Get ready for the end of financial year.

It is easy to become distracted by the current affairs occurring both domestically and overseas. From the upcoming federal election to Trump tariffs, the Ukraine/Russia war and so much more, there’s just too much to keep up with for any sane person.

With everything going on, it's important we try to maintain other, more 'normal' aspects of life. Things we can control, such as our end of financial year tax planning. What do you need to do to get your financial house in order before 30 June?

Here are some handy hints for you to consider over the next few months, contact your adviser to chat about any of the following topics:

Investment, Property, and Insurance

Have you sold an investment asset this financial year? Ensure you have copies of your investment statements, including dividend statements. This is also a good time to review your investment portfolio. Markets have been quite volatile recently, so there may be opportunities you can take advantage of, such as capital gains/losses. If you own property, make sure you have your paperwork up to date, particularly if you can claim depreciation. Additionally, ensure your personal insurance, including life and income protection insurance, is in order. Has your personal situation changed? Talk to your Morgans adviser about a portfolio administration service that will make next year’s paperwork and tax time simple.

Retirement and Superannuation

Are you thinking about retiring this year? Ensure you have your details to access your Super or other retirement income stream. Review your capital gains and losses for your investment and superannuation portfolios. Consider what superannuation contributions you have already made or intend to make prior to 30 June. Talk to your financial adviser to ensure you understand what contribution limits apply to you. If you are already receiving a pension from your superannuation, make sure you meet your minimum pension requirements before 30 June to avoid significant penalties. Talk to your adviser to identify investment and superannuation strategies you can put in place before 30 June to help protect your retirement savings.

What the superannuation thresholds for 2025-2026 means for you

From 1 July 2025, the transfer balance cap will index from $1.9 million to $2.0 million, allowing individuals to transfer more into their retirement phase accounts. Similarly, the total super balance cap will index to $2.0 million from 30 June 2025. Concessional contributions will remain at $30,000 per person per annum, while non-concessional contributions will stay at $120,000 per person per annum, with the option to bring forward up to $360,000 over three years for eligible individuals, depending on their total super balance as of the previous 30 June. Additionally, the Super Guarantee Charge (SGC) rate will increase from 11.5% to 12% for the 2025/26 financial year, marking the final planned increase to the SGC rate. These changes provide opportunities to maximise your superannuation contributions and benefits, so it's important to plan accordingly and consult with your financial adviser.

Will you be ready?

Don't let global issues distract you from the things you would normally focus on at this time of year. It's time to get back on track.

Feel free to contact your Morgans adviser to discuss your end of financial year planning.

      
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January 13, 2025
2
February
2022
2022-02-02
min read
Feb 02, 2022
Morgans Best Ideas: February 2022
Andrew Tang
Andrew Tang
Equity Strategist
Unlock high-potential opportunities with Morgans' best stock picks for February 2022, tailored for growth.

Our best ideas are those that we think offer the highest risk-adjusted returns over a 12-month timeframe supported by a higher-than-average level of confidence. They are our most preferred sector exposures.

New additions: Wesfarmers (ASX:WES), South32 (ASX:S32), Newcrest (ASX:NCM), Seek (ASX:SEK), Beacon Lighting (ASX:BLX), Webjet (ASX:WEB), Pro Medicus (ASX:PME), Atomos (ASX:AMS), MAAS Group (ASX:MGH) and Red 5 (ASX:RED).

Removals: Sonic Healthcare Limited (ASX:SHL), Alliance Aviation Services (ASX:AQZ), Panoramic Resources (ASX:PAN), Ramelius Resources (ASX:RMS) and Booktopia Group (ASX:BKG).

Watch

Tabcorp (ASX:TAH)

We continue to view the risk/return profile of TAH as asymmetrically skewed to the upside over the next ~12 months as the demerger of the high quality, infrastructure-like Lotteries & Keno business progresses. At current levels, we think L&K is trading on ~15x EBITDA and think this multiple can re-rate to between 16-20x on a standalone basis over time, supported by offshore peer comps and domestic infrastructure names.

Wesfarmers (ASX:WES)

WES possesses one of the highest quality retail portfolios in Australia with strong brands including Bunnings, Kmart, Target and Officeworks. The company is run by a highly regarded management team and the balance sheet is healthy. While COVID-related staff shortages are proving to be a challenge, the core Bunnings division (>60% of group EBIT) remains a solid performer as consumers continue to invest in their homes. We see the recent pullback in the share price as a good entry point for longer term investors.

