Welcome to the Fearing Greed Business Interview. I'm suan Aylmer. Reporting season is in full swing and last week we saw results from a host of big Australian companies including Commonwealth Bank, JB, HiFi, csl IAG a bunch of them. Already we're seeing some themes emerging, So today I wanted to look at the three key themes that have come out of earning season so far and what that means for the rest of the company still to report. Of course, the information in this episode is general in nature doesn't take into account your own circumstances, so you should always do your own research and seek professional advice before making investment decisions. Lachlan the Halloway is the equity market strategist at morning Star. Lachlan, welcome back to Fear and Greed.

Welcome to the Fearing Greed Business Interview. I'm suan Aylmer. Reporting season is in full swing and last week we saw results from a host of big Australian companies including Commonwealth Bank, JB, HiFi, csl IAG a bunch of them. Already we're seeing some themes emerging, So today I wanted to look at the three key themes that have come out of earning season so far and what that means for the rest of the company still to report. Of course, the information in this episode is general in nature doesn't take into account your own circumstances, so you should always do your own research and seek professional advice before making investment decisions. Lachlan the Halloway is the equity market strategist at morning Star. Lachlan, welcome back to Fear and Greed.

Thanks for omy.

Thanks for omy.

Do you like earning season, Lachlan like, do you actually get to see family and friends or not.

Do you like earning season, Lachlan like, do you actually get to see family and friends or not.

Look, it's a busy time. It's a busy time, but it's an interesting time because if you are an investor, this is the opportunity to open on the books and take a look at how management's allocating. You know, your capital's a shareholder and how your business performing. And that's a great thing. So to the extent that we can provide a little bit of clarity for our clients during this very busy period' that's rewarding. But yeah, it's it's busy. It's about that.

Look, it's a busy time. It's a busy time, but it's an interesting time because if you are an investor, this is the opportunity to open on the books and take a look at how management's allocating. You know, your capital's a shareholder and how your business performing. And that's a great thing. So to the extent that we can provide a little bit of clarity for our clients during this very busy period' that's rewarding. But yeah, it's it's busy. It's about that.

Okay, So let's jump into it. We're looking at three key themes that have come out of the results so far. So give me the first one.

Okay, So let's jump into it. We're looking at three key themes that have come out of the results so far. So give me the first one.

Yeah, So from us, I think we'd call out the recovery of the consumer or tentative signs of the consumers recovering. We've seen some evidence. Obviously, we're still early day's earning season, right, I meant as as a Thursday last week, I think we had thirty four companies that reported out of about one hundred and eighty companies we cover the reporter's earning season. So it's very early days and we have to recognize that when we're making broad sweeping generalizations about themes. But what we are seeing so far is that there's evidence that we are seeing a bit of a pickup in retail and in the consumer and the health of the consumer. Think about results here, you know, JBI high fives really impressed us on the in terms of their sales number of eight percent sales is quite strong, and it suggests that the mentum is coming back, and the trading update they gave after the half had finished also looked fairly positive. We're also seeing some positive results from the smaller retails now online pure plays like Temple, Webster and Cogan. They're getting strong numbers as well. So it looks like we're getting a bit of a resumption in terms of the consumer and I suppose relatedly with Commonwealth banks numbers and their reduction in financial hardship, it's also suggesting that things are improving. As you know, the labor market remains strong and the tax cuts start to start to hit bank accounts. So generally that's the first theme that we're seeing in this early stage recording season.

Yeah, So from us, I think we'd call out the recovery of the consumer or tentative signs of the consumers recovering. We've seen some evidence. Obviously, we're still early day's earning season, right, I meant as as a Thursday last week, I think we had thirty four companies that reported out of about one hundred and eighty companies we cover the reporter's earning season. So it's very early days and we have to recognize that when we're making broad sweeping generalizations about themes. But what we are seeing so far is that there's evidence that we are seeing a bit of a pickup in retail and in the consumer and the health of the consumer. Think about results here, you know, JBI high fives really impressed us on the in terms of their sales number of eight percent sales is quite strong, and it suggests that the mentum is coming back, and the trading update they gave after the half had finished also looked fairly positive. We're also seeing some positive results from the smaller retails now online pure plays like Temple, Webster and Cogan. They're getting strong numbers as well. So it looks like we're getting a bit of a resumption in terms of the consumer and I suppose relatedly with Commonwealth banks numbers and their reduction in financial hardship, it's also suggesting that things are improving. As you know, the labor market remains strong and the tax cuts start to start to hit bank accounts. So generally that's the first theme that we're seeing in this early stage recording season.

