NZ
Quiet day for NZ. Noting WasteCo raised +$4.3M from institutional + wholesale – proceeds put towards growth and new acquisitions – WasteCo recently bought Cleanways for +$7M. We like the fundamentals of the business – everyone makes waste – but think more cap raises + dilution is likely and trading at a very high multiple – more acquisitions will be needed to justify the valuation.
Strong immigration data for May – +17,000 new arrivals which seems to be driving elevated rental prices. We wonder how long the trend will continue for when and if unemployment ticks up. For now it’s a good sign for landlords and brings competition into the jobs market – just got to wonder, will there continue to be as many jobs?
Visitors to HSBC’s offices y’day would’ve been greeted with a sign saying they were “closed for maintenance”. Bit of a euphemism for “closing up shop” – the company is ceasing NZ wealth and retail operations with immediate effect.
Speaks to why we remain fairly positive on the big banks – Westpac, ANZ, etc – the franchise value is immense and the struggle even a major int’l player like HSBC faces trying to break into the APAC market speaks to the value of said franchise.
Aus
Seeing some recessionary signs: leaked internal spreadsheets from David Jones suggest a 30% slowdown in sales – read-through is pretty clear; expect a far weaker quarter (year?) for retail going forward. Preference is away from retail and big box: too many variables and “squeezes”.
It has been reported that private equity firm TA Associates is currently considering selling its ownership stake in Honan Insurance Group Pty, an Australian insurance broker. This decision comes as there is growing interest from various potential investors. If a sale does take place, the transaction has the potential to assign a value of $300-400 million to the Melbourne-based company.
US
CPI print came out at 4%, the slowest in two years. Weak positive. Bulls will be saying this is a sign of inflation’s retreat whereas bears will be saying this is still 4% inflation when the Fed is targeting half that. We think it’s worth noting the increase of “greednomics” that has contributed to inflation – on an annualized basis US profit margins remain historically high (see the chart below from Bloomberg).
It’s worth unpicking this a little bit. Margins remained structurally lower from ~1979-1999 – the recession of the early 80s was the main contributor here, driven by high Fed rate hikes in order to combat inflation (sound familiar?). Now the economic picture is different. The world’s biggest companies have unprecedented margin power – Apple, for instance, commands ~25% net profit margins. Less competition has given rise to stronger pricing power by the “majors”. Some of this has likely contributed to inflation – opportunistic price increases. Isabella Weber’s thinking on this, we think, is very important and it’s worth reading in full – link to NY’r article here.
