Research Notes

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Research Notes

1H25 Earnings: Sales perks

JB Hi-Fi
3:27pm
February 10, 2025
JBH has produced another solid result for the first half, and was ahead of consensus expectations. Sales momentum accelerated in the 2Q driven by demand for tech and consumer electronic products, and has continued into the start of the 2H. Margins were managed better than we expected given the highly promotional and competitive environment, and ongoing cost pressures. We have increased our revenue forecast as a result of strong sales momentum, which has flowed through to 3.5%/4% increase in NPAT in FY25/FY26. We have increased our TP to $92 from $87, but see the current valuation of ~23x FY26 P/E as too expensive, given its 10 year average is ~14x. We retain our HOLD recommendation. With this note, lead coverage of JB Hi-Fi passes to Emily Porter.

International Spotlight

Alphabet Inc
3:27pm
February 10, 2025
Alphabet Inc., known predominantly as the holding company of Google, is an American multinational technology conglomerate. The company offers a range of products and platforms, including Search, Google Maps, calendar, ads, Gmail, Google Play, Android, Google Cloud, Chrome and YouTube. Its hardware product range includes Pixel phones, smartwatches and Google Nest home products. Alphabet Inc. is also known for its online advertising services, internet services, and licensing and research & development services. The company is headquartered in California, US, but is present across the Americas, Europe and Asia-Pacific.

International Spotlight

Apple, Inc.
3:27pm
February 5, 2025
Apple Inc. designs, manufactures, and markets smartphones, personal computers, tablets, wearables and accessories, and sells a variety of related accessories.

International flywheel coming to life

Pinnacle Investment Mgmt
3:27pm
February 5, 2025
PNI delivered 1H25 NPAT of A$75.7m, up 150% on pcp. Affiliate earnings grew 100% to A$74.3m; and 52% to A$37.9m excluding performance fees (PF). Half-on-half, Affiliate earnings (ex-performance fees) grew 9.6%; and group core earnings (ex PF and principal investments) grew +8.4% (pre-tax) to A$30.4m. Group FUM closed at A$155.4bn, +41% for the half (+16% ex-acquisitions). FUM growth comprised acquisitions A$27.9bn; inflows A$6.7bn; performance A$10.7bn. 2H25 expectations are supported by ~6% higher starting FUM (pre acquisitions); acquisition contributions; and typical 2H earnings skews in certain managers. Medium-term ‘embedded’ drivers are visible from the scaling of several managers; and the long-term offshore opportunity is significant. PNI is arguably expensive on near-term valuation multiples (susceptible to short-term volatility), however we see embedded strong growth medium term; the operating structure is now expanded to facilitate ongoing offshore growth; and near-term catalysts look supportive (accelerating flows CY25; acquisitions).

International Spotlight

Microsoft Corporation
3:27pm
February 4, 2025
Microsoft is an American multinational technology company that develops and markets software, services and hardware. The company is best known for its software products, including Microsoft Windows operating systems, the Microsoft Office suite and the Internet Explorer web browser. Its five main operating segments include: Windows & Windows Live Division, Server and Tools, Online Services Division, Microsoft Business Division, and Entertainment and Devices Division.

International Spotlight

H&M
3:27pm
February 4, 2025
H&M Hennes & Mauritz AB is a multinational fashion and design group conglomerate based in Vasteras, Sweden. Its 11 brands include H&M, COS, Weekday, Monki, H&M Home, & Other Stories, Arket, Afound, The Singular Society, Creator Studio and Sellpy. Across these brands, its main operating segment is affordable and sustainable wardrobe essentials, but it also offers fashion pieces and unique designer collaborations, accessories, stationery, homewares, shoes, bags and beauty products. H&M Group operates over 4,300 stores worldwide. 

International Spotlight

Meta Platforms
3:27pm
February 4, 2025
Meta Platforms, Inc. (formerly known as Facebook, Inc.) is a leading global technology platform business headquartered in Menlo Park, California, US. Co-founded in 2004 by Mark Zuckerberg, Meta's mission is to connect people and build community through its innovative technology portfolio and social networking platforms.