And this of course before any interest rate cut that we might get this week.

And this of course before any interest rate cut that we might get this week.

Yeah, exactly. I mean it's interesting to see that it's kind of a bit preemptive. I mean, obviously the RBA finished hiking rates a while ago, and perhaps now the worst so to speak of the tightening is now sort of filtered through the system, like this was sort of peak peak impact of the rate hikes, and maybe you know that's stabilized, and then you get the additional sort of kick, so to speak, of the energy bill's subsidy and also the tax cuts. So it's encouraging and obviously for retailers, you'd think, all things considered, things you'll get better, and that's what we're expecting in the year ahead.

Yeah, exactly. I mean it's interesting to see that it's kind of a bit preemptive. I mean, obviously the RBA finished hiking rates a while ago, and perhaps now the worst so to speak of the tightening is now sort of filtered through the system, like this was sort of peak peak impact of the rate hikes, and maybe you know that's stabilized, and then you get the additional sort of kick, so to speak, of the energy bill's subsidy and also the tax cuts. So it's encouraging and obviously for retailers, you'd think, all things considered, things you'll get better, and that's what we're expecting in the year ahead.

I love the fact that Jabhipha is almost the first company. It's not the first, but it's among the first, and Harvey Normans always just about the last company, so those retailers are always bookend reporting season. Okay, that's theme number one, the consumer discretionary stocks, retailers doing probably a bit better than thought. Theme number two.

I love the fact that Jabhipha is almost the first company. It's not the first, but it's among the first, and Harvey Normans always just about the last company, so those retailers are always bookend reporting season. Okay, that's theme number one, the consumer discretionary stocks, retailers doing probably a bit better than thought. Theme number two.

I'll stay in maybe the consumer sectory youth retail part of the landscape because another thing we've picked up on, and we've been talking about it for a while is is the online e commerce shift and how that's progressing. So we've held the view for a while now that retailers were the strong online presence either on eachannel. Retailers both brick and mortar and e commerce that have strong retail or digital platforms and the pure players over time should be the winners. As more and more people move online, we're seeing again early days, we're seeing some that's resuming. You know, obviously during Covid that sort of went through the roof in terms of online penetration and migration and then has in reopen it pulled back a bit. We're seeing that trend resuming again, and that's that sort of existent with our view about how things will play out again. To go back to two names I spoke about earlier, but Covid and Tembla Webster, you know, cog and sales I think in the fourth quarter were about ten percent temper Webster in the half or something like twenty four percent growth, So we're talking really phenomenal growth rates even against you know, JB, which is again it's predominantly a brick and mortar retailer, but its online platform again had really strong growth outpacing its brick and mortar. So it looks like it was a taking chair from the other name you mentioned, Harvey Norman, which has lower penetration online. So that theme we're seeing start to play out. And again, those those companies that are index stor position well for the e commerce transition seemed to be the winners at least thus far.

I'll stay in maybe the consumer sectory youth retail part of the landscape because another thing we've picked up on, and we've been talking about it for a while is is the online e commerce shift and how that's progressing. So we've held the view for a while now that retailers were the strong online presence either on eachannel. Retailers both brick and mortar and e commerce that have strong retail or digital platforms and the pure players over time should be the winners. As more and more people move online, we're seeing again early days, we're seeing some that's resuming. You know, obviously during Covid that sort of went through the roof in terms of online penetration and migration and then has in reopen it pulled back a bit. We're seeing that trend resuming again, and that's that sort of existent with our view about how things will play out again. To go back to two names I spoke about earlier, but Covid and Tembla Webster, you know, cog and sales I think in the fourth quarter were about ten percent temper Webster in the half or something like twenty four percent growth, So we're talking really phenomenal growth rates even against you know, JB, which is again it's predominantly a brick and mortar retailer, but its online platform again had really strong growth outpacing its brick and mortar. So it looks like it was a taking chair from the other name you mentioned, Harvey Norman, which has lower penetration online. So that theme we're seeing start to play out. And again, those those companies that are index stor position well for the e commerce transition seemed to be the winners at least thus far.

