual believes that interest rates will slowly move higher as policymakers look for some inflation over the next decade. These are investment characteristics that investment managers haven’t seen for more than a generation. 

What are the medium-term implications? 

If the medium-term outlook is higher for rates, then investment returns will probably be muted because we will start seeing discount rates going up. That will impact equities property and other high flying growth assets.  If assets are heavily geared, the cost of debt will go up; therefore, investors will be less likely to pay up for the promise of future cash flow and look for companies that have profit and cash flow today—growth at a Reasonable Price (GARP).   

Financial Planning News Employer Super Guarantee Contributions  (SGC)  
From 1/7/21. The SGC compulsory super payment is increasing from 9.5% to 10%.

Minimum Pension payment kept at half normal for FY22
The Federal Govt has extended the temporary halving of minimum pension payment to 30/6/22. Minimum pension payments from Account-Based Pensions were expected to return to normal from 1/7/21, but the PM announced the extension due to ongoing COVID issues. 

Super Concessional Contributions  
The maximum contribution is increasing from $25,000 to $27,500 from 1/7/21. This includes the employer SGC, salary sacrifice or personal tax-deductible contributions. 

Super Non-Concessional Contributions 
The maximum contribution is increasing from $100,000 to $110,000 from 1/7/21. These are only contributions made where you aren’t receiving a tax benefit.    Chinese Pig herd recovering.  An interesting story from the Wall St Journal says that prices for pigs in the U.S. are tumbling in the wake of China’s announcement that the country’s herd number is near pre-African swine fever levels of 420 million. US hog futures contract trading on the Chicago Mercantile Exchange fell 17%, bringing the price down to 99 cents a pound—the first time it has fallen under a dollar since March.  Driving the decline is the Chinese government’s declaration that it has rebuilt hog herds devastated by an outbreak of African swine fever in 2018. The outbreak forced the nation’s hog producers to cull roughly 40% of its hog population. The recovery comes well ahead of schedule, as China wasn’t projected to complete this rebuild until 2023.

There is a question regarding the reliability of the data from the Chinese ministry. Still, if it is true, it could have knock effects on other protein markets as a decline in the Chinese pig numbers was a major catalyst for meat prices to increase in Australia.   

Other Stories   
– Aust vaccinated 7,645,585  7 day average 112.2k (111.4k). Highest daily total vaccines 153,338 (Friday June 11).  
– Amazon, Google, Facebook, and Microsoft are four of the top six corporate buyers of publicly disclosed renewably energy agreements, accounting for 30% (25.7GW) of the total from corporations globally. 
– Major US banks pass the US Federal Reserves stress test. Lifts confidence of increasing dividends and buybacks.  In the start of the reporting season, Morgan Stanley doubled their dividend, while Goldman Sachs increased by 60%.
– Telstra has sold 50% of their towers business to the Future Fund and other super fund for $2.8bn. This saw TLS rise 4.5% to a new 12 month high. 
– Woolworths has demerged Endeavour Group (EDV). Estimated value $6. Each WOW share held, will receive 1 EDV share.
– AGL updated market on it’s demerger with the new company call Accel Energy. Market didn’t like it, AGL down nearly 10%.  

Broker Target Price changes  Goldman Sachs

Ord Minnett/JP Morgan 


Morgan Stanley


Bell Potter/Citigroup
Resmed increased from $28.50 to $32.50
    Today’s Sector Movements
Best –   Communications +2.7%   
Worst –  Utilities -3.2%   Core Watchlist Index 
The CORE Watchlist is a collection of 30 Australian shares, predominantly “Blue Chip”. We obtain research from up to 6 brokers on each share. Each broker provides a Target Price (value in 12 months) which then provides us with an average for each stock. We then compare that average to the current price as a percentage. IE BHP price $38.56   Av. Target Price $39.73= 97.1% (meaning 2.9% upside over next 12 months) + income 7.11% (including franking).

To get the CORE Index we take the average across the 30 stocks. This provides us with a market average as there are up to 80 teams of analysts providing the research and target prices. The CORE Watchlist stocks represent more than 55% of the ASX 200 and so provide us with a good indicator of the market value. When it’s at 100% then the market is fully priced. We have seen that when the index is below 90%, then it’s good buying, but that doesn’t happen very often. Should you have any questions, please let me know.  
The Core index increased from 94.29% to 94.81%.  

