February 26, 2025 • 18 mins
With the February reporting season almost wrapped up, host Rebecca Jones and Bloomberg finance editor Adam Haigh dissect the key takeaways on global and local issues from the CEOs of some of Australia’s biggest listed companies.
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Episode Transcript
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Speaker 1 (00:02):
For the shareholders, analysts and investment managers following Australia's twice
yearly company reporting season. The experience is typified as frantic
and full of twists and turns, and this February was
no exception. Hello, I'm Rebecca Jones. Welcome to the Bloomberg
Australia Podcast. This week marks the end of another ASX
(00:25):
earning season and it's been a frantic couple of weeks.
We've seen miners and the banks do it tough. Today
we ask how do those in control of our biggest
companies think things are really going and what are the
boffins the analysts have to say about that. Adam Haig
writes about finance for Bloomberg. He's based in Sydney and
(00:48):
he joins me now to discuss this and also where
to next for some of our biggest companies. Adam, it's
great to have you back.
Speaker 2 (00:56):
Thanks a lot, it's great to be here.
Speaker 1 (00:57):
So our banks, the big four, it's always at the
forefront of investors' minds and some of the biggest names.
This month was citing increased pressure on profit margins. Adam,
what explanation did the bank CEOs give as to why
this is happening and why now.
Speaker 2 (01:16):
Well, what they did Beck really was kind of hate
this picture of caution, this tone of caution on their
own businesses, but also on the economy and how things
are progressing from here. So clearly competition is heating up
and has been fierce for some time. We've seen that
in their mortgage market with home loans, but I think
(01:38):
you saw it amp up a little bit in the
last couple of weeks here with business banking and the
fact that National Australia Bank, which has always been the
dominant market player in business banking, see increasing pressure in
this business and the likes of Commonwealth Bank that have
also been trying to eat into market share a little
(01:58):
bit there. All so showed you just how much of
a competition fight is heating up in business banking as well.
So really, if you look at some of the CEOs
and what they were talking about, look over at Westpac
Anthony Miller, who's relatively new into the job there. Of course,
you know, he described their margin decline as modest, so
(02:20):
not wanting to push too fine a point on the fact,
not wanting to scare people, but just almost you know,
put it out there. So No, there's no ambiguity around
the fact that there still is a difficult environment from
here for the banks, and I think you saw that
from the National Australia Bank SEO Andrew Irvine as well.
(02:40):
There's a very cautious tone throughout really the period that
we've seen in the last couple of weeks.
Speaker 1 (02:45):
And how did the share prices react, Adam, We've had
some huge moves in the share prices.
Speaker 2 (02:50):
I mean, just have a look at last week's numbers.
Westpac was down about eleven percent, Commonwealth Bank of Australia
down a little bit more than eight percent. NAB was
the real standout, down fourteen percent, which is of course
a pretty big move, and Zed to a lesser extent
was still down eight percent. So clearly some very big
(03:11):
moves there. But I think you've got to remember where
a lot of these stocks have come from, and a
lot of them were some of the real market darlings
of twenty twenty four and it had a good run
even in the early part of January. So a lot
of that was just readjusting to these slightly reset expectations
and a little bit of the froth coming out of.
Speaker 1 (03:30):
The Yeah, I wanted to ask you about that, what
are analysts saying about these banks and there as they
were sky high valuations in the wake of these earnings updates.
Speaker 2 (03:41):
Well, I think there very much is still a focus
on just how expensive Australian banks are valued at in
the market here, and I think a lot of the
analyst commentary was was around that. So it just have
to look at the numbers. I mean, it's amazing really
if you look at the MSCI World Banks Index, which
is essentially gauge of big global banks, you have CBA,
(04:04):
NAB and Westpac that are all in the top ten
of the most expensive banks if you use the price
earnings rich metric evaluation, which really is just the stop
price relative to what people expect their earnings to be
in future years. So clearly these bank stocks are still
very expensive, even after some of the reset that we've
(04:26):
seen in prices in recent weeks. So you've had all
this cautious commentary, and you've also had the nation's central
Bank lower interest rates for the first time in a
good few years, and I think really that tells you
the story of just it adds to the pressure on
margins and of course all the big four banks followed
(04:47):
up straight away after the RBA had come out on
Tuesday and said we're also lowering our home loan rates
by twenty five basis points. So the pressure is almost
immediately being felt for the bottom lines for these banks.
