Corporate Australia is Talking

Our final presenter this evening is Rudi Felipek Van Dijk, founder and editor at FN Arena.

FN Arena is a supplier of financial, business and economic news analysis and data services.

Rudi regularly appears as a stock market commentator on Auspice TV, Livewire and Switzer TV.

In his presentation today, Rudy will attempt to decipher the message communicated by Copper Australia during and after the February results season.

Welcome to the presentation, Rudy.

Well, thanks, Angelina.

I thought, given the circumstances, I might as well take off with the quip.

I mean, given my grey hair, you can see I'm old enough to remember that when Trump was elected, that there was a positive for the share market.

And I think this is where the joke stops as well.

Clearly, all the promise that we had at the end of 2024, leading into 2025, the context has changed a little bit.

In a very brief format, the Trump administration has a very radical

agenda for America.

It's making the country more inward looking, more isolationist, apart from concentrating all the power in the presidency and breaking down the government and institutions.

We have no idea exactly how that's going to pan out being executed, the consequences and the ramifications left, right and center.

But what we do know is that it has injected a lot of volatility, a lot of uncertainty in markets.

And hence, we see that the environment has completely changed.

It's no longer going just upwards and everyone is smiling.

We now have a different proposition at hand.

And there's two schools of thought in how to deal with this as an investor.

I mean, it's very understandable that there's one thought that goes,

Now it's getting too hard for me.

I'm pulling out.

I'm doing something else.

Put myself on the sideline and wait for better times to arrive.

The other school of thought says, well, let's just deal with the situation.

Let's restructure portfolios, maybe put a little bit on the sideline and make some changes and reduce risk.

And we attempt to deal with this heads on and take the volatility on board.

Now, whatever.

your preference and your personal strategy is and has been, because it is a personal choice.

I still think that whatever happens from here onwards and wherever your positioning is,

There are still guidelines, conclusions, there's still input from corporate Australia, I think, apart from the micro level that can help all of us in dealing with whatever comes along now and for how long it may last.

And obviously, one of the obvious places to look at is the February reporting season, which is just finished.

And that, in essence, always gives us a little bit of an in-look in what's happening with corporate Australia and where are the strengths, where are the weaknesses.

And that's important input that we can apply and integrate in what we do ourselves, in our portfolios, in our strategies.

Now at Efren Arena, we actually spend a lot of time on each reporting season and February has absolutely been no difference.

Observation number one, and this is actually even before we got the whole upset because of terrors.

Observation number one is that reporting seasons have increasingly become more volatile.

And there's a couple of ways to measure this apart from most people would have noticed that I'm guessing because a lot of increasingly some of the small cap companies where the results weren't quite what was expected share prices went downhill quite quickly and quite rapidly.

But even apart from that on UBS's measurements the average intraday

share price move on the day of a report's release was 7%, which is very, very, very high.

Another way of looking at it is on Goldman Sachs's number crunching, the average, well, not the average, but 20% of all reporters in February saw their share price move by 10% or more on the day of a report release.

Now, those are extraordinary numbers.

And we may well have to deal with those numbers from here onwards.

Maybe the share market in general has become more volatile and we can only speculate about the many factors that are impacting on that one.

Now, the reporting season itself, it wasn't fantastic.

It basically was a promise that wasn't delivered.

And we at Afro-Nomina, of course, we do a lot of number crunching.

It was made easier because August last year was such a bad season.

We've been doing this now for more than a decade, and August last year was one of the worst reporting seasons that we've seen in at least 15, 16, 17 years.

This one was a little bit better.

On face value, there were more reports that beat expectations, but if you combine it with outlooks and with guidelines, it wasn't that fantastic, and the bar was quite low.

Which means if you restrict it to the ASX200 on our measurement, it's about one third that beat, one third that meet, and one third that disappointed and going to expectations.

And that's not really good.

So conclusion number one.

It's a very polarized market and a lot of companies are still struggling.

Now, one of the standout observations I thought was that a lot of companies that have been in struggle street for quite a while now, I mean, maybe since COVID, maybe a little bit longer, you will find that in reporting season in February yet again,

those companies have proven again that it's very difficult in the current circumstances to get a successful turnaround that lasts.

