Latest / ausbiz a.m / 03.09.26 with Jason Yin, Lincoln Indicators
Transcript
- Andrew: Good morning and welcome to your morning wrap from Osbiz. It is Thursday, September the third, and we're expecting the local market to snap its recent negative run. ASEX futures are pointing up around a third of a percent. In a moment, we'll preview the day ahead with Jason Yin. First, though, a quick wrap of where global markets finished overnight. U.S. private payrolls, they came in soft, ADP showing 38,000 jobs added in August. That was below estimates. Treasury yields steadied on Wall Street. The SP and Dow both finishing around half a percent higher, the Nasdaq close to a quarter percent, and tech helped the gains there. Nvidia rising more than three percent, Dell up some 15% after releasing a strong forecast, while Broadcom fell some 3% after its fourth quarter forecast missed estimates. Among the commodities, Brent crude up 1% to above $95 a barrel, gold regained some of its previous session's losses to be at around $4,390 an ounce. Bitcoin remains around seventy seven thousand US and the Aussie it's risen to seventy one point seven US cents. Well joining us now to get across the markets is Jason Yin from Lincoln Indicators. Jason, good morning. Jason Yin: Morning, Andrew. Thanks for having me. Andrew: So what did you make of that session? Things have quietened down a little. Obviously the the big concern at the moment is just where those treasury are going. Jason Yin: Yeah, definitely. Look, it's it almost seems like Groundhog Day every day. You you wake up, you read the news. One day we're we're talking about escalation. The next day we're talking about de-escalation. Energy prices go up, energy prices come down. It's very difficult to to trade every geopolitical to headline and and I think you can drive yourself a little bit crazy by doing so. So rather than that, we are really focusing in instead of focusing on on the daily noise, I guess in a way we're trying to identify some of the biggest signals underneath and and that has been, as you mentioned, bonds, gold and and also energy. Andrew: Well let's then turn to the local market. As I mentioned, has been under pressure this week. W what are you putting that down to? Certainly a bit of a a hangover, I guess, from from reporting season, which goodness, I mean look at some of those moves we saw during reporter season, some really volatile reactions to to reports. Jason Yin: Yeah, it's it it has the the the pendulum has swung quite heavily on on on either side. I mean, if you had a a pretty just even a okay result like what we saw with CSL, which we'll talk about a little bit later down as well, that had a a a really good increase on on the back of what we think was still relatively mediocre results. And then you have other companies that upset just slightly below where consensus expectation is, and then share price gets absolutely pummeled. but on the whole it was a relatively Positive season for us. Gold stocks did really well in terms of production. Energy was pretty solid. and and it's pretty solid across the whole commodities space as well. The only thing that did, I guess in a way rear its some of its ugly head was around in in the REIT space, particularly with the collapse of a few childcare center operators related to Arena. And also we had one of Sydney's largest builders collapse, and and that has or in a way cascade into some of the ramifications that that we are seeing with with Pinnacle. So those are are some of the the watch points that that we will keep a pretty close eye on, I guess, post reporting season. Andrew: Yeah, you you refer to the Bathler collapse there in New South Wales, which is making Jason Yin: Correct, yep. Andrew: headlines every day. And more than forty plus private credit firms actually have exposure to to that particular company. well let's Jason Yin: Mm-hmm. Andrew: then take a bit of a deeper dive into what we saw out of reporting season. Jason, you mentioned C SL. That that is proved to be one of the most contentious stocks, certainly here at Osbiz when we do it on the on the call a variety of opinions. You take a look, obviously that's part of that healthcare basket which has really suffered over the past year. Yet you take a look at CSL over the past month, it is up some 40%. It really has bounced back. What why is that? What have investors seen off particularly off the back of its results? Jason Yin: Yeah, look, it's it's been very, very topical and and I'm sure it's been very well covered by by many analysts and and also market commentators. So rather than just go through the numbers again, I I think it's pretty it'll probably be a more interesting discussion on how we actually approach the the risk reward equation when when everything was was being sold off. So the key question for us after the the May downgrade wasn't really whether CSL had problems. I mean, clearly the company did. VIFOR remains challenged, Secure has had its own issues. There's also been a bit of management churn as well. but the key question heading into reporting season was: did those problems justify a share price in the $90 to $100 level? And our conclusion at that point in time was no, not really. but in assessing that, rather than going asking what what we needed to what needed to go right for the share price to to rebound. We sort of borrowed a page from Charlie Munger and inverted the question and effectively asked, well, what would actually have to go wrong to justify evaluation at these low levels? I mean, at that price, we felt the market was effectively assuming that several parts of the business would actually deteriorate at the same time, including that core plasma franchise. And we just didn't think the business was that structurally broken. Andrew: So, what are you doing with it? Jason Yin: Well, we were overweight heading into reporting season, but after the strong move post reporting season, we've started to to take some profits off the the table. I mean, it it that doesn't suggest that CSL can't go any higher. Momentum can definitely take the shares back towards the the two hundred level, particularly if the CSO if the CEO transition is a lot more well received. And if we see d further data points to suggest the plasma business is heading into the right direction. So but the the risk reward equation now at around a hundred and