the COB: bourse bust

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[00:00:10]From Barangaroo Studios, the Osbiz COB is the key stuff you need to know about the day in business and finance.

[00:00:19]Hello, welcome to the COB. Lovely to have your company this Tuesday afternoon. I'm Juliette Sally. Let's have a look at where the local market is finishing the day's session. We're down a third of 1%. We sort of had hopes that we might rise today. Wall Street was of course closed for a public holiday, but instead we've got this uncertainty over whether or not a peace deal is going to be reached between the US and Iran still weighing on investor sentiment, I should say. And and that did see US stock futures also trim gains. Crude oil advancing. The US striking some sites in Iran, which has really just dented this optimism that there might be some kind of a deal to end the war. So let's have a themes of a day look at the themes of the day, I should say. And this is another shot hopefully at some kind of peace resolution or an interim deal to reopen the vital Strait of Hormuz. Boss, bust.

[00:01:12]Well, ASX Limited had its worst day in 26 years since 2000 after warning that its cost base and capital spending outlook for 2026-27 would increase by around 20% on further tech investment. And all eyes on CPI ahead of the April inflation data due out tomorrow. Um of course we saw inflation hit 4.6% in March, up sharply from February, the highest reading since 2023. We've already seen the RBA hike rates three times this year. I was talking to Paul Bloxham from HSBC. He thinks in light of the weak jobs report last week, the RBA could now be done.

[00:01:51]Let's have a quick look at some of the sector moves today, particularly as we saw somewhat of a rebound coming through in crude prices after global oil prices slid by some 7% on Monday, but our energy stocks really dragged or took that lagged from what you saw in the big move in crude oil. So, they're all in in the red. Karoon down by around 1.4%.

[00:02:14]Having a look at whether there was any flight to safety to gold, no there wasn't. Northern Star down 1.2% even though global gold futures were firmer holding around 4573 US dollars an ounce on these hopes of a peace deal.

[00:02:34]All right, let's get into some of the corporate stories and of course we touched on the ASX having its worst day since 2026.

[00:02:42]Mineral Resources meanwhile was up by about 2/10 of 1%. It's announced with its Chinese joint venture partner an approval of the $490 million expansion of the Mount Marion lithium operation in WA. Goodman Group was lower. It's doubling down on data centers amid demand for AI. Fisher & Paykel had a good day up almost 10% after a rise in revenue and profit. And so did the online retailer kogan.com boosting earnings for the 10 months to April on stronger Aussie sales even though it's mighty eight Kiwi business not so mighty. And Flight Centre dropping the most in a month flagging the fourth quarter impact on what we're seeing with the Middle East and also saying the Aussie strength will impact fourth quarter overseas profit translation.

[00:03:31]Let's get a translation on the markets now with Martin Crab from Shaw and Partners. Good to see you Martin. Thanks for having me. Uh you're saying valuation appearing a little bit more reasonable now.

[00:03:41]>> Yeah, it's been a a red traffic light in our asset allocation framework for a a number of well almost years now because we've had 20 plus times PEs on stocks. And just with the grinding higher of earnings and and the you know, a little bit of a pullback that we've seen in prices, we've seen that the PE come back to more reasonable levels.

[00:04:02]Here Here's another one we like to look at, which is the fair value. The black line is made up of consensus target prices for every stock in the index multiplied by the size of the index. And you can see A, that's coming down. B, it's above where the market is, so it suggests the market's cheap. But the direction is a little bit of a concern.

[00:04:17]We're seeing analysts downgrading target prices. So, when that's heading down, you just need to be a little bit careful on you know, your buying levels. The gray line there is a 15% expected return. So, when the market is at level, generally doesn't stay below it for long. The market likes to buy the dips.

[00:04:34]And And we've seen a couple uh this year. Um at the moment, we're looking at about a 12% total shareholder return including divvies of about 3 1/2%.

[00:04:43]And about 7 8 7 to 8% capital growth.

[00:04:46]So, that looks okay to us. I think you don't need to be too concerned about valuation when you're looking at the market. Lots of other things you can be concerned about, but valuation's not one of them. What should we be concerned about? A lot of volatility out there, particularly whether we're you know, do we or don't we have a peace deal here?

[00:05:01]Yeah, I mean, we're always focused on tail risk, right? The The tail risk you don't want to get wrong is um is AI, not having enough money in that. That's hurt a lot of investors. You've got to have um got to have some money in that. We'll talk about Goodman in a minute. It's one way to do that. And the other side is the uh the nitro trade, not a chance Hermes opens.

