At Seneca, we believe that at the core of any relationship is trust. And that trust is earned through consistent excellence and courageous transparency.
Having spent many years working at large organisations, we learned that it’s not the institution that our clients trust, but the people who work there every day. It’s about the careful consideration of each individual client’s unique needs and consistent application of the advisor’s expertise to the changing economic conditions.
As the CFO of one of the world’s leading specialist natural resources investors, and after having employed Luke in a previous role, I’ve been thrilled with the efficiency, capability and service-offering Seneca have been able to offer my SMSF. Relative to the conflicted banks and standard ‘stockbrokers’ they provide me with unique investment opportunities, considered financial advice and most importantly, really tailor their advice to my circumstances and investment preferences. I think their innovative approach is set to really corner the market.
Rob Bishop - CFO, AMCI Investments Pty Ltd
Luke and the team at Seneca have been instrumental in driving returns for our SMSF in recent years. As the CEO of one of Australia’s most innovative organic fertiliser company’s, whilst I’ve been busy operating our business, Seneca has been able to provide us with a diversified set of direct and indirect investment opportunities, provide timely and strategic advice and educate us on our behavioural biases, resulting in excellent compounding returns. We’ve been strong supporters of Seneca since day 1 and enjoy the high-touch, often daily interactions we have with the team and appreciate the respect they show us and our money. We look forward to a long associate with Luke, John, Victoria and the rest of the team.
Anton Barton - Executive Chairman, BioAg
As retirees, the staff at Seneca have done a wonderful job managing our super fund and our additional family financial assets. Their attention to detail, willingness to go the extra mile and friendship is something we value immensely.
Stan W. - Family Office, VIC
The team at Seneca are a refreshing mix of capital markets expertise and client-centric wealth and investment advisory. They have an ability to deeply and quickly understand equity capital market transactions and work with the corporate advisor, such as Cadmon, to devise a client-focused, favourable deal structure, find the appropriate investors and support a company from its first external capital injection through the various stages of development. We continue to enjoy working with Luke, John and the team.
Cameron Low - Managing Director, Cadmon Advisory
Saturday 22 Aug 2020
The ASX 200 closed the week relatively flat, despite it being one of the busiest weeks for full year results. All the money being made in mid and small caps, while the top 20 continued to underperform.
ASX 200 continues to chart sideways, trading between 5900 and 6200
ASX 200 continues to chart sideways, trading between 5900 and 6200, though more recently well supported by the 200wk moving average which is bang on 6000 points. As I said last week, industrials aren’t going higher without banks and iron ore-related bullishness looks tapped out and on the way down. Triple top’s in BHP & RIO, while Macquarie’s forecast for Iron Ore is in line with most other houses.
I’m getting lots of questions on bank shares at the moment. Let’s just remember our fundamentals when looking at the banking sector in Australia:
Saturday 15 Aug 2020
The ASX 200 closed the week up strongly, adding over 2%, led by the large cap banks and a few random stocks all in the same GICS sector (Stapes)… Treasury Wines, Graincorp, Bega and Metc(r)ash.
Caught up with Rob Nisi from Dexterous Pro/Astute Theory Consulting a week or so ago. If you want to listen to our conversation about raising capital for your private business, COVID19 impacts, how to run a SaaS business at a profit and a bunch of other stuff, click below.
Banks (red) have underperformed the ASX 200 (green) over the past 12 months by 15%, for the index to break out of this range, we will need the banks to go higher.
And this week we saw a step in the right direction with results from CBA and trading update from NAB. If anything, the updates further enforced my view of the big 4 banks in Australia. All 4 will converge on a 10% ROE over time, as a result of regulation and the baby boomer generation dying (CBA means something to you… it means nothing to me.)
Anyway, Commonwealth Bank (CBA) profit fell by 11%. Bad debts doubled and they had to provision for more bad debts in the future (and even then, it looks like they could’ve/should’ve provisioned more than they did i.e. profit should even be lower/be interested to see how this goes once the JobKeeper payments stop.) CBA’s margins declied by 3bps, trading income was weaker and operating expenses were up. 98cps dividend.
National Australia Bank (NAB) by contrast saw cash earnings go up 25% on the previous period, with higher markets revenue and lower bad debt charges. Capital looks good at 11.6% and margins are roughly stable. Expenses up 2%. Expect 60-70cps in dividends.
The net net of all this is short sell CBA, buy the other three banks. They are all in the same boat, but CBA isn’t worth 10 year high valuation premium. It’s now closing. Chart below is NAB, ANZ and WBC’s PE ratio (1 yr fwd) relative to CBA’s over last 10 years.
Friday 07 Aug 2020
The ASX 200 up 1.50% for the week, though down 40bps on Thursday’s close (I’m writing this at 11am on Friday morning.) Resources had a good week with everything else kind of struggling.
Unfortunately I do not have time to write much this week. Reporting season + general work just taking over. I’ll just share a couple of links to interesting stuff that came across my desk this week and hopefully that ties you over until next week.
Software as a Service from ARK (thanks to my secret supplier from large investment bank… you know who you are.)