Endeavour Group (ASX:EDV)

While EDV’s Retail division has benefited greatly from lockdowns and higher at-home consumption, its Hotels business has been negatively impacted by closures and restrictions. The reopening of venues in NSW and VIC should be positive for EDV overall, despite likely weakness in Retail as at-home consumption normalises, given Hotels is a higher margin business.

Treasury Wine Estates (ASX:TWE)

TWE has the China reallocation risk and it will take 2-3 years to recover these earnings in new markets. However once it comps China earnings, we expect TWE to deliver strong earnings growth from the 2H22 onwards. Organic growth will be supplemented by M&A. On this front, we view TWE’s recent acquisition of Napa Valley luxury wine business, Frank Family Vineyards (FFV) as strategically important. This high margin business should see TWE achieve its US margin target two years earlier than planned. We see recent share price weakness as a great buying opportunity in this high quality company. The stock is currently trading at a material discount to its long term PE range.

Santos (ASX:STO)

We expect the resilience of STO's growth profile and diversified earnings base see it best placed to outperform against a backdrop of a continuing broader sector recovery. STO remains our top preference amongst our large-cap energy universe. With early indications supportive of our view that material synergies and enhanced growth plans will result from the OSH merger. While in good shape, we expect STO to continue gaining investor support as it executes on the opportunistic OSH merger.

Woodside (ASX:WPL)

We believe WPL has benefited from being in the right place, at the right time. With: 1) BHP/WPL having an existing relationship, 2) BHP eager to boost its ESG profile, and 3) WPL being a quality operator (safe hands which is important for BHP). From an economic standpoint we think WPL is clearly getting the better of the deal, with synergies not baked into deal metrics and BHP willing to accept a discount. The deal is transformative, lifting WPL into being a top 10 global E&P with +2 billion barrels of 2P reserves, with EBITDA of US$4.7bnpa and growth options.

Macquarie Group (ASX:MQG)

We still see MQG as relatively inexpensive and continue to like its exposure to long-term structural growth areas such as infrastructure and renewables. Near term MQG is likely to face earnings pressures from the impact of soft economic conditions but it remains well positioned to ride out the current COVID-19 period and seize opportunities on the other side.

QBE Insurance Group (ASX:QBE)

We see QBE as likely having positive underlying momentum into next year. QBE has been putting through top-line rate increases of around 9%, which should assist margin expansion into FY22. With QBE's balance sheet recently reset, pricing tailwinds evident and the stock relatively inexpensive trading on 11x FY22F PE.

Westpac (ASX:WBC)

WBC is our preferred major bank. We believe WBC offers the most compelling valuation of the major banks. In terms of quality of overall risk profile, we believe WBC is a close second to CBA. On credit risk, we believe WBC is positioned relatively defensively due to its loan book being more skewed to Australian home lending. We expect WBC to announce a $5bn off-market share buyback on 1 November and we expect investors to increasingly warm up to WBC’s medium-term cost out story.

ResMed Inc (ASX:RMD)

While we believe the next few quarters will likely be volatile, as COVID-related demand for ventilators continues to slow and core sleep apnoea volumes gradually lift, nothing changes our medium/longer term view that the company remains well-placed as it builds a unique, patient-centric, connected-care digital platform that addresses the main pinch points across the healthcare value chain.

Transurban (ASX:TCL) - New Addition

TCL owns a pure play portfolio of toll road concession assets located in Melbourne, Sydney, Brisbane, and North America. This provides exposure to regional population and employment growth and urbanisation. Given very high EBITDA margins, earnings are driven by traffic growth (with recovery from COVID) and toll escalation (roughly half at CPI and the remainder fixed c.4% pa). We think TCL will continue to be attractive to investors given its market cap weighting (important for passive index tracking flows), the high quality of its assets, management team, balance sheet, and growth prospects. Watch for rapid recovery in DPS alongside traffic recovery and WestConnex acquisition prospects. A negative overhang is the contaminated soil disposal issues related to its West Gate Tunnel Project.

BHP Group (ASX:BHP)

We view BHP as relatively low risk given its superior diversification relative to its major global mining peers. The spread of BHP’s operations also supplies some defence against direct COVID-19 impact on earnings contributors. While there are more leveraged plays sensitive to a global recovery scenario, we see BHP as holding an attractive combination of upside sensitivity, balance sheet strength and resilient dividend profile.

Newcrest (ASX:NCM)

For those looking for gold exposure without development risk, we believe NCM offers good value after its recent sell down. The pull back in NCM’s share price looks to have been driven by operational underperformance in the first half, much of which can be explained by the one-off impact of the extended shutdown of part of the Cadia process plant. With this event behind the company, and NCM’s geographic spread in Australia, Canada and PNG providing some relief from the cost and labour challenges WA focussed companies are currently feeling, we expect a stronger second half from NCM. As a bonus, NCM is also a major copper producer, providing some level of internal hedge through exposure to both base and precious metal prices.