[00:05:21]Um you want to be uh you want to be energy and stocks that do well if there is some inflation. And there's not many of those. So, I think if you've got a basket of AI stocks on one side and and sort of stocks that do well if there's inflation or investments that do well cuz you you conclude uh inflation-linked bonds in that in that group, then you you're sort of you're hedged if you get it wrong in either direction. I think as an investor, we don't think of what, you know, the likely scenario is. We think of the unlikely scenarios and how we're going to respond to them. So, I think if you've got those two tail risks hedged out, you can just take advantage of the 11% TSR that the market's got in and be fully invested. All right, let's talk about Goodman because um a little bit of a a disappointment to the market today, but a lot of people do love this stock.

[00:06:06]>> Yeah, look, we're expecting better numbers, to be honest. Um so, we're expecting them to guide to higher growth. They've been guiding sort of 9% growth. We expected that to tick up. And we expected their work in progress to be more like 17 than the sort of 15 14 15 that they came out with. But, they did say they're still on track to have 18 billion of 18 billion dollars of work in progress by June this year. So, you know, that's only a few weeks away, right? So, it a Q3. So, they've got a lot of data centers that they're committing to right now. Now, this is 75 80% of their work in progress is data centers.

[00:06:43]And they're not just in Australia, they're around the world. So, Japan, Europe, etc. So, this is a really, we think, low-risk, high-quality way to play the AI capex because Goodman has the best sites.

[00:06:56]Um and they've got access to I think they're going to build something like 6 1/2 gigawatts of power, which is a massive amount of capacity. And they're all um they're all contracted to to tier one hyperscalers. So, it's like it's not like they're building them on spec and then trying to find customers. They're sort of getting customers to partner with in the early days, which massively de-risks the capex. So, most of these are take-or-pay contracts. So, if you don't want to use the data center, you got to pay for it anyway. And we know from just watching um you know, the Metas and Googles and and Anthropic's and Open AI's that token utilization's going through the roof.

[00:07:32]Power, you know, usage is going through the roof. So, we think Goodman, despite the fact they disappointed us a little bit on the numbers today, this is more a medium-to-long-term story. So, for Aussie investors, um this is one stock on our market that does give you a a good way to play the AI capex boom. Now, I'm going to pick up on your Nacho trade from earlier, but I'm going to go in a different direction than maybe you thought and go to GYG pulling out of the US. Henry Jennings was telling us you can't sell ice to Eskimos. Um what's your thought on on the consumer discretionary space at the moment?

[00:08:04]>> Yeah, look, I think it's one you've got to be really worried about and we just know that the the sentiment out there is really, really bad amongst consumers. I think the ANZ and the and the Melbourne Institute consumer surveys are all pointing to some pretty horrible numbers. Anyone who goes on social media is just all negative about mostly about tax or the all the all the rich fund managers on LinkedIn complaining about how much tax they have to pay, but it's just adding to this very negative um you know consumer sentiment out there. Most importantly being driven by higher interest rates, higher inflation. So, it's kind of difficult to get too excited about about consumer spending.

[00:08:40]And add the wealth effect, which has been massively positive. Both superannuation and real estate have been going up by a lot. I think um net household net wealth went up by 1 and 1/2 trillion dollars last year. So, this is massive wealth effect. That's going to go away, right? So, people looking at lower house prices and potential lower superannuation balances if the market sort of continues to drift. So, I think you got to be careful with consumer discretionary. I think if you're at the top end, um you know retirees are still going to spend money.

[00:09:10]In fact, they like higher interest rates because they're in you know deposits, but I think lower and middle-income earners are really, really struggling.

[00:09:16]So, I think you've got to be careful.

[00:09:18]So, we're we're we're underweight the consumer discretionary sector and in fact, I don't think we've got much in the portfolio at all that's consumer discretionary. Uh and we're just wary on things like supermarkets because people will trade down even though they might be buying the same amount of stuff.

[00:09:32]They'll trade down from a branded good to a to a um a home label and that's lower revenue and lower margins often for the supermarkets when that happens.

[00:09:40]What are you overweight on at the moment? Mining still looks pretty good to us. Copper in particular, we still like gold. Um we're underweight financials. We're still overweight what we call quality growth stocks. So, we still like the Goodmans. We still like even though we've been knocked around a bit, we still like some of the software and classified names. I think they look okay. They've been pretty beaten up. So, we still like those. Healthcare is an area that we're looking at now just because it's pulled back by so much.

[00:10:06]But, that you know, that's sort of more industrial defensive sort of stock we're looking at. It's like how do you avoid the sharper end of the consumer downturn if there is one and and trying to stay in high quality names, good balance sheets, good earnings growth, good returns on equity. And a final question, SpaceX coming to market, is that something that would interest you or what do you think about it? It's the only way you can actually invest in space, I believe.

