It is difficult to draw many broad conclusions from reporting season due to the wide dispersion and out of date market analyst expectations, the rapid development of the economic landscape and the government support measures, but it is possible to categorise companies into three broad buckets:
1)Companies that are benefitting from rent relief, government stimulus and a short term change of consumer behavior and spending habits (we have been selling exposures to these companies);
2)Companies that are experiencing increased but likely more sustained revenue growth (we are continuing to build positions in these companies);
3) Companies that have recorded lower profit growth now through being conservative in their provisioning but should benefit in future periods (we are maintaining sizeable positions in these companies).
Full report attached
Emma McCarthy recently joined Ethical Partners. Emma is a passionate final year law student and joins us as Sustainability and Advocacy Assistant. We are honoured to share with you her reflections on the recent UN Global Compact conference, and how it inspired her, as a new recruit to the global sustainability and human rights community, on her journey to fight for change.
It appears that the Australian economy will be asked to grow itself out of debt post COVID rather than experience an increase in taxes once the economy is more stable. So what are the long term projects that would change Australia for the better? It was quite timely indeed then that the Australian Energy Market Operator (AEMO) recently released its 2020 Integrated System Plan (ISP). It appears to us that AEMO has put down the framework for how Australia will operate with less coal fired electricity generation given we have an aging fleet which will be gradually de-commissioned over the next 20 years.The AEMO Plan is a whole of system blueprint for the evolution and change the electricity market will experience in the 20 years to 2040. It expects 63% of the current coal fired power stations to close by then based on company disclosures and end of life assumptions. Herein lies Australia's great stimulus opportunity.
The last quarter has been the best of times for unprofitable but growing companies and the worst of times for value managers and others trying to buy equities with any margin of safety. Speculative activity in markets has been driven by excess central bank liquidity and real yields moving to -100bps, pushing risk assets higher, the valuations of technology companies up to levels not seen before and gold to all-time highs at around $2,000 USD per ounce.
The 2020 Ethical Partners Engagement Report provides a useful summary of all areas of company engagement the team has undertaken over 2019/20. It provides details of the successes, the key issues as we see them moving forward, our voting record, provides company ESG engagement examples and lists the 20+ major collaborations in which we have been involved. As always we welcome questions and feedback.