2Q25: From 6-7’s to 11’s

BETR Entertainment
3:27pm
January 30, 2025
BlueBet Holdings (BBT) posted another strong quarterly result today, coming in slightly ahead of our estimates. The company achieved an EBITDA positive half earlier than expected, driven by accelerated synergy gains and solid trading performance. Since the merger, betr margins have risen from 6-7% (before) to 11%, highlighting the success of the merger and the strength of its operating platform and promotional engine in reactivating dormant accounts. Our 12-month price target increases to $0.43 (previously $0.36). In 2Q25, BBT's cash active clients grew 20% sequentially, exceeding our expectations and reaching 144,697 by the end of the period (MorgansF: 12.5% growth). Turnover hit $357m, 2% above our estimates, while gross win reached $52.2m at a 14.6% margin (MorgansF: $50m). This translated to a strong net win margin of 11% (MorgansF: 10.2%). Encouragingly, BBT reports that 2Q25 trading momentum has carried into 3Q25. We expect a statutory benefit in 1H25 following the US exit, though some costs from the wind-down will offset this. The company reaffirmed its confidence in achieving over 10% market share through both organic and inorganic growth. BBT will release its interim result on 27 February 2025. We have taken our forecast FY25 EBITDA up from $4.2m to $4.9m.

Pivotal period for the USA

Credit Corp
3:27pm
January 30, 2025
CCP’s 1H25 NPAT of A$44.1m, +32% on pcp, was inline. Guidance was reaffirmed. Divisional composition was largely in-line, with the USA slightly below expectations (offset by Lending slightly ahead). USA was +16% on pcp, however -15% HOH. USA execution is pivotal in FY25 to prove up the ability of the division to deliver sustainable growth for CCP. Management’s commentary on operational performance was incrementally positive and purchasing guidance is sound; however a flow through to earnings from 2H25 is required for market confidence. Backing management’s execution in delivering on USA divisional growth expectations over FY25/26 is needed. We think the valuation point (~11.5x FY25PE) provides enough upside and risk/reward to do so. Add maintained.

Promotions keep kicking

Accent Group
3:27pm
January 29, 2025
AX1 provided a trading update for 1H25 performance which was broadly in line with consensus expectations with EBIT of ~$80m. Sales and margins were affected by a heavily promotional environment, particularly in the last six weeks. Whilst gross margins were negatively impacted by promotional activity, and down 100bps year-on-year, the cost of doing business (CODB) appears to have been managed better than expected. We have made minor downward revisions to our forecasts for FY25/26. Our valuation is $2.40 and we retain our ADD recommendation.

News & Insights

Michael Knox dives into the robust U.S. economy, the effects of proposed tariffs on inflation and Federal Reserve decisions, and how tariff funds and corporate tax reductions could boost job growth and stock market performance in 2026, though markets may stabilise in the short term.


Today I’ll be covering a range of topics, including the U.S. economy, tariffs and their impact on inflation, and what this means for the Federal Reserve.

I’ll also discuss how the funds raised through tariffs and employment influence job creation and why this is crucial for stock market performance over the next year.

Contrary to some concerns, the U.S. economy is not heading into a recession. Treasury Secretary Scott Bessent has highlighted the strong employment figures for March, with 228,000 new jobs created. However, a closer look reveals that nearly all of these jobs were in the services sector, particularly in private service providing (197,000 jobs), healthcare (77,000 jobs), and leisure and hospitality (43,000 jobs), with very few jobs  in manufacturing.

This underscores the need for a Reciprocal Trade Act to revitalise U.S. manufacturing.

On the tariff front, Kevin Hassett, Director of the National Economic Council, announced that the U.S. is negotiating with 130 countries to establish individual tariff agreements. Most of these countries will face a 10% tariff, though exemptions are being considered for American firms operating in China, particularly those exporting smartphones, computers, and computer chips to the U.S.

With this 10% tariff applied across these nations, it’s worth examining its effect on U.S. inflation. The latest core CPI inflation rate in the U.S. was 2.8%, which is close to the target of 2.5%. However, as imports account for roughly 13% of domestic demand, a 10% tariff could increase inflation by 1.3%, pushing the total inflation  to 4.1%.

Using my Fed funds rate model, I factored in this higher inflation rate. The current Fed funds rate stands at 435 basis points, and with the next meeting scheduled for 5–6 May. My model suggests an equilibrium inflation rate of around 4.07%. This gives the Fed room to cut rates, not by three cuts as speculated last week, but by one, equating to a 25-basis-point reduction. Last week, I estimated the fair value for the S&P 500 at 5,324 and the ASX 200 at 5767 for the year. Markets have since approached these levels, but unlike the past few years, where markets surged and kept climbing, I believe they will now stabilise closer to fair value. The corporate bond market is less bubbly than before, which supports this more sombre outlook.