Stay with me, Lachlan, we'll be back in a minute. My guest this morning is Lachlan Halloway, equity market strategist at morning Star. So a third theme. So we've had the first one being the return of the retailers, the second being the online plays looking okay, the third theme Lcklin.

Stay with me, Lachlan, we'll be back in a minute. My guest this morning is Lachlan Halloway, equity market strategist at morning Star. So a third theme. So we've had the first one being the return of the retailers, the second being the online plays looking okay, the third theme Lcklin.

Yeah, sure, So we'll talk about the twitcher to the miners basic materials. And obviously the gold story has been wow, really framastic for investors there and for those god mining companies expose that theme. But I think one that's more important for our market, and I'll talk about that is obviously how the iron ore miners are fairing things are. You know, if we look at where we were last year, we've got iron ore prices off some sixteen percent, and obviously that's an impact for our big iron or minus BHP, RAO and Fortescue. Somewhat offsetting that for BHP and Rio is improvement of the copper price for us. He doesn't have so much exposure there, so it's not as much of an offset for them. So how that plays out for the rest of the year is going to be something we're watching very closely. With all this talk of tariffs, and the tendro not to effects for the trin of growth story and steal unuser demand. It's something that we have to keep an eye on. We see both BEHP and RaaS close to fairly valued now, which we haven't for quite some time. So it looks like the risks there are more or less priced in, which is good because it opens up an investment set in the market which we haven't seen is offering a lot of value for a while now. But how that plays out is going to be very important.

Yeah, sure, So we'll talk about the twitcher to the miners basic materials. And obviously the gold story has been wow, really framastic for investors there and for those god mining companies expose that theme. But I think one that's more important for our market, and I'll talk about that is obviously how the iron ore miners are fairing things are. You know, if we look at where we were last year, we've got iron ore prices off some sixteen percent, and obviously that's an impact for our big iron or minus BHP, RAO and Fortescue. Somewhat offsetting that for BHP and Rio is improvement of the copper price for us. He doesn't have so much exposure there, so it's not as much of an offset for them. So how that plays out for the rest of the year is going to be something we're watching very closely. With all this talk of tariffs, and the tendro not to effects for the trin of growth story and steal unuser demand. It's something that we have to keep an eye on. We see both BEHP and RaaS close to fairly valued now, which we haven't for quite some time. So it looks like the risks there are more or less priced in, which is good because it opens up an investment set in the market which we haven't seen is offering a lot of value for a while now. But how that plays out is going to be very important.

Okay, I'm just interested in Donald Trump and the US administration, and this kind of follows on for the miners and based metals and Tariff's potential tariffs. We don't really know that's a day by day proposition exactly how that's going to be implemented, but I know Ansel came out last week and talked about increasing prices in the back of Tariff's CSL vaccination business a bit tough when the head of health in the US is anti vax. I think Macquarie was another one who came out talking about the sale of renewables and how that affects Donald Trump or Donald Trump affects that has that Trump we said to be hearing about Donald Trump be the administration in reporting season not surprisingly, has it actually had a material impact you think, and.

Okay, I'm just interested in Donald Trump and the US administration, and this kind of follows on for the miners and based metals and Tariff's potential tariffs. We don't really know that's a day by day proposition exactly how that's going to be implemented, but I know Ansel came out last week and talked about increasing prices in the back of Tariff's CSL vaccination business a bit tough when the head of health in the US is anti vax. I think Macquarie was another one who came out talking about the sale of renewables and how that affects Donald Trump or Donald Trump affects that has that Trump we said to be hearing about Donald Trump be the administration in reporting season not surprisingly, has it actually had a material impact you think, and.

