Macro and Australian equity strategist, Macro Strategy Advisors

Shane Lee

Macro and Australian equity strategist

Macro Strategy Advisors

Cross Asset Strategy

<ul>
<li>
Australia rallied strongly through a relatively solid reporting season, with the benchmark ASX 200 posting a strong 6% gain in the month. EPS was a little disappointing, given that only 50% of stocks that reported beat consensus estimates, with weaker-than-expected revenue the main culprit.  EPS growth for FY19 was downgraded by 1.1%pts to 3.5%, but analysts left EPS growth unchanged in 10 out of 19 industry sectors.  Materials, Pharmaceuticals, Consumer Services and Energy saw the largest downgrades relative to history after reporting half-year results.</li>
<li>
Government is having a Heavy Hand on Results. The Royal Commission in Financial Services is lifting compliance costs for the Banks, Wealth Managers and Mortgage Brokers.  Similarly, the Royal Commission into Aged Care is raising the same costs for stocks in this industry.  More stock-specific examples of Government intervention include AZJ, SKI, LYC and CAR (tighter credit supply from Banks).</li>
<li>
Cost pressures seem generally well-contained. US tariff-related cost pressures eased, but threats remain until a trade deal is negotiated with China.  Compliance costs are hitting Banks, Wealth Managers, Mortgage Brokers and Aged Care stocks.  However, the market seems to be more comfortable with the outlook. </li>
<li>
Growth Stocks Not Raising Guidance Were Hit. Growth names such as COH, CSL, TWC and TWE that delivered strong results without an upgrade to full-year earnings were dealt heavy blows.  However, stocks such as WEB, which revealed new growth opportunities were rewarded handsomely.</li>
<li>
Good Management of Consumer-facing Stock Saves the Day. Filling slowing demand with higher-margin product offering delivered for JBH and SUL, while good performance from offshore stores came to the rescue for HVN.  DHG saw weaker listings but fought this by selling higher margin products to agents.  However, some stocks struggled.  FBU, BLD, BAP ABC all succumbed to housing weakness.</li>
<li>
Grasping the Infrastructure Opportunity. CIM, MND and SVW all delivered on the back of the upswing in public and mining infrastructure spending.  In contrast, LLC’s struggling Engineering Division is a good example of how a poorly managed business misses out on opportunities when industry conditions are buoyant.</li>
<li>
Model Portfolio Implications. We will soon update our model portfolio, but reporting season showed there is probably more upside in Resources than we thought at the end of last year.  The worst seems to have passed for the Banks, but we struggle to see significant upside in earnings.  We will retain a defensive bias in the portfolio, but most likely reduce it somewhat.</li>
</ul>



Australia rallied strongly through a relatively solid reporting season, with the benchmark ASX 200 posting a strong 6% gain in the month. EPS was a little disappointing, given that only 50% of stocks that reported beat consensus estimates, with weaker-than-expected revenue the main culprit.  EPS growth for FY19 was downgraded by 1.1%pts to 3.5%, but analysts left EPS growth unchanged in 10 out of 19 industry sectors.  Materials, Pharmaceuticals, Consumer Services and Energy saw the largest downgrades relative to history after reporting half-year results.

Government is having a Heavy Hand on Results. The Royal Commission in Financial Services is lifting compliance costs for the Banks, Wealth Managers and Mortgage Brokers.  Similarly, the Royal Commission into Aged Care is raising the same costs for stocks in this industry.  More stock-specific examples of Government intervention include AZJ, SKI, LYC and CAR (tighter credit supply from Banks).

Cost pressures seem generally well-contained. US tariff-related cost pressures eased, but threats remain until a trade deal is negotiated with China.  Compliance costs are hitting Banks, Wealth Managers, Mortgage Brokers and Aged Care stocks.  However, the market seems to be more comfortable with the outlook. 

Growth Stocks Not Raising Guidance Were Hit. Growth names such as COH, CSL, TWC and TWE that delivered strong results without an upgrade to full-year earnings were dealt heavy blows.  However, stocks such as WEB, which revealed new growth opportunities were rewarded handsomely.

Good Management of Consumer-facing Stock Saves the Day. Filling slowing demand with higher-margin product offering delivered for JBH and SUL, while good performance from offshore stores came to the rescue for HVN.  DHG saw weaker listings but fought this by selling higher margin products to agents.  However, some stocks struggled.  FBU, BLD, BAP ABC all succumbed to housing weakness.

Grasping the Infrastructure Opportunity. CIM, MND and SVW all delivered on the back of the upswing in public and mining infrastructure spending.  In contrast, LLC’s struggling Engineering Division is a good example of how a poorly managed business misses out on opportunities when industry conditions are buoyant.

Model Portfolio Implications. We will soon update our model portfolio, but reporting season showed there is probably more upside in Resources than we thought at the end of last year.  The worst seems to have passed for the Banks, but we struggle to see significant upside in earnings.  We will retain a defensive bias in the portfolio, but most likely reduce it somewhat.


Aussie Equities Reporting Season Wrap: March 2019

Founder Evidente. Top rated quantitative analyst, Evidente

Sam Ferraro

Founder Evidente. Top rated quantitative analyst

Evidente

Evidente is an independent financial education firm that delivers innovative financial advice to wholesale investors, including active long only funds, hedge funds, pension funds, and sovereign wealth funds, in Australia and globally.  Drawing on academic research in asset pricing, behavioural finance and portfolio construction, Evidente provides wholesale investors with commercial solutions to stock selection and asset allocation decisions across equities and other asset classes.

Macroeconomics

<div>In a speech today, Christopher Kent, Assistant Governor, flagged that the RBA expects the speed of China's economic development to ease further, and for the composition of growth to evolve, reflecting four key developments.</div><ul>
<li>Slower growth of the working age population (which is largely baked in).</li>
<li>Urbanisation to continue albeit at a more gradual pace.</li>
<li>The still large productivity gap between China and advanced economies to narrow further, the speed of which is subject to the implementation of…</li>
</ul>

In a speech today, Christopher Kent, Assistant Governor, flagged that the RBA expects the speed of China's economic development to ease further, and for the composition of growth to evolve, reflecting four key developments.
Slower growth of the working age population (which is largely baked in).
Urbanisation to continue albeit at a more gradual pace.
The still large productivity gap between China and advanced economies to narrow further, the speed of which is subject to the implementation of…


Australia

Lynas Corporation Limited explores and mines for rare earth minerals such as cerium and neodymium.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Lynas Corp Ltd (LYC AU)

Aussie Equities Reporting Season Wrap: March 2019

Australia rallied strongly through a relatively solid reporting season, with the benchmark ASX 200 posting a strong 6% gain in the month. EPS was...

Shane Lee

RBA Downbeat on Commodity Price Outlook

In a speech today, Christopher Kent, Assistant Governor, flagged that the RBA expects the speed of China's economic development to ease further,...

Sam Ferraro

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)