CEO INSIGHTS – Week Ending 2 February 2018 By NAOS Asset Management

“Few countries grow a significant number of sheep like Australia. With global demand for sheep, meat and wool continuing to strengthen, the market for suitable land is very buoyant, with record prices being achieved for these grazing assets, supported principally by well-capitalised local farming families” Danny Thomas, Director, CBRE Asia Pacific

As part of the NAOS investment process, we pay particular attention to the comments made by company CEOs 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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Agriculture 

“Whilst we certainly continue to see strong interest from foreign investors looking to acquire quality assets at scale, it was predominantly local established farming enterprises who made significant investments throughout 2017 and have underpinned land value appreciation” Tom Russo, GM of Real Estate, Elders

“Macroeconomic themes such as food security, growing Chinese and broader South East Asian middle class demand for safe and high quality agricultural products, and the broader ongoing flight of capital to quality real assets are all driving a significant increase in investment in Australian agricultural assets. Essentially, investors are betting that as populations and wealth grows in developing regions, we will see explosive growth in demand for food” Tom Russo, GM of Real Estate, Elders

“Permanent planting assets such as almonds and other edible nuts, as well as wine grapes, citrus, mango and avocados will all be in strong demand” Danny Thomas, Director, CBRE Asia Pacific

Gold

“Most [gold] companies have repaired their balance sheets, and in fact are looking for growth options” Jacob Klein, Executive Chairman, Evolution Mining

“We're in a sector where everyone has got a strong balance sheet” Mark Clark, Executive Chairman, Regis Resources

“We’ve seen in the last few months an increasing interest in gold from people who previously may not have shown a lot of interest. Whether that's because of inflation fears starting to come back or whether it's because of geopolitical concerns, gold as a safe haven is starting to be looked at again and as an inflation hedge. So, I'm optimistic about the gold price” Jacob Klein, Chairman, Evolution Mining

Commodities

“Investors in the commodity sector have generally enjoyed a good start to 2018. Synchronized global growth, a declining U.S. dollar and the apparent return of global inflationary pressures have all contributed to high commodity prices. Gold has also performed well since the mid-December fed rate hike” Bryan O'Hara, GM of IR, Evolution Mining

“As the Chinese preference for higher grade ores has increased over the past year, our non-core, low grade operation in Australia has continued to refine its mine plan and has performed to the best of its ability. That said we will likely cease mining operations in Australia later this year” Lourenco Goncalves, MD, Cliffs

Dairy

“Milk prices have largely been dropping since October, but over the past month the strengthening outlook for the global economy, subsequent rising general commodity prices, and the reduced milk production forecast due to difficult weather conditions, have seen dairy commodity prices strengthen” John Penno, MD, Synlait

Wine

“Our Asia business, in particular North Asia, has driven truly remarkable growth. We are successfully marketing and selling our Penfolds, Australian, American and French portfolios, which demonstrates the outstanding opportunities for imported wine across this region. We are confident we will continue to drive growth across our portfolios, especially in China” Mike Clarke, CEO, Treasury Wine Estates

Telecommunications

“5G requires not just macro sites but additional sites in the form of small cells that fill in and increase the overall capacity of the network. And that's very different than anything we've ever seen in any of the technology moves from 1G to 2G, 3G, and 4G” Jay Brown, CEO, Crown Castle

Taxis

“The [2015 ride-sharing] reforms have grown the pie for the whole industry and demand for taxis has remained stable and licence values have rebounded” Uber Australia Spokesman

Financial Markets

“Interest rates are at their lowest ever [and] money is awash. All the bankers are beating a path to our door to lend us money” Bernard Arnault, CEO, LVMH

“Asset prices are reaching stratospheric levels, equities or physical assets, a period of total unreality. There hasn't been a crisis for 10 years. I'm personally convinced that over the next five years – I can't say when, but there will be a crisis, so we have to be cautious. That's why I say that for 2018, I'm confident, but one needs to be cautious” Bernard Arnault, CEO, LVMH

Healthcare

“The ballooning costs of healthcare act as a hungry tapeworm on the American economy. Our group does not come to this problem with answers. But we also do not accept it as inevitable. Rather, we share the belief that putting our collective resources behind the country’s best talent can, in time, check the rise in health costs while concurrently enhancing patient satisfaction and outcomes” Warren Buffett, Chairman, Berkshire Hathaway

Electric Vehicles 

“At present, in Australia, [electric vehicle] penetration into the market is relatively minor, as electric vehicles and hybrids represent less than 1% of the car population… The reality is that diesel, petrol and hybrid vehicles will remain the dominant component of the car population for many years to come” Jonathan Ling, MD, GUD Holdings

Retail

“Growth was good across all regions… and this global business trend is continuing into this year” Bernard Arnault, CEO, LVMH

“The Watches and Jewellery market is picking up slowly” Bernard Arnault, CEO, LVMH   

Airlines

“We continue to see healthy demand in our commercial, defense, space, and services markets. In the commercial airplanes market, airlines continue to report robust profits, and passenger traffic in 2017 grew by more than 7% through November, exceeding the long-term trend of approximately 5%. Also, cargo traffic exceeded 9% growth in 2017 through November, driven by strong trade and industrial production in all regions. As we look to 2018, we expect passenger traffic to grow between 5.5% and 6%” Dennis Muilenburg, CEO, Boeing

Tech Companies

“Facebook and Google effectively control over half of all internet advertising revenue” George Soros, Founder, Soros Fund Management

Information Technology

“With positive IT spend signals, a strengthening commercial PC market and growing customer demand for hybrid cloud services, we expect our commercial business to remain strong” Amy Hood, CFO, Microsoft

Social Media

“Our community continues to grow with more than 2.1 billion people now using Facebook every month and 1.4 billion people using it daily” Mark Zuckerberg, Co-founder, Facebook

“Another important shift that we're seeing across the industry is the growth of Stories. We expect Stories are on track to overtake posts and feeds as the most common way that people share across all social Apps” Mark Zuckerberg, Co-founder, Facebook

Thank you for reading.

Important information: This material has been prepared by NAOS Asset Management Limited (ABN 23 107 624 126, AFSL 273529) (NAOS) for general information purposes only and must not be construed as investment advice. Certain economic, market or company information contained in this material may have been obtained from published sources prepared by third parties. Nothing contained herein should be construed as granting by implication or otherwise, any license or right to use such third party content without the written permission of the owner.