Will it look I mean, you would see too much so far. I mean in the last half of last year. Obviously that was that was very early days for Trump. So I wouldn't expect it to be that visible in the results that we're going to be seeing over the next couple of weeks. The outlook, yes, you would expect things like tariffs would would have an impact on certain companies are exposed that way. Perhaps we can talk about a few of those in a minute, but we've got to be cautious in my opinion of a couple of things. Firstly, how much we don't know about the outlook for tariffs. It's a story that's changing by the minute. I mean last years during trump slation campaign, they was talking of a ten percent universal tariff and a sixty percent tariff on China. Now we come to know his early administration and we have ten percent tariff on China and then tariff's on Canada and Mexico which were then suspended. Now we have a talk of reciprocal tariffs. It's evolving by the minute, and I think we'd be cautious about making, so to speak, one way bets on the outcome of a tariff because as we just don't know what's going to happen and nobody else that's going to happen. But to give you know, account example, I mean, one company that we've talked about that would be a beneficiary, for example, of tariff's on on global steel imports to the US would be a company like Blue Scope. And you know, the share price has broadly speaking reflected that that's true if tariffs play out, you know, as to exten we expect that Trump does put tariff's on and they do stay in place. But I think the more interesting case probably and this you kin't of missed this if you just start applying these broad brushstrokes as well. This company is an import of this company is an export and from China and so on, is that some companies with you know, motes competitive avantages actually do quite well even in environments where you have a tariff. And for the example of the case study have sort of useful last week or so is Revel and b Rebel is a is a manufacturer obviously of home appliances, and about half its revenues and in the US, but manufactures almost all of this in China. So on the surface, you'd say, right, Brebel's a company there's unfavorably exposed to tariffs on China, and you know, on the in the binary sense, that is true. But in the last trade war in twenty sixteen, Rebels Margins didn't even budge it. Passed it straight into the consumer because it has a fantastic ramp perception in the US. It's a luxury, it's well, it's well placed, and has a lot of pricing power, so it just sort of, you know, completely rolled through that really without any sort of you know, obvious impact at all. So if you can find those companies that have these competitive advantages, they can sort of buck the obvious knee jerk response to tariffs and emodees a valuable thing in any environment, particularly when you've got this much uncertainty. I think that comes inde even chart for focus.

Will it look I mean, you would see too much so far. I mean in the last half of last year. Obviously that was that was very early days for Trump. So I wouldn't expect it to be that visible in the results that we're going to be seeing over the next couple of weeks. The outlook, yes, you would expect things like tariffs would would have an impact on certain companies are exposed that way. Perhaps we can talk about a few of those in a minute, but we've got to be cautious in my opinion of a couple of things. Firstly, how much we don't know about the outlook for tariffs. It's a story that's changing by the minute. I mean last years during trump slation campaign, they was talking of a ten percent universal tariff and a sixty percent tariff on China. Now we come to know his early administration and we have ten percent tariff on China and then tariff's on Canada and Mexico which were then suspended. Now we have a talk of reciprocal tariffs. It's evolving by the minute, and I think we'd be cautious about making, so to speak, one way bets on the outcome of a tariff because as we just don't know what's going to happen and nobody else that's going to happen. But to give you know, account example, I mean, one company that we've talked about that would be a beneficiary, for example, of tariff's on on global steel imports to the US would be a company like Blue Scope. And you know, the share price has broadly speaking reflected that that's true if tariffs play out, you know, as to exten we expect that Trump does put tariff's on and they do stay in place. But I think the more interesting case probably and this you kin't of missed this if you just start applying these broad brushstrokes as well. This company is an import of this company is an export and from China and so on, is that some companies with you know, motes competitive avantages actually do quite well even in environments where you have a tariff. And for the example of the case study have sort of useful last week or so is Revel and b Rebel is a is a manufacturer obviously of home appliances, and about half its revenues and in the US, but manufactures almost all of this in China. So on the surface, you'd say, right, Brebel's a company there's unfavorably exposed to tariffs on China, and you know, on the in the binary sense, that is true. But in the last trade war in twenty sixteen, Rebels Margins didn't even budge it. Passed it straight into the consumer because it has a fantastic ramp perception in the US. It's a luxury, it's well, it's well placed, and has a lot of pricing power, so it just sort of, you know, completely rolled through that really without any sort of you know, obvious impact at all. So if you can find those companies that have these competitive advantages, they can sort of buck the obvious knee jerk response to tariffs and emodees a valuable thing in any environment, particularly when you've got this much uncertainty. I think that comes inde even chart for focus.

