Fixed Interest

Morgans offers an extensive range of fixed interest products and services to help you achieve your investment objectives. Your adviser will help you incorporate fixed interest into your broader wealth management strategy.

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Invest for income

Cash management accounts

Cash management accounts

Enjoy the convenience of our at-call cash facilities with competitive interest rates. Our preferred products offer direct bank deposits in your name with reputable Australian banks, providing easy access to your funds. Link your account to your share trading account for seamless settlements and have dividends and interest payments deposited directly. Your adviser will manage paperwork and transactional instructions, relieving you of administrative tasks.

Term deposits

Enhance your returns and build an income portfolio with our term deposit options. Held at reputable financial institutions, term deposits offer fixed terms and higher interest rates compared to at-call accounts. You can benefit from our preferential relationships with leading banks and Authorised Deposit-taking Institutions (ADIs) to find the best term and interest rate for your needs.

Morgans provides foreign currency term deposits with attractive rates for deposits exceeding AU$100,000, and flexible/structured term deposits, allowing you to combine floating and fixed interest rate payments based on your outlook on future interest rate levels.

Listed debt and hybrids

As a major participant in the Australian listed fixed interest securities market, we can offer you advice as well as a range of new investment opportunities from a range of Australia's largest banks and industrial companies.

Listed debt and hybrid investments deliver higher levels of income, paid regularly; some also offer the benefits of franking. Your adviser can build a tailored income portfolio for you, which unlike managed fund alternatives, can be constructed to take into account your specific objectives and risk profile.

Government and corporate bonds

A government bond is a debt obligation of the issuing government, signifying that when you invest in a government bond, you are essentially lending money to the issuing government. As a debt obligation, the issuer is obligated to make all contracted payments. Bonds, being wholesale debt securities, are traded by institutional investors and are not subject to a prospectus.

We offer a comprehensive Government bond investment service, including custody facilities. Bonds improve portfolio diversification and help reduce portfolio risk while providing stable income.

Exchange-traded Government bonds

Exchange-traded bonds on the ASX provide holders with access to bonds issued by the Australian Government providing a low-risk security and diversification for investment portfolios.

News & Insights

As global markets continue to evolve, certain companies are uniquely positioned to capitalize on the substantial capital expenditure (capex) cycles driven by megatrends and shifting market dynamics. These companies, through strategic investments and a focus on future-oriented projects, stand to benefit significantly from large-scale capex initiatives

As global markets continue to evolve, certain companies are uniquely positioned to capitalize on the substantial capital expenditure (capex) cycles driven by megatrends and shifting market dynamics. These companies, through strategic investments and a focus on future-oriented projects, stand to benefit significantly from large-scale capex initiatives. In the Month Ahead this month, we highlight three such companies: ALS Limited (ALQ), Worley Limited (WOR), and Woodside Energy Group (WDS). Each of these firms is leveraging its core strengths and market positioning to navigate and benefit from the upcoming waves of investment in their respective sectors.

Worley (WOR)

We see Worley as being well-positioned to capitalise on the increasing momentum of capex investment across its target Energy, Chemical and Resources markets. Most notably, megatrends such as the global energy transition, decarbonisation, and the push towards reaching global net-zero emissions by 2050, in our view represent a potential multi-decade tailwind for the business. Worley has been an early mover in the ECPM sector to take advantage of these emerging trends, having made a concerted shift towards taking on an increasing number of transitional and sustainability related projects, which has underpinned positive momentum in its project backlog growth over recent years.

Projections from the International Energy Agency (IEA) estimate that a ~2.3x uplift in annual global clean energy investment is required by 2030, to reach levels needed to achieve Net-Zero targets by 2050. With ~85% of Worley’s Top 20 customers having pledged a commitment to reaching Net-Zero by 2050 or earlier, we believe the company is in a strong position to benefit from this trend.