Overall Earnings Per Share (EPS) 
FY21 decreased from 34.17% to 33.91% 
FY22 increased from 7.68 to 8.04%  

Most expensive – CBA 116.4%  (Broker range is $73 to $95).
Least expensive – Woodside 77.7% 

The CORE Watchlist is still mixed with 10 (9) stocks trading above 100% while 6 (4) are trading below 85% (AMP LLC NEC NXT ORG WPL )

Stocks trading below all broker forecasts are as follows; (it has been a handy indicator in the past).

AMC current price $15.13    Broker range $16.42 to $19.00
AMP current price $1.13       Broker range $1.25 to $1.50
BXB current price $11.44    Broker range $11.70 to $13.84
CWN current price $11.91    Broker range $12 to $15
LLC current price $11.46      Broker range $12.80 to $16.77
NAB curret price $26.22       Broker range $26.25 to $29.97
NEC current price $2.91       Broker range $3.31 to $3.75
NXT current price $11.86     Broker range $13.95 to $15
ORG current price $4.51     Broker range $4.88 to $6.50
WBC current price $25.81   Broker range $27.25 to $29.50
WPL current price $22.21    Broker range $25.04 to $33.85  

Banking Index 
Like the CORE Watchlist index, the Banking index is the four major banks’ average target price based on research from up to 6 brokers. The percentage below 100% is the potential upside over the next 12 months (not including income). If at or over 100%, then this is indicating the Banks are fully priced. 

The Banking Index increased from 97.6% to 98.1% since the last Not so.

The banks had a HUGE financial year. They start 30/6/21 at ANZ $18.64 CBA $69.42 NAB $18.22 & WBC $17.95

Finished with gains of ANZ 51% CBA 44% NAB 44% WBC 44%, plus the income. As the table below shows the forecast dividends have also had massive increases. 

Based on today’s bank prices, the table below shows the estimated dividends (c) and yield. The expectation is for increased dividend payments and still very attractive yields. PLUS FRANKING.  
FY20 % FY21 % FY 22 % FY 23 %
ANZ 60.0 2.13% 140.8 5.00% 145.2 5.16% 152.7 5.42%
CBA 298.0 2.98% 358.8 3.59% 392.7 3.93% 413.2 4.14%
NAB 60.0 2.29% 123.2 4.70% 132.0 5.03% 139.7 5.33%
WBC 31.0 1.20% 117.0 4.53% 123.7 4.79% 134.3 5.20%
MQG  430.0 2.75% 470.0 3.00% 537.2 3.43% 577.0 3.69%    

Other Indicators 
US VIX Index decreased from 16.32 to 16.02. Still in the normal range of 10-17.   
Iron Ore decreased from $216.01 to $212.33. Some talk of China releasing strategic stockpile.  ALL-TIME HIGH of $237.57. 
Copper increased from $4.27 to $4.29. Reduced from ALL-TIME HIGH of $4.90  
Gold decreased from $1775 to $1759. Record high $2063. AUD/USD decreased from 75.71c to 75.2c. 
USD/CNY decreased from $6.48 to $6.46. CNY weakening. Strongest in 3 years at $6.37. 
Asian markets – MIXED   
US 10 year Bonds decreased from 1.49% to 1.48%. Recent high of 1.79% The US 30 year Bond decreased from 2.11% to 2.08% The highest level 2.47% for 18 months.  
German Bonds increased from -0.18% to -0.17% Hit a low of -0.9%. Highest for some time -0.11%
Japanese Bonds increased from 0.047% to 0.06%  
Aussie Bonds 10 year Bonds decreased from 1.53% to 1.49%. Lowest point 0.68%  Recent high is 1.91% 
Other rates 1 year 0.004% 2 year  0.072% 4 year 0.67% 5 year 0.85%. 15 year Bonds 1.90%. Global interest rates are still below recent highs. 
Oil price increased from $73.20 to $73.48. First time over $70 for a number of years.  
Tungsten increased from $270mtu to $272mtu.      

This week & next week  Last “Not So” opened in 7 Aust states (excl ACT), US 3 states (California, Georgia & Virginia) & Singapore 

This week –  In office (wearing a mask)

Next week – In office (wearing a mask)
Contact details  PO BOX 149 Deniliquin NSW 2710
125 End St Deniliquin NSW 2710
Ph. 03 58950100
Fax 03 58950101
Mobile 0412113524

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