Scott Bessent also noted that the previous stock market run-up was driven by the ‘Magnificent Seven’ tech stocks. This was fuelled by America’s dominance in artificial intelligence. However, as China has demonstrated its own AI capabilities, the market then peaked and is now likely to align more closely with global fair value.    

Looking ahead, Peter Navarro, Senior Counsel for Trade and Manufacturing in the White House, provided key insights yesterday. He estimates that the 10% revenue tariff will generate approximately $US650 billion, which will significantly boost corporate tax revenue. This cash flow will support a major bill, expected to pass mid-year, that will lower U.S. corporate taxes from 21% to 15%. This reduction will substantially increase after-tax earnings, even without changes to current operations, and lead to a sustained rise in operating earnings per share in the U.S. market next year.

While this bodes well for 2026, the market will likely need to consolidate in the near term. It will need to do more at the current level before experiencing a significant run-up, particularly next year.

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In this extensive breakdown, Michael Knox discusses everything across the broad economic spectrum, including tariffs, commodities and much more.


The first page discusses the outlook for the world economy. I wrote this about six weeks ago, and since then, the U.S. economy seems to have softened a bit. This softness aligns with my model of the U.S. economy. Initially, I expected 2.3% growth this year, but now I'm thinking it might be closer to 2%. Looking ahead to 2026, I believe next year will see slower growth. With US growth closer to 1.9%.

Quarterly Global Economic Perspective Table


Meanwhile, the Euro area’s economy is also growing, but at a slower pace. What’s critical here are the relative growth rates. I expect the Euro area economy to grow by 1.4% next year, which suggests that European bond yields will rise relative to U.S. bond yields. This shift means Europeans will keep more of their savings at home, which will likely cause the Euro to rise against the U.S. dollar over the next two years.

Despite recent fluctuations, including last week’s movements, the trade of the year has been the decline of the U.S. dollar and the rise of the Euro and Sterling. This is significant because understanding the commodity cycle hinges on the movements of the U.S. dollar. In short, the U.S. dollar seems to be headed structurally down over the next two years.

China, on the other hand, is experiencing a gradual slowdown, with growth expected to be 4.5% next year, down from 5% this year. India remains strong, growing slightly faster than last year, and its economy is expanding at around 1.5times the rate of China’s.

The Australian economy is also lifting relative to the U.S. due to increased government spending, though this has led to high government debt, which younger Australians will have to pay off in the coming decades.

In terms of inflation, Australia is facing a bit of a paradox. While the U.S. is seeing inflation at a higher level, Australia’s inflation remains lower than expected, even with low unemployment. This is due to the influx of cheap goods from China, where inflation is incredibly low, almost bordering on deflation. This overcapacity in China’s manufacturing sector is driving prices down, essentially exporting deflation to the rest of the world, including Australia. However, because of this, inflation in Australia has not spiked as much as might be expected. Inflation in China has remained under 1%, and its domestic prices are very low due to the volume of exports, further pushing down global prices.

Looking ahead, the global commodity cycle may shift upwards. Commodity prices will likely rise, partly due to a weaker U.S. dollar. This signals the beginning of a new upward cycle. This pattern has happened before, with a recovery in commodity prices and stock markets following periods of slump. The future should follow a similar trajectory, with international reserves rising and commodity prices increasing monthly. After experiencing a negative rate of change in international reserves in the past, we’re now seeing a gradual recovery, potentially reaching the levels seen in earlier decades. This suggests a positive outlook for the global economy in the coming years.

Finally, I use the Chicago benchmark commercial activity indicator in my model to track the performance of the U.S. economy, alongside similar indicators for other regions like China, to assess global economic trends.

A Chart of the 3 Month Moving Average from the Chicago Fed

The U.S. economy is facing a series of challenges, particularly concerning US GDP growth. The three-month moving average of Chicago Fed National Activity Index stands at -.20, indicating that the economy is trending below average. The latest monthly number recorded is -0.19, suggesting that the economy is running at around 2% growth.

