Investors can view their accounts online via a secure web portal. After registering, you can access your account balances, periodical statements, tax statements, transaction histories and distribution statements / details.
Advisers will also have access to view their clients’ accounts online via the secure web portal.
JOB cuts and Fed rate hikes have not curbed the animal spirits of the US consumer.
The consumer is employed, enjoying strong wage growth, unworried about job loss – and still has some savings left over from the lockdowns.
Net lenders to the system are enjoying rates that were not expected for many years. That’s basically free money in the pocket right now.
The net effect is the assured deflation story is being called into question. The market has reacted by pushing up peak rates and removing a large portion of cuts that were priced in for this year.
The complicating factor in this seemingly straightforward trade is the magnitude of the violent market melt-up we saw a few weeks ago.
This is keeping the bears at bay – and seemingly reluctant to put the potential-end-of-deflation trade on.
Reporting season results are mixed.
There are plenty of misses, but some big moves where results are better than expected or where stocks were excessively discounted in anticipation of a poor result.
The S&P 500 was essentially flat last week (-0.2%) while the S&P/ASX 300 shed 1.1%.
RBA governor Phil Lowe’s address to parliament reiterated the recent hawkish shift and the RBA’s “tightening bias”.
“The board expects that further increases will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary,” he said.
“How much further interest rates need to increase will depend on developments in the global economy, how household spending evolves and the outlook for inflation and the labour market.”
He did caveat that the RBA was “conscious that there are risks in both directions”.
He also noted the RBA “meets every month, which gives it frequent opportunities to evaluate how these various risks are evolving and to respond flexibly as appropriate”.
Consumer sentiment fell 6.9% to 78.5pts in February, retracing a bump from the last few months and taking the reading back to November 2022 levels.
The decline was broad based, but perceptions of family finance and economic conditions over the next 12 months were particularly weak.
On the other hand, trading conditions for businesses remain near all-time highs, according to the latest NAB survey.
January’s ABS Labour Force Survey was weaker than expected, with total employment falling 11.5k versus +20k expected. The unemployment rate rose 15bp to 3.67% and hours worked fell to 2.1% month-on-month.
However, the Bureau flagged caveats to January’s data linked to difficulties in post-Covid seasonal adjustment; a larger-than-usual number of people ‘waiting to start work’ (but registered as unemployed or not in the labour force); and a higher-than-usual uptake of annual leave.
There were mixed messages from the Fed last week.
Federal Open Market Committee voting member Lorie Logan warned the Fed may need to raise rates more than expected to ensure prices moderate.
Thomas Barkin, a non-voting member, said much the same thing: “Inflation is normalising but it’s coming down slowly.”
Patrick Harker, a voting member, took a more dovish line, noting that “we are not done yet… but we are likely close.”
January’s CPI data was in line with consensus at 0.5% month-on-month. The yearly figure of 6.4% was a touch ahead of expectations, though down from 6.5% the previous month.
Services excluding energy and housing – the Fed’s favourite core measure – was +0.4% on a monthly basis and +5.6% year-on-year.
In the core, primary rents and owners-equivalent-rent both rose at the slowest monthly pace in three months.
The 3m/3m annualised rate is now at 4.5%, down from 5.3% in December.
That’s the slowest rate of increase on this basis since January last year, but it’s unlikely to slow further unless the monthly prints soften.
Vehicle repair prices were up 2.7%, lifting the yearly rate to 23.1%. Car insurance prices jumped 1.4%, well above the recent trend.
These two components together accounted for half the increase in January CPI services (excluding energy and housing).
The January PPI rose 0.7%, above a consensus expectation of 0.4%. The core rose 0.5% above a 0.3% consensus.
The headline PPI was lifted by higher electricity, natural gas and petrol prices, which should subside in February.
Initial jobless claims dipped to 194K from 195K, slightly below the 200K consensus expectation.
US retail sales rose 3% in January, versus 2% expected. This reflected very low unemployment and growing wages.
It is worth noting that the EVRISI Pricing Power survey – having fallen sharply in recent months – is now moving sideways at a still-elevated level. This reflects the strong consumption data noted above.
Overall, a resilient economy has resulted in a step-up in expectations of peak rates. A significant chunk of 2023 rate cuts – which had previously been priced in – have now been removed.
