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
Friday 19 Feb 2021
A bit of a late edition of last week’s weekly note. I had good intentions to write over the weekend but there was a bit of surf and nice weather on Sunday and well… it was my last weekend in WA, so I made most of it.
ASX 200 didn’t do much last week and opened up flat on Monday morning.
Markets still look pretty good to me. This is the best reporting season I can remember, though there are a couple of key takeaways many investors are likely missing in my view.
Yield Curve (aka inflationary expectations)
While PE ratios are high in absolute terms, and there’s still scope for the equity risk premium to fall further (I wrote about this so much last year so if you don’t understand this, just email me separately). If yields are on the rise (they are), the ERP can fall without PE’s expanding any further. This kind of makes sense, as a steeper yield curve implies stronger inflationary expectations and as such, a stronger economic outlook. There are lots of ways to observe this but I just keep it simple here, US 10-year government bond yield minus the 2-year equivalent.
What the hell does that have to do with reporting season? Lots! Financials have been the standout performer and are really the bellwether for the start of a rotation from growth/COVID winners to cyclicals/COVID losers.
Here’s the S&P 500 value vs growth index, against the yield curve. It lagged the deflationary environment of the past 9 months and will follow inflationary expectations higher.
And we are already seeing the COVID losers outperform the COVID winners during reporting season.
This is all to do with expectations and future comparable periods. Coles (COL -11% last week) is a perfect case study. The business is going well but expecting to go backwards from a sales perspective, as they can’t maintain the momentum they had during lockdowns/panic buying etc and don’t really have a lot of scope (due to competition) to increase prices/margins.
So what does this all mean?
Friday 12 Feb 2021
The ASX 200 had a pretty flat old week, falling only 50bps from this time last week. The index at the time of writing (3.40pm on Friday) is at 6805 points.
I’ll try and spend some time this week looking at a few stock-specific ideas, but here’s a quick look at the index and EPS estimates over the past 24 months, which is kind of telling you earnings still have quite a way to recover despite the index being back to pretty much where it was pre-pandemic.
The pandemic, which has in many ways, bought the forward the future. All you dividend-obsessed boomers need to adapt, and fast! Whatever you think you know, probably doesn’t apply anymore.
While most dividend-hungry investors look to the banks, the real estate trusts and the infrastructure stories, 2 out of those 3 are bond proxies and do very poorly in periods of rising economic activity, inflation and steepening yield curves. You need to look elsewhere.
Retailers with strong online offerings, bomb-proof logistics infrastructure and savvy management were already winning market share from the bricks-and-mortar, old school players… covid just accelerated that trend.
Friday 05 Feb 2021
I’m back! Get ready for another c. 50-odd weeks of inbox pollution combined with the occasional semi-coherent thought about markets, economics and stocks.
I’ve had some time off over Dec/Jan, spending a couple of weeks in Tasmania with Claire’s family. I was due to come back to Melbourne for January but ended up going direct to WA from Tas, avoiding the border restrictions that were in place in early Jan. There’s a couple of happy snaps below… hiking cradle mountain, Claire and I at Cascade Brewery and a couple of shots for my camping trip to Yallingup last weekend (Western Australia has the best beaches on planet earth as far as I’m concerned!)
Somehow, I’ve still managed to find myself in a 5-day lockdown in Perth this past week, which ends at 6pm tonight. I’ll probably hang around in Perth for a couple more weeks, knock over a few meetings I have planned and then (COVID19 restrictions allowing) make my way back home to Melbourne.
Hope you’ve all had a nice holiday season, got some downtime and a chance to see family and friends.
Sunday 13 Dec 2020
The ASX 200 was up in the first half of last week and down on Thursday and Friday. Resources and technology the best of the GICS sectors, though looking a bit closer it was mining & energy ex-gold that had a good week + LNK takeover (+12%), APT (+7%) & XRO (+6%).
Given this will be the last weekly note for the year, I’ll try and do a bit of a recap and a bit of an outlook/predictions for the year ahead.
The market has reached where we thought it would/could a few months back, ticking over 6700 this week on the back of a strong upward revision in earnings.
the equity risk premium has fallen as predicted from 4.50% to 4.00%
And the market PE staying high by historical standards.. (but coming down as earnings estimates rise… a rising denominator)
And it’s been talked about here and everywhere else, growth has started to underperform value as the yield curve has steepened. Here’s the proof. S&P 500 Value Index divided by the S&P 500 Growth Index in green and the US 2-10 Treasury Yield Curve in blue over 20 years with the US recessions shaded in grey.
Saturday 05 Dec 2020
The ASX 200 was up another 50bps this week, closing at 6634 and the futures for Monday are up a further 63bps. Resources the big winner this week with iron ore and copper stocks going nuts.
Commodities rallying isn’t surprising, they are the ultimate cyclical – a product that is perfectly substitutable and directly correlated to economic activity.
Here’s a chart of 15 years of the copper price (USD) vs the US ISM Manufacturing Index (one of the best lead indicators of the business cycle:
The important thing to remember at this point for investors is this is about as fast an expansion in economic activity as you can get. Getting your stock calls right in Feb reporting season will be about rates of change and sensitivity/operating leverage than anything else.
This said, analysts are likely still too bearish. Revisions were only up 1% in November.
Source: Macquarie Research
And the RBA continues to heavily support the economy, with bond purchases and term funding facility.
Healius (HLS, $3.60)
You might remember Primary Healthcare, well this is them, just after a name change a few years back. They’ve largely been in the investment wilderness with a range of issues and shareholders have been much better with a more focused, well-managed peer like Sonic Healthcare (SHL).
But… Might be time to look a bit closer at HLS.
Last week a big block ($340m) was cleared in the market which is interesting as that’s been a bit of an overhang on the stock.
HLS sold their medical centres business ($500m) – now focusing on specialist diagnostics, day hospitals and IVF.
Put together a nice strategy to improve margins over the next few years.
All of which, if successful, should see HLS be a net cash business by FY22 (pay down debt) and be paying out a nice 6-10cps dividend. A faster-growing, higher quality, lower debt Healius could trade at a premium to peers… Hard to imagine right now, given the track record, but remember you heard it hear first.
Very appreciative to the team at Ausbiz for keeping me in the rotation. They’ve got me doing three stocks every two weeks, which is definitely a challenge, particularly when you’re trying to link them with a theme. Anyway, a bit of a stretch this week and did 3 stocks where WA is either fuelling or driving the growth in 2021.