Six weeks ago, there was a presentation that discussed the current state of the U.S. economy, and one of the major concerns was the unsustainable level of US Federal debt-to-GDP, as highlighted by Jay Powell. This issue largely stems from decisions made by the Biden administration to run deficits, with the deficit peaking at about 6.8% of GDP after the pandemic, far exceeding the sustainable 3% threshold.

This deficit has led to an unsustainable level US Debt to GDP. This has prompted discussions about cutting spending. Notably, Elon Musk and his team at DOGE are attempting to reduce spending and the deficit. The US deficit currently stands at around $2 trillion per year.

The U.S. government is also looking at ways to raise more revenue through a general revenue tariff of 10%. This is estimated to raise a $650 billion revenue increase.

In terms of economic indicators, the typical relationship between unemployment and inflation is showing that when Australian unemployment hovers around 4%, inflation is expected to be around 3.7%. Inflation is now lower than that because deflation is being imported from China

The U.S. dollar index has dropped significantly, losing around 8% from its January peak, which shows a broader trend to a weaker US dollar. This has been tied to forecasts for recovery in commodities, including predictions that oil Brent oil prices will rise to around $US88 a barrel, with long-term projections closer to $US87. LNG price projects are projected at around $US12 per million metric BTU.

Additionally, there's an ongoing moderate shortage of nickel, which has been tied to the global demand for stainless steel. This demand is particularly strong in Europe, where there's been an increase in the use of stainless steel. Zinc is more in demand in China for structural steel. The Zinc price is close to fair value. This reflects the changing dynamics of global manufacturing.

Gold prices, on the other hand, have been rising, and we think will begin to build a top over several years. This is attributed to an aggressive increase in the U.S. budget deficit, which has had a significant impact on the price of gold.

Chart of the Gold Prices in $US per ounce

In the silver market, there's an interesting trend where silver tends to move alongside gold prices. Silver is moderately undervalued.

As the budget deficit continues to be a major concern, there will likely be a lot of focus on its impact on stock markets and the general economy. For now, commodities like copper, nickel, and zinc are in the spotlight, with their prices closely tied to global recovery trends.

Meanwhile, in the cattle industry, there’s cautious optimism.

The Fed Funds rate

The Fed is on track to lower rates. I expect three 25basis point rate cuts, with a 50 basis point rate cut the first time, followed by a 25 basis point cut.

The Equities Market

US corporate profit tax is expected to fall from 21%now to 15% next year, so earnings growth will remain strong, and the fundamentals are unlikely to change. The S&P 500 model updated this morning showed that the fair value was 5320 points, while the actual level was 5074 points, leaving 250 points of potential upside. We also see similar growth prospects in the ASX 200, with a fair value currently sitting at 7667.

Tariffs

The US government is also addressing issues with tariffs, and negotiations are ongoing with countries that want to avoid being cut off from the US market. Countries like Vietnam have already agreed to reduce tariffs in exchange for long-term deals with the US.

Between now and the 21st of June, countries are expected to make proposals to improve their deals with the US. These discussions will continue with US Treasury officials, aiming to meet US conditions. The result will be significant tariff reductions

The legislation surrounding these negotiations is expected to pass by the 21st of June, signalling positive movement in the global market landscape.

We see, for example, in Australia, where we're just playing the 10% revenue tariff, which is equal the lowest across the board. The Brits, surprisingly, have their own situation where Donald Trump’s connection to the UK, particularly with his Scottish mother, had an impact. Peter Navarro, however, has pointed out that tariffs must be at least as high as the national value-added tax.

Trump's approach to the economy has been about boosting manufacturing, particularly by bringing back jobs that were lost, mainly to China. The loss of 7 million American manufacturing jobs over a 12-year period due to China’s entry into the World Trade Organisation at the beginning of this century. This has caused a social crisis, which only worsened over time. This situation partly fuelled Trump's rise.

Looking at the global situation, there is also the looming issue with China, whose rearming could pose significant risks. Some believe this may lead to a larger conflict, as the U.S. tries to rebuild its manufacturing strength, reminiscent of the industrial effort during World War II. Experts, including Admiral John Aquilino, have highlighted the importance of maintaining a strong manufacturing capacity for national security reasons, especially in the event of war with China.