ASX results season dominated returns last week.
Good results
The market had been worried about the impact of claims inflation and reinsurance costs for QBE Insurance (QBE, +8.8%). But it delivered on 2022 expectations and issued confident guidance for 2023. The CEO believes volatility has been taken out of the business. This was further supported by a transaction removing 1.9bn of problematic US reserves. The message was reduced risk plus expanding earnings – an attractive combination that should help the multiple recover.
Endeavour (EDV, -0.6%) beat earnings expectations by about 8% as lower-than-expected cost growth buoyed margins. The company continues to lose market share in retail. Gross margins are elevated, up 242bp versus pre-covid levels. This is a risk to future earnings.
Wesfarmers (WES, +3.6%) delivered a solid result, helped by improved retail trading in November and December. Kmart is delivering near 10% margins. Bunnings was weaker with incremental margins at about 4% versus an overall margin of 13.4%. Retail continues to hold up, but is still a looming risk for the company. Chemicals earnings have also been boosted by ammonia and DAP prices, though that earnings leverage has now largely played out.
Seven Group (SVW) had good results with Westrac EBIT +21% and Coates +25% year-on-year EBIT growth. Management upgraded guidance from low double-digit for both Westrac and Coates to mid-teen and high-teen growth respectively. This seems conservative given the first-half strength, giving SVW room for another update or upgrade later in the year.
Indifferent results
Commonwealth Bank (CBA, -8.2%) delivered a solid result with sequential growth of 12% revenue and 25% pre-provision profit. But the market focused on a cautious outlook, which suggested margins had peaked as a result of intense mortgage competition and emerging deposit competition.
Telstra’s (TLS, +3.4%) EBITDA for the half came in just above consensus. It looks on track for the high end of guidance and everything is going well operationally. There are a few items that will probably result in the second half being sequentially better than the first. International roaming is also coming back, with $100m of revenue growth. This takes it to 70% of pre-Covid levels.
Computershare (CPU, -3.4%) reiterated strong guidance for margin income given rising rates. But EBIT ex-margin income fell 40%. CPU needs a sharp recovery in transactional activity (corporate actions, share plans activity) to meet guidance.
National Australia Bank’s (NAB, -5.8%) quarterly update ran counter to CBA with continued margin expansion of 15bp (ex-markets). NAB is potentially best placed in the short term given its skew to small-to-medium enterprises (SME). NAB would also have benefited from running below system growth in mortgages, though it will likely start to re-engage in this market.
Find out about
Crispin Murray’s Pendal Focus Australian Share Fund
JB Hi-Fi (JBH, -2.3%) had a positive (pre-announced) result with earnings up 15% vs pcp. The surprise came in the form of margin drivers. The cost of doing business is up 24% versus pre-Covid for both the JB Hi-Fi and The Good Guys divisions. This was the first period where the cost base was unaffected by Covid-trading disruptions. Revenue growth rates are now falling behind cost-growth numbers. This creates a scenario for earnings to fall below pre-Covid levels if revenues continue to normalise along with gross margins.
Newcrest’s (NCM, -4.8%) half-year result was largely in-line with expectations. The board has formally rejected Newmont’s takeover offer, but granted limited due diligence. Any increase in the offer price arguably leads a decline in Newmont’s share price, negating any increase. Newmont will no doubt incorporate NCM’s 20cps special dividend plus 15cps interim dividend into their calculations.
South32’s (S32, -1.1%) half-year result was largely as expected with production guidance unchanged. As expected, free cash flow was muted given a few one-offs and a working capital build. S32 nevertheless extended its share buy-back program. Outlook commentary was positive, particularly with respect to current free cash flow generation and project development in the US.
Fortescue’s (FMG, +1.2%) financials were in-line with expectations. The dividend was 3% ahead of consensus despite a drop in the payout ratio to 65% vs 70% a year ago. The market’s focus remains on Fortescue Future Industries. FMG says five projects will go to final investment decision this year. But there is no incremental news on project scale or economics, or detail of funding. This remains a key concern, despite recent headlines on job cuts.
