CEO INSIGHTS – Week Ending 4 August 2017 BY NAOS Asset Management

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“The smaller players saw NBN as an opportunity because they didn’t have the ability to build the infrastructure. But when the commercial model was announced they realised that the commercial model didn’t work for them and the usage-based charging is contrary to the market dynamics we see in mobile and fixed” Rene Sugo, CEO, MNF Group

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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Mining Capital Expenditure

“The spend on our growth capital is starting to increase”

Christopher Lynch, CFO, Rio Tinto

 

Commodities

“It [the steel industry in China] is today both healthy and profitable [and] order books are full. As a result, demand for high-grade iron ore has been strong and due to productivity should continue in the foreseeable future”

Jean-Sébastien Jacques, CEO, Rio Tinto

“The [iron ore] market is in a sweet spot right now from $60 to $70. It is a price which does not incentivise too much swing capacity to come back and it’s a very profitable range for major mining companies”

Siani Pires, CFO, Vale SA

 

NBN

“[The NBN] will actually start hurting the big guys because NBN Co can offer services that are in their league in terms of mobile backhaul [and] gigabit ethernet services. They even have spectrum, so what’s stopping them from building a mobile network?”

Rene Sugo, CEO, MNF Group

 

Travel & Tourism

“I think tourism is going to be one of those mega trends for the next 20-30 years, and I hope at least some of my kids grow up and work in the hospitality industry, because there is such a tremendous opportunity there”

Matt Bekier, CEO, Star Entertainment Group

“We are very excited about the growth [in hotel demand] in the Pacific…We believe Melbourne will be one of the great cities of the Pacific”

Simon Manning, VP of Sales & Marketing, Langham Hotels

 

Consumer Behaviour

“Australia is becoming more urbanised, more apartments… people go out more and so for us to have an expansion in food, beverage and entertainment space is entirely consistent in how people are changing the way they live”

Matt Bekier, CEO, Star Entertainment Group

“Identity and digital identity is one of the most important opportunities in the next 10 years. How people shop, how people pay and how people transact – these are the three big changes corporations are seeing. And every single one of those three trends is underpinned by identity. You can't do anything until you know who you are dealing with”

Ahmed Fahour, Chairman, BCG Digital Ventures

 

Health Insurance

“Premium increases above CPI are hurting consumers in a low wage growth environment. In five to six years, price sensitivity modelling shows that premiums will potentially ­become unaffordable for at least one-fifth of people with private health insurance”

Rachel David, CEO, Private Healthcare Australia

 

Liquor

“[Treasury Wine Estate’s] volume growth and profitability in the [China] region has been driven by significant route-to-market investment and outstanding brand building, supported by favourable imported wine market fundamentals in China”

Treasury Wine Estate Market Announcement

Retail

“While we continue to see good market share results, overall like-for-like sales have weakened due to consumers spending less per basket and on lower value items. We are experiencing similar consumer sentiment as reported by other retailers over recent weeks”

Richard Vincent, CEO, API Pharmaceuticals

“We have seen food retail spending pick up and fill some gaps from weaker non-food retailing, with catered food driving most recent improvements. Household goods have been the best performer for non-food retailing”

Tanya Barden, CEO, Australian Food and Grocery Council

“I've moved away from thinking about pure online retail – it's one retail – you have to be where the customers are”

Nati Harpaz, CEO, Catch Group

“The physical space is actually one of the best ways to acquire new customers – it's a lot cheaper to acquire customers through the physical space and then migrate them online. Google and Facebook are the guys winning the most – you spend a lot of money to acquire the customers and you're pretty much in their hands”

Nati Harpaz, CEO, Catch Group

 

Education

“Global demand for high quality education remains strong and is forecast to continue to grow in Navitas’ key markets”

Navitas Market Announcement

 

Domestic Economy

“The low wage growth story is problematic, because it means there is less discretionary consumer spend available. That means some businesses will say ‘why should I invest in this particular area, if consumer sentiment is so low?’ Consumer sentiment is low because there is less money to spend as the cost of living is going up”

Lyn Cobley, CEO, Westpac Institutional Bank

 

Residential Housing

“The [apartment] market is going down, it’s quite a big drop. Finance will have to get easier, otherwise the building industry will slow down and that will hurt the economy”

Harry Triguboff, Founder, Meriton

“[The RBA should] keep rates low, do not believe the figures, the market is worse than you think”

Harry Triguboff, Founder, Meriton

“[Apartment] prices will go back up because there is less building”

Harry Triguboff, Founder, Meriton

“Data indicates that loans in the 75-80 per cent LVR range default more frequently than loans with a greater than 80 per cent LVR” 

Georgette Nicholas, CEO, Genworth

“House price growth is likely to moderate in 2017 following regulatory measures to slow the growth in investment lending and limit the flow of new interest-only lending. Mortgage interest rate increases, particularly for investor and interest only loans, and recent changes to minimum bank equity requirements may also impact price growth this year”

Genworth Market Announcement

 

Commercial Property

“In the absence of flows being redirected away from the Australian property sector, we expect ongoing strong demand”

Michael Wedgwood, MD, BWP Trust

“We're expecting further rental growth from our core portfolio”

Michael Wedgwood, MD, BWP Trust

“While we are seeing rental growth slow following a very strong 2016, the trend of contracting incentives means that net effective rentals will continue to fare well”

Jenine Cranston, Senior Director, CBRE

“(This year) through to 2019 will be characterised by low supply and low vacancy. Strong effective rental growth is forecast over this period before moderating as new supply comes onto the market” 

Stuart Colquhoun, Head of Office Leasing, JLL

“It might be too early to call, but Perth appears to have reached the bottom of its leasing cycle”

Simon Hunt, MD of Office Leasing, Colliers International

 

Global Economy

“The Chinese economy has performed well in 2017 and the early signs for 2018 are positive. Beyond China, global economic conditions have improved in both Europe and the U.S.A.”

Jean-Sébastien Jacques, CEO, Rio Tinto

“We’re positive about China and we never shared the view that the country would collapse”

Siani Pires, CFO, Vale SA

 

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