Earnings season takeaways, an ASX 10-bagger & community stock idea

Bryce: [00:00:12] Welcome back to Equity Mates Investing, a podcast where we explore what's possible in the world of investing. My name is Bryce. And today we're looking at some of the highlights coming from the reporting season. We're unpacking some of the big themes dominating the start of the year. And we have our very first community stock pitch for 2024, which we're super pumped about to chat through it all. As always, I'm joined by my equity buddy, Ren. How are you? 

Alec: [00:00:39] I'm very good, Bryce. Good to be here. This is, an exciting episode. We're getting back into the swing of the year. A number of new things. As we spoke about last week, we're in a new studio setup. But before we get into the episode, we always need to start with our disclaimer. And speaking of new things, we're also trying strings this year. 

Bryce: [00:01:09] Yes. So a reminder that all information on this show is for entertainment education purposes only. Any advice is general.

Alec: [00:01:15] I will as always. We like to start with news, what's going on in market. And I think, down here in Australia right now, we're in concert season. Yeah, that's the big news at the moment. Taylor Swift, blink 182. Hank. Yeah. Tough to visualise the amount of people that Taylor Swift has had at her concert. So here's a good way to do it. The amount of people that have been to her Melbourne show could fill three MCGs.

Bryce: [00:01:43] But did fill three MCGs. 

Alec: [00:01:45] So it didn't really. You know how they are. Okay. All right. That didn't really land. But look, it's not just concert season because in financial markets it's also earnings season or reporting season. We're getting a lot of results from companies, both in Australia, and around the world. So let's talk about that. Let's talk about what's happening in the news. And Bryce, as always. Well, not as always. As per this episode we've got a sting. 

Bryce: [00:02:16] Love it. Right. Well we are right in the middle of earnings season, Ren. And the news is that the strength of both the Aussie earnings season and the US earnings season is somewhat surprising to a number of analysts. well surprising markets. And we know what is happening in markets at the moment. They're responding well. What do I mean by this. One third of the ASX 200 have reported at the time of recording, 47% of those have recorded above market expectations, while 34% have missed. And the story continues over in the states, almost 70% of the S&P 500 have reported results. 81% of those have beaten market expectations. So overwhelmingly we're saying, companies performing better than expected. And we know the result of that. Markets tend to jump a little when, companies are beating expectation. 

Alec: [00:03:13] Yeah. And I think, you know, the the stock market isn't the economy and the economy isn't in the stock market. We there are times when the stock market can do really well, but the economy and consumers can struggle. But I think it is a good sign, especially when, you know, consumer facing companies, you know, retailers and banks, saying that they're doing better than expected. It's a sign that the economy is doing better than expected. And that might not gel with some people's experience at the moment. But on the like, nationwide or economy wide level, it seems that things are holding up okay for the moment. Yeah, and that is a positive. 

Bryce: [00:03:54] Well, you mentioned banks there. So let's go through some companies that have caught our eye. And one of the biggest companies in Australia is CBA. So talk us through the results there. 

Alec: [00:04:04] Yeah. So I think on that theme of the health of the economy and the health of the consumer, looking at these big banks, looking at CBA in this case is, a good, I guess, temperature check. And so we wanted to pull out their results. This is an indication of how strong CBA is. Their first half profit falls 8%. Bad news still raise the dividend more than 2%. So they've got cash. Cash in the bank. Yeah but the profit fell 8% which, you know, not good. They said it was due to competitive pressures. And this is a bit of a theme. There's a lot of competition, especially in mortgages. And that's lowered their margins also higher operating costs. The bank warned that they expect higher loan arrears this year. And so what that means is they expect people to fall behind on their mortgages or businesses to fall behind on their loans. So that's like a pretty clear watch out that things are going okay at the moment, but the banks are preparing for worse to come. Matt Coleman, the CEO, said as cash rate increases have a lagged impact on households and business customers. We expect financial strain to continue in 2024 with an uptick in our arrears and impairments. So first big takeaway, from earnings season is whilst companies seem to be surprising on the upside, they seem to be doing better than expected at the moment. The commentary that we're hearing suggests that there might be tougher times to come. 

