Another cracker reporting season call - Live on ausbiz
Trent says earnings season has been positive so far, despite some reluctance on the part of companies to provide guidance.
That being said, Trent is expecting investors to continue taking profits in some miners and to position more defensively in cash and gold. Trent shares his outlook for the ASX, and what sectors and themes he expects to be well supported.
Another "cracker" reporting season call
Read the conversation:
"Let's get some analysis as we're in the home stretch of reporting season. We've got a big week for tech, afterpay, industrials, we've got Quantas as well. Trent Primmer from Barclay Pearce Capital is joining us live via Skype. Trent. Nice to see you there. Just give us a one-liner if you had to sum up the reporting season thus far."
"Cracker- It’s been pretty good. It's been good. It's been interesting. It's been very, very positive. A lot of companies obviously maintaining full dividends, a lot of acquisition interest in the market. There's obviously what we flagged prior to reporting season was a lot of companies not providing outlook for FY22, because obviously, you know, with COVID, we don't know when this is going to end when the snap lock downs again. But yeah, I'd say that's pretty positive overall."
"Yeah. But, to your point about guidance, I mean, even though Michael Hill, for example, today had a pretty bumper result. It wasn't willing to put any figures around guidance going forward. I mean, we saw that again, even big ones like JB Hi-Fi. How do you, as an investor, Trent, rate that reluctance?"
"I suppose that's the million-dollar question in this market moving forward. How are people going to navigate some of their staple stocks that they’ve held in their portfolio for years? My guess would be a lot of people would be taking this chance to absorb some profit and move into some defensive names in the portfolio and probably hold some cash. Maybe some gold and some key commodities. But I'd hazard a guess that people would be taking some profit off the table, given the hesitancy for companies to provide any guidance or outlook. With the market quite high where it is now, if there's any surprise earnings downgrades, a lot of these companies are going to get sold off quite hard. And we've, we've seen reflections of that in this reporting season, even companies providing fairly strong numbers but missing slightly expectations, they've been sold off pretty harshly. So, I expect investors to navigate the market and their portfolios with a sense of caution."
"And then, you compare and contrast that need for caution against what's going on in terms of M&A, I mean, Ample and Z Energy in New Zealand spark infrastructure today, accepting that private equity takeover offer. I mean, you do get the sense that there's still so many cashed up corporates and big investors, big pension funds, e.t.c, that are still looking for big investments. I mean, what does that do? How is that a counterbalance to some of the caution, I suppose it's pushing into markets?"
"You can play both sides, really. If let's say, a client's got an entry price into a stock, the stocks performed quite poorly. They're sitting on maybe a 50% unrealised loss in their portfolio. The company gets swept up cause it's trading on a fairly low multiple and the share price has done nothing. So, of course, people are going to vote for a takeover of that company. Probably mitigate some of their losses. I mean, you can play it a number of different ways. Acquisition interest has been pretty rough like you said because a lot of these funds and private equity groups are quite cashed up. In particular for any of these private companies or strategic companies that they can acquire. If they're trading weak, then that's obviously an opportunity for them to snatch up some of these favourite names to add to their asset portfolios. I think also a debt is quite cheap as well. And you can play both sides of that. Because debt is so cheap, valuations have increased insanely, which makes it harder for some of these acquiring businesses to acquire companies that they like and vice versa. Debt being so cheap, a lot of companies are holding quite a lot of debt on their balance sheets, just for this reason, to acquire other businesses."
"So where are you guys at Barclay Pearce in terms of sector looking for, you know, some strengths still going forward?"
"I think overall moving forward, we expect support in Rare Earths Renewables, some of the key commodities and anything that has exposure to electric vehicle thematic and renewable energy. In particular, you know, copper, nickels, lithium, and we expect support and consumer discretionary in some retail due to consumer spending and obviously plenty of savings during these lockdowns, along with banks, given how obviously leverage they are to rates and economic growth. At this point, the outlook is a little leak like we spoke about before. We don't know when these lockdowns are going to end. All we can do is sort of look to rotate our clients into some defensive names, some names that make sense, hold some cash, so that we can acquire some good names across our client's portfolios and buy on some weakness, for some otherwise pricier stocks. That's our strategy moving forward."
"All right, well, thanks for sharing your investment strategy with us and our viewers, Trent. Hope you have a good one there."
This interview was arranged by Hans Lee, producer and journalist at ausbiz.
Barclay Pearce Capital team members are often featured by the media, sharing their insights on the market. Receive the latest market summaries and market-moving news, subscribe to Deal of the Week