CEO INSIGHTS – Week Ending 25 November 2022 By NAOS Asset Management

“People have now experienced the comfort of living in sweatpants, and they will not give that up. We don’t think they should have to” Calvin McDonald, CEO, Lululemon Athletica Inc

As part of the NAOS investment process, we pay particular attention to the comments made by company CEOs and business leaders in order to gain a greater understanding of the current investment environment and key trends that may be emerging. Below are quotes from the week which in our view detail some of the most important and prominent industry trends and economic factors impacting their businesses.  

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Retail

“I mean the good news is the consumer, the customer at Foot Locker is showing great resilience” Mary Dillon, CEO, Foot Locker Inc

“I don’t think there’s any doubt as retailers we will be affected [by macroeconomic conditions], it’s just as a matter of some sectors more than others” Gerry Harvey, Executive Chairman, Harvey Norman Ltd

Consumer Behaviour

“People have now experienced the comfort of living in sweatpants, and they will not give that up. We don’t think they should have to” Calvin McDonald, CEO, Lululemon Athletica Inc

Technology & Consumer Electronics

“Technology demand over the past few years has resulted in a larger installed base, and customers will want and need to replace and upgrade their tech devices, particularly as we near the three-year mark since the start of the pandemic” Corie Sue Barry, CEO, Best Buy Co Inc

Commodities & Resources

“The Australian iron ore industry is expected to remain buoyant with capital and operating expenditures required to sustain and maximise production levels driving demand for our services. High global demand for battery metals is driving significant investment in lithium, copper, nickel and rare earths, and these markets, along with the gold sector, will present ongoing opportunities” Zoran Bebic, CEO, Monadelphous Group Ltd

Housing Market

"Industry listing volumes down 15-20% on prior year" Market Announcement, McGrath Limited

Energy

“The gas we use to fire the bricks in our kilns cannot be easily substituted for alternative renewable energy sources. As such, ready access to reliable and affordable gas is essential for our industry." Robert Millner, Chairman, Brickworks Ltd

“There are 24 ZEV [zero emission vehicles] models available in Australia supplied by 17 OEMs, compared to 130 models in the UK” Market Statement, Bapcor Ltd

“Delivering the energy transition, given the scale of investment required, will undoubtedly create upwards pressure on energy bills" Frank Calabria, CEO, Origin Energy

Rail & Logistics

“When I look at the scale of Australia versus the UK, and bear in mind I’m including Ireland, [the UK] goes into Queensland 6½ times. I think there is a bigger case for high-speed rail in Australia. It is just amazing, the ease at which you can travel, and it is more environmentally friendly.” Ray O’Rourke, CEO, Laing O’Rourke

Valuations & Market Conditions

“Banks used to look at something and say, ‘OK, I’ll lend you five times EBITDA [earnings before interest, taxes, depreciation and amortisation]. That same exact deal might be three times EBITDA today.” Ken Moelis, CEO, Moelis & Company

Building & Construction Market

“Whilst the start of FY23 has been positive, once the existing pipeline of work is completed, a period of softer demand is expected, with tightening monetary policy set to act as a handbrake on the housing industry in the medium term. In Australia, this is increasingly evident in declining building approvals data and builders reporting reduced sales activity and display home foot traffic.” Lindsay Partridge, MD, Brickworks Ltd

“Domestic despatches in Australia and New Zealand have been lower than anticipated due to high channel inventories, particularly in the distribution segment, combined with customer hesitancy driven by falling regional prices” Mark Vassella, CEO, BlueScope Ltd

Social Media & Advertising

“How do you make a small fortune in social media? Start out with a large one.” Elon Musk, CEO, Twitter Inc

Food & Beverage

“All dining rooms remain open and have been met with increased demand" Timothy Mullany, CFO, Jack in the Box Inc [large US fast food chain]

“The fundamental drivers of the almond macro and our business remain strong. The demand for almonds, including raw almonds and value-added almond products, continues to increase globally" Paul Thompson, CEO, Select Harvest Ltd

Industrials & Manufacturing

“So, in terms of labour availability, I would say that it's starting to ease a little. We would expect it to ease further into next year” Stephen Harris, CEO, Bodycote plc [major global industrial heating business]

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Important information: This material has been prepared by NAOS Asset Management Limited (ABN 23 107 624 126, AFSL 273529) (NAOS) for general information purposes only and must not be construed as investment advice. It does not constitute an offer to purchase any security or financial product or service referred to herein. It does not take into account the investment objectives, financial situation or needs of any particular investor. Before making an investment decision, investors should consider obtaining professional investment advice that is tailored to their specific circumstances. Certain economic, market or company information contained in this material may have been obtained from published sources prepared by third parties. Nothing contained herein should be construed as granting by implication or otherwise, any license or right to use such third party content without the written permission of the owner.