Additionally, we currently see this investment trend supported by regulation across North America and Europe (which accounts for the majority of Worley’s revenue), and consensus capex outlook for global majors in WOR’s end market also remains supportive of growth through to FY26F. Overall we see this as being supportive of WOR’s revenue growth, and ongoing margins expansion over the medium term, which underpins our forecasts for double digit EPS growth. We recently Initiated on Worley with an ADD recommendation and a price target of $18.00

      
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ALS Limited (ALQ)

We think ALS is in for a strong few years. It looks poised to benefit from margin recovery in Life Sciences as well as a cyclical volume recovery in Commodities. Timing around the recovery in Commodities is less certain though:

1) the length of previous junior miner raisings prolonged troughs suggests that a recovery is not too far away;

2) commodity prices are supportive with gold & copper (70-75% of exploration) around all-time highs; and

3) we are already starting to see some green shoots in equity capital markets (a key funding source for junior miners) with gold & silver raisings picking up.

ALS is on 20x FY25 PE which feels cheap given the material upside risk to our forecasts for the years ahead. ALS is targeting mid-single-digit organic growth for FY25, consistent with our forecasts. Life Sciences is expected to deliver modest margin improvements, while Minerals and Environmental divisions should maintain margin resilience. Geochemistry sample volumes have started to trend positively year-on-year, indicating a potential recovery in exploration activities. Macro indicators are positive for Commodities, with spot prices for gold and copper up more than 20% compared to 2023 averages.

Historically, gold and copper prices have shown strong correlations with exploration spend, which bodes well for future growth. Although junior miner raisings have not yet shown significant improvement, historical trends suggest a recovery within the next few months. ALS, the global leader in geochemistry testing with around half the market, is well-positioned to leverage its cash-generative Commodities division to fund growth in Life Sciences. The company’s dominant market position and the resilience of its business model underpin our positive outlook. We rate ALS as an ADD with a price target of $15.50 and think there could be material upside risk to our forecasts should exploration spend align with current commodity prices.

      
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Woodside Energy (WDS)

Woodside is unique among the companies in our coverage universe that benefit from capex megatrends, as it stands to directly benefit from the lack of significant global spend within global oil and LNG markets over multiple decades. In aggregate terms, 2022 and 2023 saw marked improvements in the rate of supply investment by the global oil and gas industry. However, this improved rate of spending still remains materially below the level needed to satisfy even the most bearish demand scenarios over the next decade.

To illustrate, if global oil production experienced an average natural field decline (supply decline) of 4% per annum, and aggregate oil demand decreased by 1% per annum, the oil industry would still need to add new supply equivalent to 3% per annum. Fixing this simple equation becomes more challenging the longer it remains out of balance. Woodside, meanwhile, has a robust pipeline of new projects, with the Sangomar oil project due to come online in 2024, Scarborough LNG in 2026, and the Trion oil project in 2028. Already deep into its investment cycle, Woodside is advanced in its construction spend on Sangomar and Scarborough.

Despite the peak capex associated with these projects, Woodside has managed to maintain low gearing and an 80% dividend payout ratio. The timing of Woodside’s investment cycle has also positioned it to substantially expand free cash flow starting in 2025, which could prove beneficial given our expectation that global oil demand will start to recover against a backdrop of restrained supply. We maintain an ADD rating on Woodside, which remains our top preference among our energy resources coverage. Having navigated peak capex while maintaining a healthy balance sheet and strong dividend profile, we have little doubt that Woodside is effectively deploying capital. The key risk to our call, outside of oil/LNG prices, is execution risk around its growth projects. However, the scale and pace at which capex rolls off over the coming years, while group EBITDA remains around ~US$8.7-$9.0bn per annum until approximately 2031, create a significant long-term value buffer supporting our call.

      
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Morgans clients receive exclusive insights such as access to the latest stock and sector coverage featured in the Month Ahead. Contact us today to begin your journey with Morgans.

      
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One year is a long time in politics. After delivering a budget that straddled the right balance between balance sheet repair and fiscal expansion, the 2024/25 budget was delivered with an eye to next year’s election. Tonight’s announcements centred around cost-of-living relief for all and the well-publicised plan for a “Future Made in Australia” promising over $22bn in spending over the next ten years but also bringing higher deficits over the forecast period.

One year is a long time in politics. After delivering a budget that straddled the right balance between balance sheet repair and fiscal expansion, the 2024/25 budget was delivered with an eye to next year’s election. Tonight’s announcements centred around cost-of-living relief for all and the well-publicised plan for a “Future Made in Australia” promising over $22bn in spending over the next ten years but also bringing higher deficits over the forecast period.

