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.
Westpac results steady the banking ship after BOQ announcement
A difficult reporting season for investors to digest was given an added twist when Bank of Queensland (ASX: BOQ) chief executive officer Patrick Allaway (pictured) told the market that the banking sector had changed forever.
For retirees, many of whom have been long enjoying the banks’ fully franked dividends, they will be hoping that Allaway was specifically referring to the challenges facing the Bank of Queensland when he announced a reduction in group’s return on equity targets, alongside job cuts to about 400 staff.
The bank is delivering a massive transformation program that will seek to overcome a highly competitive market and increasing cost of capital that has crimped earnings and even business growth in recent years.
As Allaway said, “We have long recognised the need to address legacy complexity and structural challenges to change the way we do business. Our heritage retail banking operating model that has served us well in the past is no longer sustainable. The conversion of our branch network will provide flexibility in our product distribution and improve our ability to optimise margins.”
Still, investors have welcomed the news – at least to date – with the share price up 32 cents to $6.27 since the announcement and will be waiting with bated breath for the full-year results due on August 31.
It was better news at Westpac (ASX: WBC) which gained on the day after delivering another $1.8 billion quarterly profit. While flat compared with the previous year quarter, the result showed growth of six per cent on the average of the previous two quarters and was delivered amid signs of growing competition for loans.
Among the biggest messages from the result was a stabilisation in the net interest margin to 1.82 per cent, being the central measure of profitability for a bank, along with an increase in delinquent loans as higher interest rates spread through the economy.
Mortgage broking has been central to the conversation, with management highlighting that referred mortgages are lower margin and representing a larger share due to their greater flexibility and strong customer experience.
Other good news for investors came with the realisation that the challenges in the office property sector might be peaking with industry heavyweight Charter Hall (ASX: CHC), which manages $81 billion of assets, announcing a result slightly above market expectations and a six per cent rise in distributions in the coming year. That was all the encouragement investors needed, piling into the stock to push it up 15.8 per cent to close at $14.01.
It was a different story for developer and office property giant Dexus (ASX: DXS) with its shares heading in the opposite direction, falling across the week after reporting a near $2 billion cut to the value of its property portfolio.
With more than 50 per cent of the portfolio dominated by office property, the group was always facing a challenging year, as higher interest rates lead to lower valuations and less cash left over after debt repayments. The group reported a 15 per cent reduction in its $54 billion office portfolio but in positive signs, it delivered a cash flow result that was only seven per cent below the previous year.
Management is now focused on a period of renewal, with valuations starting to steady, as they seek to replace lesser quality, older assets that are being sold, sometimes forced, with higher quality, cutting-edge projects in Melbourne and Sydney.
Turning to chicken, or poultry to be more specific, two stocks – Ingham’s (ASX: ING) and Collins Foods (ASX: CKF), which owns the KFC franchises in Australia, left investors in a foul mood when they smashed their share prices last Friday. In the case of Ingham’s, which operates poultry farms, the group flagged falling poultry sales in the year ahead amid growing cost of living pressures after reporting a weak 2.8 per cent increase from the previous year.
It was a similar case for Collins Foods, with the company reporting sales growth of just 1.1 per cent to begin the year and, more concerning, suggesting that input, labour and other cost inflation would hit margins. Management have suggested margins could fall to as low as 1.8 per cent after sitting at 8.8 per cent in the previous year.
