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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Agriculture
“In terms of livestock prices and volumes the overwhelming view is that those prices should remain firm going forward”
Mark Allison, MD, Elders
“In Malts, We look for continued growth in that crop sector but the rate is starting to slow down. We’re seeing expansion not just in North America, but also coming in from other areas around the world. One thing we are seeing is that there's a fragmentation going on in our craft brewer sector. It's shifting consumption from some of the larger mature craft brewers into the smaller on-site type of consumption… We're also expecting that strong demand to continue forward on specialty products side, be it rolls for specialty type of products”
Mark Palmquist, MD, GrainCorp
“The general outlook for FY17 remains pretty positive. The strong seasonal conditions that ran through the second half of the winter crop in particular have also provided a good backdrop for summer crop in Northern Australia”
Mark Allison, MD, Elders
Food & Groceries / Infant Formula & Vitamins
“The fundamentals in [the] Chinese market remain strong. The change in regulatory environment has caused disruption, and caused a build-up in inventory. Once this inventory works its way into the market, we expect regular supply volumes to resume"
Paul van Heerwaarden, CEO, Bega
“We are seeing some recovery in the New Zealand milk price, which certainly help the uptake of mill demand and supplemental feeding should increase. So we do feel better in terms of where crush margins are going. But I'll tell you in the food product side, we still look for continued uncertainty around the infant formula category as regards to regulatory environment and competition from around the world”
Mark Palmquist, MD, GrainCorp
“That [Chinese grey market] is a relatively small part of our core business. Our China business has grown something like 220 per cent so far this [financial] year, which is the biggest growth since we started there”
Marcus Blackmore, Former Chairman, Blackmores
Housing
“Housing turnover and growth in housing credit both remained lower than a year earlier, consistent with the supervisory measures that had been taken to tighten lending standards and the more cautious attitude to lending in certain segments. In addition, a considerable supply of apartments is scheduled to come on stream over the next few years, particularly in the eastern capital cities, and growth in rents in the September quarter was the slowest for some decades”
Reserve Bank of Australia
“Nationally, housing credit growth had remained lower than a year earlier at around 6 per cent per annum, although loan approvals to investors had picked up over recent months”
Reserve Bank of Australia
Commodities
“The current spot uranium price we believe cannot stay below US dollars $20 per pound on a sustainable basis. Previously, consensus forecasts for the uranium industry and rising uranium prices were generally based on the fact that the nuclear power generation is growing globally at the moment, and that will lead eventually to an increase underlying demand for uranium. We've not seen that demand pick up yet, mainly because global utilities are meeting their consumption requirements with existing stockpile material. [However], we definitely believe when we speak to other global uranium suppliers that there is a very large adjustment about to take place in our industry”
Alex Molyneux, CEO, Paladin
“We definitely believe, we are on the cusp of a capitulation in the uranium industry; and we can expect 2017 to be the turnaround year for our market”
Alex Molyneux, CEO, Paladin
“The [copper] deposits are becoming more complex, the world’s requirements for copper are going to become harder and harder to supply”
Sam Walsh, Former CEO, Rio
“The spill overs from falling commodity prices and the associated declines in mining investment had been larger than expected over this period”
Reserve Bank of Australia
“We note that current market prices for hard coking coal have increased significantly recently. We view this increase as temporary and is therefore unlikely to materially increase contracted volumes in the short term
Standard & Poors
Financial Markets
"I think it's going to be very difficult for the infrastructure stocks to perform over the next six to 12 months”
Geoff Wilson, Founder, Wilson Asset Management
“There is no new Trump bull market in the offing. Be satisfied with 3-5 per cent globally diversified returns”
Bill Gross, Portfolio Manager, Janus
“Trump’s pro-business agenda is inherently unfriendly to bonds, as it could to lead to stronger economic growth and renewed inflation”
Jeff Gundlach, Founder, DoubleLine Capital
Global Economy
“By next spring, I expect the rise in oil prices to be pushing up consumer prices. I’d like a debate on wage rises that considers the expected rate of inflation”
Shinzo Abe, Prime Minister, Japan
“I currently have a large bet on economic growth. I am very short bonds which is not reflective on some disaster with deficits, but with stronger growth. I like the sectors of the equity market that respond to growth being value stocks and materials. Not things like staples and traditional growth stocks. I also particularly like the US dollar especially compared to the Euro”
Stanley Druckenmiller, Founder, Duquesne Capital Management
"Donald Trump is moving forcefully to policies that put the stimulation of traditional domestic manufacturing above all else, that are far more pro-business, that are much more protectionist"
Ray Dalio, Founder, Bridgewater Associates
Domestic Economy
“Interest rates are at historic lows, but this has not helped regional borrowers to the same extent as those in the cities. Borrowers living outside the capital cities are struggling with higher rates of unemployment and the decline of key industries as Australia shifts toward a more service-oriented economy”
Report by Standard & Poors
Domestic Retailing
“The start to the financial year in Australia was impacted by an extremely warm winter and consequently high levels of promotion, as all retailers sought to clear stock. As summer arrives we are seeing sales improve, albeit in challenging conditions in both markets”
Woolworths Holdings South Africa (Owner of David Jones)
"There's a societal shift towards brands, towards lifestyle, towards looking good and feeling good and all these elements are well served through a department store type model"
Richard Umbers, CEO, Myer
Media
“I'd love to stand here and say the market is robust and full of demand and growth, but we have to focus on two things. One is, doing everything we can to support the advertising environment, but two, be very clear about diversifying our business and having a strategy that gives rise to the opportunities to create value outside the traditional advertising market"
Hugh Marks, CEO, Nine Entertainment
Airlines
“Fifteen years ago a flight from Sydney to Melbourne cost around $400. Then you stood in a queue to check in, brought a magazine for entertainment and knew you would be out of contact for the entire flight. Now the average airfare is $160”
Alan Joyce, CEO, Qantas
"Our exceptional international traffic growth has extended into October, with year to date growth now at 9.3%. Double digit seat capacity growth for the year continues to be driven by new and existing airline customers"
Market Announcement by Sydney Airport
“Domestic passenger growth continues to be robust at 1.4% above pcp for the month and 4.2% for the year to date, driven by seat growth and load factor improvements”
Market Announcement by Sydney Airport
Other
“Augmented reality is going to take a while, because there are some really hard technology challenges there, but it will happen in a big way, and we will wonder when it does, how we ever lived without it. We are high on AR for the long run. We think there are great things for customers and a great commercial opportunity. I can't imagine everyone in here getting in an enclosed VR experience while you're sitting in here with me, but I could imagine everyone in here in an AR experience right now"
Tim Cook, CEO, Apple
"Craft [beer] demand is slowing. It is no longer growing at double digits but high single digits"
Mark Palmquist, MD, GrainCorp
Thank you for reading.
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