In the context of the Aukus deal, while the submarines themselves might not be the most critical aspect, the importance lies in allowing Australian facilities to service and repair American submarines. This would effectively make Australia a key logistical hub for U.S. military operations, much like it was during World War II. The country’s strategic position and facilities are vital for maintaining security in the Pacific. Given the rearming efforts by China, this could become even more crucial soon.

This Chinese rearming process and its military buildup in the Pacific, puts significant pressure on the region’s stability, and should there be a war, Australia will again find itself at the heart of crucial military operations, providing vital support to the U.S. and its allies. The global situation, especially in the Pacific, is a reminder of the strategic importance of maintaining strong alliances and ensuring that the U.S. and its partners are prepared for any potential conflicts.

Are Tariffs Inflationary?

A panel discussion in January, featuring notable economists like Ben Bernanke and John Cochrane, raised this very question. Bernanke, who is known for his work on inflation and monetary policy, alongside Cochrane, who is renowned for his textbooks on economics, examined the impact of historical tariff changes on U.S. inflation. They noted that two periods of significant tariff changes, one in the 1890s under President McKinley and another in the 1930s with the Smoot-Hawley tariffs, did not lead to sustained inflation. This suggests that tariff adjustments, when paired with appropriate monetary policy, do not necessarily lead to inflationary pressure.

For example, the U.S. imports only about 13% of what it consumes, meaning the maximum inflation impact from a 10% tariff increase could be as little as 1.3% in the first year. However, this inflation effect would likely be short-lived, disappearing after a year. As a result, such inflation would be considered "transitory," like the effects seen in the past when tariffs or other price shocks led to temporary increases in prices.

Turning to the Federal Reserve, it's expected that the central bank will continue to respond to economic conditions, potentially cutting rates in the short term if necessary. Predictions for the Fed’s next moves suggest a 50-basis point cut followed by a smaller one, but the ultimate decisions will depend on future economic data and conditions.

On another note, in terms of global geopolitics, the issue of Taiwan and China continues to pose a significant risk. While some suggest the U.S. could work to establish a strong semiconductor industry domestically to avoid being dependent on Taiwan, the future of Taiwan will ultimately be determined by the Taiwanese people themselves. If Taiwan decides to remain independent, the U.S. and Japan might step in to defend it, leading to potential conflict. However, the likelihood of China simply letting Taiwan make its own decision is considered low.

In light of these risks, the U.S. has been taking steps to bolster its semiconductor manufacturing capacity through initiatives like the CHIPS Act, in case Taiwan falls under Chinese control. Such strategic planning aims to safeguard the U.S. against a potential semiconductor crisis. Nonetheless, the ability to forecast such geopolitical events remains beyond the reach of even the most experienced economists.

Despite these uncertainties, the actions taken by key players like Navarro, who has a strong background in international trade and economics, play a pivotal role in shaping future policy decisions. His expertise in China’s economic dynamics has made him an influential figure in the Trump administration's trade strategies, with his books on the subject continuing to inform policy debates.

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Andrew Tang, Analyst, Equity Strategy, breaks down the importance of upgrading portfolio quality and identifying stocks with long-term growth potential.


After weeks of wild market swings, the US administration has finally paused its most aggressive reciprocal tariffs for at least 90 days. This pause led to the Nasdaq soaring over 12% in a single session, marking its best day since 2001. However, the question remains: is this a relief rally, or is it something more sustainable? The 90-day tariff pause gives countries and companies some breathing room to negotiate their strategies moving forward. However, China still faces 145% tariffs, and negotiations are expected to drag on, with Beijing vowing to fight until the end while the White House seeks to rewrite the global trade order. This creates a high-stakes environment.

For investors, it’s important to focus on upgrading portfolio quality. Stocks that are well-placed, class-leading companies with pricing power are best equipped to weather potential cost inflation and market volatility. Companies like Goodman Group, Pinnacle, Macquarie Group, and Y State are examples of those that can absorb price shocks and remain strong despite recent volatility. Additionally, investors should use volatility wisely. The 12% rise in the Nasdaq is a reminder that panic can create opportunities. High-conviction names in the growth space, such as Hub24, Guzman Gomez in the quick-service restaurant sector, and Pro Medicus in healthcare IT, are all businesses built for long-term growth.

In conclusion, the next 90 days could be critical in determining the outcome of both the tariff situation and this rally. Investors are reminded to stick to the fundamentals, focus on quality, and avoid letting tariff headlines dictate their strategies.

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