[00:10:32]>> Yeah, yeah. It's not It's not one I've I've looked at a lot. We're sort of playing a derivative of probably a second or third derivative, which is the share registry company Computershare.

[00:10:42]It's not just SpaceX is coming. It's OpenAI. Uh it's probably Anthropic. Um we've got Firmus in Australia. There's a lot of big IPOs. I mean, those ones, the first three, they're going to be three and a half trillion dollars. They're going to be the size of Apple, right?

[00:10:56]And they'll probably go pretty quickly into the index, um which is going to force all the index funds to buy them as well. So, it's going to be fun and games in the in in that market. So, one stock that's leveraged to that is Computershare.

[00:11:08]They're the biggest registry player in North America. And more IPOs, more IPO activity, more corporate actions, better for them as well. And they're also a beneficiary of rising rates. So, not going to SpaceX IPO personally, but looking at how do I play the general uplift that capital markets are going to get from it. This is why you're the been around a long time. You know how to play the game, don't you? Not the game, you know how to get it right.

[00:11:32]>> I hope so. Martin, thank you. Martin Crabb from Shaw and Partners. All right.

[00:11:36]Well, speaking of Goodman Group, that was the stock of the day. On the call, Andrew spoke to Michael Wayne from Medallion Financial, Francesco De Stradis from Ord Minnett.

[00:11:48]Problem with this company is there's a lot of embedded expectations.

[00:11:53]Um and with the absence of any announcements of new contracts, um and the high expectations reading into it, I think the market was slightly disappointed, but it much of a muchness, really. Um the business is is tracking along okay.

[00:12:08]Um it's obviously caught up in the the property bucket, uh but also, you know, now it's very much capturing the AI infrastructure, AI services theme as well. Goodman's uh um for for some time they've been priced safe for perfection, I would say. And today's announcement, look, it would there was nothing bad in it or anything, but I suppose the market was hoping for a little bit more.

[00:12:32]Um so, when you deliver on what expectations are and you price for perfection, sometimes that's going to pull you back a bit. Um look, now Goodman Group's positioning itself to be, I suppose, the infrastructure player of AI. Um obviously data centers, but also logistics centers that they um you know, they develop you know, logistics centers are becoming much more automated uh with robotics and so forth.

[00:13:05]The 10 stocks picked by you two experts [music] went out.

[00:13:09]Let's get to the companies that have been nominated by you.

[00:13:15]It's like a witch hunt over there.

[00:13:17]Everyone hates data centers.

[00:13:22]Just remember that most of their earnings are offshore, so there's no franking credits.

[00:13:34]The call is brought to you by Centuria, an ASX listed property fund manager with $21 billion in assets under management.

[00:13:43]Want to diversify beyond equities?

[00:13:45]Explore the Centuria Sydney CBD Prime Office Fund at centuria.com.au.

[00:13:53]Let's have a look at the leaders and laggards in today's session. Kicking it off with the leaders, Fisher & Paykel there rallying, the market leader delivering an inline result for the fiscal year. Citi saying investors are likely to view its weaker than expected guidance as deliberately conservative.

[00:14:09]We also had Austal, South 32, Graincorp, and Capstone Copper have a good day. The laggards though was of course the ASX having its biggest drop in 26 years, warning that its cost base and capital spending outlook for 2026-27 would increase by around 20% on further tech investment. Mark Gardner from MPC Markets has written a really good piece on that in our view, which comes through in our newsletter. If you're not subscribed, subscribe. It comes out about 5:15 p.m. Eastern. InfraTil, Pexa, Challenger, IperionX also lower. Let's have a look at the small end of town.

[00:14:44]Kogan.com having a good day. Look, it came through with um saying its core online retail business is powering ahead, but Mighty Ape, the New Zealand subsidiary, still weighing on the broader group result with revenue at that business down more than 30 million in the period. Bioxin, Bougainville Copper, Invictus, and Oceana also had a good day. The laggards included Elixir Energy and Felix Gold.

[00:15:09]Well, tonight we are looking out for US quarterly earnings from the likes of AutoZone, Elbit Systems, and Zscaler, while we also get the uh US Conference Board Consumer Confidence report coming through.

[00:15:25]Tomorrow, we have April inflation figures, of course. I'm going to be joined by Stephen Walters from Optimal Economics straight after that. Also, an RBNZ rate decision and earnings reports from Webjet Group and New Farm. Checking where the local market has finished the day's trade, we're down a third of 1% there on the SIBO 200. The S&P ASX 200 has finished the day's trade also lower by 34 points or 4/10 of 1% to 8,657 points. It's up 0.6 of 1% though over the last 5 days. All right, we'll do it all again from tomorrow morning. Catch you then.