Treasurer Jim Chalmers’ third Budget shows the government is on track to achieve a budget surplus of $9.3bn, a $10bn turnaround on MYEFO that predicted a $1.1bn deficit. The surplus was again driven by a range of upside surprises to revenue, e.g. the strong labour market, solid wage growth and net overseas migration. Tax revenue was considerably higher than the previous forecast, with the government’s tax receipts at 25.8% of GDP - the highest level since 2007.

An improved fiscal position provides scope for the government to increase spending on temporary cost-of-living relief while committing to the “Future Made in Australia” program which involves tax concessions and subsidies to industries the government deems critical to achieving its net zero target. $7.2B has been committed to cost-of-living relief measures including energy rebates and rent assistance. However, there has been no meaningful attempt to tackle structural pressures from NDIS, aged care, and health care, which has seen growth outpace inflation over the past few years.

Ahead of the election next year, this was another chance for the government to demonstrate their economic credentials. With a helping hand from commodity prices and a strong labour market, we think the government has played it safe, opting to leave meaningful structural reform aside. In summary, the measures announced today is unlikely to move the dial on market sentiment.

Key highlights

•        Spending the surplus - At the headline level, a surplus of A$9.2b is expected in 2023-24 (+0.3% of GDP), significantly improving upon the $13.9b (0.5% of GDP) deficit predicted at last year’s Budget. That said, deficits are expected over forward estimates as commodity prices are forecast to ease and unemployment set to rise. Also, extra spending commitments (“Future Made in Australia”, stage 3 tax cuts) will weaken the fiscal position over the forecast period. The

•       Marginally inflationary but no big deal for equity markets – taking everything into account, a surprise surplus, the coming stage 3 tax cuts, a bump in government spending, and some targeted measures to address cost-of-living pressure should not worry investors. Importantly for the market, a strong fiscal position and few inflation-inducing spending measures should also reassure investors that a slowdown is possible without a recession.

•       Few consumption levers pulled this year – A feature of the previous Labor Budget’s such as large one-off cash payments, new welfare programs and tax offsets were notably absent. Instead, energy bill relief and the reworked stage 3 tax cuts are expected to do the heavy lifting on cost-of-living support. Big spending programs were replaced by targeted relief to and low-medium income households such as rent assistance. So this Budget will not provide the sugar hit to retailers we’ve seen over the past few years coming out of COVID.

•       Budget assumptions and a cut expected to net overseas migration – Forecasts provide a low hurdle for the December MYEFO or next year’s pre-election Budget. Key commodities are assumed to decline from elevated levels with iron ore price assumed to decline from US$117/tonne to US$60/tonne by March 2025; the metallurgical coal spot price declines from US$227 to US$140/tonne; the thermal coal spot price declines from US$105 to US$70/tonne. AUD is expected to remain at 65c through the forecast period. The Budget expects net overseas migration to be 395,000 this year, after 528,000 last year. The government forecasts that it will fall to 260,000 next year, to 255,000, and to 235,000 in the following years.

Our thoughts

Labor’s third Budget delivered another surprise surplus for the government leaving some wiggle room to spend ahead of the 2025 election year. While the “Future Made in Australia” promises to drive investment in the green economy, many questions remain about its implementation and effectiveness in competing in industries where we lack a comparative advantage. Implementing the re-cut stage 3 tax cuts and some cost-of-living relief will provide some support for domestic demand, which in our view is mildly inflationary but unlikely to move the dial meaningfully on corporate profitability.

Successive governments have lacked the determination to bring about significant structural reform, chiefly around genuine tax reform, productivity and housing. This Budget is no different. The lack of genuine long-term reform at time when the federal balance sheet has been boosted by elevated tax revenues, a strong job market and cyclically high commodity revenue is a missed opportunity for Labor.

