After last week’s Godfreys note my phone rang hot for days. For the most part it was just people looking for more information on where to buy those skinny “stick-vac” vacuum cleaners. Thanks, all. Very funny.
Last week I touched on something out of Business Insider regarding plummeting Capex investment. I’ll show it again because it still makes me uneasy:
Funny I thought of this because in the Weekend Financial Review they ran a front page article that spoke of the recent reporting season, illustrating just how much companies give back to shareholders in the form of dividends and how little investment in capex there is. In the ASX 200, Dividends per Share contracted by 9% year on year however Earnings per share fell by 11 % in that same period. So, cutting through the maths, companies gave back 76c in the dollar to shareholders. We’re a demanding bunch and no mistake because even for me that’s excessive. This number is forecast to drop to 72c next year but I hate just how hesitant companies have been to invest in their own futures. I know there’s a reason for it but that doesn’t change my view that it’s a dark indication of how we’re going as a country.
What happens now?
The major bulk of reporting season is now in the rear-vision mirror, bloodied and beaten, clinging to life by the side of the dusty Australian market road. (Ed: whoa, bit dramatic there, Jimmy)
But seriously, we now have the ability to look at the market as a whole for how it did last year and weigh up growth forecasts and separate the realistic from the delusional. The white-coats in Investment bank research departments go overtime for a while and come up with their versions for how we are and how we will be. Allow me to save some time and just quote George Boubouras, investment top-dog at Contango Asset Management who spoke to the Fin over the weekend:
“When you strip out the resource sector, energy and banks it was an ok reporting season. Valuations are not cheap, they’re expensive, but what’s the alternative? And that’s the question people are going to be asking for the next six to nine months.”
So companies are paying all their cash out to shareholders, not investing in future growth, valuations are expensive but everything keeps going up purely because There Is No Alternative.
“You can’t sit with us…”
One major takeaway from reporting season was how hooked everyone is on growth stocks with names like Treasury Wine Estates, Dominoes, JB Hi-Fi and Bellamy’s being pointed to as the darlings of the market. It’s hard not to agree and we have done well in those names recently, however one of the favoured stocks of the market (and one we liked) used to sit on the cool kids’ table: Blackmores.
Blackmores’ results were in line but their outlook was soft. Chinese buyers are going directly to the suppliers so Blackmores’ margins are getting squeezed (ouch) and whilst still a great market to be in, the downgrades in targets caused more than a little panic for shareholders. Proof that if you’re a growth company, you HAVE to keep up the energy and maintain strong future growth outlooks otherwise you’re going to have a bad time of it.
What happens at Jackson Hole…
Anyone climbing out from under that rock would just be hearing the excessively detailed analysis of every utterance at the Jackson Hole Symposium. Here’s a quick, paraphrased summary of Fed statements:
“The US economy is sort of ok, and if it continues to sort of be ok we’ll consider maybe raising rates at some stage in the not too distant future. Maybe in September. If the data is still ok.”
So in the near-absence of daily company news causing shockwaves through the market and with big US data being the focus of the market our eyes will turn to the States also to provide direction.
Proceed with caution and wait for the money to tell you where to go…
A funny few weeks ahead as the market digests reporting, hangs on every word and piece of data out of the US and waits for directional guidance. Note that plenty of stocks go ex-div over the next few weeks and as I always say “that money has to find its way somewhere.” Once those dividends hit bank accounts soon we’ll get a good idea of where the flow of money is going.
Stay safe all and all the best,
James
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