Insights
Investment Watch is a flagship product that brings together our analysts' view of economic and investment strategy themes, sector outlooks and best stock ideas for our clients.
Investment Watch is a quarterly publication produced by Morgans that delves into key insights for equity and economic strategy.
This latest publication covers
Economics – Recession fears behind us
Fixed Interest Opportunities – Alternative Income Strategies for 2025
Asset Allocation – Stay invested but reduce concentration risk
Equity Strategy – Diversification is key
Banks - Does current strength crimp medium-term returns?
Resources and Energy – Short-term headwinds remain
Industrials - Becoming more streamlined
Travel - Demand trends still solid
Consumer Discretionary - Rewards in time
Healthcare - Watching US policy direction
Infrastructure - Rising cost of capital but resilient operations
Property - Macro dominating but peak rates are on approach
At the start of 2024 investors faced a complex global landscape marked by inflation concerns, geopolitical tensions, and economic uncertainties. Yet, despite these challenges, global equity markets demonstrated remarkable resilience, finishing the year up an impressive 29% - a powerful reminder that long-term investors should stay focused on fundamental growth and not be deterred by short-term market volatility.
The global economic outlook for 2025 looks promising, driven by a confluence of positive factors. Central banks are proactively reducing interest rates, creating a favourable economic climate, while companies are strategically leveraging innovation and cost control to drive earnings growth.
Still, we remind investors to remain vigilant against a series of macro-economic risks that are likely to make for a bumpy ride, and as always, some asset classes will outperform others. That is why this extended version of Investment Watch includes our key themes and picks for 2025 and our best ideas. As always, speak to your adviser about asset classes and stocks that suit your investment goals.
High interest rates and cost-of-living pressures have been challenging and disruptive for so many of our clients, so from all the staff and management we appreciate your ongoing support as a valued client of our business. We wish you and your family a safe and happy festive season, and we look forward to sharing with you what we hope will be a prosperous 2025.
Morgans clients receive exclusive insights such as access to our latest Investment Watch publication. Contact us today to begin your journey with Morgans.
The landscape of consumer discretionary stocks is ever evolving, shaped by economic indicators, company performances, and broader market trends. As we wrap up another year, it's crucial to revisit our projections and recommendations based on the latest data. Following the recent Annual General Meetings (AGM) season and shifts in foreign exchange (FX) rates, we've conducted a comprehensive review of our earnings estimates and target prices for companies within the consumer discretionary sector.
Updated Earnings Estimates
On a median basis, our Net Profit After Tax (NPAT) forecasts have been adjusted downwards by 1% for both FY24 and FY25. This adjustment primarily reflects our expectations for lower gross margins and increased operating costs across the board. Despite these reductions, our revised FY24 estimates stand 3% above the Visible Alpha consensus, indicating a slightly more optimistic view compared to the broader market expectations.
Strategic Recommendation Changes
The Reject Shop (ASX:TRS): We've upgraded our recommendation from Hold to Add. This decision reflects our reassessment of the company's growth prospects and its ability to navigate the current market dynamics.
Key Picks in Consumer Discretionary
Lovisa (ASX:LOV): Renowned for its fast-fashion jewelry offerings, Lovisa continues to exhibit robust growth potential, underpinned by aggressive international expansion and resilient consumer demand.
Super Retail Group (ASX:SUL): As a leading retailer catering to outdoor, sports, and auto enthusiasts, Super Retail Group has demonstrated commendable resilience and growth, making it one of our top picks in the sector.
Conclusion
As we navigate through fluctuating market conditions, our updated models reflect a cautious yet opportunistic stance on the consumer discretionary sector. The adjustments to our earnings forecasts and the strategic changes in our stock recommendations aim to capture the evolving landscape and identify opportunities for investors. Lovisa and Super Retail Group, with their distinct market positions and growth strategies, exemplify the potential for outperformance in this dynamic sector.
Morgans clients receive access to detailed market analysis and insights, provided by our award-winning research team. Contact your Morgans adviser to access the full research note or begin your journey with Morgans today to view the exclusive coverage.
Following the Federal Reserve's latest meeting, Morgan's Chief Economist, Michael Knox, provides an update on the Summary of Economic Projections, stating that rates will continue to fall until 2027.
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ESG stands for Environmental, Social and Governance; it refers to three main factors that investors consider with regard to an organisation’s ethical impact and sustainable practices. Socially conscious investors such as Not-For-Profits use ESG criteria to screen potential investments and assess whether they fit their values, mission or sustainability mandate.
