00:00Let's get to Julia Lee, Investment Director at Shoran Partners Asset Management, joining me right here in Sydney.
00:05Julia, welcome.
00:06Great to be here, Tom.
00:07I want to pick up on what Heidi was saying there about BHP and the least number of buy ratings.
00:13I mean, copper, a great story for them today, but is it as great as it could have been?
00:18I think, first of all, we have to applaud the results today.
00:21It's on the back of very strong operational performance, together with rising prices and that dividend.
00:26You know, the market was expecting to see 83 U.S. cents coming in at 99 U.S. cents.
00:32I still remember, you know, when BHP was a growth stock reinvesting a lot of its profits into its business.
00:37And as the business has matured, you've really seen that very strong cash generation coming through.
00:43So as an income investor in the Australian market, you know, it's very hard to dismiss those type of returns
00:49coming through.
00:49But you're absolutely right on the growth picture when you're looking sort of five to seven years out.
00:54Well, where's the growth going to come from?
00:56We know with iron ore that we've seen a declining picture there.
01:00Copper's fantastic, but M&A is very difficult.
01:03So how do you grow the copper business from here?
01:05And potash is very long dated, so you're looking a lot further out.
01:10So I guess a big question for BHP is, you know, it's running at full steam at the moment.
01:15It's generating these great results.
01:17But the next leg of investment and the next leg of growth.
01:20It takes a long time to bring a copper mine online.
01:23So M&A the only option.
01:25What are you expecting to see in that space in the coming months?
01:29I mean, copper's a strange one.
01:30We have seen copper prices at these very high levels.
01:33And a lot of that is trying to get in before some of the tariff, potential tariff actions.
01:39But copper can also be substituted for aluminium.
01:41So do we start to see a substitution effect coming through?
01:45And are you bringing sort of future demand into the present?
01:48And then do you see a pullback a little bit later on?
01:52So, yes, copper is great because of the AI, the growing of the data centre story as well.
01:58But in terms of just copper, I think it's going to be a bit harder for BHP to gain more
02:04exposure.
02:04But for both BHP and Rio Tinto, very strong copper, making more than half of their earnings now from copper.
02:10When you look at the copper space, is there any miner that you favour in particular?
02:14And I mean, we mentioned BHP, Rio Tinto, but Fortescue Metals finally has diversified into copper with an acquisition of
02:20its own.
02:21Very good timing.
02:22But which of those miners and the junior miners do you think are best placed to take advantage of this
02:26boom?
02:26Yeah, I think when we look at our portfolios, we're most highly exposed to BHP Billiton in that space.
02:32We've got very little Fortescue exposure.
02:34But of course, you know, the copper story is fantastic for now, but still looking for that extra leg of
02:40growth.
02:41And one of the areas that we have like is the lithium space where we have been adding stocks like
02:46Pilbara Minerals,
02:47where, you know, lithium was another area where we saw very strong demand coming through,
02:52a very strong supply response, and then prices collapsing.
02:56But just over the last few months, we've really seen prices coming back,
03:00and we still think that story has a bit to run.
03:02So diversifying into other areas because we know copper's had a very strong run
03:06and looking at things like lithium and uranium as well.
03:09We do need to talk about CSL as well, because today's price bump has been quite spectacular.
03:15I think we're above 17% now.
03:17Revenue was a narrow beat.
03:19It made a huge loss, $2.5 billion.
03:21But looking forward for CSL, what do you see in that stock's future?
03:26Would you be a buyer of it?
03:27I mean, we have been adding CSL.
03:30The big question for investors is not to what has happened, but is most of the bad news behind us?
03:35Have we seen a peak in terms of the bad news coming through?
03:38And I think these results show that, yes, there is some still, you know, on the headline numbers because of
03:44the write-downs.
03:44We are seeing some bad news.
03:47But in some of the key underlying areas, we've seen stabilisation.
03:51I think the reason for the pop in the share price today, though, is its outlook.
03:56The market had been forecasting no growth, and it looks like the market believes what the company is saying,
04:01which is forecasting 5% growth now.
04:03So great to see CSL having a strong run.
04:07We're overweighting the portfolio given the depressed valuations that it's been at.
04:11And it's been a pretty bumpy ride for healthcare stocks.
04:14I mean, we've seen CSL as well as Cochlear up about 30% over the last three months, but still
04:20down in the year to date.
04:21So that tells a big story on the volatility in the sector.
04:24Is there a story here as well about rotation out of AI, which Australia doesn't have a great deal of
04:30exposure to, into Australian healthcare stocks?
04:33We certainly have seen healthcare in focus.
04:37And I think the story with Australia has been very much that it is less expensive than the rest of
04:43the world.
04:43There is a value component to it.
04:45And you can see that in the M&A activity that's happening at the moment.
04:49We're seeing a lot of offshore companies hunting for companies here in Australia because of our lower valuations.
04:55We've seen CleanAway, Insignia.
04:57I mean, today we also saw equity trustees coming through.
05:00So a number of takeovers in M&A, and I think that's because of the value component.
05:05And healthcare has benefited from that rotation into some of those value areas.
05:09But if you want tech, I guess you're going to have to look at either the fixed income area, talk
05:14of that kangaroo bond coming through from Google, with exposure to the AI through the credit area.
05:20Otherwise, it's offshore markets that have that greater exposure.
05:23The Australian share market only has a 2% technology sector.
05:27That's compared to South Korea, where Samsung and SK Hynix make up 50% of their market.
05:33Well, if you want to hedge, I guess this is the place to come.
05:36Before we let you go, look, we're a fair chunk through Australian earnings season so far.
05:40What's your report card so far, and what are you looking out for in the next couple of weeks?
05:44We went into earnings season with very high expectations.
05:4812% growth was expected, and that's the highest growth rate that we've seen in around about four years.
05:53Typically, we expect earnings to be about 4% to 4.5% growth.
05:57And I think that's been reflected in the Australian share market, where we did see record highs being reached earlier
06:02on in the month.
06:03But as earnings season has continued, we've seen a bit of a loss of earnings momentum.
06:08Growth now expected at 11.7%, and that's not devastatingly low.
06:12It's still very high.
06:13But the fact is, we are starting to see a bit of moderation in terms of earnings momentum, and that's
06:19across 11 sectors.
06:20It's been worse in some, like consumer discretionary.
06:23We know that's been hit hard, but other sectors have started to shine.
06:27So healthcare, energy and the material space.
06:29All right, Julia, good stuff.
06:30Thanks so much for joining us.
06:31That's Julia Lee, Investment Director at Shaw & Partners Asset Management.
06:36And we have more in Australia ahead every Tuesday, 10.40 a.m.
06:39If you're watching in Sydney, that is 8.40 a.m. in Hong Kong.
06:43And you can hear more about the ASX later on today.
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