CEO Insights - Week Ending Friday 7/10/16

CEO Insights - Week Ending Friday 7/10/16
By NAOS Asset Management

As part of the NAOS investment process, we pay particular attention to the comments made by company CEO’s 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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Television

“Television is not going anywhere. In fact it is going everywhere. And in this fragmenting audience landscape, television is becoming even more engaging, even more effective and far more valuable than ever before”

Tim Worner, CEO, Seven West Media

"The idea that on-demand has taken over [regular TV] viewing is just not right. Don't get me wrong, I'm not a denier of the change that we're experiencing. In fact, I'm a strong believer in the change we're experiencing. But, to think we need to give up on the core of our business which is live, linear television and shift to on-demand, I think a mistake we would follow if we just listened to the commentators”

Peter Tonagh, CEO, Foxtel

Australian Banks

"Put simply, banks are now earning less than they used to for every dollar they lend"

Andrew Thorburn, CEO, NAB

“It’s very dangerous for anyone to take a view that when things are going reasonably well, people should then start to regulate profitability, because I don’t want to be sitting here in a number of years’ time when cycles inevitably turn, wondering why banks are struggling because of regulation that was put in place when things were better”

Ian Narev, CEO, CBA

"We mistakenly allowed St George Bank to be taken over. We mistakenly allowed Bank West to be taken over so they're no longer putting competitive pressure on those big banks as they were before 2008”

Craig Kelly, Liberal Committee Member

“While some of the headwinds experienced over the past year may be one-off in nature, there are a number which will continue through 2017”

Jon Sutton, CEO, Bank of Queensland

“Low interest rates have contributed to house price growth but, together with higher rates of saving, households can pay off the principal on their mortgages more quickly, or to build up a buffer through loan offset and redraw facilities. [Moreover] macro prudential management, such as requiring banks to limit investor lending to 10 per cent annually and to tighten their lending requirements, supports sustainable lending in the housing market”

Scott Morrison, Australian Treasurer

“The gap between actual and sustainable debt in the household sector that opened up during the boom has not yet been closed. In particular, the accumulated gap in the household sector is large and has even grown further in a number of cases (notably Australia and Canada)”

Report By The International Monetary Fund (IMF)

Housing

“The rescinding [in Chinese buying houses] has eased off and we are replacing the buyers. We are selling 35-40 units a week and they are exchanging quickly and we have lifted prices in some blocks. I had dropped them earlier this year”
Harry Triguboff, CEO, Meriton

“I never hear people talking about possible housing bubbles outside of Sydney or Melbourne”

Andrew Thorburn, CEO, NAB

“The desire [of the Chinese] to buy a place in Australia and live here in Sydney is still strong”

Michael Pallier, MD, Sotheby International Realty

“[The Chinese] are not necessarily buying for a capital gain but because of the lifestyle offered here and the security that property in Australia brings”

Lu Lu Pallier, Principal, Sotheby International Realty

Domestic Economy

“Lending to small business is growing at 13-15 per cent each year. There is a transition happening in the economy ... and we want to be part of that”

Shayne Elliott, CEO, ANZ

“In Australia, the economy is continuing to grow at a moderate rate. The large decline in mining investment is being offset by growth in other areas, including residential construction, public demand and exports”

Phillip Lowe, Governor, RBA

Commodities

“The [mining services] market has bottomed and trade buyers understand the market has bottomed”

Brian Hodges, Former CEO, Bradken

“Global energy needs are arising, and by 2035, global population is expected to increase by 1.5 billion people on the planet, and GDP is expected to double... On the back of increasing populations, urbanization and improving standards of living, the world simply needs increasingly more reliable, low cost and clean energy”

Steve Pastor, President of Operations-Petroleum, BHP

“Even with expected advances in energy efficiency and renewable in particular, fossil fuels will supply four-fifths of the world's primary energy needs through 2035. Environmental, operational and economic advantages of natural gas enable it to be the fastest-growing fossil fuel, estimated to be about 2% compounded [annually]. With globally expanding transport in petrochemical sectors, oil demand is forecast to grow at about 1% per annum. Renewables are projected to grow quickly, no question, but they're clearly also starting from a very small base”

