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Navigating uncertainty: Key takeaways from the 2023 Macquarie Conference

Navigating uncertainty: Key takeaways from the 2023 Macquarie Conference

Navigating uncertainty: Key takeaways from the 2023 Macquarie Conference

The Macquarie Australia Conference provided a valuable platform for AMCIL to engage with companies in our portfolio and gain insights from other companies. Portfolio Managers David Grace and Kieran Kennedy share their key highlights from the conference, shedding light on the companies they interacted with and how the prevailing economic uncertainty is shaping the market outlook.

As the largest annual gathering of companies and institutional investors in Australia, the Macquarie Australia Conference offers a comprehensive perspective on the Australian sharemarket.

Amidst the environment of increasing interest rates and rising inflation, the prevailing sentiment among companies and investors during the conference was cautious. However, we were encouraged by the presentations and discussions with the companies in our portfolio, as we believe they are well-positioned to navigate the ongoing market uncertainties.

Interest rates were a recurring concern, and the RBA's announcement of rate hikes which occurred during the conference only reinforced the prevailing uncertainty regarding the future rate cycle.

Companies emphasising long-term strategies

One encouraging aspect was the focus on long-term strategic ambitions exhibited by most companies, rather than being solely driven by short-term trading conditions.

We were particularly pleased with the updates from two companies that may face challenges in the context of reduced consumer discretionary spending: JB Hi-Fi and Wesfarmers. Despite short-term trading conditions being challenging, the leadership positions held by both companies, their ability to compete on price, and strong balance sheets hold them in good stead.

JB Hi-Fi's sales update exceeded expectations, indicating the resilience of the consumer tech sector. The increasing reliance on technology, especially with remote work arrangements, has contributed to JB Hi-Fi's market share gains and sustained performance against competitors.

Wesfarmers also delivered a strong sales update, emphasising the diversified nature of their business in navigating the softening consumer environment. Notably, Kmart and Bunnings have demonstrated resilience, with Bunnings further diversifying its business through the introduction of new product ranges. Wesfarmers' market dominance in various segments allows them a degree of pricing power, facilitating market share expansion during challenging times.

The quality of the businesses within our portfolio shines through even in tough times.

Volatility challenges for some companies

There were slightly disappointing updates from two companies: Computershare and Cleanaway.

Financial administration company Computershare's income generated from margin balances remained subdued, prompting market concerns about a potential trend. However, our discussions with the company provided reassurance that this was caused more by typical volatility in the space rather than structural in nature.

Waste management services company Cleanaway faced significant earnings pressure in their previous financial results due to a one-off operational issue. The company's reliance on a large workforce, coupled with a tight labour market, presented challenges. However, Cleanaway's initiatives to attract new workers are starting to yield results, and the easing of labour market pressures through reopened immigration channels is a positive development. We maintain our confidence in our investment in the company.

Private health insurer Medibank also spoke about the impact of increasing immigration helping drive growth, with the influx of new workers meaning there will be more people in the economy needing to be insured. We were pleased with this focus on growth.

The post-COVID economic recovery is also having a positive impact on toll-road operator Transurban. Traffic volumes are continuing to return to pre-pandemic levels in most major cities, with Sydney and Brisbane mostly back to normal and Melbourne on track despite a lag.

Transurban has a really resilient business and is able to offset a lot of the inflation headwinds through solid increases in revenue. The company also has multiple growth projects on the horizon which will continue to drive revenue.

Short-term caution unveiling long-term opportunities

For a long-term investor like AMCIL, the current subdued and cautious short-term focus in the market presents opportunities.

We anticipate this environment to persist, with further declines in consumer sentiment as pressure mounts from rate rises.

While the broader equity market tends to prioritise short-term returns, we remain vigilant for opportunities where sound long-term growth prospects exist, particularly if the market starts to sell off in response to short-term concerns.

The Macquarie Conference provided valuable insights, reaffirming our commitment to navigating uncertainty and seeking long-term investment value for AMCIL.

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