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  • Writer's pictureMarcus Bogdan

Investor Update - June 2023

The ASX 200 increased 1.8% in June, with the Index up 9.7% for FY23. For the month of June Materials (+4.6%) was the best performing sector, while Healthcare (-6.4%) underperformed following the release of CSL FY24 earnings guidance, which was below market expectations. Overall, earnings expectations for the market continue to be revised lower ahead of the upcoming full year 2023 reporting period in August. We expect that company earnings will progressively be impacted by higher interest rates and ongoing cost pressures from wage and energy inflation.

During June there have been several key updates from companies in the portfolio, with Cleanaway Waste Management, CSL, and Ramsay Health Care providing earnings and/or operational announcements.

Cleanaway – Reaffirmed FY23 earnings guidance of $300m EBIT and EBIT margin of 10.3% at its June Investor Day. CWY will provide 3-year EBIT CAGR targets at its FY23 result in August.

CSL – Reaffirmed FY23 earnings to be towards the top end of guidance. However, FY24 guidance was below market expectations due to a more gradual recovery in gross margins and headwinds from FX and net interest costs.

Ramsay – Announced it was exploring the possibility of a sale of its 50% holding in Ramsay Sime Darby (RMD Asia) after “receipt of significant inbound interest”. RHC also secured a new funding facility of A$1.5bn. The potential sale of RSD and refinancing would help to address concerns relating to RHC’s balance sheet.

At a portfolio level, BHP, Macquarie, and Woolworths were notable strong performing stocks. Whereas CSL, Northern Star and Spark NZ weighed negatively on performance.

Globally, central banks have been raising interest rates at the fastest rate since the 1990’s to tame persistent inflation. While the RBA held the cash rate steady at 4.10% in July, the RBA Board (along with US & European central banks) have reiterated their commitment that further tightening in monetary policy may be required.

In Australia, the effect of tightening by the RBA has begun to impact consumer spending but has been less potent in dampening house prices, which have risen consecutively over the past 4 months (CoreLogic). Indeed, a rapid recovery in migration levels combined with a tight labour market is providing an important ballast for the Australian economy.

For 2023 equity markets have been remarkedly resilient, despite having to navigate the impact of higher interest rates (rising cost of capital), continued US/China/Russia geopolitical tensions, and consumer cost of living pressures, without a sustained drawdown in asset prices. The ASX 200 valuation metrics have been relatively stable based on a forward P/E of 14.5 times and a dividend yield of ~4.3%, both of which are trading around their 30-year average. The upcoming FY23 reporting period should provide an important indication of the health of company earnings and the prospects for the remainder of the year. The portfolio continues to hold industry leaders across the healthcare, industrial and resource sectors


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