Bryce: [00:05:39] Yeah. And just to put into context, an 8% fall. They still cleared a $4 billion profit.

Alec: [00:05:44] Yes, for $4 billion for the six months for the fourth year. Yeah. So they're going okay. They're going forward. Yeah. Yeah. 

Bryce: [00:05:51] Moving on to another company that we've spoken about on the show a number of times for many years is a2 milk. 

Alec: [00:05:56] Yeah. A2 milk was a market darling and was the real central player in the. Well it was a real symbol of the China story.. An Australian company selling into. And just absolutely grow. And then as that China channel dried up, A2's share price fell as well. And so we can look at it, too, as a sort of sense check on the China trade story. The health of the Chinese consumer. And just, just what's going on with how Australian products are being on New Zealand products, we should say are being or saved over there. A2 milk blew the lights out. They reported revenue up 4%, EBITDA up 5%. That margin was up. Net profit was up 16%. But here's the interesting thing. Here's why we wanted to pull it out. The Australian New Zealand segment struggled. Revenue was actually down as was EBITDA or profit. So it was actually strong growth in China and okay growth in the US that drove this result. Revenue from China was up 17%. EBITDA from China was up 22%. And A2 milk was once again a top five infant formula brand in China. So that isn't to say that. 

Bryce: [00:07:14] Has it ever not been. 

Alec: [00:07:15] I think it was when things got pretty bad, the Tiger channel dried up.

Bryce: [00:07:22] That was huge. Forgot about. 

Alec: [00:07:24] That. Yeah. Yeah, yeah. You couldn't keep it on the show? Yeah. 

Bryce: [00:07:26] Keep it up. 

Alec: [00:07:27] Yeah. I owned a2 milk when I was working at Coles, and I would always say my sell signal would be when there was A2 infant formula on the show. You had to keep it behind the counter of the service desk. Yeah, because it would just get cleared out. Yeah, yeah yeah, yeah, yeah. So that's an interesting one. Obviously not close to its all time highs. But turnaround. Well, you know, riding the ship

Bryce: [00:07:52] Yeah. And finally Ren cochlear has had a massive first half as well. 

Alec: [00:07:57] Yeah. Now, I wanted to include cochlear because there are three big healthcare stocks in Australia. Like bigger than all the rest CSL, ResMed, and Cochlear. Great stories of Australian healthcare taking on the world and doing really well. But it feels like cochlear doesn't get as much love as the other two, and so this feels it. It deserves some love. We're going to give it some love, and it feels like it might be rounding into getting a lot more love from a lot more people. How's this for a set of results? First half sales revenue up 25% to 1.1 billion. Underlying net profit up 35% to just shy of 200 million. And the company will pay a record dividend of $2 a share up 29%

Bryce: [00:08:41] Love that. Full Frank. 

Alec: [00:08:44] 70%. Franked. So some big growth numbers from cochlear. And that commentary suggested there was more growth ahead. You'd be surprised if a company said there wasn't more growth ahead. But yeah, really good result from a really good Aussie company taking on the world. 

Bryce: [00:08:59] Are you taking the 7% fall in CSL as an opportunity to, to, to get in?

Alec: [00:09:06] I own CSL. I'm not sure I'm going to add more to it. Are you? 

Bryce: [00:09:10] No. Okay. Yeah. They do. So whenever it's on the 300, I think it's at 280. Yeah. The context here is that, that we're in stage three trial for. I can't remember what trial. That's right. Yeah. Heart drug that didn't go according to plan. And, they've been sold off a bit. So, a company that continues to perform.

Alec: [00:09:29] Yeah. Now, Bryce, as we round out our discussion of the news. There was a question from our Facebook discussion group. And if people want to come and join the conversation, the Facebook discussion group is a great place to do it. 