Speaker 1 (05:01):
We spoke to a couple of those CEOs shortly after
the decision whose businesses are really relying on those rate
cuts to start coming through. We's Farmers, for example. They're
one of the country's biggest employers as the owner of
massive stores like Kmart and Bunnings. Without them, we and
I mean me, wouldn't have discount dupes and nice tasty
(05:24):
sausages to eat on a Saturday morning. Hey, only the
important things on this podcast. West Farmer's CEO Rob Scott
talked to us on Bloomberg Television and he said more
cuts are going to be needed, despite the RBA clearly
watering down those expectations last week. And Adam, it's not
just him, is it. We also had Taran Gupta. He's
(05:46):
the CEO of giant property developer Stockland. Let's take a
listen at what he had to say about the cut
and its impact on the demand for new housing.
Speaker 3 (05:56):
Yeah, I think more cuts would be required to really
see anop swing in cyclical demand. We are still, as
I said, somewhere near the bottom cyclically. Volumes are down
in most nationally about fifty percent. But it's about affordability,
and clearly at the moment there is a lot of
pent up demand and first home buyers are struggling to
(06:19):
get into the housing market. To give you some stats,
at the moment, around forty five fifty percent of my
inquiries are first home buyers, but only about thirty two
percent are buying, So they can't afford to buy, but
they have a willing next to buy.
Speaker 1 (06:34):
So what are those two company results telling us, Adam
about the impact of rate cuts on big consumer businesses
and how many more might be needed.
Speaker 2 (06:44):
Well, consumers have obviously been suffering for quite some time,
and the purchasing power has been eroded away. Wages are
not going up as fast as the prices of everyday things,
and clearly that's one big problem that we're suffering in
the economy at the moment. And you just have to
listen to Rob Scott at West Farmers talk about that
first RBA cut. He described it as modest and implicit
(07:08):
in that word, of course, is that the RBA should
do more and would need to do more if you
wanted to see a real uptick in consumer demand. And
I think in a similar vein the Stockhold CEO, you
know he's speaking to a topic of housing affordability, and
of course we're heading into an election cycle now where
(07:30):
it's a real important topic. And of course you don't
have to go very far in Australia to before you
get into a conversation about house prices with someone, and
clearly they're looking for more from the Central Bank. They're
looking for more if you really want to get an
upswing in cyclical demand in the housing market. Tarreon Gupt
(07:51):
is very clear that the RBA needs to be cutting
more than just the twenty five basis points that we
had last Tuesday. But you only need to open your
Bloomberg terminal have a look at what markets are expecting
and where market pricing is for interest rates in Australia
over the next few months and through the end of
this year, and really all you're seeing is perhaps one
(08:11):
or two more cuts, maybe another fifty basis points in
total of cuts. So that doesn't take us to nearly
where places like the US have already gone to So
I think that is quite instructive and tells you that
CEOs really want more from monetary policy, but also there's
(08:32):
more from maybe from the government to do here.
Speaker 1 (08:34):
I think it also does, of course speak to the
great amount of things that these CEOs cannot control. Of course,
they can control a lot of the narrative, but this
is definitely one outside of their severe of power. Another
and one of those things is of course tariffs, and unsurprisingly,
I guess Trump's tariffs. Ware was also front of mind
(08:57):
for a lot of CEOs this earning season. Here in Australia,
Treasury Wine estates they make penfolds delicious wine sold around
the world, so it's unsurprising that their CEO, Tim Ford
had a bit to say on this very topic when
he talked to us just after their results. Let's take
a quick listen at what he had to say.
