| Top stories On Monday, 16 September 2024, the ASX gained to finish at 8121.60. This is a new ALL-TIME CLOSING HIGH as it passed the previous high of 8115 set on 1/8/24 (just before the Yen carry trade sell-off). It’s not a new ALL TIME HIGH, as the ASX 200 reached 7148.70 on 1/8/24. Today, the highest point was 7145, as the market was led higher by banks, gold, and communications, while other resources and healthcare were dragging the market. The market is focused on the US Federal Reserve when it should announce its first interest rate cut of this cycle. The main debate is whether it will be 0.25% or 0.5%. We think it will be 0.25% as a larger cut would suggest the US economic picture is deteriorating at a quicker pace. The US inflation figures were roughly in line with expectations last week, which boosted the US market on Friday. At the halfway point of the month, the ASX is the only major market to sneak back into positive territory, with all the others currently lower. The main gains have been in the banks led by Macquarie (MQG), up 5.9% for the month (another all time high on Friday at $230). Goodman Group (GMG) is up 6.6% for the month on the Airtrunk data centre deal (MQG benefitted as well). Lend Lease (LLC) is up 5.9% for the month after announcing today they had sold their US East Coast construction business, and the UK sale negotiations for the UK construction business were well advanced. Overall, markets are still skittish due to geopolitical concerns, expensive valuations (especially in technology), and mixed signals regarding the macroeconomic environment (hard or soft landing). 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. Why are the bank analysts negative on CBA? Bank analysts make calls based on a company’s fundamental economics. This has meant that most have had SELL recommendations (currently 0 buy, 0 hold, 6 sell) and an average target price of $99.48 which is 43% below the actual price. Goldman Sachs (GS) provided some insight into the sell recommendation it has held for 5 years and why the CBA share price has continued to climb. Since June 2019, when GS made the SELL recommendation, CBA has outperformed the other 3 banks by 57%. Part of the performance is due to fundamental valuation, where CBA trades at a higher value than the other 3 banks. PE ratio range – the other 3 the range is between 14 to 17. CBA is 24. Price to Book value – the other 3, the range is between 1.2 and 1.5. CBA 2.9. Dividend growth: While the others have been flat at best over the last five years, CBA has grown its dividend. The rest of the outperformance is due to the Cost of Equity. The cost of equity is the return that the market demands in exchange for owning the asset. Over the last five years, CBA’s cost of equity has decreased by 2.7% compared to other banks. In short, the market is saying CBA is a safer and better-run bank than the others, so the cost of equity is lower. Can the gap between CBA and the other 3 banks continue? Maybe, but Goldman Sachs has retained its SELL recommendation and lifted its 12-month target to $100.35, well below today’s close of $142.99. Aged Care reforms The Commonwealth Government announced changes to Aged Care costs last week. This was an agreement between Labor and the Coalition. Most of the changes take effect on 1/7/25. A. Residential Aged Care There are two main costs with Residental Aged Care 1. Accommodation Bond – this is the initial payment required to secure a room. • Maximum accommodation price – amount that can be charged without approval increases from $550,000 to $750,000 from 1 January 2025, but this will depend on your total assets. • Introduction of RAD retention amount – aged care providers will retain 2% p.a. (up to a maximum of 5 years) of a resident’s lump sum accommodation payment (RAD or RAC) where they enter care on or after 1 July 2025 • Indexation of Daily Accommodation Payments (DAPs) – DAPs will be indexed twice per year for residents entering residential care on or after 1 July 2025 • RADs to be phased out – subject to a review in 2029-30, RADs to be phased out by 2035 2. Ongoing Residential Aged Care – Contributions • Basic Daily Care Fee – remains at 85% of single base rate Age Pension. From 1 July 2025, an additional means-tested Hotelling Supplement of up to $12.55 per day will be charged. Not payable by fully or partially supported residents • Means-tested care fee replaced by a new means-tested Non-Clinical Care Contribution – a new lifetime cap of $130,000 (or a maximum of 4 years) applies • Family home – assessment remains unchanged B. Receiving care at Home • New classification system – 10 new funding classifications replace the current four package levels • Participant contributions will vary depending on the type of service received and the participant’s income and assets. No fees are charged for clinical care. Moderate fees for services in the independence category (e.g. personal care). Higher costs for services in the everyday living services category (eg. domestic assistance) • Capped prices – prices for each service must not exceed price caps set by the government Should you have any questions, please let us know. Chinese economic data Over the