Evolution (EVN, -7.4%) came in slightly weaker than expected for the half, with net debt now at $1,455m and gearing at 31% versus an internal limit of 35%. However EVN surprised positively on the dividend, flagging confidence in its balance sheet and reiterating an equity raise is not needed. Net debt should peak this quarter, with deleveraging the focus from here. Commentary on Red Lake was positive, but capex uncertainty remains around Ernest Henry and the economics of the proposed Mungari expansion.
Challenger (CGF, +2.6%) had an in-line result with higher rates driving strong annuity growth. There had been some hope product margins would also expand given rising credit spreads. But management instead said it wanted to pass the benefit of base rates and spreads onto customers, to drive growth. This potentially limits further multiple expansion.
Whitehaven Coal (WHC, -2.5%) had pre-guided on EBITDA and net cash so it was all about the dividend, which came in at 32cps vs. consensus 48cps. WHC has said there would be more at year end, but we note it underspent on capex in the first half and a decision on Vickery is due imminently. Revenues are also expected to be lower, given a decline in thermal coal pricing.
Disappointing results
Aurizon (AZJ, -7.3%) missed expectations and downgraded full year guidance by 4%. Exposure to weather events surprised on the downside. Further capex of 215m announced for growth in bulk rail operations, ahead of any contract wins creates new uncertainty. Not a great deal to get excited about as the company continues with the challenges of transitioning away from reliance on Coal earnings.
The market had been looking for positive developments on costs and capital for AMP (AMP,-14.8%). But they did not materialise. Management recognised costs were too high and said they’d be flat in 2023 while a strategy is formed. Capital management was reiterated at $1.1bn but will take time to deploy and now appears to be inclusive of 2022 and 2023 dividends.
Drawing on more than 25 years of experience investing in top-performing Australian companies and a background in accounting, Jim manages our Long/Short Fund and co-manages our Imputation Fund. He is a Chartered Accountant with membership of the Australian Institute of Chartered Accountants.
Pendal Focus Australian Share Fund is managed by Crispin Murray. The fund has beaten its benchmark in 14 years of its 18-year history (after fees), across a range of market conditions. Find out more about Pendal Focus Australian Share Fund here.
Pendal is an independent, global investment management business focused on delivering superior investment returns for our clients through active management.
This information has been prepared by Pendal Fund Services Limited (PFSL) ABN 13 161 249 332, AFSL No 431426 and is current at February 20, 2023.
PFSL is the responsible entity and issuer of units in the Pendal Focus Australian Share Fund (Fund) ARSN: 113 232 812. A product disclosure statement (PDS) is available for the Fund and can be obtained by calling 1300 346 821 or visiting www.pendalgroup.com. The Target Market Determination (TMD) for the Fund is available at www.pendalgroup.com/ddo. You should obtain and consider the PDS and the TMD before deciding whether to acquire, continue to hold or dispose of units in the Fund.
An investment in the Fund or any of the funds referred to in this web page is subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested.
This information is for general purposes only, should not be considered as a comprehensive statement on any matter and should not be relied upon as such. It has been prepared without taking into account any recipient’s personal objectives, financial situation or needs. Because of this, recipients should, before acting on this information, consider its appropriateness having regard to their individual objectives, financial situation and needs. This information is not to be regarded as a securities recommendation.
The information may contain material provided by third parties, is given in good faith and has been derived from sources believed to be accurate as at its issue date. While such material is published with necessary permission, and while all reasonable care has been taken to ensure that the information is complete and correct, to the maximum extent permitted by law neither PFSL nor any company in the Pendal group accepts any responsibility or liability for the accuracy or completeness of this information.
Performance figures are calculated in accordance with the Financial Services Council (FSC) standards. Performance data (post-fee) assumes reinvestment of distributions and is calculated using exit prices, net of management costs. Performance data (pre-fee) is calculated by adding back management costs to the post-fee performance. Past performance is not a reliable indicator of future performance.
Any projections are predictive only and should not be relied upon when making an investment decision or recommendation. Whilst we have used every effort to ensure that the assumptions on which the projections are based are reasonable, the projections may be based on incorrect assumptions or may not take into account known or unknown risks and uncertainties. The actual results may differ materially from these projections.
For more information, please call Customer Relations on 1300 346 821 8am to 6pm (Sydney time) or visit our website www.pendalgroup.com