Speaker 4 (09:19):
From our perspective, you're having such a large business that
is in the United States, that is US wine, luxury
wines that we make in America and selling America. I
guess for our company yourself, we actually see some of
the protectionist policy and tariffs that are likely to be
put in place. If you believe that's what's going to
happen has a net positive for US as an organization. Fortunately,
(09:41):
we have a very big center of gravity there in
the United States.
Speaker 1 (09:44):
So, Adam, that's one example of a business expecting a
positive impact from tariffs if they're implemented. As Ford said,
there has there been much mentioned of tariffs elsewhere this
earning season, and what kind of impact are company is anticipating.
Speaker 2 (10:01):
Well, this is the difficulty Beck with tariffs is that
as is being clear in the initial few weeks of
the Trump administration, is it's not clear what kind of
ideas will become policy and how that policy will be enacted.
And then the follow on to your business. So if
you run a big global business like Treasury Rynes, which
sells wine into all sorts of markets, not just Australia,
(10:22):
of course you need to be cognizant of making a
decision but then having to change that decision further down
the line if a different policy gets enacted. So I
think this is what Tim Ford was speaking to, the
idea of let's just waghed a little bit until we
know a bit more. What do we know at the moment.
While in his business, actually people are just drinking less
wine around the world, and that's really something more fundamental
(10:44):
that he's struggling with, and at least he has the
power to try and do something to counteract that. At
the moment, you know, they just don't know enough about
how the tariffs will play out to really get a
sense of how to change their businesses accordingly. And I
think you're seeing that. You're seeing this hesitancy from bosses,
corporate bosses really across ourselves sectors.
Speaker 1 (11:05):
When we come back, let's dig into sorry earnings from
mining companies. This is the Bloomberg Australia Podcast, and welcome
back to the Bloomberg Australia Podcast. You're here with me
Rebecca Jones and Bloomberg's Finance editor Adam Hague, and we
are deconstructing hours of talking from the top brass at
(11:28):
Australia's biggest companies as they report their half yearly earnings.
Did they meet our expectations? Why or why not? And
what's next? Adam, it would be basically illegal to discuss
earnings without having a look at the miners, so let's
do that now. Our biggest minor BHP, also the world's
biggest I might add their profit was down twenty three percent.
(11:51):
They cited lower demand from China for iron or not
a shock there unfortunately, though for shareholders, term dividend was
also slashed to the lowest in eight years. That hang
on their CEO, Mike Henry says, we've got to focus
on the future. Let's talk about that, but first we'll
take a quick listen to what he had to tell Bloomberg.
Speaker 5 (12:13):
So we spent a number of years now building up
that healthy pipeline, very strong pipeline of future growth options,
predominantly in copper and potash. And as we bring those forward,
with the attractive returns that they have, we'll see the
capital allocation framework that we put in place back in
twenty sixteen come to bear in exactly the way that
it was intended, which is to protect the balance between
(12:35):
cash returns to shareholders and reinvesting in the business. We
do have a minimum fifty percent payout ratio, as you
may be aware, and we've been paying well and excess
of that for a number of years now. But as
we bring these attractive growth projects forward, we'll see the
two legs of that come into balance. And then for
that pipeline of cash that we are able to apply
(12:56):
into growth. There's a healthy competition between projects and to
ensure that we're striking or investing in those projects that
are going to create the greatest value and greatest returns
for shareholders.
Speaker 1 (13:07):
Adam, how has the mining sector reacted to BHP's results.
Speaker 2 (13:12):
Well, I think it's fairly clear that the slow down
and the continuation of this kind of deflation of the
Chinese economy has been a struggle for some time now.
It's continuing to have a material impact on companies like BHP,
which clearly make a lot of money in China. And
this is the real tricky thing for a CEO of
(13:34):
that kind of a company. And I think this is
why you sort of slim dividend there, is that they
just want to keep a little bit more of a
buffer now that economy is still struggling, and indeed the
global economy is still struggling. You now have this next
leg of the US China tensions under the Trump administration.