seventy or so plus plus is a lot different to to the hundred dollar level. So I I guess in a way, investing isn't really predicting the future that perfectly because nobody can do that. as investors, we really need to recognize when expectations have become a little bit too unrealistic and take advantage of any opportunities that swing either way. Andrew: Let's let's turn to another stock. I see you've got on your list is Objective Corporation. That's IT Jason Yin: Mm-hmm. Andrew: software and and services. You've got a contrarian view on this one. It has been under tremendous pressure, of course, over the past year. What are you seeing with this? Jason Yin: Yeah, we we we think the the case with Objective is is pretty similar to to what we saw with CSL before its recovery. Sentiment in the stock became extremely weak after the company announced in July that it lost a 20-year contract with the Australian Defense Department. And the share price fell quite substantially on the back of that announcement. But after speaking to management, our understanding was that it wasn't simply a case of Objective losing out to a competitor as usually. is what happens in in in instances like this. pricing and also government budget constraints appear to to play a pretty important role in that contract loss and and that gave us the confidence to maintain our exposure heading into the FI twenty six result. Now the unfortunate part was that management provided a a pretty bleak FI twenty seven guidance which looked very weak against the the headline consensus numbers. But when you look at the the VA data sets, We could see that a lot of the the broken numbers that were published were were relatively stale. So they weren't really updated post that July result. And and we thought that it didn't fully reflect some of the the defense contract loss and and some of the other changes that that have taken place. So the market was effectively comparing fresh guidance with with stale expectations. Andrew: Jason, let's let's turn to the the AI infrastructure build-out here. In fact, I'm just I'm looking at a story in the FIN today talking about junior electricians pulling up pulling in as much as two hundred thousand dollars a year in income. Such is the demand for Sparkies, with the data center demand. How are you playing this one? Jason Yin: Yeah, S SKS is probably our preferred way of of gaining exposure to to the AI and and data send out build out thematic. sure, you'll probably read a lot of instances where one Spark is earning X and and someone else is is earning Y. but but on the whole, if you try to assess the space, it's it's been a a very I mean, labor constraint has been the the bottleneck in in in that industry. So so rather than than pick out which chipmaker, you know, whether it's Nvidia or which frontier AI model is going to be better, we would rather position our investments into the companies providing that the picks and shovels, So d data centers require a a lot of energy and and that's why Sparky's has been in in pretty high demand. There's there's a lot of installation capability and and skilled labor is definitely required. but I it just talk talking to a number of people across the industry, the the biggest constraint right now is is labor and also execution. So with all the the hyperscalers building out new new infrastructure, that it's just not there's simply not enough qualified contractors and and skilled labors out there here in Australia to deliver on these projects on time and and and on budget. And what that means is major customers are actually speaking to a lot of these contractors probably six months, even a year in advance to s to secure that contract capacity before construction begins. And and we think that gives a company like SKS a pretty strong visibility in terms of that pipeline moving forward and and investors normally don't really associate high profitability with traditional contractors, which we think is a a a key advantage here and and that's why we think SKS is is sitting in a pretty attractive part of the of the value chain right now. Andrew: All right, and just rounding out, you I see you've also got Brambles on your list for consideration. It is also the the palette maker there has been under some pressure. Do you see a turnaround at all? Jason Yin: Yeah, look, Brambles remains a a pretty qu quality business in in in our point of view, but the valuation suggests there's more downside risk to to where to where it is right now. We were underweight the stock heading into the FY twenty-six result because we thought the North American operational problems were a little bit more persistent than what management was suggesting. I mean the key part of of the whole problem has been repair capacity for those wooden pallets. management has flagged a number of times that it's been pretty hard to find labor in the US and and that's probably a result of pretty restrictive migration policies over there as well. If you read the the anecdotal news on on all the ICE agents raiding certain industries and and so forth, that doesn't really bode well in terms of of labor supply and and and labor capacity. and and if labor capacity doesn't recover, then Thinking was this is probably not going to be a one-quarter or a two-quarter fix. It's probably something that's is going to extend into FY27 and could really weigh on earnings expectations moving into the financial year. And that's how we positioned the stock heading into the into the results. Now, the share price reaction on the day of the result was really muted. the stock is still. materially trading above its its lows that that it reached earlier in in the downgrade. And that makes us think that the market may understand the Bramble's problem, but is probably not fully can but we're not fully convinced he understands the duration it requires to to to really fix it. So un until we get a a better data point around that repair capacity and and cost normalization, we remain pretty cautious in the stock and and and underweight. Andrew: Jason, terrific to get a deeper dive into well, four step stocks that are on your list at the moment. Thanks for that analysis. enjoy your your day ahead and we'll catch up again soon. Jason Yin: Pleasure, Andrew. Thank you. Andrew: And that is your Osbys morning wrap. Hope you have a great day. I'm Andrew Gagan. Thanks for listening.