What are we seeing from reporting season in small caps so far?
In this video Scott speaks with Gary Rollo, portfolio manager of the Montgomery Small Companies Fund to provide an update on what we have seen from reporting season so far. It is early in the number of companies who have reported, but we can already see some key themes coming from the consumer sector.
I’m Scott Phillips, Head of Distribution here at Montgomery, and today I have a guest, Gary Rollo, Portfolio Manager for Montgomery Small Companies Fund.
As we know, smaller companies cover the whole Australian economy with the types of companies that are listed on the ASX. For an early take in terms of reporting season, Gary, what have you seen so far?
Thanks, Scott. We’ve had about 10 per cent of companies report so far so it is early, but we can already see some key messages coming out of the consumer sector, and the big message for us is those companies in the consumer sector that have operations overseas, they seem to be reporting pretty decent outcomes and outlooks that are a bit more solid, whereas those that are domestic facing, and we’ve seen some of our better companies report, like Nick Scali for instance, they’re reporting slowdowns now in the front end of their business. Temple & Webster today, slowdown in the front of its business, and the market doesn’t like slowdowns.
As you know, the Reserve Bank of Australia also gave us that interest rate rise at the beginning of last week, and that’s going to take, we think, rates into restrictive territory, so there is a probable slowdown coming in consumption, and stock markets don’t like that.
Yeah, absolutely they don’t. Has anything being sold off a lot?
Well, Nick Scali, quality retailer, expectations were running, I guess, positively going into the result. But the stock is off 20 per cent. Temple & Webster today, stock is off, last time I looked, 20 per cent, so the moves are volatile when these companies report, and unfortunately the CEOs are having to call it as they see it, which is, as we should all expect, the economy is cooling.
Supply chain issues were a big concern in 2022. Have they fed through the system and are there any issues with supply chains for these companies?
Supply chains have been a negative over the last couple of years, but some of the positives are now starting to arrive. I’ll give an example. Audinate is one of the companies in our portfolio, they have a big backlog as a result of not being able to satisfy demand because they couldn’t get semiconductors. Those semiconductors, or the supply of them, are starting to free up, and as it frees up they’re able to satisfy that demand and growth is accelerating, so they posted a set of numbers yesterday, really solid, good profit beat and a good outlook as more supply comes on.
Domestically in Australia we’re also seeing companies that are able to lift prices and pass on some of those costs. I think Boral would be a callout, although that’s a business that’s been looking for a good management team to run it for a while now and we’ve seen already some initiatives of that management team in terms of pulling the levers and getting the profits up now.
And Gary, we’ve got exposure to Boral through Seven Group Holdings, is that right?
That’s right. Seven Group Holdings own about 72 per cent, thereabouts, of Boral and they’ve been instrumental in bringing the new management team to the group, so yes that’s in the portfolio.
Okay, look, that’s just a quick take in terms of what Gary is seeing in reporting season so far. We will come back mid-reporting season and have a further look at what other companies have reported and try and get a feel of the pulse of the Australian economy and the companies results.
The Montgomery Funds own shares in Audinate and Seven Group Holdings. This video was prepared 14 February 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade these compani you should seek financial advice.