From Jonathan Bayes, Chief Investment Officer, Partners Wealth Group.
The first day of spring has sprung, and conversely earnings season is winding down to an end.
For the 7th week on the trot, the ASX has closed the week within 1% of its previous close, and, as I have said several times of late, remains within the broadly 2% trading range it has been stuck in since mid-May.
I’m rushing a little this week as I have been out much of the week and doing a horrible job of playing catch-up.
It seems Cairns is on the cusp of some real momentum, with significant tourism-related capital expenditures being invested, the launch of direct Guangzhou-Cairns flights in December and the prospect of a weaker Australian Dollar as fuel for both local and international tourism numbers.
Townsville was lovely, but hasn’t benefited from the growing tourism further north. The shuttering of the Queensland Nickel smelter has had a major impact on unemployment, and there are hopes that the construction of a new $140m football stadium in the centre of town could give a much-needed boost.
The Adani coal project was a topical discussion point, and I certainly felt more than a little ignorant when listening to the arguments made for both sides.
There’s no doubt the press in the south speak to only one side of the story.
The week in numbers
Being the first week of the month, we started getting early economic data from here and across the world.
Chinese manufacturing data in August improved modestly as construction remained strong.
US Q2 GDP posted a surprisingly strong gain of +3% annualized, and August consumer confidence data kicked again, with respondents claiming their greatest optimism for current economic conditions since 2001.
US Employment gains continued, with the ADP figures strong enough to suggest another monthly payrolls figure of well over 200,000 new jobs.
In the U.S, in spite of all the warmongering between Washington and Pyongyang, in spite of the tragedy of Hurricane Harvey, and despite a severely sluggish pace of policy reform, things are rocking.
The lesson in all of this, for now and for the future, is that growth cures a lot of ills.
In Australia, August manufacturing sector survey data pointed to the best outcome since 2002 which is certainly encouraging, though to be clear, manufacturing only comprises some 7% of the local workforce now.
Still, it’s good.
Building approvals for July were released and still point to an imminent slowdown in residential construction.
July approvals fell -14% on the previous year, but in truth the figures in absolute are starting to level out a little in both private residences and for apartments.
Private dwelling approvals rose back towards the average rate seen during the boom 2014-2015 period, after 12 months of averages 3-4% below.
Apartment approvals also bounced back a little in July, but still remain -25% or so below the average rate of approvals seen during the 2014-2016 period.
As I have said before, we are witnessing a slowdown in residential construction and that will further pressure an already moribund employment market.
June quarter residential construction ‘work done’ was down -3.5%, and with the trend in approvals still weak across the apartment sector, it seems likely this trend will continue through the second half of 2017.
Remember construction is still the third biggest employer by industry, behind health and community services, and retail.
Two companies of note reported this week, and fortunately both looked pretty good.
Blackmores (BKL) – strong bounce
BKL stole the limelight this week having been on the strong side of share-market favour this past year.
The stock jumped +25% despite posting profit figures that were largely in line with analyst expectation.
The key reason for the jump was the solid growth in Q4 sales momentum, which clearly demonstrates a business witnessing strong underlying demand, but also the excellent second-half cash conversion.
Much of the concerns relating to BKL this past 12 months has been to the write-downs in inventory and the subsequent cash-burn associated, so to see a turnaround in cashflow from a burn of -$22m in the first half to an inflow of $68m in the second-half was terrific.
Operating margins in the fourth quarter when excluding the last of the writedowns were better than the previous 3 quarters, and further encouragement can be taken from BKL’s intention to selectively raise some prices into 2018.
The +25% jump feels aggressive, and we would definitely expect the stock to settle back near $100, but we feel this is a turning point in the share, and that better things can be expected in the coming year.
Mantra Group (MTR) – solid figures and a lot of positives ahead
Like BKL, MTR has been a little on the nose this past 12 months as weaker average room revenues in the Darwin, Brisbane and Perth CBD markets detracted from strength in MTR’s resort operations.
We think MTR’s guidance for 2018 looks sound and arguably beatable given the recent Art Series acquisition, continued strength in resort markets and the upcoming Commonwealth Games in April 2018, which will be held on the Gold Coast, where MTR have a significant exposure (~20-25% of group rooms).
Further, MTR acknowledge that they have 20% growth in new rooms slated to join the existing portfolio and a further 20% of capacity additions under negotiation, which makes this company an excellent grower in the years ahead.
We like the story, the valuation here and the growth.
Anyways, that’s all for this week!
Have a great weekend.
Friday 11am Values
|S&P / ASX 200||5712||-14||-0.2%|
|Property Trust Index||1315||+7||+0.5%|
Thursday Closing Values
|U.S. S&P 500||2472||+33||+1.4%|
Key dates: Australian Companies
|Mon 4th September||
Div Ex Date – Amcor (AMC), Mantra (MTR), NABPA
|Tue 5th September||
Div Ex-Date – Bendigo Bank (BEN), Boral (BLD), BWX (BWX), CWNHA/CWNHB, Oil Search (OSH), Ramsay (RHC)
|Wed 6th September||
Div Ex-Date – CBAPC/CBAPD/CBAPE/CBAPF, Healthscope (HSO), Insurance Australia (IAG), Medibank (MPL)
Div Pay-Date – Domino’s Pizza (DMP)
|Thu 7th September||
Div Ex-Date – BHP (BHP), ASX(ASX), Woolworths (WOW)
|Fri 8th September||
Div Ex-Date – Bluescope (BSL), QANTAS (QAN), Sonic Healthcare (SHL)
Div Pay-Date – AGLHA, Ansell (ANN), JB Hi-Fi (JBH), WBCPD
For more information on the above please contact your Partners Wealth Group advisor directly or on 1800 333 143.