Important portfolio stocks reported quite robust results in August, which is a good indicator of the health of the domestic economy. We summarise some key large-cap results below.
Telstra (TLS) - we think TLS's recent share price weakness is part of the normal ebb and flows of markets. We see an improving outlook for telcos overall and think TLS is best positioned to emerge strongly. Lead indicators for fixed and mobile are looking much better than 6-12 months ago and bode well for TLS in the medium term.
Woodside Petroleum (WPL) - we gained some confidence on the prospects of the Browse JV signing a gas processing agreement with the North West Shelf, with CEO Peter Coleman commenting that the JVs were making progress through a list of issues each had and was confident an agreement would be signed by no later than year-end 2019. WPL is committed to maintaining an elevated dividend payout ratio.
BHP Group (BHP) - we continue to find most of BHP's strategy robust and rewarding for shareholders, with the big miner having built up considerable competitiveness through superior diversification, strong cost performance and healthy shareholder returns through dividends and buybacks. BHP has channelled its considerable capital resources towards value accretive projects such as South Flank, Trion, and SGO under its capital allocation framework strategy.
Wesfarmers (WES) - we continue to view it as a core portfolio holding and think management has done a good job repositioning its portfolio of businesses. While consumers remain cautious, the strength of the balance sheet will allow WES to remain agile with capacity to invest in a fast-changing environment. We believe the long-term prospects for the company remain solid but see the stock as fully valued in the short term given it is trading on 21.5 times 2020 price to earnings ratio and 4.1 per cent dividend yield.
Commonwealth Bank (CBA) - has said that it sees an improvement in the housing market including improved clearance rates, stabilisation of prices in Sydney and Melbourne, and slightly higher housing credit growth; and there is a pipeline of stimulus including tax cuts and infrastructure spending which has not yet flowed through. It is also pleasing to see in CBA's result that 90-day home loan arrears improved by 2bps over the year. We believe these factors are positive for CBA's earnings outlook.
Macquarie Group (MQG) -announced a non-underwritten institutional placement (A$1bn) and accompanying share purchase plan to the market. Management says the raising is to support significant investment across the group and due to recent APRA changes in measuring counterparty credit risk. Positively, management noted the first half 2020 result is now expected to be +10pc on previous corresponding period, while full year guidance remains for net profits to be slightly down on 2019, a good result considering a tough operating environment.
- Justin Still Investment Adviser (Authorised Representative: 000279726) Morgans Financial Limited | ABN 49 010 669 726 | AFSL 235410