It's very unclear how that's going to play out at
(13:55):
this point, and so perhaps prudently, a big local player
in this space wants to just keep a little bit
more capital as a cushion against any further deterioration in
the outlook, and rather than handing capital back to investors,
which they get quite used to, they've decided not to.
(14:17):
And they've been quick to point out that, yes, there
might be certain signs of recovery and maybe the Chinese
property market at the margin, but this is still an
incredibly fragile environment and therefore let's keep a little bit
on the side for a rainy day.
Speaker 1 (14:31):
And what are the analysts telling you about BHP's move
to scale back the dividend and to look for future opportunities.
Are they picking up what Mike Henry is putting down?
Speaker 2 (14:42):
Absolutely? And I think they've You know, these are men
and women who spend a lot of their day studying
how this company works, the supply chain, nuances, everything that
goes into the equation as to what kind of a
price you want to pay for BHP shares today. And
clearly the fact that they are not giving as much
(15:02):
back to shareholders is a sign of well, in the
mediate short term, maybe we don't get enough, but this
is this a prudent thing that we're doing for the
long term. So you did actually see a little uptick
again in the BHP share price at the end of
the week, and I think there are a lot of
analysts who are kind of taken this on board as
as quite a sensible thing to be doing from Henry
(15:26):
at this point. So we're very aware of the Chinese
slowdown story. Let's keep a little bit on the side
just in case things get a little bit worse from here.
Speaker 1 (15:36):
So we've seen business banking and that sector, that segment
of these big four banks growing in importance as each
of these titans battle it out for our business. Some
interesting reflections from the consumer heavy outfits like Wes Farmers
and those who build places that we live in and
shop in, like Stockland, that more is needed from the
(15:58):
RBA to get their profit.
Speaker 3 (16:00):
It's up.
Speaker 1 (16:00):
And finally, Bhps, we've just been talking about the Big
Australian not invincible to the world around it. And even
though as my colleague in Bloomberg Opinion David Fickling described
them as the least buccaneering of the miners, they appear
to be steadfastly looking to the future for opportunities. Adam, Finally,
where is the AO six two hundred as at the
(16:23):
end of last week, Because we're not quite done with
this week and how is that going to bode for
the weeks and the months ahead.
Speaker 2 (16:29):
Yeah, well, there's no doubt it's been a tough little
patch for the stock market, and of course banks being
such a big component of that, you've seen some of
that filter through. But actually financials, the broader category which
includes banks, have fairly flat. Actually last week. The biggest
drags were energy and technology, and I think that does
(16:50):
tell you a little bit about where we've come from
with the stock market and the fact that in twenty
twenty four, if you remember, financials and tech.
Speaker 1 (16:59):
Were dominant almost yeah.
Speaker 2 (17:01):
Last so there is a little bit of this unwinding
of the winners, a little bit of the froth coming
out of the market. People just resetting expectations a little bit.
But I think it's important to remember that the Australian
market exists within the global stock market, and the global
stock market has gone through a bit of a fragile
(17:21):
patches as well. You've of course had the RBA starting
to cut rates last week, but if you look abroad,
places like the UK, where the Bank of England's already
had to cut numerous times, the Federal Reserve, they've already
had to cut numerous times as well, and we've only
had one rate cut so far here, so it's not
unfair to paint a picture that, you know, the economic
(17:44):
backdrop here is still a relatively benign environment and there's
a lot of companies that are still in good places here,
albeit some people are paying up for that and those
valuations are still, in some people's eyes, a little bit toppy.
Speaker 1 (18:00):
I guess it can mean a positive or kind of
a negative, but in this case, let's call it a positive. Adam,
thank you for joining me, and thank you for listening
to the Bloomberg Australia podcast. I'm Rebecca Jones. This episode
was recorded on the traditional lands of the war Underie
and Gadigal people of the kulin Aniuran nation. It was
produced by Paul Allen and edited by Chris Burke and
(18:22):
Ainsley Chandler. Don't forget to follow and review the show
wherever you get your podcasts, and sign up for Bloomberg's
free daily newsletter, Australia Briefing. Go to Bloomberg dot com
to subscribe.
