Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Positive outlook despite ‘myriad of challenges’ facing equities
The Covid recovery, which many investors have eagerly ridden since the pandemic lows of March 2020, is finally showing signs of moderation.
Co-founder and CIO of Blackmore Capital, Marcus Bogdan, says “a growing myriad of challenges are weighing on equity markets, including supply-chain bottlenecks, energy prices grinding higher, financial deleveraging in China, the persistence of the delta COVID variant, and rising bond yields as central banks begin tightening liquidity conditions.”
Collectively, says Bogdan, each of these factors have heightened investor uncertainty. “Yet encouragingly, it is pleasing to observe that the latest AGM and quarterly updates have delivered more positive than negative surprises in terms of current trading conditions and earnings guidance.”
At a portfolio level 1Q21 results can be classified as –
- Upgrade to earnings, – Healius (beneficiary of elevated COVID testing); Goodman Group (lifted FY22 eps guidance to +15%); Macquarie Group (elevated trading & investment income & asset sales); News Corp (stronger than expected digital real estate)
- Confirmed guidance – Amcor & Brambles successfully navigated elevated inflation through pass-through cost mechanisms & pricing power. CSL ongoing recovery in plasma collections.
- Downgrade to earnings – Westpac disappointing execution on margins and expenses.
Bogdan says the reopening of economies has led to a significant increase in the demand for energy. “Global oil demand has rebounded at a time when there is a lack of new supply. The combination of rising demand and shortages in energy supply has ignited prices for both oil and gas.
“Our portfolios retain an investment in Ampol and Santos, as both companies benefit from current favourable industry conditions. Yet the sunset for the fossil industry has begun and it is imperative for energy companies to not only lower their carbon emissions but transition to a greener energy footprint.”
Movements in portfolios:
- The team has added to Integral Diagnostics (IDX) following its trading update at its AGM. The company’s organic revenue remains below expectations in 1Q22, but the team expects IDX’s revenue to recover materially as lockdown restrictions are eased in Australia and New Zealand, and patients return to normal healthcare testing and elective surgery lists recommence. “Australian imaging has grown at an average of 7% per annum for the last 15 years. A strong sequential improvement in calendar 2022 for IDX should deliver an attractive mix of both volume and price recovery. Furthermore, organic growth should be enhanced with brownfield/greenfield investments and the contribution of EPS-accretive M&A.”
In summary, Bogdan says “there is growing confidence that we are now facing a clearer path to normalisation over the summer months with the end of state lockdowns and the reopening of international borders providing further support of a rebound in economic activity. While monetary policy measures may begin to tighten modestly, we expect fiscal stimulus may re-emerge as we head toward a federal election 1H calendar 2022. Overall, with the earnings expansion expected to continue for the remainder of FY22, our portfolios retain a focus on companies that can deliver long term profit and dividend growth.”
