Author: Craig Shepherd

GLP drugs, Generative AI and Aurelia metals

Generative Ai

With First Samuel’s 2024 CIO Events fast approaching, we were interested to see how the two topics discussed last year, GLP drugs (i.e. weight loss drugs) and Generative AI, had progressed over the past 12 months.
The use of Generative AI and tools such as ChatGPT and Bard (now Google Gemini) has continued to multiply. According to a paper published by the National Bureau of Economic Research, since the debut of generative AI less than two years ago, a broad range of professions have begun using the tools. And 28% of workers now use the technology on the job.
Plus, this week’s Investment Matters returns to the August reporting result for Aurelia Metals, our favourite polymetallic miner in Cobar NSW. Interest in returning to Aurelia Metals was prompted by news from another company in the area and in our portfolio …

Most obviously, this led to CBA becoming the most expensive bank in the world.Although foreshadowed by others and market reaction earlier in the week, the decision to reduce rates for the first time since Covid-19 will have a significant impact on Australia in due course.
Plus, this week, Craig discusses some interesting new research on Newmont mining and results from Emeco and Catalyst Metals.

The rotation begins

Rotation begins

Firstly, for the past nine months global flows into Australian investments from Chinese investments have contributed to the rising share prices of Australian non-mining large capitalisation companies (especially the banks). This is because global managers wanted to avoid a weakening Chinese economy. 

Most obviously, this led to CBA becoming the most expensive bank in the world.Although foreshadowed by others and market reaction earlier in the week, the decision to reduce rates for the first time since Covid-19 will have a significant impact on Australia in due course.
Plus, this week, Craig discusses some interesting new research on Newmont mining and results from Emeco and Catalyst Metals.

What interest rate cuts in the US might mean for Australia

The biggest economic news of the week was not in Australia. In the spirit of the hype associated with interest rate decisions of the GFC and those surrounding Covid 19, commentary by Federal Reserve Chair Jay Powell was once again vital to market sentiment and the future direction of economics around the globe.
Although foreshadowed by others and market reaction earlier in the week, the decision to reduce rates for the first time since Covid-19 will have a significant impact on Australia in due course.
Plus, this week, Craig discusses some interesting new research on Newmont mining and results from Emeco and Catalyst Metals.

The end of globalisation? How your investments will be managed.

The global supply chain landscape has shifted significantly since the COVID-19 pandemic. As trade stagnates, countries are implementing protectionist policies and focusing on local production. Australia, once a beneficiary of global trade, needs to adapt by developing domestic industries, strengthening ties with allies, and investing in local supply chains. 

This month, Craig Shepherd explains how trends, such as “friend-shoring,” are driven by technological advancements and a desire for greater control over supply chains. 

Profit Reporting Season Concludes – Steadfast, Johns Lyng, Healius/ACL and Bapcore

This week, the Q2 ABS National Accounts data were released on Wednesday. Although a little backward-looking, the National Accounts can provide corroborative evidence of the trends we see from the company reporting season.
In this week’s Investment Matters, we will briefly discuss interesting trends from the reporting season and outline the results for Steadfast Group (SDF), Bapcor Group (BAP), and the new portfolio positions in Healius (HLS) and Australian Clinical Labs (ACL).

Reporting season continues – Worley, Inghams, Earlypay, Ventia and Woolworths

The BlueScope results clearly distinguished between short-term operating conditions and medium-term value creation. Like the Seek result discussed last week, we have been pleased to build a position in this company at a reasonable price when short-term conditions are challenging while the company invests in long-term improvements. 

Read this week’s Investment Matters as Craig explains reporting season results from Bluescope, Judo Bank, Reliance Worldwide and Cleanaway.

Reporting season continues – BlueScope, Judo Bank, Reliance Worldwide, Cleanaway

Image from khunkorn Via Canva

The BlueScope results clearly distinguished between short-term operating conditions and medium-term value creation. Like the Seek result discussed last week, we have been pleased to build a position in this company at a reasonable price when short-term conditions are challenging while the company invests in long-term improvements. 

Read this week’s Investment Matters as Craig explains reporting season results from Bluescope, Judo Bank, Reliance Worldwide and Cleanaway.

Reporting season continues – Seek, Seven Group Holdings, Beach Energy and Nufarm

Most companies who have an accounting year-end date in June, select August as the month to report their full year results. We’ll provide updates in Investment Matters over the course of the next few weeks. Here’s a snapshot of results reported in the week just past for stocks held within client portfolios.
A weak US employment report on Friday 2nd August added to the level of uncertainty. 