For the shareholders, analysts and investment managers following Australia's twice
yearly company reporting season. The experience is typified as frantic
and full of twists and turns, and this February was
no exception. Hello, I'm Rebecca Jones. Welcome to the Bloomberg
Australia Podcast. This week marks the end of another ASX
(00:25):
earning season and it's been a frantic couple of weeks.
We've seen miners and the banks do it tough. Today
we ask how do those in control of our biggest
companies think things are really going and what are the
boffins the analysts have to say about that. Adam Haig
writes about finance for Bloomberg. He's based in Sydney and
(00:48):
he joins me now to discuss this and also where
to next for some of our biggest companies. Adam, it's
great to have you back.
Speaker 2 (00:56):
Thanks a lot, it's great to be here.
Speaker 1 (00:57):
So our banks, the big four, it's always at the
forefront of investors' minds and some of the biggest names.
This month was citing increased pressure on profit margins. Adam,
what explanation did the bank CEOs give as to why
this is happening and why now.
Speaker 2 (01:16):
Well, what they did Beck really was kind of hate
this picture of caution, this tone of caution on their
own businesses, but also on the economy and how things
are progressing from here. So clearly competition is heating up
and has been fierce for some time. We've seen that
in their mortgage market with home loans, but I think
(01:38):
you saw it amp up a little bit in the
last couple of weeks here with business banking and the
fact that National Australia Bank, which has always been the
dominant market player in business banking, see increasing pressure in
this business and the likes of Commonwealth Bank that have
also been trying to eat into market share a little
(01:58):
bit there. All so showed you just how much of
a competition fight is heating up in business banking as well.
So really, if you look at some of the CEOs
and what they were talking about, look over at Westpac
Anthony Miller, who's relatively new into the job there. Of course,
you know, he described their margin decline as modest, so
(02:20):
not wanting to push too fine a point on the fact,
not wanting to scare people, but just almost you know,
put it out there. So No, there's no ambiguity around
the fact that there still is a difficult environment from
here for the banks, and I think you saw that
from the National Australia Bank SEO Andrew Irvine as well.
(02:40):
There's a very cautious tone throughout really the period that
we've seen in the last couple of weeks.
Speaker 1 (02:45):
And how did the share prices react, Adam, We've had
some huge moves in the share prices.
Speaker 2 (02:50):
I mean, just have a look at last week's numbers.
Westpac was down about eleven percent, Commonwealth Bank of Australia
down a little bit more than eight percent. NAB was
the real standout, down fourteen percent, which is of course
a pretty big move, and Zed to a lesser extent
was still down eight percent. So clearly some very big
(03:11):
moves there. But I think you've got to remember where
a lot of these stocks have come from, and a
lot of them were some of the real market darlings
of twenty twenty four and it had a good run
even in the early part of January. So a lot
of that was just readjusting to these slightly reset expectations
and a little bit of the froth coming out of.
Speaker 1 (03:30):
The Yeah, I wanted to ask you about that, what
are analysts saying about these banks and there as they
were sky high valuations in the wake of these earnings updates.
Speaker 2 (03:41):
Well, I think there very much is still a focus
on just how expensive Australian banks are valued at in
the market here, and I think a lot of the
analyst commentary was was around that. So it just have
to look at the numbers. I mean, it's amazing really
if you look at the MSCI World Banks Index, which
is essentially gauge of big global banks, you have CBA,
(04:04):
NAB and Westpac that are all in the top ten
of the most expensive banks if you use the price
earnings rich metric evaluation, which really is just the stop
price relative to what people expect their earnings to be
in future years. So clearly these bank stocks are still
very expensive, even after some of the reset that we've
(04:26):
seen in prices in recent weeks. So you've had all
this cautious commentary, and you've also had the nation's central
Bank lower interest rates for the first time in a
good few years, and I think really that tells you
the story of just it adds to the pressure on
margins and of course all the big four banks followed
(04:47):
up straight away after the RBA had come out on
Tuesday and said we're also lowering our home loan rates
by twenty five basis points. So the pressure is almost
immediately being felt for the bottom lines for these banks.