And names that come to the surface immediately, for example, is Horizon Holdings, it's a land lease, maybe even a Sonic Healthcare and a Helios, maybe even CSL.

The healthcare sector definitely is one of those sectors that didn't really

We live on promise yet again.

But there's more, there's deeper conclusion that we can draw as well.

Apart from the fact the market remains polarized, there are points of strength, there are very, very defined regions of weakness that opened up in February.

And that's something we can all pay attention to.

One of them is the New Zealand economy.

It's really, really a weakness for a lot of companies that have operations in New Zealand.

But if we stay in Australia, one of the weaknesses has been, and it still is, Victoria.

Many, many companies that are operating across the country are basically communicating that the toughest business that they are in is in Victoria.

Something to take into account as well.

The other thing, which might come a little bit as a surprise, but which featured prominently in many, many disappointments and profit warnings that have been delivered in February, is the US economy, believe it or not.

Many, many, particularly amongst the smaller-cap companies, housing-related and otherwise, they unfortunately disappointed because momentum in the US was a lot weaker than even predicted a few weeks or months ago.

which might indicate that irrespective of economic data and irrespective of what's happening in the US now, that already substantial segments of the US economy, they just weren't fired and also in this, to say the least.

Another observation that needs to be made, I think, and I sort of touched upon it a little bit earlier.

Many, many disappointments came from the small cap segment of the market.

It's the reason why the reporting season ultimately disappointed.

and there's a logic there.

Now in the good times small cap companies whatever happens on the positive side can quickly translate into much stronger earnings growth and then much stronger earnings share price appreciation.

In the tough times much easier to disappoint and we've seen that so that's definitely something

to take on board.

There was another observation which has less to do with the results season itself, but more with investor sentiment and positioning, I think.

Many, many of the companies that still came out with very strong results, they actually saw their share price decline.

But that has more to do with the fact that investors at that particular point in time were more focused on a rotation into last year's laggards instead of continuing with this year's winners.

And we just have to see how that pans out for the months ahead.

I think those ingredients, I hope that they are clear as mud, so to speak, and that they help us all in how to deal with whatever comes ahead in the months ahead.

How does your research into all weather companies help investors with the challenges ahead?

For those who are not familiar with my research in all weathers, the research dates from the GFC and I'm essentially trying to identify the highest quality, most reliable, dependable companies on the stock exchange.

Now, as we all probably instinctively realize, there are not many of them, but they are there.

What happens normally in when markets go through a volatile time as they are now and the bias is more to the downside than it's possible to the upside with a lot of challenges ahead.

Ultimately, the best advice that investors can take on board is that the highest quality, more dependable, more reliable companies, they ultimately will prove their worth through a period like that.

So that research, I still think that still stands above

above the cornfield and that still will prove its value with the added complication that in the short term, we don't really know how the whole tariffs, no tariffs, tariffs where and tariffs are high, how that exactly will impact on individual companies.

So it may well be that there is some extra risk here and there.

But in general terms, I think that research that still stands and that will prove its value of

throughout the tough times, which is usually when those companies shine in comparison to the bull market.

The bull market last year was predominantly led by artificial intelligence, or AI, and related companies.

So what will happen to that now?

That's a very interesting story.

I happen to be a firm believer in that what we were experiencing

up until late last year is quite unique in our lifetime.

It's the next industrial revolution.

It's going to change the world, so to speak.

That's not just me making loose forecasts, but it is possible that this year that everything that's happening, all the disruptions, all the interruptions, that we might see an interruption in that narrative as well.

But I do think that investors can be

can remain convinced that AI is, it might be interrupted this year, maybe, but it won't go away and it will continue to exist.

It will continue to be deployed and applied and to develop.

And I think in the biggest scheme of things, we may have reached stage number two in that long-term story, but we're definitely nowhere near the end.

So that will continue to develop and I think it should remain on investors radar.

Thanks for your time, Rudy.

My pleasure.