The annual Macquarie Group’s Australia conference is the largest annual gathering of Australian companies with both domestic and international investors. This year’s conference featured presentations from more than 100 top Australian and New Zealand companies, including many in Mirrabooka’s portfolio. Mirrabooka portfolio manager Kieran Kennedy shares his observations on the main themes of the conference and some of the presentations.
It was worthwhile getting back to hearing updates from companies generally and from those in Mirrabooka’s portfolio, particularly given global share market volatility. We could again focus on business fundamentals rather than measure companies’ progress solely by recent pressure on share prices.
Investors are cautious
With expectations that interest rates need to rise sharply to curb inflation and against a backdrop of a volatile company reporting period in the US, attendees at the Macquarie conference appeared cautious.
In the US, inflation is pressuring margins; consumer confidence and spending has fallen sharply; and COVID-related factors influencing profits are normalising quickly. Australia faces similar issues but is perhaps a little behind the US on timing. One difference is that Australia is benefiting from strong prices for commodities, perhaps making “the Lucky Country” a relative winner.
Company performance updates solid
Given that Australia is lagging the US, performance updates provided by companies at the Macquarie conference were generally solid. Although there were some profit downgrades, the performance updates appeared more related to business interruption and supply challenges rather than a potentially softening economy. For example, Cleanaway Waste Management said its performance is expected to be impacted by higher fuel costs, constraints on labour availability, and floods on Australia’s east coast. Automotive accessories supplier ARB acknowledged stock supply and labour challenges.
Key themes impacting company performance
Several common themes affecting business performance and the macro-economic environment were reiterated at the Macquarie conference:
It’s important to consider how these themes will affect consumers. In the US, consumer confidence is softening, and it is starting to happen in Australia as the rising cost of living and the prospect of faster interest rate increases put pressure on people’s spending power.
How is Mirrabooka’s portfolio positioned?
What we heard from companies at the conference has reinforced our conviction that our portfolio is well positioned for the long term. There are still some choppy waters ahead, but company valuations have eased, which makes the environment easier to navigate.
Among the companies in our portfolio that we believe are well positioned for the long term is automotive accessories supplier ARB. ARB released a business update on the day of the Macquarie conference, and the company’s share price subsequently fell. ARB generated strong growth last year as people holidayed more domestically and travelled less overseas. But those conditions have since changed, so some investors may have viewed the ARB update as disappointing.
But the longer term looks more appealing. ARB has done a deal with automaker Ford that opens the US market for ARB. Considering this, we have put aside the short-term volatility in ARB’s share price and are awaiting the next opportunity to buy more of the stock at a fair price. It exemplifies our long-term approach to investing in quality companies.
Another business in our portfolio worth mentioning is Worley, a global project and asset services provider in the energy, chemicals and resources sectors. Worley was traditionally exposed to the oil and gas sectors. But as the energy transition happens, we believe Worley is well placed to benefit from the amount of capital that needs to be spent to develop renewable projects and to reduce emissions over the next three to five years. Worley presented at the conference and reinforced our belief that there is a good business story here.
Financial assets administrator Computershare also presented. We bought into Computershare when it was largely out of favour, but Computershare’s share price has since picked up despite a challenging market. Computershare is a global leader, but low interest rates over the last 10 years have put pressure on revenue and profit. Now, interest rates are rising, which is creating a tailwind for Computershare, and the company is again getting recognition for its quality asset base.
Kitchen appliances supplier Breville is evolving from just selling hardware to selling “solutions” that includes third-party products and capabilities. It involves wrapping software, content, and services around hardware. For example, your oven may be able to provide recipes, and acquisition of a coffee machine could come with a subscription for coffee beans. It’s about proving an enhanced experience as more devices become connected. It’s a fascinating way to think about the business and could add to revenue. If Breville can move even slightly in that direction, we think it opens a competitive proposition for the company. We want businesses that invest and think for the long term.
Participating in the Macquarie conference and listening to many of the companies in our portfolio, we remain confident that the companies in our portfolio have the quality and the opportunity to deliver solid outcomes over the long term for Mirrabooka shareholders.
Uncertain economic conditions and market volatility still lie ahead, but our recent Share Purchase Plan at Mirrabooka had this environment in mind. We have been able to raise additional funds for investment purposes should good opportunities arise as share prices adjust down to more reasonable levels.