CEO Insights - Week Ending Friday 28/10/16

“We continue to closely monitor risks in the housing market, but we take some comfort from population growth running ahead of dwelling completions and it's also supported by low interest rates and low unemployment” Andrew Thorburn, CEO, NAB

As part of the NAOS investment process, we pay particular attention to the comments made by company CEO’s and business leaders in order to gain a greater understanding of the current investment environment and key trends that may be emerging. Below are quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.

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Oil & Gas

“Things are getting better for us and our customers, [however] significant activity increases from our customers start with sustainable commodity prices over $50 per barrel, which we haven’t seen in any meaningful way yet”

Dave Lesar, CEO, Halliburton

“We have indeed reached the bottom of the cycle”

Paal Kibsgaard, CEO, Schlumberger

“The North American market has been continuing to grind slowly upward, and we expect that to continue”

Martin Craighead, CEO, Baker Hughes

Financial Markets

“It would only take a 100 basis point rise in Treasury bond yields to trigger the worst price decline in bonds since the 1981 bond market crash”

Ray Dalio, Founder, Bridgewater Associates

“Right now, a number of the riskier assets look attractive in relationship to bonds and cash, but not cheap in relationship to their risks. If this continues, holding non-financial store holds of wealth like gold could become more attractive than holding long duration fiat currency flows with negative yields especially if currency volatility picks up”

Ray Dalio, Founder, Bridgewater Associates

Infant Formula & Vitamins

“While this time last year supermarket shelves were empty [for infant formula] and customers in Australia and internationally were providing ever increasing orders, the combination of a regulation change in China, a supply response to the demand signals and the evolution of supply channels to market now sees significant discounting in the marketplace and signs of short term oversupply”

Barry Irvin, Chairman, Bega Cheese

“[Chinese demand for vitamins] was almost like a present. We hadn't seen it coming and I can tell you we really didn't see it going either”

Marcus Blackmore, Chairman, Blackmores

“There are positive sales trends that indicate overstocking is easing, consumer demand remains robust and we have been able to capture significant new sales in China”

Christine Holgate, CEO, Blackmores

Ageing population

"If the penetration rate of retirement living communities and villages was to increase from about 6 to 7.5 per cent of the over-65s, then the population of retirement villages will more than double over the next 14 years to 419,000"

Adrian Harrington, CEO, Folkestone

Australian Economy

“The economic backdrop is really favourable. We expect that outlook to continue. Both in Australia and New Zealand, there is good GDP growth rates and stable unemployment. Our long-term business survey shows both conditions and confidence above the long-run average. Non-mining GDP growth is also robust”

Andrew Thorburn, CEO, NAB

“There was some evidence that in the last few months, things have picked up a bit for the Australian economy”

Robbie Blau, CEO, SG Fleet

Housing

“In Sydney and Melbourne, where Mirvac has an overweight exposure, indicators, such as above average levels of auction clearance rates, point to solid demand, supported by a competitive lending environment and increasing urban population growth. Price growth remains relatively steady in Brisbane and weak to steady in Perth”

Susan Lloyd-Hurwitz, MD, Mirvac

We see continued high demand in the Sydney and Melbourne markets and an encouraging return of first home buyers in south east Queensland, who are taking advantage of the Queensland First Home Owners’ Grant, which was recently increased to $20,000”

Andrew Whitson, CEO, Residential, Stockland

“We see constructive signs for an elongated property cycle”

Andrew Whitson, CEO, Residential, Stockland

“We continue to closely monitor risks in the housing market, but we take some comfort from population growth running ahead of dwelling completions and it's also supported by low interest rates and low unemployment”

Andrew Thorburn, CEO, NAB

Commodities

“If you look at the supply curve without any change to demand and supply, the [iron ore] price should be higher than where it is today”

Nev Power, CEO, Fortescue Metals

“It's very pleasing to say that there are now many more options and opportunities [in exploration] sitting in our pipeline than there certainly was a year ago”

Andrew Cole, MD, Oz Minerals

I think you will find the senior producers will be aggressively buying the intermediates and the developers because they are going to acknowledge they are going to have a hole in their production in five or three years time and can't wait for exploration…So they will start jumping in to those and there will be a bit of a feeding frenzy and big prices being paid”

Nick Holland, CEO, Gold Fields

“We’ve seen significant increases in metallurgical coal prices as you all know. While this is being driven by a number of supply side factors, the current volatility in coal prices also illustrates the demand for high quality metallurgical coal. We expect this volatility and pricing to remain in the near term”

Richard Goyder, MD, Wesfarmers

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About NAOS Asset Management

NAOS provides investors with niche product offerings in asset classes and sub sectors where they lack the time, resources or expertise to research and invest themselves. We adopt a high conviction, value driven, long/short approach to investing. Our investment approach looks to realise value over the long term by sourcing and combining investment opportunities that present the greatest opportunity to realise positive absolute returns in the form of capital growth and income generation over the long term.

NAOS Emerging Opportunities Company Limited's (ASX: NCC) objective is to provide investors with concentrated exposure to quality undervalued emerging companies, whilst maintaining a focus on long term capital protection.

NAOS Absolute Opportunities Company Limited's (ASX: NAC)  objective is to provide investors with exposure to quality undervalued mid-cap companies whilst having the ability to selectively short overvalued lower quality companies, this aims to minimise the risk of permanent capital loss and produce uncorrelated returns to general market movements over the long term.

In addition, the emerging opportunities strategy is available to sophisticated investors via a unit trust, The NAOS Emerging Opportunities Fund.

For all enquiries please contact [email protected]

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