Acerca de

Compared to recent years, profit results were more varied, and earnings expectations were only slightly exceeded on average. The source of this change appears to have been driven by a softer economy, elevated inflation, higher interest costs and debt levels. Company cash flows were somewhat tighter leading to an increased focus on cost and efficiency. Consequently, dividend growth was more subdued and capital management more hesitant.

​

Economic softness impacted turnover in several ways. Consumers responded to cost-of-living pressures by purchasing larger more discounted quantities of goods. In the case of packaging company Amcor, lower sales volumes reflected this upsizing. High interest rates saw James Hardie report a soft renovation market and Sims Metal Management, low scrap sourcing volumes, as consumers deferred the purchase of larger items like dishwashers.

​

Inflation benefited the top line for the insurance industry and suppliers of product to the building industry. Suncorp increased insurance premiums by 16%! On the flip side, the challenge remained for other industries to absorb higher costs as input prices had not really fallen as much as was hoped. Wage and freight costs remained a frequent focus. Margin compression across steel, commodity and banking industries reflected higher competition and funding costs.

​

Cost reduction and efficiency measures have come to the fore with generally impressive results. Mayne Pharma has targeted $10m in cost reductions by the end of the year and is well on its way to achieving this goal. Combined with impressive product launches the company rallied 15% on its release date. AGL Energy had undertaken work on its Bayswater and Loy Yang A generators which increased plant availability and profits for the half. Further work should yield additional results.

​

Higher interest costs and debt levels saw companies like Lend Lease fall 14%. Whereas Downer Group reduced costs and debt to see its share price rally 13%. Operating cash flow and debt levels will remain a keen focus of the market going forward as investor attention shifts to the balance sheet.

Company outlooks are more positive for insurance, energy utility, healthcare device and wealth management companies. Companies with agricultural exposure may start to see some benefits from the recent unexpected rains. Conditions will be tougher for entities exposed to steel, property development and the office property market.

​

The Beanstalk portfolio has approximately one third of its portfolio exposed to corporate activity. This reflects the extreme undervaluation inherent in the portfolio currently. It would not surprise if this number moved to one half by the middle of the year.