Okay, so kind of quality companies that with pricing power probably won't be hit as hard as the more commoditized organizations.

Okay, so kind of quality companies that with pricing power probably won't be hit as hard as the more commoditized organizations.

Yeah, well, I think they have more of a capacity about to pass it on to the consumer. So I think that's fair. I said, Look, the general's being there'll be impacts, but their ability to withstand that and pass it through looks much higher.

Yeah, well, I think they have more of a capacity about to pass it on to the consumer. So I think that's fair. I said, Look, the general's being there'll be impacts, but their ability to withstand that and pass it through looks much higher.

Final question, Lachlan, Week one, Well, it's not weak one, but you know the first big week is over. Do you have a favorite result? Do you have favorite results as an or you're not supposed to?

Final question, Lachlan, Week one, Well, it's not weak one, but you know the first big week is over. Do you have a favorite result? Do you have favorite results as an or you're not supposed to?

Well, I mean the ones we catch our eye obviously. I think you know we've seen this as fairly positive overall in terms of earning season. I mean, we we cover about one hundred and eighty companies and you know, as of late last week, about twenty percent or so had already reported, and generally speaking, we've brought just for context, we write a fair value for each business. It's a DCF based valuation, and we've upgraded our valuation for about half the companies that have reported. We haven't made any downgrades yet, and the other half that we didn't upgrade were we just maintained fair value for those businesses. So overall, that's actually a pretty positive start, and you know, we had some really big results. Like I said Jbhifo talked about earlier, the upgradeed that fairly substantially. I think about seven percent on the day because sales was taking a lot of share and sales was stronger than we were expecting. So that's positive still when our opinion looks overvalued. But it was a strong result, so that's why i'd call out as being positive. But generally speaking, the signs we're seeing so far cave out that it's early days that it's been a positive earning season to date.

Well, I mean the ones we catch our eye obviously. I think you know we've seen this as fairly positive overall in terms of earning season. I mean, we we cover about one hundred and eighty companies and you know, as of late last week, about twenty percent or so had already reported, and generally speaking, we've brought just for context, we write a fair value for each business. It's a DCF based valuation, and we've upgraded our valuation for about half the companies that have reported. We haven't made any downgrades yet, and the other half that we didn't upgrade were we just maintained fair value for those businesses. So overall, that's actually a pretty positive start, and you know, we had some really big results. Like I said Jbhifo talked about earlier, the upgradeed that fairly substantially. I think about seven percent on the day because sales was taking a lot of share and sales was stronger than we were expecting. So that's positive still when our opinion looks overvalued. But it was a strong result, so that's why i'd call out as being positive. But generally speaking, the signs we're seeing so far cave out that it's early days that it's been a positive earning season to date.

Lachlan, thank you for talking to Fear and Greed.

Lachlan, thank you for talking to Fear and Greed.

Thank you.

Thank you.

That was morning Star equity market strategist Lachlan Hallaway. This is the Fear and Greed Business Interview. Remember this is general information only, and you should see professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed, daily business news for people who make their own decisions. I'm Sean Elma. I'm enjoy you today.

That was morning Star equity market strategist Lachlan Hallaway. This is the Fear and Greed Business Interview. Remember this is general information only, and you should see professional advice before making investment decisions. Join us every morning for the full episode of Fear and Greed, daily business news for people who make their own decisions. I'm Sean Elma. I'm enjoy you today.