Bryce: [00:09:41] Yeah. 

Alec: [00:09:42] Ash from the discussion group. Wanted your take on Brad Banducci. oh. Oh, no. They almost walk out for people who aren't familiar with Brad Banducci. The Woolworths CEO was interviewed on Four Corners and a clip has been circulating social media of, him getting asked a hard question, stumbling over that question and then asking if the ABC can cut it, the ABC saying no, and then him walking out and then being convinced to return by his PR team. Now, Ash, noted that you have always been a big fan of Brad Bender and wanted your take on it all.

Bryce: [00:10:19] So I haven't seen the full Four Corners. I think it was out last night at the time of recording, so I will watch that. To be honest, I was very surprised at how he reacted to that. He's usually a very cool, calm and collected strategist, not a salesman, but knows how to pitch himself and present. And I was very surprised at that reaction. I'm not going to slag him off for anything, because I still love to have him on the show, but not a good look. And I think, look, it was obviously probably clipped up and taken a little out of context. 

Alec: [00:10:53] Yeah. 

Bryce: [00:10:55] Give him the benefit of the doubt. 

Alec: [00:10:56] Let's put it, let's put it this way. He will not be doing more media than he needs to in the immediate future.

Bryce: [00:11:03] Well, let me put it this way. I also saw a clip of the Coles. CEO, who did a Tony Abbott last night for corners, just didn't respond to Joe. And I said to her it was something along the lines of, this is what we classify as price gouging. What do you have to say? And she just sat there. 

Alec: [00:11:19] No way.

Bryce: [00:11:20] That's for about 10s. And he's like, are you going to respond to that? And she said. We don't engage in practices like that, but it was a long like 10s of awkward. Tony Abbott style. Alright.

Alec: [00:11:31] Wwell, neither of us have watched the Four Corners doco, but I think we should, but let's leave it there for this week. And just a quick reminder as we move on to the next segment, the Equity Mates community survey is still open. It's your chance to help us shape the future of equity mates. Both the podcasts and beyond. And, as a thank you for filling out the survey, we, giving one equity mate, $500, hopefully to put towards your investing. Not compulsory though. So please do fill it out. The link is in the show notes. 

Bryce: [00:12:08] It shouldn't take more than 5 or 10 minutes, and it makes a lot of value. So, Ren, at the top. I said, there have been some huge themes kicking off this year and absolutely dominating markets. So let's get stuck in. We're back for the first week, but boy oh boy, there's been a lot that has happened while we've been on holidays.

Alec: [00:12:26] Yeah they have. So we wanted to just cover it off. Some of this is

Bryce: [00:12:30] It's not new news. 

Alec: [00:12:31] No, no, but our takes are gonna be fresh. So I think, you know, if we were to say when we signed off at the end of last year, sort of mid-December to now for me, there's been one thing that's dominated all others. AI.

Bryce: [00:12:50] Yeah. Absolutely.

Alec: [00:12:52] Yeah, yeah. And I think Nvidia is up 50% year to date. That's just a continuation.

Bryce: [00:12:57] For us thinking about this. The other night like it's just one of those I look back at this time last year when it started to really, really rip 2023 up over 250%. And now it's another 50%. Yeah. And throughout all of last year, people kept saying, have we missed the boat? We missed the boat. Have we missed the boat? If you just got in at the start of this year, you're up 50%. It's unbelievable. Yeah. Yeah. Just goes to show how trying like trying to peak the moment and then things is just the wrong way to go about it. 

Alec: [00:13:27] Yeah. I also think there's trends in investing that last longer than we think they will. And so the often times when people feel like they've missed the boat, the trend has a lot further to run. Now the second question is how far will it fall when the hype comes out of the market. Because the hype will come out of the market at some point. And we're probably above that point. 

Bryce: [00:13:52] I read an article in the paper in the IFR that they could be on track to be the first tech company ever to double their revenue for three years in a row. So they've done it the past two. But to do it again this year would be an unbelievable thing. The market's not pricing that in just yet that they're pricing serious revenue growth. And we know what happens if they don't hit that expectation. Like their pay at the moment is just ridiculous. 

