Good afternoon,
The ASX 200 closed the week relatively flat, despite it being one of the busiest weeks for full year results. All the money being made in mid and small caps, while the top 20 continued to underperform.
|
|
ASX 200 continues to chart sideways, trading between 5900 and 6200
|
|
ASX 200 continues to chart sideways, trading between 5900 and 6200, though more recently well supported by the 200wk moving average which is bang on 6000 points. As I said last week, industrials aren't going higher without banks and iron ore-related bullishness looks tapped out and on the way down. Triple top's in BHP & RIO, while Macquarie's forecast for Iron Ore is in line with most other houses.
|
|
I'm getting lots of questions on bank shares at the moment. Let's just remember our fundamentals when looking at the banking sector in Australia:
- Banks are a leveraged play on the Australian Economy
- Banks make money when we borrow more money (loan growth)
- Banks make more money when they borrow cheap and lend expensive (net interest margins)
- Banks make more money when they get repaid in full / don't have to provision very much.
Remember these 4 points and you'll get your investment strategy right for the 4 pillars. ANZ reported this week, here's the 4 charts that matter. (you might have to click/zoom to see the details.)
|
|
After the reports, my thesis from last week is looking pretty spot on.
CBA earnings stabiltiy through the first phase of the crisis clearly overestimated. The other 3 banks were revised upwards into their result while CBA was kept flat/slightly down.
Post reports, its clear that ANZ and WBC are handling the current economic conditions best, though maybe relative to expectations, NAB performed best.
Short CBA, Long the other three.
|
|
Sales & earnings revisions more generally are starting to bottom, though I think most analysts and management teams are cautious given potential for protracted, rolling, regional lockdowns and reducing government stimulus and support.
|
|
There's been a lot of talk of a "value rally" but not much evidence of this yet. (For those who don't know, growth stocks have outperformed value stocks by c. 200% over the past 10 years.)
|
|
This thesis is actually built around a "inflation returns" thesis. And like the Batman movie of a similar title, I think its rubbish.
|
|
This thesis also explains the gold price move upwards. I wrote a little quick hit for D'MARGE this week on gold, but the main chart you need to remember is this one below... money supply doesn't expand at that rate of change forever and inflation is harder to come by than ever (technology, aging population etc.)
|
|
Structural Change
Rather than try and be the second-coming of Ray Dalio, reading every economics-grad blog on the internet trying to work out what central banks are going to do and whether India will be a large buyer of gold this year... why dont you just invest in simple, boring, equities with a structural tailwind. Complicated is rarely better.
Here's a quote from Jensen Huang, CEO of NVIDIA
“The gaming industry, with all that’s happening around the world and it’s really unfortunate but it’s made gaming the largest entertainment medium in the world. More than ever, people are spending time digitally, spending their time in video games”
We've been gaming bulls for years, but while most of you will think "oh, its gone up too much, I've missed the boat, again!" You're wrong. Read the quote again... maybe go read/watch "Ready Player One" and then come back to me.
There's a whole ecosystem of companies to invest in that benefit from this trend, I tend to lean more towards the content-owners rather than platform distributors (just like in other forms of digital investment... Spotify > Etsy). Or we just buy the whole universe through an ETF (only available in the US) - we first wrote about this years ago.. here's something from May 2018 but I'm sure there's other notes talking about it.
|
|
SMA Update
Pretty stoked with how it's going so far... Almost 2x the index return.
|
|
Movers & Shakers
Wisetech (WTC) I honestly do not understand the appeal at these prices. Its worth say 30x EBITDA or $14. Why people persist on paying a premium to DCF for a business that clearly has signficant cyclicality in its earnings (yes, I'm looking at you Macquarie Research who upgraded your price target by 22% while reducing your earnings forecasts!)
IDP Education (IEL) seems to managing its significant COVID-19 challenges well, but too early for me yet.
Mono's (MND) / NRW Holdings (NWH) recovering with the rest of the sector. Earnings bottomed.
Corporate Travel (CTD) who knows what actually is going on in that business. Result read well but I don't know how.
Some nice performances from some of our stocks like SUL, ASB, JBH, BRG, NEA, APX.... lovely stuff but I'm not going to cover all this today as I'm ready for an afternoon Nanna Nap.
|
|
Treasury Wines (TWE)... can't be trusted. They have some sort of investigation into their China activities... I dunno but I'm just glad I don't own it.
IPH (IPH) had a pretty solid result, gave some honest feedback around COVID19 challenges and the market reacted like they said they were closing the doors. That's an opportunity at these sorta prices.
|
|
To more important topics, this weekend I've got a $5.00 multi on Eddie Betts (kicked one last night), Tippa, Mosquito, Walters & Flyin' Ryan all to kick at least one goal this Indigenous Round in the AFL. Paying $9.00. Other than that, I'm enjoying Dame Lillard's work in the NBA playoffs and suspect the Eagles might do a demolition job on the Giants (sorry Gav) this Sunday evening in Perth.
Have a good weekend,
LL
|
|
Luke Laretive
CEO & Investment Adviser
T +61 3 8639 1601 | M 0451 122 656 | lukel@senecafs.com.au
Level 2 Professional Chambers
120 Collins Street Melbourne VIC 3000
AFSL No. 492686 |
|
|
|
Notice to Recipients
This email has been sent by Seneca Financial Solutions Pty Ltd, ABN 17 610 665 711. This message is subject to terms available in the provided link. If you are unable to access this link, please let us know by return email and we will send you its contents.
Important information
This email is solely for the use of the addressee and may contain information which is confidential. If you are not the intended recipient please forward this email to lukel@senecafs.com.au and delete the original.
The information contained in this email is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser.
Although every effort has been made to verify the accuracy of the information contained in this email, all liability (except for any liability which by law cannot be excluded), for any error, inaccuracy in, or omission from the information contained in this email or any loss or damage suffered by any person directly or indirectly through relying on this information.
|
|
|
|
|