In the middle of another COVID-19 shutdown and with most companies approaching full year earnings season, it’s important to take stock of what occurred in the previous few months. We have taken the opportunity to provide an update on some non-traditional Aussie blue-chips after the strongest quarterly for the market in decades.
Qube Holdings Ltd (ASX:QUB)
- As noted below, QUB announced they had secured Woolies to join target in their transformational Moorebank terminal. The agreement involves joint investments into full automated distribution warehouses connected to Port Botany via rail and a huge vote of confidence in the Amazonification strategy. QUB will likely see a $1 billion benefit as Woolies customers seek space nearby.
- Management announced a $500 million capital raising to help fund the required investment along with the capital expenditure on a number of key projects with BHP, Bluescope and Shell. The capital raising was priced at $1.95, with the current share price representing a great short-term profit.
BHP Billiton Ltd (ASX:BHP)
- BHP has been a key diversified during the COVID-19 crisis, as supply issues in the worst hit areas of Brazil have effectively underwritten BHP’s profits with iron ore reaching as high as $100 per tonne. This came despite some weaker than expected quarterly activities as oil production fell 10% and thermal call 13% due to weather related issues. BHP’s also benefitted from improving PMI’s in key commodity buyers in China.
- The mining sector has become a source of consistent dividends at a time when the traditional blue chips have deferred or cancelled dividends, however, worsening trade relationships with China a growing medium-term risk. The company continues to pivot into the commodities of the future, being higher grade ores, Copper and Nickel, with the former benefitting from the transition to lower carbon battery storage.
Orora Ltd (ASX:ORA)
- The defensiveness of ORA’s business model continued to pay off, with the company returning $600m to shareholders following the $1.2 billion sale of their Fibre packaging division. Rather than returning 100%, management elected to use a portion of funds to reduce their debt and prepare for acquisition opportunities post COVID.
- Despite being the Australian leader in wine bottle and aluminium can production, ORA is facing issues on its US expansion into the fragmented point of purchase and retail sector. This remains the key risk to the business but also the greatest growth opportunity if it delivers.
National Australia Bank Ltd (ASX:NAB)
- Delivered the strongest recovery of the major banks after reducing (by 60%) its dividend rather than deferring. Management also completed and oversubscribed capital raising, doubling the retail component to $1.25bn. MLC Wealth, which includes platforms, asset management and advice is official for sale with private equity including KKR potential buyers.
- Cash profit fell 24% to $2.47 billion for the half year, but increased bad debt provisions to $1.16 billion, 147% higher. ROE remains market leading at 9%, and the bank is better positioned than the other majors due to less reliance on residential mortgages at a time of huge repayment holidays.
AMP Ltd (ASX:AMP)
- The sale of AMP Life to Resolution Life for $2.5 billion was officially approved the NZ Regulators, pushing AMP to one of the top performers. With $1.2 billion earmarked for internal initiatives it is likely the dividend will be reinstated in the second half of 2020.
- Management confirmed the strength of the underlying businesses in their first quarter update, with the wealth management division managing $116 billion, a 13% fall primarily due to the COVID crash, and AMP Capital falling just shy of $200 billion under management, falling 5.3%. AMP offers the lowest cost super platform and is making huge investments into technology.
Telstra Corporation Ltd (ASX:TLS):
- No news was good news for Telstra, though the share price barely moved despite what is a strong backdrop for the business. Telstra’s core business of mobile networks, home broadband and NBN installations has been a key beneficiary of the work from home trend, yet the share price has not reflected this. The dividend remains sustainable at its current, albeit lower level.
- Several underappreciated aspects of TLS should benefit in 2020 and beyond. The Enterprise business, where Telstra is a leading provider of Microsoft’s Azure cloud systems in Australia, the Ventures Group, which includes Telstra investment into many start ups and the infrastructure unit which is an increasingly likely home for the NBN.