In our view, the Budget is unlikely to bring about significant revisions to corporate earnings, however the ongoing commitment to support the vulnerable parts of the economy should help market sentiment and support earnings confidence. Moreover the surplus has reinforced Australia’s sovereign credit rating which can be viewed as favourable for inbound investment. We also see company dividends as sustainable if economic conditions hold. We prefer a targeted portfolio approach favouring quality (strong cashflow and market position e.g. COL, TWE, DBI, QBE, CSL), sectors linked to higher-for-longer inflation (Energy, Resources) and select cyclicals (MGH, CWP, QAL, BLX, ACF). See our Best Ideas for our most preferred exposures.

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Jim Chalmers talks as if he is delivering a big surplus. Certainly, $9.3 billion sounds like a lot of money. However, last year Australian GDP was an amazingly large $2.6 trillion. The Budget Papers (Table 1.2) show this budget surplus as just a small budget balance of 0.3% of GDP. Of course, a budget balance of 0.3% is better than no balanced budget at all.

Jim Chalmers talks as if he is delivering a big surplus. Certainly, $9.3 billion sounds like a lot of money. However, last year Australian GDP was an amazingly large $2.6 trillion. The Budget Papers (Table 1.2) show this budget surplus as just a small budget balance of 0.3% of GDP. Of course, a budget balance of 0.3% is better than no balanced budget at all.

This Budget seems to have been produced with detailed election polling in mind. There is something for everyone. There is a handout or a hand-up for every identifiable voting group. The Budget gives the government the flexibility to launch into an election campaign almost any time in the next year. Right now, in this document, almost every interest group is taken care of.

This is important because the major economic parameters tells us that the economy is softening. GDP growth for 2023-24 is only 1.75%. This is down from 3.1% in 2022-23. As a result, unemployment is expected to rise to 4% in the middle of 2024 and 4.5% by the middle of 2025. This unemployment of 4.5% stays at this level for three consecutive financial years up to and including 2026-27.

The result of this continued period of higher unemployment is that inflation falls. Still, it takes until the middle of 2027 for the RBA inflation target of 2.5% to be achieved. This low inflation is bought at the cost of a weak demand for labour.

Outlook for the Terms of Trade

The good news that has been delivered over the last couple of years in the shape of balanced budget has been achieved as a result of the highest terms of trade that has ever been recorded. Budget Paper 1, page 67, tells us that the terms of trade is forecast to decline from here over the next three years. The terms of trade is expected to stabilise in 2025-26 at around the average level of the past 15 years. Commodity prices are assumed to reach their long-term levels by the end of the March quarter 2025.

As we said, this is a budget which has something for everyone. The overwhelmingly largest function of expenditure is Social security and welfare. This accounts for spending of $266.7 billion, or 36.3% of outlays. Next comes Health with $112 billion, or 15.3% of outlays. Education comes next with $53 billion, or 7.2% of outlays. Following these is Defence with total expenditure of $48 billion, or 6.5% of expenditure.

The estimates of the increases in Australian General Government Expenses by Function show some very interesting movements. Of course, the largest total increase is Social security and welfare, with an increase of $14.35 billion. However, what is interesting in these numbers is the percentage changes.

By far the biggest percentage increase is spending on fuel and energy. These are subsidies for keeping prices low. The fuel and energy sector is seeing increases in expenditure of 51.6%. This is an increase in spending of $6.84 billion. The next big percentage of increased spending is Housing and community amenities with an increase of 25.7%. This is a total increase in spending of $2.044 billion.

Final thoughts

Jim Chalmers talks as if he is delivering a big surplus. The Budget Papers (Table 1.2) show this budget surplus as just a small budget balance of 0.3% of GDP. Of course, a budget balance of 0.3% is better than no balanced budget at all.

This Budget seems to have been produced with detailed election polling in mind. There is something for everyone. There is a handout or a hand-up for every identifiable voting group. The Budget gives the government the flexibility to launch into an election campaign almost any time in the next year. Right now in this document, almost every interest group is taken care of.

This is important because the major economic parameters tell us that the economy is softening. GDP growth for 2023-24 is only 1.75%. This is down from 3.1% in 2022-23. The result of this is that unemployment is expected to rise to 4% in the middle of 2024 and 4.5% by the middle of 2025. This 4.5% of unemployment stays at this level for three consecutive financial years.

Perhaps the government will want to move to an election before this period of weak employment and higher unemployment really sets in.

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