For market participants the principal task was determining whether the level of dislocation was indicative of sharp changes in a relatively narrow set of conditions, or whether concerns were much broader and more permanent. 

By the end of the week the outlook was much clearer and markets across the globe recovered much of their losses. This was especially the case in Australia where the markets are now only slightly down a year-to-date basis. More importantly measures of uncertainty such as the US VIX index of volatility had fallen 60 per cent from the highs of Monday.

Quick Return to Stability

Global equity, currency and bond markets experience some gyrations over the past week. Headline movements in Japanese equities, large moves in currencies and sharp falls in equities markets in Australia and the US hinted at significant changes in either positioning or fundamentals. 

A weak US employment report on Friday 2nd August added to the level of uncertainty. 

For market participants the principal task was determining whether the level of dislocation was indicative of sharp changes in a relatively narrow set of conditions, or whether concerns were much broader and more permanent. 

By the end of the week the outlook was much clearer and markets across the globe recovered much of their losses. This was especially the case in Australia where the markets are now only slightly down a year-to-date basis. More importantly measures of uncertainty such as the US VIX index of volatility had fallen 60 per cent from the highs of Monday.

Critical CPI print reduces risks of policy error 

this week’s fascinating Investment Matters as Craig explains the trepidations surrounding Wednesday’s release of the estimate for the Q2 Consumer Price Index.

The market responded positively this week to an encouraging reduction in inflation in Australia. The direction and scale of the response can be readily understood – moving from the risk of higher interest rates to the opportunity of lower rates is a positive for Australian companies.

New Financial Year, New Opportunities Part II – Energy sector

Beach Energy, is a leading Australian independent oil and gas exploration and production company. While the energy sector is subject to volatility given underlying commodity prices, Beach Energy’s strategic positioning, future cashflow outlook and growth prospects make it an attractive investment within the sector.
Read this week’s Investment Matters as Craig explains why we think Beach Energy presents a prospective investment opportunity. Many investment banks’ Energy-sector experts see excellent value in Beach Energy at current prices.
Read why we are predominantly interested in owning exposure to movements in the price of gold, both as an insurance policy against global uncertainty or conflict and as a hedge against inflation. Plus, Craig explains why we suspect that the Mining Services and Industrials sector is likely to continue to outperform despite tough conditions.

New Financial Year, New Opportunities – Pathology and Healthcare

Part four of the year-end stocktake will outline our exposure to a final basket of stocks, the gold basket, our mining services exposure, three large industrial companies and two long-held smaller companies.
Read why we are predominantly interested in owning exposure to movements in the price of gold, both as an insurance policy against global uncertainty or conflict and as a hedge against inflation. Plus, Craig explains why we suspect that the Mining Services and Industrials sector is likely to continue to outperform despite tough conditions.

Year-end stocktake part 4: Gold, Mining and Industrial companies

Part four of the year-end stocktake will outline our exposure to a final basket of stocks, the gold basket, our mining services exposure, three large industrial companies and two long-held smaller companies.
Read why we are predominantly interested in owning exposure to movements in the price of gold, both as an insurance policy against global uncertainty or conflict and as a hedge against inflation. Plus, Craig explains why we suspect that the Mining Services and Industrials sector is likely to continue to outperform despite tough conditions.

Year-end stocktake part 3: Non-bank financials and technology  

Part Three of the year-end stocktake will outline our exposure to non-bank financial stocks and several technology and medical device companies our clients own.
Discover why we have chosen to invest in areas of the non-bank financial sector, including business banking, global and domestic insurance, invoice financing, and insurance.

Year-end stocktake part 2: Lithium and Domestic economy

House connected to lithium battery

This week’s investment sought to highlight the logic and investment fundamentals we are creating in our lithium basket. Once again, the impact of baskets is to increase the number of stocks clients see in their portfolio, from a purely numeric perspective, but not from a thematic perspective.
The stocktake also highlights the economic outlook for our domestic economy exposure by referencing how current conditions mix with the type of management and asset features we are looking for to create an overall exposure.

Understanding Portfolio Diversification: a year-end stocktake 

wooden block representing portfolio diversification

Each week in Investment Matters, we discuss the types of thematics that are crucial in building portfolios. We aim to combine these thematics with thorough bottom-up company research to create a well-diversified portfolio that can outperform in the medium term.
Over the next four weeks, leading into the end of the financial year, we will go towards a more detailed level, looking at individual positions. We will present an update on the portfolio companies, a year-end stocktake.

