Company quarterly results
Origin energy tabled a weak quarterly, as expected. We established a position very recently, after the April 19th downgrade. As such, we expected a weak print, albeit the higher commodity revenues are an obvious positive. We are in ORG as the “cheap” value-based complement to our much higher quality WPL holding.
Transurban tabled as investor day (rather than a quarterly updated) where the main emphasis was on the growth pipeline.
We see TCL as a high quality essential infrastructure play, with good growth prospects, recovering earnings, and an improved valuation (these days).
The below graph depicts the recovery in traffic volumes, which is grinding, but getting closer to the prior peak across most geographic exposures.
The Alumina (AWC) quarterly was mixed, with higher Alumina prices are clear positive, offset by higher than expected costs. Much of that was due to the higher AUD, which we expect to fall, over the longer run. AWC remains compelling value, to our minds, and is our “flagship” commodities exposure (outside of an underweight to BHP) in our portfolios.
COL & WOW
COL enjoyed a strong share price reaction to the quarterly, which was in-line with street expectations, but the share price had, to our minds, suggested an over-extrapolation to the downside by the broader market.
Bear in mind that at the time of the Coles result, management had indicated that things were about as good as they could reasonably get, and that Coles would begin to cycle sales comps (sales compared to the previous corresponding period) that could well result in a negative sales print.
The market didn’t like this, and sold Coles down. Meanwhile, WOW’s management tabled a much rosier outlook, and the share price rallied. The spread in performance from the result became a little over 15%, at which point we decided to further sell down our Woolworths exposure, coming to exit the stock on the basis of a very stretched valuation (it had become an “expensive defensive”) and to upweight our COL exposure, which was a “defensive stock trading at a market multiple”. In particular, we thought the COL commentary was much more realistic and prudent, with WOW’s guidance likely to lead to downside surprises. And, post the release of the quarterlies, that appears to be exactly what’s happened.
Interestingly, COL pointed to the “normalisation” of consumer behaviour, with an increase to shopping centres and CBD stores. This is a) positive for COL, and perhaps a negative for MTS, which has more of a “neighbourhood shopping / local shopping” store network than COL, and b) a positive for our REITs such as DXS, VCX and SCP.
ResMed tabled a flat quarter, and in a similar way to COL and WOW outlined above, struggled to compete with COVID-boosts during the previous comparison period (in this case $35m of COVID-related sales revenue in 3Q2020).
However the main negative was the $250m provision raised for tax related reasons. Between flatter headline sales, and the additional expense, the stock has traded poorly.
We remain comfortable with RMD over the longer run, providing up with an ultra-high quality company with very good growth prospects in an area of unmet clinical need.
Important Information: This document has been prepared by Aequitas Investment Partners ABN 92 644 165 266 (“Aequitas”, “our”, “we”), a Corporate Authorised Representative (no. 1284389) of C2 Financial Services, (Australian Financial Services Licensee no. 502171), and is for distribution within Australia to wholesale clients and financial advisers only.
This document is based on information available at the time of publishing, information which we believe is correct and any opinions, conclusions or forecasts are reasonably held or made as at the time of its compilation, but no warranty is made as to its accuracy, reliability or completeness. To the extent permitted by law, neither Aequitas nor any of its affiliates accept liability to any person for loss or damage arising from the use of the information herein.
Please note that past performance is not a reliable indicator of future performance.
General Advice Warning: This document has been prepared without taking into account your objectives, financial situation or needs, and therefore you should consider its appropriateness, having regard to your objectives, financial situation and needs. Before making any decision about whether to acquire a financial product, you should obtain and read the relevant Product Disclosure Statement (PDS) or Investor Directed Portfolio Service Guide (IDPS Guide) and consider talking to a financial adviser.
Taxation warning: Any taxation considerations are general and based on present taxation laws and may be subject to change. Aequitas is not a registered tax (financial) adviser under the Tax Agent Services Act 2009 and investors should seek tax advice from a registered tax agent or a registered tax (financial) adviser if they intend to rely on this information to satisfy the liabilities or obligations or claim entitlements that arise, or could arise, under a taxation law.