- The ASX200’s heavy weight stocks such as BHP, RIO, CBA, and CSL all delivered positive earnings results and this provides comfort in our overweight position in the Australian market. Reporting season was generally very solid, with analysts providing a better-than-average upgrade to full-year EPS. Banks, Commercial & professional services, Food & staples retailing, Household & personal products, Media & entertainment, Retailing, and Technology, hardware & equipment all showed positive EPS surprise.
- Macro influences such as the impact of the Russia-Ukraine war on commodity prices has been generally a positive for the commodity producers, but a negative for industrials and travel stocks. BHP and RIO lifted dividends and benefited from the strong rise in commodity prices, although other miners such as EVN and NCM higher freight and operating costs had more of an impact on the bottom line. The reopening of international borders has been a clear positive for domestic production and services, but it will take time for the benefits to ease domestic labour shortages. It is also supporting an improved outlook for travel stocks even if the war is impacting travel sentiment.
- Cost pressures are being felt across all industries, but global industrials such as AMC and BXB are seeing more than most and have been able to push these costs onto customers. Domestic player such as QUB have also pushed on costs to customers, but labour shortages particularly in WA due to closed borders are problematic. Closer to the consumer where the inflation data shows price gains have been more subdued, SUL went about managing supply chain issues by raising inventory and this led to a drop in earnings.
- The Banks have benefitted from the strong property market, with BEN and CBA seeing above system lending growth. CSR and FBU are also seeing strong growth in volumes and are pushing through price increases and both management teams expect this to continue for the remainder of the calendar year. DHG appears to have underinvested in staff and product development to take full advantage of the strong housing market and the results were disappointing.
- CSL, TWE and A2M are clear turnaround stories. CSL has been hit by rising costs from the pandemic, but the upgrade to earnings was welcome after 18 months of operational difficulties and the Vifor acquisition. TWE and A2M management have been able to find new markets after trade difficulties have caused havoc in the businesses.
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