Alec: [00:14:22] But I mean if you're doubling your revenue every year you're growing twice. So I think that the headline, OpenAI's new text to video, was pretty mind blowing. Plan to make a real and put that up on our Instagram. So if people want to see it in practice, they can head to our Instagram. But yeah, I think the first time AI keeps ripping. 

Bryce: [00:14:46] AI and then all of the I guess subcomponents around it like has had an incredible start to the year. The semiconductor production, I think up almost 90% year to date, which is just shooting the lot out. So, plenty of opportunities are still in the market. Ran the next one, That was, big news while we were on holidays was Apple's Vision Pro headset. 

Alec: [00:15:07] Yeah. What are your thoughts? 

Bryce: [00:15:07] I love it. I'm really excited about this. 

Alec: [00:15:10] You love it. Having never tried it. 

Bryce: [00:15:11] Having never tried it. But I like I've seen many YouTube tutorials, not tutorials, but explanations of it and demonstrations. You could sort of say how Apple will talk about it for the next sort of five years. You know, you just trust Apple. They just create unbelievable products. And I think that what we're seeing now, every one what it could be in the next ten years is super exciting. Yeah.

Alec: [00:15:36] Yeah I tend to agree. But you know, like I could take the other side of that argument. Like they have had product flops. 

Bryce: [00:15:43] Yeah of course. Yeah. Yeah. not many but yeah. Yeah. Apple too. Yeah. Yeah I think. 

Alec: [00:15:50] Like further back like the laser and like you know when. Yeah I think so I think if we look at the market, first of all, Apple was up 5% for the year in sort of mid to late January. It's now down 2% for the year. So I think that was maybe mixed reactions from investors and the market generally. Apple's obviously such a big company that any new product launch probably isn't going to be the most important. 

Bryce: [00:16:16] So definitely.

Alec: [00:16:17] Information. This has more to do with sales in China. And you know, overall iPhone sales and you know Services, revenue growth and stuff like that. But I think we can say that the market is not overly enthused. Speaking of not being overly enthused, did you watch Mark Zuckerberg's. 

Bryce: [00:16:35] Oh, my God, I did. Yeah. It was. Yeah. So we'll see. I found it like. 

Alec: [00:16:42] Hey, he'll fight you. He's big into his USA. 

Bryce: [00:16:44] I just. found it. Like I just found it. It was just. I thought it was pretty pathetic, to be honest. 

Alec: [00:16:51] It is. It is a strange phenomenon, like you. You don't say to rival companies giving reviews of like their rivals products.

Bryce: [00:16:59] To give context here. Mark Zuckerberg sat down and did a direct face to camera review of Apple's vision process, and essentially just said all the reasons why his. I can't even remember the name of it. 

Alec: [00:17:13] Meta quest. 

Bryce: [00:17:14] He's. Yeah. Quest three headset shits all over vision Pro. Yeah, but it was just weird. I felt it's like, what's the point in this? Let the let let's do it. Speaking for itself. Speak for itself. 

Alec: [00:17:26] Yeah. So I read, strategic re, by Ben Thompson. Good. Technology blog. He had some thoughts on the Vision Pro, and we included it in our equity mate's email a couple of weeks ago. If you did miss it, I'll include the link to it in the show notes so you can read it. But he had this view that the Vision Pro is should should be thought of like the iPod. In that Apple has taken a very specific use case. So with the iPod it was audio. And he has this view that Apple have made a number of trade offs in the design of the Vision Pro to make it just a really good entertainment product, like they've optimised it for watching TV, essentially, and they've made a lot of trade offs to make it less good as a work and productivity tool. But his view is that in the same way that the iPod changed the game for audio, and then it was just five years later, the iPhone. Yeah. And then the iPod is done. Yeah. It's it's, obsolete. Yeah. It's like perfect. Yeah. He kind of thinks that they're doing the same thing here. They're like trying to make a beachhead with this new form of technology, with, entertainment. And then over time, it will become, I guess, obsolete or superseded by a more holistic product. And so he, like, steps through why he thinks that with the trade offs they've made and like what that could mean. So a really interesting article and, and I guess a bit of a different take to a lot of the it's good or it's bad takes that you sort of say. So 

Bryce: [00:19:08] It's progress. 

