CEO INSIGHTS – Week Ending 11 May 2018 By NAOS Asset Management

Tops of wind turbines against a wintry blue sky in northern Illinois

“The switch from traditional fuels into renewables is just a massive switch, and we're seeing it across so many different businesses that we are working with – not just our own business, but so many different businesses out there, where the energy profile they are looking at is changing as a result of this renewable story. Now that is driving a lot of what we're doing” Nicholas Moore, CEO, Macquarie Group

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.

Domestic M&A

“The level of activity across ECM [equity capital markets], M&A and DCM [debt capital markets] has been very good. The market is in a much more optimistic position than it was last year, albeit some of what has come through this year started at the tail end of last” Aidan Allen, Co-Head of Investment Banking, UBS

“Our underlying business remains very strong across investment banking and capital markets, equities, and private banking. Our regional APAC business just posted an outstanding first quarter result” John Knox, CEO, Credit Suisse Australia 

“We are very pleased with the strength of our pipeline, to the extent that it will convert into announced deals. We are certainly optimistic around the outlook” Roger Feletto, Co-Head, Greenhill Australia

Tourism and Leisure

“System wide constant dollar RevPAR [revenue per available room] in our Asia Pacific region increased 10%, which was much stronger than the mid single-digit growth we expected… of our international pipeline, nearly 60% of the rooms are in the Asia Pacific region” Arne Sorenson, CEO, Marriott International

Oil & Gas

“Oil and gas demand is growing at 1% to 1.5% per annum, while you’ve got depletion running at 6%, so the big issue is replacing ageing supply across the sector” Andrew Wood, CEO, WorleyParsons

“Do we think we will get back to the [oil price] levels in 2013? No we don’t, but we do know that it has to be considerably more than it is now” Andrew Wood, CEO, WorleyParsons

Commodities

“In Asia-Pacific, we expect higher demand from metallurgical coal customers to continue” Jeanne Johns, MD, Incitec

Used Car Market

“The outlook for the used car market is positive” Doc Klotz, MD, Eclipx

Agriculture

“Fertilizer earnings were impacted by dry weather on the East Coast of Australia” Jeanne Johns, MD, Incitec

“In Australia, we have seen a continuation of the dry conditions in April, with many parts of the country recording their driest April on record. Whilst it is not too late for the major cereal growing areas, there has been no break on the eastern seaboard” Nufarm Market Announcement

Student Accommodation

“We’re now at a phase where there’s a lot of development going on in the student accommodation space but it’s against a backdrop of very short supply relative to student numbers” Tim Peel, CFO, Scape 

“The most popular destination for overseas student accommodation is in Melbourne where you’ve got two great universities right on the doorstep of the CBD” Tim Peel, CFO, Scape 

Housing

“There has been an uptick in home loan arrears, influenced by a small number of customers experiencing difficulties with rising essential costs and limited income growth” Commonwealth Bank Market Announcement

“Interest only lending is now 40% of the book, down by 10 percentage points over the year” Brian Hartzer, CEO, Westpac

“While the housing market is expected to continue to cool, this dynamic means that opportunities are opening up for first home buyers, who are beginning to step up in place of investors” Brian Hartzer, CEO, Westpac

“With solid underlying demand relative to supply, and almost 70 per cent of our customers ahead on their repayments, the Australian housing market is in good shape” Brian Hartzer, CEO, Westpac

“Last year the government allowed $300,000 to go into super [if a retiree downsized]. This year they're saying 'Live in your house longer'. I think it keeps people living longer in inappropriate housing, which could be freed up as future housing stock for first home buyers” James Kelley, CEO, Lifestyle Communities

“Looking to the future, for us it's really a story about population growth. That remains the key fundamental driver of housing demand, particularly on the east coast of Australia. We're actually seeing Western Australia and Queensland starting to grow again” Rob Sindel, MD, CSR

“We believe that the construction markets will remain strong – primarily driven by strong focused growth in residential construction spend” Alberto Calderon, CEO, Orica

“The construction market is incredibly strong at present” Martin Brydon, CEO, Adelaide Brighton

Franchising

“If you have a benevolent franchisor they won't abuse the system but it leaves itself open to abuse – that happens when you get corporates or venture capitalists or listed companies in and they put their stakeholders or shareholders ahead of franchisee profitability” Michael Sherlock, Founder, Brumby’s Bakeries

Small Business

“If we have one issue with this budget it is that we are concerned that the government's decision to cap the R&D tax incentive will cap creativity and innovation, discouraging investment and growth in the critical start-up ecosystem, and for small businesses more broadly” Tim Reed, CEO, MYOB

Global Engineering and Construction

“I am encouraged by my conversations with customers and their expectation of economic growth. We remain enthusiastic about our prospects with many sizable awards in future. This is going to be a multi-market, multi-year upturn and we are well positioned to meet the needs of our clients” David Seaton, Chairman and CEO, Fluor

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.

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