weekend, Chinese economic data was weaker than expected, which suggests that the world’s growth engine is finally transitioning to a slowing growth economy like most Western countries. Chinese retail sales grew by 2.1% year over year (YOY), but the market was expecting 2.5%, down from July’s figure of 2.7%. Industrial production rose by 4.5% (YOY) but was lower than expected at 4.8% and down from 5.1% in July. Fixed Asset Investment rose 3.4% but was lower than expected at 3.5%. These figures have generally increased by 8% to 10% in previous years, which confirms the Chinese slowdown. Additionally, the extra tariffs announced by the US government passed last week will put more pressure on the Chinese economy. These figures are concerning for Australian resources and the Chinese Government. However, this may finally see some more proactive stimulus from the Chinese Government. However, they could wait until after the US election in November to see who is in the White House. NextDC – Capital raising After the huge Airtrunk deal (refer to last Not So). NextDC (NXT), the largest data centre provider in Australia, is raising more money to expand data centres in Australia and Asia. They announced the raising after the market closed yesterday for $550m to institutions and the deal was full by 9am this morning at $17.15 They are raising a further $200m via existing shareholders, who can take up to $30,000 in new shares at the lower of 1. $17.15 or 2. the 5-day average up to 4/10/24. Paperwork to existing shareholders will be sent out late this week. Offer closes 4/10/24 at 5pm. 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. Other Stories – Austal (ASB) awarded $600m contract with US Navy. Broker Target Price changes Target Prices should be viewed as a compass (the general direction) rather than a GPS destination. Ord Minnett Seek.com (SEK) decreased from $29.50 (highest broker) to $27 Morgans Morgan Stanley Macquarie BHP increased from $43 to $44 Rio Tinto (RIO) increased from $117 to $120 South 32 (S32) increased from $3.95 to $4.25 (highest broker) Bell Potter/Citigroup UBS Tracking changes for 2024 Upgrades 315 Downgrades 215 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 97.72% to 99.01%. Nearly fully valued Overall Earnings Per Share (EPS) FY24 decreased from 0.61% to 0.55% FY25 decreased from 6.36% to 6.01% Most expensive – CBA 143.7%. Least expensive – Nine Entertainment (NEC) 67.6% The CORE Watchlist has 12, (11) stocks trading above 100%; they are; AMC ANZ CBA JBH LLC MQG NAB ORA RMD TCL WBC WES, lowest number ever is 0, highest is 12. While 3 (6) are trading below 85% (the highest is 18, and the lowest is one). NEC STO WDS (Figures in brackets are 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. BHP current price $39.55 Broker range $42 to $49.20 CPU current price $27.73 Broker range $28.65 to $32 CSL current price $296.69 Broker range $310 to $345 NXT current price $17 Broker range $19.40 to $21.20 ORI current price $17.64 Broker range $18.85 to $21.50 RIO current price $110.81 Broker range $117 to $137.50 SEK current price $22.75 Broker range $23 to $29.50 STO current price $7 Broker range $7.50 to $8.80 Added Removed WOW 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 125.5% to 123.6%. ALL TIME HIGH OF 126.2 reached on Friday 6/9. 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 attractive yields. PLUS FRANKING. FY 24 % FY 25 % FY26 % ANZ 166.0 5.27% 166.3 5.27% 166.8 5.41% CBA 465.0 3.25% 475.0 3.32% 488.3 3.46% NAB 168.0 4.32% 169.6 4.36% 171.4 4.47% WBC 165.0 5.18% 155.4 4.88% 152.8 4.80% MQG 632.3 2.83% 688.0 3.08% 729.3 3.26% Dividend expectations for BHP and RIO. The forecasts below are for the full year. FY24 cps % FY25 cps % FY26 cps % BHP 216.83 5.59% 227.00 5.86% 212.8 5.41% RIO 711.67 6.66% 745.17 6.98% 717.0 6.62% 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 19.08 to 16.56 The normal levels are (10 to 17). The VIX has settled again. Iron Ore increased from $91 to $92.90. The new recent low point is $89. Sentiment is still poor. Copper increased from $4.14 to $4.22 12-month high $5.08. Gold increased from $2554 to $2616. A new an ATH of $2,616.60 today. AUD/USD increased from 66.57c to 67.24c. Recent low point 62.9c. Maybe low 70c in 2024 Asian markets – MIXED US 10 year Bonds increased from 3.62% to 3.66%. German 10 year Bonds increased from 2.13% to 2.15%. Japanese 10 year Bonds decreased from 0.851% to 0.84%. Highest since Oct 2011 1.106%. Official interest rates increased to 0.25% Aussie Bonds 10 year Bonds decreased from 3.85% to 3.82%. Recent high 4.95% Oil prices increased from $66.44 to $68.80 – Bounced off a 3 year low. Tungsten – China price remained at $333mtu. The European range remained at $320-$345mtu. This week & next week Last, “Not So” opened in 7 Aust states (excl Tas), US 5 states (California, Massachusetts, Colorado, South Carolina and Connecticut), Sweden, Israel, Indonesia, Bulgaria, France and Italy (Tuscany). This week coming – In office, September reviews (out of office Thursday/Friday) Next week – In office, September reviews (out of office Friday) 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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