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Coronavirus pandemic has brought the global capital markets on their knees. Markets across the board have been on a free fall as coronavirus implications have logjammed the numerous countries across the globe, causing a precipitate demand and supply shock concurrently.
Corporate Australia had delivered the earnings season in February. Companies that upgraded guidance included JB Hi-Fi Limited (ASX:JBH), Dexus (ASX:DXS), Telstra Corporation (ASX:TLS) and Amcor PLC (ASX:AMC).
Companies that altered the guidance/outlook included APA Group (ASX:APA), Insurance Australia Group Limited (ASX:IAG), Vicinity Centres (ASX:VCX), Treasury Wine Estates Limited (ASX:TWE) and Beach Energy Limited (ASX:BPT).
Enormous amounts of wealth have been eroded since broad-based sell-offs have continued to till date, thereby adding to volatility. As such the volatility indicator of top 200 companies (S&P/ASX 200 VIX Index) in Australia has been on an upside run lately.
Figure: S&P/ASX 200 VIX Index’ YTD Move
Source: ASX
At the time of writing, the volatility indicator was at 51.75 points, having started the year at around 11 points. Since coronavirus and earnings season have dropped in at the same time – the volatility indicator has had a decent run.
Australian Dollar has been on a falling spree, owing to interest rates cut expectations, a weaker economic outlook, lower commodity prices (LNG, copper, iron ore and coal) and other reasons.
Recently, the Australian Dollar dropped to the lows of USD 0.59 (rounded figure) for an OZ dollar on 17 March 2020. On the same day, the RBA minutes were released, which notes that the lower interest rates would aid jobs, economic activity, cash flows of households and business via a lower exchange rate.
RBA notes that additional interest rate cuts, amid an upswing in the housing market, is likely to increase borrowings, but the risks arising out of heightened uncertainties outweigh the risks of additional borrowings. RBA board concluded that an extended period of lower interest rates could be expected, with additional easing in the monetary policy.
As we have discussed a little bit of interest rates, let’s shed some lights on what Mr Buffet has said about interest rates in his latest Annual Letter.
Australian interest rates are at historically lowest levels. And, it is important to note that last time RBA hiked the cash rate was back in November 2010. In 2010, the RBA increased the cash rate four times during the year to maintain its mandate of stable prices and lower unemployment.
Capex-light, low-debt, online & more than just a consumer business – Kogan.com Ltd (ASX:KGN).
Despite being a relatively young company with less than four years on the ASX bourse, Kogan.com has been generating a decent amount of cash and paying dividends. Such that, since listing, the company has paid over $32 million in fully franked dividends. It is, indeed, intriguing to note that Kogan.com raised $32 million (after-costs) via IPO in 2016.
Over the recent past, the business has been making entry to new verticals through partnerships, which seems satisfying, given that it is a less-capital intensive approach. It has launched internet, insurance, health, mobile, credit card, energy, cars etc.
The company’s gross profit composition is getting diversified, and with the launch of new verticals - expanding gross sales base – it is likely to get more diversified. Its 1HFY20 presentation shows that exclusive brands and marketplace contribute the highest to gross profits with 46% and 20.8% share, respectively.
It is quite visible that the company is extremely focused in the brand building - though it may not deliver instant gains in the near-term - but a successful brand building could have favourable implications for a business over a long period of time.
KGN’s 1HFY20 presentation also shows that average gross sales per customer had increased over the last twelve months, and repeat orders were on the rise as well – both indicating the brand’s position.
At the end of 1HFY20, the company was carrying cash of $34.1 million, and it had undrawn bank debt facility of $30 million.
On 19 March 2020, KGN was trading at $4.300, up by 1.896% (at AEDT 1:32 PM).
Domino's Pizza Enterprises Limited (ASX:DMP) is present in major developed markets – long term value could outweigh potential short-term disruptions.
Domino’s Pizza Enterprises operates pizza chains in ANZ, Belgium, France, Netherlands, Japan, Germany, Luxembourg & Denmark. In H120, the company clocked online sales of $1.1 billion, up by 18.8% or $175.5 million over the previous corresponding year.
In the same period, the QSR company recorded network sales of $1.58 billion, which increased by 10.6% or $151.3 million. Same store sales growth for the period was up 4.1%, and network store count was 2,596 stores.
DMP notes that sales had more than doubled and online sale had more than triple over the past five years. It says that online sales have been driving the sales growth, and European and Japanese operations performed adequately, delivering sales and profitability growth.
Recently, the company has provided an update on COVID-19. It was noted that the franchisee’s French stores are allowed to serve customers through delivery and carry-out. It is said that the company has the ability to move to 100% zero contact delivery in the near future.
DMP emphasised that its business model is predominantly carry out and delivery, rather a dine-out restaurant. And, it is believed that the stores are capable of adapting to rapidly changing conditions in the local markets.
On 19 March 2020, DMP was trading at $42.300, down by 12.567% (at AEDT 1:43 PM).