Speaker 1 (05:01):
We spoke to a couple of those CEOs shortly after
the decision whose businesses are really relying on those rate
cuts to start coming through. We's Farmers, for example. They're
one of the country's biggest employers as the owner of
massive stores like Kmart and Bunnings. Without them, we and
I mean me, wouldn't have discount dupes and nice tasty
(05:24):
sausages to eat on a Saturday morning. Hey, only the
important things on this podcast. West Farmer's CEO Rob Scott
talked to us on Bloomberg Television and he said more
cuts are going to be needed, despite the RBA clearly
watering down those expectations last week. And Adam, it's not
just him, is it. We also had Taran Gupta. He's
(05:46):
the CEO of giant property developer Stockland. Let's take a
listen at what he had to say about the cut
and its impact on the demand for new housing.
Speaker 3 (05:56):
Yeah, I think more cuts would be required to really
see anop swing in cyclical demand. We are still, as
I said, somewhere near the bottom cyclically. Volumes are down
in most nationally about fifty percent. But it's about affordability,
and clearly at the moment there is a lot of
pent up demand and first home buyers are struggling to
(06:19):
get into the housing market. To give you some stats,
at the moment, around forty five fifty percent of my
inquiries are first home buyers, but only about thirty two
percent are buying, So they can't afford to buy, but
they have a willing next to buy.
Speaker 1 (06:34):
So what are those two company results telling us, Adam
about the impact of rate cuts on big consumer businesses
and how many more might be needed.
Speaker 2 (06:44):
Well, consumers have obviously been suffering for quite some time,
and the purchasing power has been eroded away. Wages are
not going up as fast as the prices of everyday things,
and clearly that's one big problem that we're suffering in
the economy at the moment. And you just have to
listen to Rob Scott at West Farmers talk about that
first RBA cut. He described it as modest and implicit
(07:08):
in that word, of course, is that the RBA should
do more and would need to do more if you
wanted to see a real uptick in consumer demand. And
I think in a similar vein the Stockhold CEO, you
know he's speaking to a topic of housing affordability, and
of course we're heading into an election cycle now where
(07:30):
it's a real important topic. And of course you don't
have to go very far in Australia to before you
get into a conversation about house prices with someone, and
clearly they're looking for more from the Central Bank. They're
looking for more if you really want to get an
upswing in cyclical demand in the housing market. Tarreon Gupt
(07:51):
is very clear that the RBA needs to be cutting
more than just the twenty five basis points that we
had last Tuesday. But you only need to open your
Bloomberg terminal have a look at what markets are expecting
and where market pricing is for interest rates in Australia
over the next few months and through the end of
this year, and really all you're seeing is perhaps one
(08:11):
or two more cuts, maybe another fifty basis points in
total of cuts. So that doesn't take us to nearly
where places like the US have already gone to So
I think that is quite instructive and tells you that
CEOs really want more from monetary policy, but also there's
(08:32):
more from maybe from the government to do here.
Speaker 1 (08:34):
I think it also does, of course speak to the
great amount of things that these CEOs cannot control. Of course,
they can control a lot of the narrative, but this
is definitely one outside of their severe of power. Another
and one of those things is of course tariffs, and unsurprisingly,
I guess Trump's tariffs. Ware was also front of mind
(08:57):
for a lot of CEOs this earning season. Here in Australia,
Treasury Wine estates they make penfolds delicious wine sold around
the world, so it's unsurprising that their CEO, Tim Ford
had a bit to say on this very topic when
he talked to us just after their results. Let's take
a quick listen at what he had to say.
