“It’s pretty amazing that we live in an age when a CEO of two public companies can give a talk about colonizing Mars and shareholders don’t see that as a warning signal”
Dave Pell, Founder, NextDraft [Speaking in relation to Elon Musk/Tesla]
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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Domestic Economy
“In Australia, business confidence is up”
Ajay Banga, CEO, Mastercard
“Measures of household and business sentiment remain above average”
RBA Statement
“Part-time employment has been growing strongly, but employment growth overall has slowed. The forward-looking indicators point to continued expansion in employment in the near term”
RBA Statement
“Queensland and Western Australia continue to have elevated delinquency development from economic pressure, in particular in mining related regions”
Georgette Nicholas, CEO, Genworth
“Australian economic conditions overall remain stable, though there are areas of pressure. Low unemployment rates overall and record-low interest rates are supporting serviceability and a continued focus by regulators is promoting sound lending standards. House price growth continues to vary by region, with Sydney and Melbourne continuing to outperform the other major cities”
Georgette Nicholas, CEO, Genworth
Banking
“The current outlook for banking is dominated by headwinds. Some of those headwinds are cyclical like more subdued credit growth, low interest rates and a turning credit cycle. But some are structural like the impact of new technology, and changing customer expectations, the cost of additional capital and compliance and, of course, changing community expectations”
Shayne Elliott, CEO, ANZ
“Low or even negative interest rates are clear headwinds for our industry”
Tidjane Thiam, CEO, Credit Suisse
“We believe the risks of a sharp correction in property prices could increase and if that were to occur, credit losses incurred by all financial institutions operating in Australia are likely to be significantly greater; with about two-thirds of banks' lending assets secured by residential home loans--the impact of such a scenario on financial institutions would be amplified by the Australian economy's external weaknesses, in particular its persistent current account deficits and high level of external debt”
Report by Standard & Poor (S&P)
Global Economy
“We continue to believe, like we said in the previous quarter, that the U.S. is on a steady growth path with consumer confidence, unemployment and wages holding firm”
Ajay Banga, CEO, Mastercard
“Many markets across Europe are showing a gradual recovery led by Germany as economic sentiment holds steady and unemployment rates are continuing to decline. Although uncertainty from Brexit and its impact on Europe remain a concern, it's going to take a few years to understand the full implications. Interestingly, underlying UK consumer demand remains stable. And, in fact, as a result of the weaker pound, inbound travel to the UK is picking up over this last quarter”
Ajay Banga, CEO, Mastercard
Housing
“Turnover in the housing market and growth in lending for housing have slowed over the past year”
RBA Statement
“We're seeing continued strong growth in residential activity, which is flowing through the volumes, but also to margins”
Rob Sindel, MD, CSR
“The overall strength in the residential construction market across the east coast has supported the growth in building products' earnings and margins. While detached housing construction remains robust, high-rise apartment approvals are showing signs of slowing across Australia”
Rob Sindel, MD, CSR
Retail/Consumer
“We continue to believe the retail environment in the United States remains challenging, which has resulted in several retailers either closing doors or ceasing operations and widespread promotions on a normally full-priced brand”
David Weinberg, COO, Skechers
“We believe the domestic market is continuing to adjust to the changing retail landscape and retailers are managing inventory with more caution, ordering much closer to season”
David Weinberg, COO, Skechers
Commodities
“There is every possibility that [coal prices in] Q1 could be as good or even better than Q4”
Donald Lindsay, CEO, Teck resources (US)
“We don't think commodity prices are still quite good enough to drive substantial sales increases next year. We would like to see commodity prices rise more next year. And if that happens, we think, logically there would be upside for the second half of next year; if that doesn't happen, there probably will not be any upside then”
Michael Lynn DeWalt, Caterpilllar
“Recent price movement heavily impacted by short term supply factors, is unlikely to continue in the long term”
S32 Market Statement
“Price stability in the iron ore market and recent strong price gains in the coal markets, if sustainable, will provide positive momentum for NRW’s prospects particularly as we look beyond the current financial year and into FY18 and FY19”
Julian Pemberton, CEO, NRW Holdings
“To bring the magnitude of the slowdown in civil mining work into context, we delivered revenues of $30m during the last financial year. At the divisions peak we were doing $30m in revenue per fortnight”
Julian Pemberton, CEO, NRW Holdings
Oil & Gas
“The physical [oil] market appears to have moved broadly into balance with the amount of oil produced each day broadly in line with daily consumption. Nevertheless, oil inventories are at record levels and will still take some time to reduce”
Brian Gilvary, CFO, BP
“Lower oil prices continue to be a significant challenge across the business, and the outlook remains uncertain”
Ben van Beurden, CEO, Shell
“We expect a stronger outlook for oil prices. We expect inventories to decline gradually next year supported by continued demand growth and sustained weakness in non-OPEC supply”
Brian Gilvary, CFO, BP
Groceries
“It is fairly inevitable that we will grab a little bit more share and maybe we will grow to 14 or 15 per cent (of the Australian market) at the end of the day”
Tom Daunt, CEO, Aldi Australia
“The market definitely is more competitive than it has been’’
Tom Daunt, CEO, Aldi Australia
Airlines
“Like most carriers globally, we are seeing international air fares below where they were 12 months ago”
Alan Joyce, CEO, Qantas
Technology
“Looking back with the benefits of a couple of hundred years from the industrial revolution, back in the day people were very nervous weavers would never get a job again and all these people would lose their livelihoods (But) somehow people have always found new things to do with their time and with their labour, so I suspect taking a longer term viewpoint, we will be in the camp expecting that man’s ingenuity seems to be able to find new ways of deploying people on a consistent basis. Whether we’re at an inflection point or changing point to that, time will tell. But at the moment I think more than 200 years of history would indicate that people will find things to do”
Nicholas Moore, MD, Macquarie
[Speaking in relation to Elon Musk/Tesla] “It’s pretty amazing that we live in an age when a CEO of two public companies can give a talk about colonizing Mars and shareholders don’t see that as a warning signal”
Dave Pell, Founder, NextDraft
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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 enquiries@naos.com.au
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