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Six blue-chip updates
Six blue-chip updates
In the middle of another COVID-19 shutdown and with most companies approaching full-year earnings season, it’s important to take stock of what occurred in the previous few months. We’ve decided to provide an update on some non-traditional Aussie blue-chips after the strongest quarterly performance for the market in decades.
Macquarie Group (ASX:MQG)
- Despite reporting a weaker full-year result with profit falling 8% to $2.7 billion, Macquarie was one of the top-performing holdings. The combination of annuity-like operations across asset and wealth management (+11% on 2019), banking (where the loan book increased 35%) with market-facing activity including commodity and capital markets trading offers diversification.
- Macquarie Capital has been the clear standout in the investment banking space, topping the leader boards as it covers capital aisings for the likes of Qantas, Challenger and Flight Centre. These transactional fees offer upside in a time of volatility for markets around the world. AUM (assets under management) continued to improve, with real assets up 17% to $150 billion and investment management +6% to $382 billon.
Boral Ltd (ASX:BLD)
- Top-performing investment for the quarter, benefiting from the announcement of a new CEO, Zlatko Todorsevski, and the increasing likelihood of a demerger or sale of the weaker US businesses. The share price also benefited from potential takeover activity after Seven Group Holdings (SGH) took a ‘friendly’ 10% stake in the company.
- Management confirmed that revenue was reasonably strong, falling just 6% in Australia and 5% in the US, but closer to 20% in Asia, with most weakness due to housing construction. Importantly, the company was able to extend repayment terms on its 2021 facility out to 2024 and obtain another US$200 million in longer-term debt, staving off the need for a capital raising.
Seek Ltd (ASX:SEK)
- SEK was among the strongest performers in the portfolio despite initial concerns on falling job advertisements. The company announced a $230 million write-down on its businesses in Brazil and Mexico, and noted that advertising was down 40%-50% on 2019 levels in March and April. This appeared to be turning the corner in June, as weekly job ads increased from 30% to 60%.
- Management has thus far avoided a capital raising, with the share price up close to 100% from the March lows. The important Chinese Zhaopin business has reported revenue just 10% behind the previous year, with group sales still expected to be $1.57 billion and earnings around $410 million. Despite job vacancies falling 43%, SEK will gain the lion’s share of all those advertising once the Jobkeeper payments cease in September.
Woolworths Ltd (ASX:WOW)
- Woolies backed up a 10.7% increase in sales in the March quarter with a further 8.6% growth in the June quarter. The result was mainly driven by grocery and online sales, which grew 34% and now account for 5% of all sales. BIG W also continues to perform well post-restructure, growing 27.8% for quarter-to-date as consumers focus on cutting costs where possible.
- In a sign of the future, WOW partnered with Qube Logistics on a 20-year lease for huge automated supply warehouses in the company’s Moorebank Terminal. The agreement is expected to offer huge cost efficiencies in the company’s supply chain and continue to improve margins. WOW remains a defensive holding that offers consistent income and a shield against a second COVID wave.
CSL Ltd (ASX:CSL)
- The world leader was a portfolio laggard during the quarter, stagnating as investors rotated back into higher-risk consumer-facing cyclical companies. The company is trading about 15% below its all-time highs, despite being generally immune to the impacts of COVID-19. Management announced the timely acquisition of another gene therapy business to further solidify CSL’s competitive advantage.
- Funding remains no issue for CSL, achieving another $750m in debt with 7 to 15-year maturities and interest rates of 2.4% to 2.8%. Plasma collection centres in the US, particularly around the Mexican border, remain a risk due to signs of a second COVID wave, however, volumes are likely to improve as social distancing measures are loosened.
Ramsay Healthcare Ltd (ASX:RHC)
- Ramsay staged a strong recovery after successfully raising $1.2 billion in April and suspending its interim dividend as elective surgeries in Europe and Australia were all cancelled. The company’s costs will be borne by Federal and State Governments, effectively guaranteeing the company’s debt until such time as business as usual can continue.
- Management expect previously announced tariff increases in the UK and France to proceed as expected, with hospitals globally to benefit from pent-up demand for surgeries. Longer-term, the public system faces increased waiting lists which ensures the growing importance of private hospitals to ensure quality and timely treatment. COVID represents a 12-month speed bump for RHC.