According to the Responsible Investment Association Australasia (RIAA), 9 in 10 Australians expect their investments to be responsibly and ethically invested. This means investing funds in a way that does no harm, and ideally leaves the world in a better place.
Of particular interest to NFPs is the use of negative screening (also known as values-based or ethical screening). Negative screening is used to exclude companies from an investment portfolio on the basis of the industry in which they operate. This could involve screening for religious, ethical, moral and other social and environmental criteria (e.g. tobacco, gambling, weapons, animal testing). The other side is positive screening, where NFPs utilise ESG research to identify companies with superior ESG performance relative to industry peers.
In addition, incorporating ESG factors into an investment decision may even result in an outperformance effect.
It is important to be aware that particularly in the Australian context, there is a risk that imposing a large number of negative screens on a portfolio, can reduce the ability to diversify your portfolio. It may also deliver performance outcomes that differ from traditional market benchmarks.
Morgans has a specialist Not-For-Profit team that can assist you with all your ESG and negative screening questions. Get in touch with your Morgans adviser to find out more.
Examples of ESG issues
Environmental
- Climate change
- Waste and pollution
- Clean water and sanitation
- Affordable and clean energy
Social
- Supporting local communities
- Human rights
- Employee relations and diversity
- Quality Education
Governance
- Bribery and corruption
- Board diversity and structure
- Executive compensation
- Data security and customer privacy
Morgans Chief Economist Michael Knox's outlook for the world economy in 2024 is that growth will slow; inflation will fall; and money will flow into Stock Markets.
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In this analysis, we delve into recent developments in the telecommunications (telco) sector, focusing on NBN and mobile pricing trends, updates on significant events such as the 5G spectrum auction, and our adjusted forecasts. Additionally, we'll discuss our revised sector view and provide insights into specific companies within the industry.
Revised Sector View
Based on our comprehensive analysis, we have adjusted our sector view for the telecommunications industry. This assessment considers various factors, including market dynamics, regulatory changes, and company performance.
Telstra Group (ASX:TLS)
While Telstra Group (ASX:TLS) remains a key player in the telco sector, we maintain a Hold rating on the stock. This decision is influenced by the perceived risk/reward profile, which we believe is negatively weighted due to its premium valuation.
TPG Telecom (ASX:TPG)
Conversely, we have an Add rating on TPG Telecom (ASX:TPG). We see a more favorable risk/reward scenario for TPG Telecom, driven by its comparatively lower valuation within the sector.
Superloop (ASX:SLC)
Despite its status in the small-cap segment, Superloop (ASX:SLC) continues to exhibit promising potential. We maintain an Add rating on Superloop, considering it to offer the best value proposition within its category.
In conclusion, the telco sector is undergoing significant changes, influenced by pricing trends, regulatory developments, and technological advancements.
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In this analysis, we delve into the prospects of Aurizon Holdings (ASX:AZJ) and its anticipated performance in the upcoming fiscal years. While the company shows promising signs of robust EBITDA growth in FY24 and onwards, there are certain factors that might hinder its potential. Here, we examine the growth trajectory, dividend projections, and overall investment outlook for Aurizon Holdings.
Growth Projections
We anticipate Aurizon Holdings to exhibit significant EBITDA growth throughout FY24, with continued albeit slightly subdued growth in FY25-26. However, it's crucial to note that the potential escalation in debt service obligations might not be fully acknowledged in current market assessments.
Financial Outlook
Our analysis suggests a mid-teen compound growth in both earnings per share (EPS) and dividends per share (DPS) across FY24-26F. Notably, our forecast for FY26F dividends implies a noteworthy 7.1% cash yield at present prices, compared to 4.7% for FY24F. This signifies an attractive dividend proposition for investors considering Aurizon Holdings.
Investment Insights
Given the current market dynamics and our price target (accessible with login), we maintain a recommendation to HOLD Aurizon Holdings at current price levels. This stance is supported by the approximate 6% potential Total Shareholder Return (TSR) anticipated.
In conclusion, while Aurizon Holdings presents a solid growth narrative, it's essential for investors to consider the underlying factors, such as debt service obligations, before making investment decisions. With careful analysis and monitoring, Aurizon Holdings could still present an attractive investment opportunity despite the current pricing dynamics.