South32 (ASX:S32)

S32 has transformed its portfolio divesting South African thermal coal and acquiring an interest in Chile copper, substantially boosting group earnings quality, as well as S32's risk and ESG profile. Unlike its peers amongst ASX-listed large-cap miners, S32 is not exposed to iron ore. Instead offering a highly diversified portfolio of base metals and metallurgical coal (with most of these metals enjoying solid price strength). We see attractive long-term value potential in S32 from de-risking of its growth portfolio, the potential for further portfolio changes, and an earnings-linked dividend policy.

Morgans clients can download our full list of Best Ideas, including our mid-cap and small-cap key stock picks.

      
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Economics and markets
January 13, 2025
4
January
2022
2022-01-04
min read
Jan 04, 2022
Investing is a balancing act
Terri Bradford
Terri Bradford
Wealth Management Technical Services Adviser
Explore the balancing act of investing with tips to manage risk and achieve financial goals effectively.

Investing is a bit of a balancing act - juggling the risk of investing against the returns you're hoping for. The higher the return, the higher the risk. The lower the return, the lower the risk.

The asset classes

Cash, fixed interest, property and equities make up the traditional asset classes available and each asset class has its own risk and reward structure. More recently, alternative assets are making their way into portfolios and can help reduce overall portfolio risk depending on the type of asset. This is because most alternative strategies have a lower correlation with the traditional asset classes.

Arguably, one of the most important decisions you will make about investing is how much to allocate between the asset classes – referred to as asset allocation – and your choice can influence the long-term returns and risk of your portfolio. Therefore, it is important you understand the nature of each asset class before investing.

How you feel about risk and how long you want to invest will help determine how much to invest in the different asset classes. For example, younger investors who have the time to invest may want to invest a greater portion of savings into growth-type assets whereas those closer to retirement may want to reduce risk and consider income-type assets or focus on total return.

Your personal situation - Ask yourself

  1. How much money do I have available to invest?
  2. What do I want to achieve from my investment?
  3. How long am I investing for?
  4. What risks am I prepared to take to achieve this?
  5. What are my expectations of returns from my investment?
  6. Am I looking for tax savings from my investments?
  7. What other investments do I have that should be considered as part of my overall strategy?

When starting out with investing it is always recommended you try to not time the market. History has shown investors can actually lose by doing this. As they say, you have to be in it to win it. Diversifying across all asset sectors is the best way to minimise risk over the long term.  

Investing amounts regularly over a period of time is also a great strategy, and much better than trying to time the market.  It allows you to take advantage of dollar-cost averaging which is simply investing in additional shares or units in an existing investment over time. You get more bang for your buck this way.

Investing is a balancing act. But if you arm yourself with the right information and seek the right advice so that your portfolio suits your personal goals for investing, you have a greater chance of success.

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Wealth Management
January 13, 2025
9
December
2021
2021-12-09
min read
Dec 09, 2021
Woodside Petroleum: Jumps ahead on energy transition
Adrian Prendergast
Adrian Prendergast
Senior Analyst
Dive into Woodside Petroleum's advancements in energy transition and its potential for future growth.

Woodside Petroleum (ASX:WPL) is set to break away from industry norms, steering its capital toward New Energy ventures, including renewables and green energy resources. The company aims to invest US$5 billion by 2030, contingent on the successful completion of the BHP Petroleum merger.

New Energy Investment Initiatives

If the merger proceeds, Woodside Petroleum plans to allocate funds to four primary projects: H2Perth (hydrogen/ammonia), H2OK (hydrogen), H2TAS (hydrogen), and Heliogen (solar). The move reflects a shift in focus towards Environmental, Social, and Governance (ESG) considerations.

Evaluating New Energy's Potential

While the company anticipates an ESG boost, concerns arise over the efficiency of early capital deployment in emerging markets. Woodside's transition away from traditional hydrocarbons poses challenges, with uncertainties around achieving targeted returns for New Energy projects.

Analysis of Aggressive New Energy Push

Woodside's aggressive push into New Energy signifies a substantial business transformation. Diversifying from well-established hydrocarbons to renewables and green energy introduces competitive pressures and potential hurdles in achieving return profiles.