Federal Budget deep dive – the Labor Government’s 3rd Federal Budget

This week, the Albanese-led Labor Federal Government handed down its 3rd Federal Budget.
One of the dangers of Budget analysis, especially the type of analysis that finds its way to mainstream media, is how Federal Budgets are equated to household finances. Part of the problem is using the term ‘budget’, often used in the home reflecting a household’s natural constraints of income and spending. For those of limited means, hard budget constraints are everyday considerations.
Instead, Budgets are a nation’s policy decisions, not the state of its savings account. So, we generally baulk at the idea of balancing money ”collected” and “spent” as a misunderstanding of both history and finance.

Macquarie Group and Perpetual – analysis of FY24 results and company outlook.

Macquarie and Perpetual results and analysis

As part of the usual ‘confession season’ leading into the Macquarie Australasian Companies Conference in Sydney this week, weakness has been apparent in businesses exposed to the consumer and these stocks have been sold off. We hold little exposure to these names.  

Several significant announcements by our portfolio companies have also been made in the past week. We focus on two of these in Investment Matters discussion this week.

Finding the crunch point – RBA raising rates? What? 

In our recent communications, we have suggested that the RBA, while it can reduce interest rates and mortgage costs through 2024, could benefit significantly by following the rest of the world’s lead in reducing rates. This approach would result in a longer pause at current rate levels, particularly in the face of higher or persistent domestic inflation. 

Read as our CIO explains how interest rate increases can disproportionately affect different segments of the economy.

Is gold the new haven? The mystery behind the price surge

Pile of gold

This week’s Investment Matters will shed light on the surge in the price of gold and gold stocks in the past few months. 

We hold gold stocks in our clients’ sub-portfolios for several reasons. It is therefore useful to understand why increases in the gold price warrant special attention. 

The task for First Samuel is to profit from such price increases. 

In discussing this, I have split this week’s Investment Matters into two lengthy sections. I urge you not to skip straight to the second section (on how we profit from gold prices increases).

Optimistic optimism: strong returns to both Australian and global equities

This week’s Investment Matters will focus on different asset classes, their relative performance, and our broad thoughts on the implications of tactical asset allocation decisions. 

When we survey benchmark performance, we see that Australian and Global equities portfolios have delivered returns well above expected long-term returns for those asset classes this financial year. 

Revisiting takeovers

we’ve maintained higher weights in cash holdings within property sub-portfolios with an expectation that a significant rises in interest rates would necessitate an increase in cap rates (implied returns on property values), a resultant reduction in property book valuations and trigger a resultant slew of equity capital raises at discounted share prices in order to restore balance sheets to within bank funding covenants.

While the dull shine of copper comes in focus, we shed little light on BHP. Similarly, our focus this week on financial services dives deeper than the four major banks.

Profit Reporting Season – Stockland, Mirvac, Garda and Lendlease

laptop with the words property on it with small colourful illustrated houses

we’ve maintained higher weights in cash holdings within property sub-portfolios with an expectation that a significant rises in interest rates would necessitate an increase in cap rates (implied returns on property values), a resultant reduction in property book valuations and trigger a resultant slew of equity capital raises at discounted share prices in order to restore balance sheets to within bank funding covenants.

While the dull shine of copper comes in focus, we shed little light on BHP. Similarly, our focus this week on financial services dives deeper than the four major banks.

Profit Reporting Season – Sandfire, Perpetual and Judo Bank

This week’s Investment Matters will continue to focus on the recent reporting season.

While the dull shine of copper comes in focus, we shed little light on BHP. Similarly, our focus this week on financial services dives deeper than the four major banks.

Profit Reporting Season – Cleanaway, Emeco, ParagonCare and Worley

This week’s Investment Matters will concentrate on key company results as the reporting season winds down. On balance, market strategists have noted that earnings revisions have been neutral across the board, which is better than historical outcomes of net negative earnings revisions by optimistic investment banking equity analysts. 

Profit Reporting Season – Ventia, Johns Lyng, Earlypay and Nanosonics

Read key company results as the reporting season winds down. On balance, market strategists have noted that earnings revisions have been neutral across the board, which is a better than historic outcomes of net negative earnings revisions by optimistic investment banking equity analysts.

Early profit reporting season and news update

In last week’s Investment Matters we concentrated on the confession season, the period in which companies make early announcements to the market surrounding material changes to upcoming earnings.

This week’s Investment Matters will also concentrate on news flow and early reporting season results.