Speaker 4 (09:19):
From our perspective, you're having such a large business that
is in the United States, that is US wine, luxury
wines that we make in America and selling America. I
guess for our company yourself, we actually see some of
the protectionist policy and tariffs that are likely to be
put in place. If you believe that's what's going to
happen has a net positive for US as an organization. Fortunately,
(09:41):
we have a very big center of gravity there in
the United States.
Speaker 1 (09:44):
So, Adam, that's one example of a business expecting a
positive impact from tariffs if they're implemented. As Ford said,
there has there been much mentioned of tariffs elsewhere this
earning season, and what kind of impact are company is anticipating.
Speaker 2 (10:01):
Well, this is the difficulty Beck with tariffs is that
as is being clear in the initial few weeks of
the Trump administration, is it's not clear what kind of
ideas will become policy and how that policy will be enacted.
And then the follow on to your business. So if
you run a big global business like Treasury Rynes, which
sells wine into all sorts of markets, not just Australia,
(10:22):
of course you need to be cognizant of making a
decision but then having to change that decision further down
the line if a different policy gets enacted. So I
think this is what Tim Ford was speaking to, the
idea of let's just waghed a little bit until we
know a bit more. What do we know at the moment.
While in his business, actually people are just drinking less
wine around the world, and that's really something more fundamental
(10:44):
that he's struggling with, and at least he has the
power to try and do something to counteract that. At
the moment, you know, they just don't know enough about
how the tariffs will play out to really get a
sense of how to change their businesses accordingly. And I
think you're seeing that. You're seeing this hesitancy from bosses,
corporate bosses really across ourselves sectors.
Speaker 1 (11:05):
When we come back, let's dig into sorry earnings from
mining companies. This is the Bloomberg Australia Podcast, and welcome
back to the Bloomberg Australia Podcast. You're here with me
Rebecca Jones and Bloomberg's Finance editor Adam Hague, and we
are deconstructing hours of talking from the top brass at
(11:28):
Australia's biggest companies as they report their half yearly earnings.
Did they meet our expectations? Why or why not? And
what's next? Adam, it would be basically illegal to discuss
earnings without having a look at the miners, so let's
do that now. Our biggest minor BHP, also the world's
biggest I might add their profit was down twenty three percent.
(11:51):
They cited lower demand from China for iron or not
a shock there unfortunately, though for shareholders, term dividend was
also slashed to the lowest in eight years. That hang
on their CEO, Mike Henry says, we've got to focus
on the future. Let's talk about that, but first we'll
take a quick listen to what he had to tell Bloomberg.
Speaker 5 (12:13):
So we spent a number of years now building up
that healthy pipeline, very strong pipeline of future growth options,
predominantly in copper and potash. And as we bring those forward,
with the attractive returns that they have, we'll see the
capital allocation framework that we put in place back in
twenty sixteen come to bear in exactly the way that
it was intended, which is to protect the balance between
(12:35):
cash returns to shareholders and reinvesting in the business. We
do have a minimum fifty percent payout ratio, as you
may be aware, and we've been paying well and excess
of that for a number of years now. But as
we bring these attractive growth projects forward, we'll see the
two legs of that come into balance. And then for
that pipeline of cash that we are able to apply
(12:56):
into growth. There's a healthy competition between projects and to
ensure that we're striking or investing in those projects that
are going to create the greatest value and greatest returns
for shareholders.
Speaker 1 (13:07):
Adam, how has the mining sector reacted to BHP's results.
Speaker 2 (13:12):
Well, I think it's fairly clear that the slow down
and the continuation of this kind of deflation of the
Chinese economy has been a struggle for some time now.
It's continuing to have a material impact on companies like BHP,
which clearly make a lot of money in China. And
this is the real tricky thing for a CEO of
(13:34):
that kind of a company. And I think this is
why you sort of slim dividend there, is that they
just want to keep a little bit more of a
buffer now that economy is still struggling, and indeed the
global economy is still struggling. You now have this next
leg of the US China tensions under the Trump administration.
It's very unclear how that's going to play out at
(13:55):
this point, and so perhaps prudently, a big local player
in this space wants to just keep a little bit
more capital as a cushion against any further deterioration in
the outlook, and rather than handing capital back to investors,
which they get quite used to, they've decided not to.