Alec: [00:19:09] Yeah. It's a step for it's the start of a step forward. And, you know, Ben makes a point that since the iPhone, none of Apple's new product launches have been new computing platforms in, you know, CarPlay, Apple TV, watch, AirPods. They're all just sort of like accessories and devices and stuff like that. But this is their first new compute platform since the iPhone. And so you got to think of it differently. So anyway, really interesting. Give it a read in the show notes. But Bryce, as we close out the what have we missed. I just had a quick look at the ASX. Top performers year to date. Worst performers year to date over $1 billion in value. Two worst performance Lions town down 39%. You spoke about lithium and how much it's fallen. In our last episode.

Bryce: [00:19:57] Gina will be hurting. 

Alec: [00:19:58] Yes, but also, like, she'll be all right. Yeah. And also Domino's Pizza is down 33% year to date. 

Bryce: [00:20:04] So I would say the amount of Domino's pizzas at our house is up 33% this year. This has been hitting it hard. 

Alec: [00:20:11] I got it. Well, have coffee and drive. But, but interestingly, the best performer on the ASX valued above $1 billion. No points for guessing, because I'm sure you can read it in our doc, but set higher up 56% year to date. 

Bryce: [00:20:30] And so for those tuning in for the first time, Cettire is an online retailer for high end luxury goods. Something like that. We actually spoke about it on us because it was pitched as a stock of the year or a, watch list Wednesday, like 2 or 3 years ago. 

Alec: [00:20:46] I remember I bought it after hearing about it in 2021 from Michael Frazis. I reckon I lost about 80% of that stock and then I sold it. It was in the $4 range and it fell down to like $0.40. 

Bryce: [00:21:00] Yeah. 

Alec: [00:21:01] So from it reached a high in November 2021. Then it fell more than 90%. And then it's ten bagged up from then. It's now 13% above where it was in November 2021. 

Bryce: [00:21:16] This is just one of those don't sell situations. 

Alec: [00:21:19] Well it's buy the dip. 

Bryce: [00:21:21] but it only came out.

Alec: [00:21:23] It's fallen 90. Percent and then ten bags in less than two. 

Bryce: [00:21:26] Yeah. It came out that there's all this weird stuff going on with the CEO, though I recall. 

Alec: [00:21:31] Recall that obviously resolved it.

Bryce: [00:21:32] Yeah, I'm not going to say anything more than that because I don't know any more than that, but fascinating. 

Alec: [00:21:37] Anyway, one of my I yeah. 

Bryce: [00:21:39] Took my eye off and, ten bagged anyway. Well, we've missed plenty throughout, our summer break. So come and join us in the Equity Mates Facebook group to continue the discussion on some of the big things that are playing out this year. We're going to take a very quick break, and we'll be right back with our first stock pitch from a community member for 2024. Welcome back to equity markets Investing. I'm really excited for this segment, Ren, we have our first community stock pitch for 2024. 

Alec: [00:22:09] Yeah. And we do have a sting for it as well. 

Bryce: [00:22:29] Nice. So we have our first community member coming in to, to give us a stock pitch. His name is James. 

Alec: [00:22:36] So, James. Tell us about the company. 

James: [00:22:39] So the company I was gonna tell is Synlait milk, it's an easy one on the ASX. And the company has been particularly familiar with for some time because I'm in the capital projects sector of the dairy industry. And over the past decade, during this time, since I invested significant amounts into building more assets and its manufacturing sector to capitalise on growth opportunities being attributed to being an exclusive manufacturer of A2 Milk 

Bryce: [00:23:11] Right. Well that's good. We're just talking about a2 milk earlier in the show. So so, James, before we go too deep on this, for everyone listening, can you just give us a high level on what? Synlait milk do. That's SYNLAIT. 

