Q+A: What should we expect from reporting season?

What should we expect from reporting season?

Today Sean Aylmer is joined by Ben Gilbert, Head of Australian Research at Jarden.

Fear & Greed Q+A: Join Sean Aylmer & Michael Thompson as they answer questions on business, investing, economics, politics and more. If you have your own question, get in touch via our website, LinkedIn, Instagram or Facebook!

This is general information only. Seek professional advice before investing.

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Episode Transcript

Speaker 1 (00:05):
Welcome to Fearing Greed Q and A, where we ask
and answer questions about investing, business, economics, politics and more.
I'm Sean Almer and today what should we expect from
the upcoming reporting season? Remember this is general information only
and you should always seek advice before investing. Ben Gilbert
is the head of Australian research at Jardin. Ben, welcome
back to Fearing Greed Q and A.

Speaker 2 (00:27):
Thanks Sean, thanks for having me.

Speaker 1 (00:28):
What should we expect over the next four weeks or
so from reporting season? What are the big themes that
you're looking for?

Speaker 2 (00:36):
Well, I'm hoping we're going to be able to move
on from this phrase of cautious optimism towards optimism now
would be my hope as we moved through reporting season.
If we look domestically, we're in an easy cycle. Hopefully
we're looking into another rate cut in August, which by
all accounts of markets pricing in and the recent CBI
data are supportive of. So I'm hoping to see company
speaking a little bit more optimistically around the outlook, particularly

(00:57):
those on the cyclical side of things. I think there's
probably a few companies specific themes or border market specific
things we should be thinking about interest rates. For instance,
there are probably a bit of a boring topic. Could
net interest costs coming a little bit low as when
now entering this seasing cycle, a bit of a source
of earning surprise, more talk around public spend, building activity,
more and more money going into those spaces as well
as that an opportunity. So hopefully I think we're going

(01:20):
to see some more positive updates, more positive commentarre and outlook,
and hopefully that translates into positive earnings revisions which are
good for share prices, which give we some of these
valuations are sitting. I think is probably going to be needed.

Speaker 1 (01:31):
Okay, tell me some of the exporters. Do you think
we're going to get much around the politics of the place.
Do you think that will affect many companies at this point?

Speaker 2 (01:42):
Yeah, Look, we're definitely seeing it happening offshore and some
of the olds to look at Capri Holdings, Timmy Chew,
Michael calls these sorts of brands. Recently we're talking about
impacts of tariffs, So it's definitely impacting companies to the
extent we're going to see it domestically. Look, I think
it's going to be hot topic, particularly those that have
got manufacturing off is offshore or exporting to places like
the US. So yes, I think we will. To be honest,

(02:04):
so I think that it's more going to impact around
demand and if it's impacting confidence down here, and you
see groups like Flight Center for instance, downgraded a couple
of weeks ago citing some of the cheap political issues
and also some of the challenges down in the Middle East.
But ultimately, look, if the tariffs do go through, it
puts more capacity into China, it could provide some cheaper
products into Australia, which ultimately could be positive for the

(02:25):
consumer and stimulatary for the economy.

Speaker 1 (02:27):
Okay, so I'm taking from all this Ben that you're
reasonably optimistic about what's going to happen in the next
four weeks. You mentioned secretly calls and given it very
much as an interest rate cycle that's moving at the moment.
Let's talk about some of those secret calls me. Perhaps
you can give us a few examples of retailers that
you think sort of either either it's a critical earnings

(02:50):
period or something that you expect something good from or
bad from for that matter.

Speaker 2 (02:55):
Look, I think you've got a couple of camps. At
the moment, you sort of got the has and have
nots in retail land, and I think if we looked
at some of the haves, for instance, so you look
at Jbhife, I look at Harvey Norman Brevel as well
to a lesser extent, given it's global mix, but they've
got some real tail winds. One, they're selling products that
consumers want, and if they've got more disposable income, it's
always exciting to go up there and buy a new computer,

(03:15):
by a new piece of tech, by new kettle with
all the new tech you can get around it now,
and they've definitely got some tailwinds both from a macros standpoint. Plus,
you're also seeing some pretty significant benefits coming through from
all this stuff we bought accumulated through COVID. It's now
staying to break will. There's new models out to people
looking to replace it. You're also seeing that with things
like windows, the old windows is becoming obsolete switching off

(03:36):
for the next couple of months. It's going to drive
a whole bunch of demand. So we're pretty positive around
those spaces. I think they've got some benefits. Fashion space
is a bit more mixed I think again it's around
having right product, right time, So it's very much around
picking who you're backing from a product standpoint consumer. If
you go through a look more broadly grocery, there's definitely
challenges in grocery. It's competitive likes of Chemists, Warehouse which

(03:57):
is now under the Sigma Group. Now yes, Bunnings is
having and cleaning. They're all pulling demand out of supermarket.
So I think that's still a challenging space. I don't
think the necessary can see material or overly positive updates
from there. And then you've got groups like Travel it's
been very much down and out. That's some pretty negative updates.
Stock prices, particularly flight Center's sitting sort of in the
doll drums. But again it provides opportunity if things turn,

(04:19):
earnings can come up very very quickly and could provide
some opportunities.