Latest memo from Howard Marks
Nearmap accidently reaffirming guidance in the Sydney Morning Herald
SITALWeek #256 from NZS Capital – in particular, the Power Law Bifurcation of Retail and Restaurants
“Greenwashing” – from one of my favourite fund managers, Fairlight AM
Movers & Shakers
IPL reported 16% growth in its fertiliser business and a turnaround in its Americas explosives business. I dunno, I’ll believe it when I see it.
Ampol up on takeover rumours.
ARB.. no idea.
Friday 31 Jul 2020
The ASX 200 had a bit of a tough week, down 1.60%… but guess what… it’s still roughly at 6000 points. A lot of talking about stock markets going up and down.. gone nowhere really.
Energy stocks getting slaughted, banks getting slaughtered, really a stock pickers market with random industrial names leading the charge.
Argubly the most important part of the investing year is underway, full year results reporting season. I’m not going to go through each company, just focus on the stuff I think you’re interested in (or I’m interested in!) In fact, all 4 of below are in the Seneca Australian Shares SMA.
Profits down, uncertain outlook. Might not be as bad as analysts consensus thinks (-15 to -20% down on last year)… it’s worth $120. Not much more, not much less. If you want to read about it go on The Age Business, The Australian Business section or the AFR, or whereever else you read business news, plenty of coverage.
ALS Co. (ALQ)
AGM was held on 29th July, managing the business well. The are exposed to mining, life sciences (positive) and seem to be managing the cyclical weakness in their industrials business well (reduced head count). Probably going to make a bit of extra money doing office & public transport testing, hygeine testing. Cheap relative to global peers. Might re-rate to 25-30x.
Credit Corp (CCP)
NPAT top end of guidance range, FY21 guidance ahead of consensus $60-75m NPAT, PDL buying of $120-$180m (they’ll buy $200m in my view), DPS 45-55cps. Reinvesting in the best market for buying PDL’s in a very long time. Strong balance sheet in the hands of quality decision makers. They’ve historically earnt up to 20% return on PDL’s, could the next few years yield similar results? I think it can get back to earning $1.30-$1.40 per share, put that on whatever multiple you think is fair (20x?) and do the math…
Super Retail Group (SUL)
Pre-announced their proforma results today. 3.6% LFL sales growth across the group, which was diluted by their recently acquired Macpac business continuing to struggle. SUL said its going to print revenue of around $2.82 billion, up from $2.71 billion in fiscal 2019 and a profit of about $154m, (excl. the $54m in remediation of underpayment to staff and exit of non-core business related expenses.)
While the newspapers talk about the hearing of little consequence…
Amazon (AMZN) had a blowout Q on both sales and operating income, with latter beating the Street by 380%+ despite over $4B in coronavirus spending. Only negative seemed to be the slowdown in AWS growth.
Apple (AAPL) also beat big with upside across all product lines, including iPhones, and a slight services beat. Also highlighted record installed base and announced a 4-for-1 stock split.
Facebook (FB) results were much better than expected with the focus on better ad revenue, margins and strong engagement trends. It did flag some potential headwinds on ad revenue and signs of normalization in user growth as shelter-in-home measures have eased. While somewhat less impressive than the other big tech names
Google (GOOGL) beat on most key metrics and highlighted a gradual improvement in ad growth and strong growth in Google Cloud and Other Revenues.
Paypal (PYPL-US) Q2 beat despite elevated expectations with record performance in several key metrics, including new active accounts, total payment volume and FCF; growth accelerated through the Q and momentum continued in July and reinstated full-year guidance above consensus; Street positive on extent to which coronavirus has accelerated shift to e-commerce and digital payments.
Here’s a chart of those 5 stocks over the last 12 months vs the ASX200. If you have trouble viewing, the ASX is down 8% after dividend reinvestment, the rest are up 16-77%, on an AUD basis. In order its Apple, Paypal, Amazon, Google, Facebook and the ASX 200.
Friday 17 Jul 2020
The ASX 200 closed up 1.93% at almost 6000 points. Resources had a strong week, though performance drivers were more stock specific than anything commodity price related.
Technicals converging at 6,000… which has kind of been our core thesis for the past few weeks – there’s really nothing incrementally bullish or bearish until we start to see some numbers and outlook statements at the end of this month/start of next month.
You’d have to think with Melbourne falling deeper into lockdown again (438 new cases today) and the US going from very bad to very very bad… most management teams are going to be leaning towards the more conservative, bearish side of things when it comes to outlook.
This being said, there’s always devil and opportunity in the details. I’ll personally be paying attention to anyone who’s been able to keep customer churn low, maintain prices or grow gross margins while keeping sales ticking along. For example….
Credit Corp (CCP)
Now you’ll see later in the Movers & Shakers that the stock is up 11% for the week, but that’s not actually representative of how it performed post the pre-announcement of the result earlier this week.
The stock fell from $21 highs back in early June to under $15 at 30 June. Recovered to $17.50, sold off to under $15.50 after the initial announcement of this result and then closed at $16.90.
On Monday the company announced:
FY2020 net profit after tax of $10-15 million (down from $64m last year)
$65m impairment of previously purchased debt ledgers (non-cash) as COVID-19 as a result of 18% reduction in cash collections for the next 2 years
Loan loss provisions are expected to increase from 19 per cent of the gross loan book to 24 per cent
All sounds pretty bad right? Wrong.