Impact of BHP Petroleum Merger

The impending merger with BHP Petroleum promises to enhance hydrocarbon production and geographical diversification. The Trion field in the southern Gulf of Mexico is expected to reach the final investment decision (FID) around the merger completion, contributing to new growth.

Forecast and Valuation Considerations

Woodside Petroleum's New Energy initiatives are yet to be factored into valuation, awaiting project sanctions and more detailed information. The company's commitment to ESG, coupled with strong fundamentals, supports a positive investment view, maintaining an Add rating.

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Research
January 13, 2025
8
December
2021
2021-12-08
min read
Dec 08, 2021
Insurance Australia Group: Strategy session
Richard Coles
Richard Coles
Senior Analyst
Key updates from Insurance Australia Group's strategy session, highlighting future plans and competitive positioning.

Insurance Australia Group (ASX:IAG) recently provided a comprehensive business update, highlighting its 5-year strategy. This update maintains the medium-term targets, focusing on achieving a cash ROE of 12%-13%. In this analysis, we delve into key takeaways, emphasizing IAG's strategy, its drivers, and the scepticism surrounding certain targets.

Medium-Term Targets and Strategy

IAG's medium-term objectives remain consistent, targeting a cash ROE of 12%-13%, an insurance margin of 15%-17%, and a growth profile. The recent business update reaffirms the FY22 guidance, projecting a 10%-12% reported insurance margin and low single-digit GWP growth.

Key Drivers for Profitability Improvement

IAG outlined three primary drivers for expected profitability improvement in the medium term:

1. Customer Growth

IAG aims to add 1 million customers over the next 5 years. The major portion (750k) is anticipated from Direct Insurance Australia (DIA). Strategies include expanding the NRMA brand nationwide, targeting younger customer segments through the digital business 'Rollin,' and digitizing IAG’s small business offering.

2. Profit Improvement in IIA

Anticipated profit improvement in Intermediated Insurance Australia (IIA) is expected to reach A$250 million. This improvement is attributed to the remediation of the IAL personal lines portfolio, pricing enhancements, improved underwriting practices, and a reduction in the management expense ratio.

3. Other Productivity Improvements

Primarily focusing on claims improvements in DIA and NZ, IAG targets A$400 million of value improvement over 5 years. This includes enhancing claims efficiency, reducing wastage, streamlining processes, and consolidating suppliers.

Additional Insights

IAG aims to maintain a flat expense base over time (A$2.5 billion) with planned reductions in "maintenance" expenses offsetting higher costs tied to "transformation." The natural hazard allowance is expected to continue rising, and a capital return may be likely if Business Interruption court cases favour IAG.

Morgans Thoughts

While IAG's overall strategy appears logical, historical challenges in maintaining improved margins raise scepticism. The ability to grow customer numbers by 1 million is a key concern, especially considering recent losses in personal lines market share. Despite scepticism, there is acknowledgment of positive steps in executing plans in FY22.

Forecast and Investment Outlook

Earnings and valuation remain unchanged, considering IAG's challenging FY21 and the weather-affected FY22. The stock appears attractively priced at ~13x FY23F earnings, and the expectation of continuing insurance price increases, coupled with management’s performance improvement strategy, positions IAG for improved profitability over time. The ADD rating is maintained.

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Research
December 20, 2024
12
November
2021
2021-11-12
min read
Nov 12, 2021
GrainCorp: Upgrade cycle isn’t over yet
Belinda Moore
Belinda Moore
Senior Analyst
Discover why GrainCorp remains a strong investment opportunity as its upgrade cycle continues.

GrainCorp (ASX:GNC) has outperformed expectations in FY21, driven by a record east coast grain crop, strong demand, stellar Processing results, and strategic initiatives. The outlook for FY22 remains optimistic with another anticipated above-average crop.

FY21 Financial Results

In FY21, EBITDA soared to A$330.8m, surpassing the guidance range of A$310-330m. NPAT stood at A$139.3m, within the A$125-140m guidance range. The company declared a final dividend of 10cps ff and initiated a A$50m on-market share buyback.

GrainCorp's success is attributed to a record east coast grain crop, robust global demand, and the outstanding performance of strategic initiatives, notably in Processing (EBITDA A$77.7m, up 71%). The company improved market share, enhanced grower engagement, and optimized its supply chain.

Despite net debt rising to A$599.2m, core debt remained minimal at A$1.2m. Investments continued in areas like animal nutrition, alternative protein, and AgTech.

FY22 Outlook

Anticipating an above-average 2021/22 crop, GrainCorp expects significant benefits from the 4.3mt carry-over grain from FY21. This positions the company to commence high-margin grain exports immediately in FY22. Fee increases and sustained strong margins are forecasted, supported by robust demand and elevated crush margins due to high vegetable oil prices.