James: [00:23:27] So Synlait operates in three different sectors. They operate in the advanced nutrition, which is your infant, paediatric and adult formulations. So service, which is a new market they're incurring into which is products that have been used by things at restaurants. And one of the things that produce moments is you train and consume foods. And most of the consumer foods are produced by dairy workrs, which are butter and cheese products. And Synlait recently made the decision to divest from dairy labs. 

Alec: [00:24:00] Yes. We love New Zealand dairy players. Like A2 milk is the obvious one. Fonterra is obviously massive. So it seems like they're doing something right over there. So you mentioned the manufacturing for a2 milk. Is that the only big known brand that they're manufacturing for, or are there other brands that we're familiar with? 

James: [00:24:24] So they have a few global customers, namely New Zealand Danone, which is the two largest by market capitalisation. And in 2020, they announced a new multinational company that the name hasn't been publicly disclosed yet.

Alec: [00:24:39] Oh, well.

Bryce: [00:24:40] And so when you emailed us about this stock, you had a few sort of points around the thesis and we should make it clear that this is not a Buy Hold and Sell recommendation. We're just encouraging the equity mates community to come and you know, discuss some ideas that are interesting to them. So what are some of the key pillars that make up your thesis about Synlait milk? 

James: [00:25:04] So the main things around the thesis, the asset quality that Synlait has, how new the assets and how much more life they have. And I also have access to the Chinese market through using certain, regulatory licenses. So the Chinese label, I do know formula, namely. But at the moment A2 milk and Synlait are going through disputes around the exclusivity, agreements. They have an additional two that some of those market cap is heavily suppressed. So it's currently around 160 million and its total equity value is around 790 million. So it seems like it's poised for a good position. So potentially an acquisition from either A2 milk, bright dairy, complete speculation. In the paper in 2018, ownership of the business and bright dairy having 40% ownership. 

Alec: [00:26:05] and for people who aren't familiar with bright dairy I just have I'm having a look at them. They're a big Chinese multinational food and beverage company, so I guess they're a key part of the business, having access to Chinese markets. So one thing that, you know, if people are googling at home or having a look, the share price has been wacked down well, almost 80% in the last year. So what's caused the market to fall out of love with it? And what do you think's, going to change? 

James: [00:26:38] So they've had several downgrades with reduced sales revenue and earnings forecasts, discounted prices, restructuring to try reduced operational costs. So the market is still totally quite nervous. And there's uncertainty on the future possibility of the system of the business. And recently going through a process of reinterpreting. Some finances to give it enough working capital and critical facilities. The amount they've renegotiated is just 480 million. Who wants to use it? And the repayment of at least 150 million of those things to be done in March this year. So that's the reason for divesting from dairy work. But there's been no update to the matter on the sale. So you're in quite a critical time at the moment. 

Bryce: [00:27:27] Sounds like we could be on the brink of a bit of a turnaround story here. So James we do want to say a massive thank you for being the first, equity mates community member to pitch a stock for 2024. So that one was Synlait milk, the ticker is SN1 it's listed on the ASX market cap of about 154 million. The New Zealand dollar is currently trading at $0.66. As we said, it's not a buy, hold or sell, but we do just love hearing what, what companies are interesting to our community members. And we did talk about the turnaround story that A2 milk is going through at the moment. So it's a nice way to close out this episode. So James, thank you so much. We really appreciate it. And we'll put this one on our watchlist to see if it can turn things around in 2024. 

James: [00:28:15] All right. 

Alec: [00:28:17] All right. Well, that brings us to the end of this episode, massive. Thanks to James for coming on and sharing a stock. A lot going on in markets. Earnings season continues. We'll be back in your ears on Monday to keep unpacking it all. Until then, have a good weekend.