Steve Pastor, President of Operations-Petroleum, BHP

“If we are in a traditional bull cycle like the last seven — and I don’t think there is any reason to believe we are not — there is still likely a long way to go for gold equities’’

Jake Klein, Executive Chairman, Evolution Mining

“In the oil market, a shift in fundamentals is already underway. We all know that 2015 was a particularly difficult year for oil and gas producers as supply outpace demand by roughly 1.5 million barrels a day, causing commercial inventories to swell and prices to plummet. This year, however, fundamentals have already begun to shift. And while OPEC production is at record highs, we also see that they have limited spare capacity. Non-OPEC supply is on the decline due to the significant cutback in activity in the unprecedented deferral of capital. And that historic pullback in investment around the world has brought us closer to balance in 2016. But we still have a minor supply overhang this year relative to demand. However, in the short run, we expect continued healthy demand and limited supply growth. And on balance, we expect global inventories will start to decline in 2017.”

Steve Pastor, President of Operations-Petroleum, BHP

“In the long run, gas and LNG demand growth is reasonably strong. But heavy investment in LNG over the last decade, in particular, has led to excess supply that may take about a decade or so to balance out”

Steve Pastor, President of Operations-Petroleum, BHP

“We dosee more upside potential from oil than we do from gas, as gas resources are relatively abundant, easier to find and develop and, hence, have a flatter cost curve”

Steve Pastor, President of Operations-Petroleum, BHP

Global Economy

“The data released during the last month showed some moderation in economic activity late this summer. The [US] economy overall remains on steady footing with tracking estimates of third quarter GDP well above the 1.4% growth rate recorded in the second quarter. The household sector continues to lead the recovery supported by ongoing improvement in labour market condition. Interest rates remain low, while energy prices are showing signs of stabilization. These conditions are consistent with an outlook for steady U.S. economic growth in the coming quarters”

Emily Morris, Chief Economist, Ford

"If a bank represents a systemic threat to the euro zone, it can’t be because of low interest rates. It has to do with other reasons"

Mario Draghi, ECB, Chairman

“Some monetary policies, such as negative interest rates, are reaching the limits of their effectiveness, and the medium-term side effects of low rates are rising for banks and other financial institutions”

Report By The International Monetary Fund (IMF)

"It could be useful to be able to intervene directly in assets where the prices have a more direct link to spending decisions"

Janet Yellen, Chairman, Federal Reserve

“Overall, Ford's average transaction pricing in September increased by $1,100 versus a year ago. Our outlook for the remainder of the year remains unchanged as we continue to see strong retail and industry sales, but slightly lower compared to the record 2015 levels. Looking ahead to 2017, again we expect U.S. industry sales to remain strong, but at a lower level than last year”

Mark LaNeve, VP U.S. Marketing and Sales Service, Ford

Thank you for reading.

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About NAOS Asset Management

NAOS provides investors with niche product offerings in asset classes and sub sectors where they lack the time, resources or expertise to research and invest themselves. We adopt a high conviction, value driven, long/short approach to investing. Our investment approach looks to realise value over the long term by sourcing and combining investment opportunities that present the greatest opportunity to realise positive absolute returns in the form of capital growth and income generation over the long term.

NAOS Emerging Opportunities Company Limited's (ASX: NCC) objective is to provide investors with concentrated exposure to quality undervalued emerging companies, whilst maintaining a focus on long term capital protection.

NAOS Absolute Opportunities Company Limited's (ASX: NAC)  objective is to provide investors with exposure to quality undervalued mid-cap companies whilst having the ability to selectively short overvalued lower quality companies, this aims to minimise the risk of permanent capital loss and produce uncorrelated returns to general market movements over the long term.

In addition, the emerging opportunities strategy is available to sophisticated investors via a unit trust, The NAOS Emerging Opportunities Fund.

For all enquiries please contact enquiries@naos.com.au