NEWS + VIEWS – 14/02/2025
MARKETS
The positive trend since the start of the year has continued into February both offshore and domestically. Most economists (but not all) are expecting an interest rate cut this month and the federal government is pushing for one. The political pressure on the Reserve Bank (RBA) is immense. Inflation is falling but it would be difficult to conclude it has been crushed with confidence. Once announced, a rate cut will provide some tail winds to the share market.
Nobody knows how the share market will perform for the rest of the year, but the Coppo Report did some analysis of what happens to the share market after a positive January. The chart below shows that where the All Ordinaries index is up 4% or more in January, the rest of the year has finished positive 15 out of 20 times with an average gain of 15.4%.
While the analysis does not guarantee that the share market will finish in positive territory, it does give some confidence. Most analysts are positioning for share market rises in 2025, particularly US markets. Some contrarians might say that this is a reason to be cautious.
TARIFFS CREATING SOME ANGST
President Trump followed the imposition of tariffs on China with a 25% tariff on all steel and aluminium imports into the US. The possibility of a tit for tat response and further extension into other products does create uncertainty for investors. The steel and aluminium tariffs do not have a lot of direct impact on Australian companies. Indirectly, however, less trade may mean less demand for our raw materials.
The strategic intent appears to be firstly raising cash to cover tax cuts and secondly, encourage firms to locate production in the US. The problem for the US, however, is that it will push up prices, and thus inflation. Consumers will not react well to that. The main concern is how far tariffs will be extended.
PROFIT REPORTING SEASON
The Australian profit reporting season kicked off in earnest this week.
CSL marking time
CSL’s half-year result disappointed investors with lower sales in their vaccination division, Seqirus. This was centred around the US operations as fewer people are getting flu shots.
The core blood plasma business had higher than expected volumes and margins. Vifor, the kidney and iron-deficiency drugs business, has improved with a sales increase of 6%. Acquired two years ago, Vifor has been a drag up until this point.
Full year guidance was confirmed by management and medium-term growth targets have not been adjusted. Net profit was up 7% to $US2.01 billion compared to expectations of a 10% to 13% rise.
The dividend for the half year of $2.07 per share is up from $1.80 for the same half last year. Part of this rise is a weaker $A.
CSL has struggled to get all divisions firing at once. It has also discontinued a number of expensive drug trials. While results have been consistently positive, CSL is not showing sufficient growth to generate a stronger share price. However, if CSL meets its guidance for the rest of the year, investors may react positively.
Commonwealth Bank (CBA) exceeds expectations
CBA announced a cash profit of $5.13 billion for the first half, beating most analysts’ expectations. The quality of the result was good as net interest margins increased by 0.02% to 2.08%.
Management stressed that the economy is slowing although employment is strong (at least in the government sector), which was borne out in the quality of the loan book where the expense for loan impairments fell by 23% to $320 million.
CBA’s balance sheet remains ‘unquestionably strong’ as its Common Tier 1 ratio is at 12.2%. Management was confident enough to increase the dividend to $2.25 per share, which is up 5% on the same period last year.
CBA is Australia’s strongest major bank operationally, however it is expensive.
Macquarie Group (MQG) flat
In a quarterly trading update, there was little unexpected in MQG’s results for the nine months to December. The Commodities and Global Markets (CGM) and Capital divisions were the only negative ‘trends’ but were offset by improvements in the Asset Management business.
There has not appeared to have been much progress in MQG ‘unloading’ some ‘green’ assets that they have developed. Management maintain that it is a matter of ‘scaling up’ or developing further these assets to close buyers who have expressed interest.
MQG is well run with a demonstrated track record of pivoting when it sees markets change. It may need to do this as US renewables projects will not have the same support as under the previous administration.
SGH strong result
SGH, formerly known as Seven Group, reported a 2% increase in revenue to $5.5 billion and a 10% rise in earnings before interest and tax (EBIT) for the half year. CEO Ryan Stokes said the result was driven by a disciplined focus on customer service, execution and operating leverage. SGH increased its interim dividend by 30% to $0.30 per share and management is guiding to high single-digit EBIT growth for the full year.
Gerard O’Shaughnessy
P 0423 771 330
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