Investment View

Earnings forecasts for FY22 have been upgraded by 15.9% for EBITDA and 24.3% for NPAT. The positive crop outlook may also contribute to stronger FY23 earnings.

With the SOTP valuation rising, reflecting earnings upgrades, and a favourable operating environment, an Add rating is maintained. The upcoming ABARES Crop report on November 30 is expected to be a pivotal event for the stock.

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Research
ETFs are primarily passive investments as they replicate indices with no active management value-add.

Explaining ETFs

ETFs are primarily passive investments as they replicate indices with no active management value-add. The themed ETFs may be semi-active in that they may apply an independently-compiled index but with differing rules on how to define the theme.

While most ETFs available to Australian investors today track an index, some active managers also see an ETF as an attractive structure for growth and have made their strategies available as an actively managed ETF.

They are open-ended (i.e. they can create more units as demand requires) so in that regard they are similar to managed funds but ETFs have the advantage of greater transparency and liquidity through trading on the stock exchange.

ETFs also have an advantage over listed investment companies (LICs) in that they can be bought and sold for close to the value of the underlying asset (i.e. index) and do not suffer the discount/premium that being subject to demand places on LIC share prices. This usually results in the ETF price very closely matching the performance of the asset.

However, a buy/sell spread of prices does exist for ETFs. It can be quite narrow for large, liquid funds but wider when the underlying asset is less liquid (for example, some commodities), or if the market for its assets trades in a different time zone (i.e. international indices) meaning there is a risk premium paid to the ETF trader to cover unknown pricing outcomes.

If the ETF’s underlying assets produce income, investors will receive regular income distributions. Like managed funds, ETFs pass on this income untaxed and franking credits can also be passed through.

Management expense ratios (MERs) are quite low compared to managed funds, ranging from as little as 0.15% to 1.0% for some international share offerings.

Given the strong growth in ETFs, the range of products on offer has become very wide. New ETF providers entering the market are providing different choices to suit all types of investors, providing an opportunity to access new "themes" such as ESG, Climate Change, Cloud Computing, Robotics, etc. Importantly, prior to investing into any type of ETF it is imperative the investor understands the nature and risks of that ETF product.

Investment strategies using ETFs

The benefit of investing in ETFs is that it gives the investor access to markets that are not easily accessible in Australia and/or are not cost efficient such as international shares (particularly region or theme specific), currencies and commodities.

Diversification is gained across sectors in a cost-efficient manner (i.e. you like the outlook for Energy but don’t have the funds to buy more than one or two companies and don’t want the risk of picking an underperformer).

An investor can invest small amounts in a broadly diversified basket ETF as a low cost way to get exposure to the Australian sharemarket, or in addition to the Australian sharemarket to enhance diversification.

Use limit orders rather than market orders to better ensure a more favourable execution from a price perspective (speak to your broker or adviser about this).

An investor can also transition funds into the market without having to pick individual company exposure. This may be useful if you have large amounts to invest and want to do this over time and/or if you are uncertain which sectors may perform going forward but still want exposure to the sharemarket.

This has been a relevant strategy during the period when resources have outperformed but many investors were uncomfortable investing in them directly given their cyclical nature. An investment in the broader index would have meant not missing out on one sector’s significant contribution.

In summary, ETFs are a useful investment vehicle for:

  • Transparency – you know what companies and/or exposure you have through a published index.
  • Cost efficiency – low MERs compared to unlisted managed funds.
  • Tax efficiency – passed through dividends and franking credits. Often low turnover usually only based on index changes so that forced capital gains are not a feature of ETFs.
  • Liquidity – ETFs trade on a T+2 basis and are required to always have a buy/sell price on screen when the market is trading (achieved through a market maker).
  • Diversification – allowing you more options to invest in baskets or specific themes/sectors.

However, you should also be aware of some of the risks:

  • Structure – there are many different structures used by ETFs and some of these may expose investors to third party default risk. Investors need to examine the security of the issuer, whether the fund is physically-backed by assets, the custodial arrangement for the assets, the use of derivatives or security lending, and other issues.
  • Passive investment – while many ETFs will provide broad or specific market returns they are still a passive investment. An astute investment adviser should add value to your portfolio returns through the active management of your investments.

Feel free to speak with your Morgans adviser to learn more about Exchange Traded Funds (ETFs) and whether they might be an appropriate investment choice for you.

Reference: Morningstar Australasia Pty Ltd, 2015

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Wealth Management
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