(14:17):
And they've been quick to point out that, yes, there
might be certain signs of recovery and maybe the Chinese
property market at the margin, but this is still an
incredibly fragile environment and therefore let's keep a little bit
on the side for a rainy day.
Speaker 1 (14:31):
And what are the analysts telling you about BHP's move
to scale back the dividend and to look for future opportunities.
Are they picking up what Mike Henry is putting down?
Speaker 2 (14:42):
Absolutely? And I think they've You know, these are men
and women who spend a lot of their day studying
how this company works, the supply chain, nuances, everything that
goes into the equation as to what kind of a
price you want to pay for BHP shares today. And
clearly the fact that they are not giving as much
(15:02):
back to shareholders is a sign of well, in the
mediate short term, maybe we don't get enough, but this
is this a prudent thing that we're doing for the
long term. So you did actually see a little uptick
again in the BHP share price at the end of
the week, and I think there are a lot of
analysts who are kind of taken this on board as
as quite a sensible thing to be doing from Henry
(15:26):
at this point. So we're very aware of the Chinese
slowdown story. Let's keep a little bit on the side
just in case things get a little bit worse from here.
Speaker 1 (15:36):
So we've seen business banking and that sector, that segment
of these big four banks growing in importance as each
of these titans battle it out for our business. Some
interesting reflections from the consumer heavy outfits like Wes Farmers
and those who build places that we live in and
shop in, like Stockland, that more is needed from the
(15:58):
RBA to get their profit.
Speaker 3 (16:00):
It's up.
Speaker 1 (16:00):
And finally, Bhps, we've just been talking about the Big
Australian not invincible to the world around it. And even
though as my colleague in Bloomberg Opinion David Fickling described
them as the least buccaneering of the miners, they appear
to be steadfastly looking to the future for opportunities. Adam, Finally,
where is the AO six two hundred as at the
(16:23):
end of last week, Because we're not quite done with
this week and how is that going to bode for
the weeks and the months ahead.
Speaker 2 (16:29):
Yeah, well, there's no doubt it's been a tough little
patch for the stock market, and of course banks being
such a big component of that, you've seen some of
that filter through. But actually financials, the broader category which
includes banks, have fairly flat. Actually last week. The biggest
drags were energy and technology, and I think that does
(16:50):
tell you a little bit about where we've come from
with the stock market and the fact that in twenty
twenty four, if you remember, financials and tech.
Speaker 1 (16:59):
Were dominant almost yeah.
Speaker 2 (17:01):
Last so there is a little bit of this unwinding
of the winners, a little bit of the froth coming
out of the market. People just resetting expectations a little bit.
But I think it's important to remember that the Australian
market exists within the global stock market, and the global
stock market has gone through a bit of a fragile
(17:21):
patches as well. You've of course had the RBA starting
to cut rates last week, but if you look abroad,
places like the UK, where the Bank of England's already
had to cut numerous times, the Federal Reserve, they've already
had to cut numerous times as well, and we've only
had one rate cut so far here, so it's not
unfair to paint a picture that, you know, the economic
(17:44):
backdrop here is still a relatively benign environment and there's
a lot of companies that are still in good places here,
albeit some people are paying up for that and those
valuations are still, in some people's eyes, a little bit toppy.
Speaker 1 (18:00):
I guess it can mean a positive or kind of
a negative, but in this case, let's call it a positive. Adam,
thank you for joining me, and thank you for listening
to the Bloomberg Australia podcast. I'm Rebecca Jones. This episode
was recorded on the traditional lands of the war Underie
and Gadigal people of the kulin Aniuran nation. It was
produced by Paul Allen and edited by Chris Burke and
(18:22):
Ainsley Chandler. Don't forget to follow and review the show
wherever you get your podcasts, and sign up for Bloomberg's
free daily newsletter, Australia Briefing. Go to Bloomberg dot com
to subscribe.
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