Confessions of a corporate earnings season

Most ASX-listed companies in Australia have a June fiscal/financial year-end. Accordingly, those with June and December balance days will tend to present their (half-year/annual) financial results to the market in each of the months of February and August.

Perpetual – finding a way to unlock value

In the past year, we have often commented that we’ll exhibit due patience as part of our investment approach. This is required as we often seek to invest in businesses that are significantly unloved and misunderstood and where assets may, therefore be mispriced.

Premier Investments – A deep dive into a new opportunity

In recent weeks, clients will have seen the addition of Premier Investments to their Australian equity sub-portfolios. Famously partly owned and operated (whether formally or informally) by Solomon Lew, Premier Investments is amongst the most successful discretionary retailers in Australian history.

Steadfast in its approach

© 2024 First Samuel Limited The Markets This week: ASX v Wall Street FYTD: ASX v Wall Street Steadfast Group Limited is an Australian insurance broking network that provides insurance broking services to businesses and individuals across Australia and New Zealand. The company was founded in 1991 and has become one of Australia’s largest insurance […]

Growing – in two very different ways

In recent weeks, we heard the mildly alarming statistics that the ASX had fallen to a low in October 2023 of 6703.2, lower than the levels seen in the broad market index at the close of October in 2007 (6770).

Inghams: laying golden eggs

Inghams is the dominant supplier of chicken products in Australia. It is also amongst the largest positions in client portfolios. In the past week, it delivered an update on progress within the business across the first half of the fiscal year.

Company Profit Reporting Season continues

In an effort to provide a more complete picture, we will continue to provide some updates on the prospects of our portfolio companies as gleaned from our coverage of the ASX Reporting Season.

Company Profit Reporting Season – Closing Week

As the curtain closes on the end of August, ASX reporting season also comes to a conclusion. We provide some of the more relevant company-result takeaways:
• Perpetual
• Home Consortium (HMC)
• ARN Media (A1N)
• MRM

Company Profit ‘Reporting Season’ preview

It’s an intense time of year for equity market professionals. But one that is welcomed because of the opportunity to review financial data, hear about company strategy, assess management and operational performance, and to review one’s own stock selection and analytical prowess.

Lull before company profit reporting season

Late July is when there is a lull in company news, as industrial companies are in communication lockdown before company profit reporting in August. Mining companies are busy releasing production reports and not much else, also ahead of profit reporting.

Out with the old, in with the new

There has been a significant period of de-equitisation in the Australian equity markets in the past couple of years. Our portfolios, and performance, have been the beneficiaries of this phenomenon.  Several stocks we own are subject to takeover bids:

Selectivity and Productivity

This week we discuss two major topics. Japan and why we are more heavily invested than global benchmarks and Productivity: why is this a problem for Australia and how does it impact returns?

Going, Going, Gone – the de-equitization of the Australian Equities Market

Two of our investments, Costa Group and United Malt, received confirmation relating to takeover bids this week.

Both takeovers provided support for our investment strategy. This strategy concentrates on finding opportunities where the market fails to price either the long-run asset or the franchise-based value of a company, and instead focuses on short-term earnings fluctuations. In such cases it is often an external party, via a takeover, that unlocks the value.

Some interesting introductions

We’re always looking for new ideas to introduce into the investment portfolios. A spate of recent takeovers within the portfolio (think Newcrest, Origin, United Malt, Pushpay, Eildon Capital) has accelerated the need for fresh ideas to replenish building cash positions.

Misstep or side-step? 

The Reserve Bank of Australia (RBA) is currently an impasse. Will it continue to hike interest rates in lockstep with the US Federal Reserve? Or will it choose to take a divergent path? And what might the consequences (of either approach) be?

Understanding the rise in mergers and acquisitions

Two people shaking hands with a light blue background

When the share-market does not see value or investment merit in a particular stock the stock’s share price will recede. This could be because the company’s earnings (i.e. profit) outlook is poor (e.g. Bega Cheese Ltd) or perhaps the industry in the which the company operates is struggling (e.g. ARN Media Limited).
But often someone or a company will see value where the share-market does not. The logical outcome of this is one of the more interesting aspects of investment: the merger or the acquisition. Or, in jargon: M&A.

Are there sovereign risks to wealth for Victorians?

The irony is that Victoria needs to invest even more to provide amenity to the expected increased population growth.

Should Victoria fail to invest, higher public transport and health care costs will be the most significant risks to the cost and quality of living of families and individuals in the middle of the income wealth scale.