Speaker 1 (04:22):
I find trouble really interesting. We interviewed Adam Schaub from
lux Escapes the other day. Now it's not a listed company,
but they're having a great time because what he said,
he called them flighties. He said flight Is is struggling, but
that's because they go long haul. We go short haul.
Like basically lucks of scapes, does Ballei figi those sorts
of areas, and they're having a really good time of it.
What travel had had a good time of it. I

(04:44):
hadn't realized that Flight Center and some of those guys
were having such a tough time of it. What's that about.

Speaker 2 (04:50):
Yeah, So Flight Center specifically has been impacted by number
of issues. There's been some some own goals within there,
but at the same time, look, it's a phenomenal business,
got great global reach, very strong position both corporate and leisure.
We've probably on more so not from a leisure standpoint.
You look at those situations like out of the Middle East,
when you have all the TERMOL that we've had happening there,
it just means people a little bit more concerned or

(05:11):
conscious about doing some of those longer OL flights, particularly
if you've got to fly around those regions, so you
send people either delaying or the firing so they're shorter
haul or they just won't do those trips. And the
longer trips typically much more profitable one they're bigger tickets
to that by accommodation, transfers, car hire, all these sorts
of things. So that's impact but in theory these things
should be short term, and trains are true. Consumers still

(05:32):
want to travel. You look at all the competition out there,
You look at guitar et cetera coming on. There's big opportunities.
My dad calls them the ski holidays, the spending kids
inheritance holidays, and all the boomers are going to spending
this money. So I think structurally it's an attractive space.
But there's an enormous amount of leverage that runs through
the profit loss statements of these groups. Flight Center runs
on a profit march of less than two percent, so
smallerds in top plank are big impacts to earnings. But

(05:53):
it works both ways, and what we're hoping to see
in the near medium term is that it starts to
go on the outputs trend and then you can have
some pre significent growth through the profit loss.

Speaker 1 (06:03):
Okay, in one of the stocks that I've always I mean,
I followed this dock for years its highes and definite lows.
Domino has been one of the worst performers though of
the last financial year of the ASEX two hundred. You've
got a new eighty four year old executive chair and
Jack Cowen who certainly knows that business pretty well. Is
he of Hungry Jack's fame? What happens to that company?

Speaker 2 (06:23):
It's a tough one at the moment, isn't it. It
feels like it's a little bit ruddless. You've had another
CEO that's exited. Jack's obviously very well regarded, well respected
operator in qs are both domestically and globally. But it's
tough because the questions that do we need to see
some more fundamental change in the model? You look at
the Uber and Ordash resolves that have been out recently.
They're seen twenty percent growth in Autovady in the last

(06:44):
couple of days. I think the debate is do they
have to sort of embrace and do they even need
to be in delivery anymore? I do they do their own?
Do they go outsource it? Do they focus more own health.
It's a great business, great franchise. You look at penetration
markets like Germany and Japan, there's massive opportunity. It's just
a matter of finding that earn its flaw. Are we
there yet? I don't know. They're still closing a lot

(07:05):
of stores into the new year. You look at McDonald's again,
out recently still talking to weakness in Germany. It's a
tough one. We're sort of sitting on the fence with
a neutral at the moment. Definitely can see a lot
of value of things go right, but I think patience
is needed.

Speaker 1 (07:18):
And one we're out of time. But just you know,
one left field suggestion, Ben, that none of us know
much about.

Speaker 2 (07:24):
But you like well, one left field suggestion, I must
have been. I still focused the lot around all the
big CAUP look my bigger picture piece. If we look
into the future, I think that what we're waiting for
in Australia is someone to really do health well and
really bring it all together. I think Wezzy's is well placed.
I think Sigma's well placed. You look at what some

(07:44):
of these global groups. Creating a true health ecosystem is
one that could really create a powerhouse. It hasn't meant
done in Australia and I've put Sigma and Weezy's at
the top could do it. But this is the longer term,
longer term play.

Speaker 1 (07:55):
Ben, thanks for talking to Fearing Greed.

Speaker 2 (07:57):
Thank you.

Speaker 1 (07:57):
That was Ben Gilbert, head of Australian Research at Jardine.
Remember this is general information only. And you should seek
advice before investing. If you've got something you'd like to know,
then send through your question on LinkedIn, Instagram, Facebook, or
at fearing Greeed dot com dot au. I'm Shana Elma
and this

Speaker 2 (08:12):
Is fear and Greek Q and a