Australian iron ore miner Fordscq has
reported a 41% drop in fullear net
profit against a backdrop of sluggish
Chinese steel demand and falling iron
prices. Bloomberg's Paul Allen joins us
now with more on this. And Paul, uh, not
such great numbers, but were there other
key takeaways and perhaps even bright
spots?
>> Well, for Fordscq, I mean, its only
product is iron ore at the moment and
its biggest customer is China by far.
So, it's uniquely exposed to what goes
on in that market and we're seeing that
reflected in the headline numbers. Uh,
as you say, a huge drop in net profit.
3.37 billion was the takeaway, but the
dividend suffered as well. That's down
about 30% and Fordscq paying its lowest
dividend in about 7 years. So, Fordscq
did reduce costs. It did have record
iron or shipments, but none of that was
enough to offset the weaker iron ore
price. And I mentioned Fordscq is trying
to diversify. is getting into energy
into hydrogen as well and has made some
huge investments there about $3 billion
over the past four years or so but so
far no return on that investment. We did
hear from the fordscq energy CEO
Guspicho he says green energy green
hydrogen does remain key to the future
but for now the results not too good and
we're seeing that reflected in the share
price today. Fordscq is off about uh
about 2 and a half% at the moment.
And we're getting towards the end of
earning season in Australia, of course.
Uh what have the results look like so
far?
>> Yeah. Well, not bad. Um but then again,
expectations were somewhat giddy heading
into this and valuations were pretty
high as well. Um if we take a look at
some of the case studies from this
Commonwealth Bank, it's the largest um
company by far on the index makes up
about 10% of the ASX index by weight. I
mean cash profit did meet expectations
there, but analysts didn't like the
outlook especially in a falling rate
environment and it dropped 6% on the day
and it's still about 4% down from where
it was two weeks ago. CSL is another
market darling uh that underperformed in
a couple of key sectors and store its
steepest ever share price drop. So
companies that miss are getting punished
very badly. Guzman and Gomez, the
Mexican fast food chain got punished.
The building supplies manufacturer James
Hardy got hit as well. Uh but to give
you some context, and we'll get some
more on this in a moment, the ASX has
been at record highs. So, anything less
than a stellar performance does tend to
get punished. So, uh for a little bit
more on that, let's uh get to our guest,
Alfredo Jona, client portfolio manager
and investment specialist at Alfinity
Investment Management. And Alfreda,
thanks for coming in.
>> Beautiful.
>> And I do want to start on that point. I
mean, the market is just so unforgiving
when it comes to misses. Is that because
the results have been disappointing or
the expectations have just been so high?
Yes, I think it's probably a bit of a
combination of two. And if you look at
the overall market level, it's now
trading at a price to earnings ratio of
20 times forward um relative to the
long-term average of 15. So, what the
valuation tells you is really just the
amount of risk that you take when you
enter into a position currently. So,
expectations coming in have been very
high, particularly for stocks like a CBA
that you've mentioned. So there's just
not a lot of appetite for any company
that's either going to miss a little bit
or guide lower than what the market
expected. So that's why you've seen
those big moves and it's very similar to
what we've seen in the global earnings
season. Actually, a lot of big daily
moves on that side as well.
>> Well, we do have the index hovering
around record highs. When you put
together what you've just described,
does that suggest that a correction is
on the horizon?
It definitely feels like we're at the
point where we need to see earnings
growth come through. I think if you look
at the current expectations, the market
is expecting now another negative 2 to
3% for 2025 and that would be the third
year of negative earnings growth for the
Australian market. If you compare it to
other markets where we still see strong
earnings upgrades, it does pose the
question, you know, why would you want
to be in Australia if you can get
earnings growth elsewhere and why do you
pay up for it here? We don't want to
make an overarching call on the market
direction. What we are doing is to go
bottom up and really look for those
idiosyncratic earnings stories rather
than trying to call the market overall
or any specific sector for that matter.
Yeah.
>> What are some of the idiosyncratic
stories that you like at the moment,
especially when it comes to different
sectors in the Australian economy and
perhaps some of that influence also
coming from Chinese demand as well?
>> Yes. So, so currently we are actually
quite underweight the miners. I think if
you look at that sort of forest Q
results that you've just mentioned, we
are not necessarily convinced yet that
we've seen um enough demand supply
fundamentals improve to dramatically
increase our material section. So where
we are still positioned quite a bit is
in um some of the insurance companies
particularly those focused on domestic
like a Suncorp. Um but we are
acknowledging that we're probably at the
end of that sort of pricing increase uh
cycle for insurance. Two standout
companies that I can mention just
looking at other sectors. So within the
technology sector we really like
technology one they continue to come
through with really strong results uh
really strong uh product and new
innovation coming through with
additional growth angles particularly in
the UK in councils and education. So
something like a technology one for us
is still one where we expect to see
earnings growth and particularly
earnings positive earnings revisions
which is what we look at. And then in
the healthcare space another example
would be ResMed. Um the healthcare
sector has been in a world of pain this
year globally but Resmet is one of those
companies that continue to do really
well because they have very strong
balance sheet. they can continue to not
just give us additional buybacks as well
as dividends, but they actually have a
fantastic product pipeline where they
can still gain market share. So, it's
companies like that that we continue to
to see potential upside in.
>> Are you factoring in another potential
25 basis point rate cut from the Reserve
Bank and how would that change your
thinking of asset allocation at the
moment?
Yeah, I think we definitely um are
probably of the opinion that if you look
at the overall market, what the market's
expecting is another 1 to 2% uh one to
two um interest rate cuts over the next
12 months. And for us, all the
indications are there that we probably
should expect interest rates to go lower
from here. One area that we are
specifically looking at and where we
have been quite underweight has been the
consumer and that is where we starting
to see a few green shoots picking up not
just from a macro perspective but also
from the recent results. So that is one
area where we would be increasing our
exposure where consumers can benefit
from that lower interest rate outlook
going forward.
>> As you we head into this lower interest
rates environment. How does that
influence your view around financials as
well? because uh you know we might see
some pressure on net interest margins.
Um what do you like there?
>> Yeah, I think generally speaking we've
actually had quite a bit of exposure in
the banks over the last sort of 12 to 18
months and it's really helped us a lot
and it's because they've had the
positive earnings revisions. We continue
to see that and as a result we're still
there but we have been reducing and we
are underweight the banks. We are
selectively positioned in NAB and
Westpack as our two preferred with CBA a
fantastic company but very expensive. So
we continue to sort of reduce those
positions in banks as well as insurance
with the outlook of of lower rates ahead
and rather moving towards sectors such
as real estate that can benefit from the
lower rates.