Latest / ausbiz a.m / 12.10.26 Grady Wulff, Bell Direct
Transcript
- Juliette Saly: Good morning, I'm Juliet Sarley. Well, futures are pointing to a positive start for the Aussie share market with ASX 200 futures up 0.4 of 1% or 37 points as optimism builds around a strong US corporate earnings season. On Friday, the SP 500 rose 0.6 of 1%, closing near record highs, but rising bond yields and oil prices still a big concern. And Brent Crude back near $105 US dollars a barrel. Markets increasingly pricing in further rate heights from both the Fed and the RBA. And of course, attention will turn to the fallout from Firmus Technologies Failed Float, raising questions about appetite for major listings and whether enthusiasm for AI is starting to cool. Let's get a deep dive now and join Grady Wolf from Bell Direct. Good morning, Grady. Great to have you with me. Grady Wulff: Good morning Juliet. Happy Monday. Juliette Saly: Happy Monday indeed. Not so happy for Fermo's technologies though. Just talk us through what happened there. Grady Wulff: Yeah, it was not what we wanted to see and I know I know not what Fermist wanted to see. Now, obviously in this time in the market it's a really tough time to even consider IPOing. Because investors just want some certainty. They want to see this close runway to earnings potential, especially for a tech or a data center company in this AI bubble that we're seeing. And Fermis could not deliver on that. So a massive market valuation. Roughly 95 to 97% of Fermis's promised data center capacity remains unbuilt. In a time of high inflation, high cost, you're not wanting to see that their data centers are unbuilt. Their total plan CapEx is at the program is about 35%. Point seven billion US dollars to build out that full pipeline. And the debt is projected at 30 billion, but earnings is only projected to be 5 billion within five years. So put all of that together, and investors were not happy to see that. And in this time, you just want to see certainty, as I mentioned. It's a risk averse environment right now. Investors are looking for, like they, whilst they are looking for exposure to AI, they're wanting the safest option of exposure to AI, not a debt center, like not a data center company. That hasn't got any data centers made yet. So it really was a perfect storm, and I'm not surprised that it was unfortunately a fail. Highly valued, but they did say that they, I think they're going to try and list on the NASDAQ at the end of Juliette Saly: Mm-hmm. Grady Wulff: the year. So that's kind of a watch and wait for me just to see how successful or unsuccessful they go there. But I think in this day and age, you can't really be promising something with a huge amount of debt because investors will be very quick to avoid that. Juliette Saly: Yeah, and as you talked about potentially a Nasdaq listing, let's talk about the US then because this Grady Wulff: Yeah. Juliette Saly: AI thematic driving US stocks still to fresh records. Grady Wulff: Yeah, fresh records last week in it, despite a volatile week, obviously we had a bit of a pullback early in the week and then closing higher later in the week. And AI optimism remains really supported over there because the outlook and sustainability of AI investment kind of looks towards this investor, like it does in Australia we have this kind of perfect storm and stress at the moment where there's not enough earnings potential and earnings potential growth coming for these AI companies. But in the US, we are seeing material earnings coming through. So NVIDIA continues to grow their earnings month on month, or sorry, quarter on quarter, year on year. And that's what investors are really liking at the moment. So we are expecting really strong earnings growth for the Q3 S P five hundred earnings growth forecast is expected above thirty percent year on year. So those are huge numbers that we're seeing. They're more than way more than double digit. And so I think at the moment you've got Whilst US ele US treasury years remain elevated, the 10 years around 5.24%. So having broken through that psychological 5% level, investors are still looking at the potential for equities over there, the strength of equities over there, and it really is kind of the number one market of cap of markets around the world. Juliette Saly: Well let's look at the week ahead, apart from Fermos. What events do you think are gonna move markets? Grady Wulff: Yeah, I think there's a lot of on the cal the economic calendar front this week. We've got I think there's key earnings of key results out of China. there's k sorry there yeah, there's key results out of China, there's manufacturing data out. We have the banks, the higher rates, we'll be watching the rates again. We've got unemployment data in Australia, which will be key for credit quality coming out in Australia and just to see what the outlook is there, any headwinds that we see there. we've got the RBA meeting. It's out tomorrow as well, which will be important because as we know, whilst they do deliver a speech on the day, it'd be interesting to see with a fine fine line through each of the lines that they come out in that meeting minutes exactly what we're looking for. we've got Glencore listing on Tuesday. So again, we'll see how that goes on the local market following the failed Fermos IPO. And Australian, as I said, September employment data will be interesting. obviously it was at 4.6%, so we want to see whether it has come down or whether it's gone back up and US CPI and bank earnings. So the bank earnings are a big one just to see how the resilience of the US big banks over there and how they're kind of what their outlook is on higher bond yields in this current environment. Juliette Saly: Yeah, a lot to digest once again and hard to believe we're what in the third week of October as well. what about it is Grady Wulff: Yeah. It's insane. Juliette Saly: insane. Any any stocks on your radar? I mean, we're still watching everything closely with all the conflicts around the world. I understand you're looking Grady Wulff: Yeah. Juliette Saly: at a defence stock. Grady Wulff: Yeah, EOS at the moment we're very bullish on. the company continues to go from strength to strength, and you've got first half revenue surging two hundred and eighty-three percent in the F FY twenty-six, and that was to one hundred and sixty-nine million, and that beat expectations. We've got upgraded guidance for the calendar year this year of earnings or revenue between three hundred and sixty to four hundred million, well above consensus of three hundred and twenty million. They've got this really strong, significant contract upside. So they're not just a single operator. In One jurisdiction. They've got potential Middle East contracts worth $140 to $700 million. They've got these opportunities in MAR S opportunities. They've got further potential upgrades. They've got five major contracts in the pipeline. They've got structural tailwinds at the moment, rising global defense spend. We've seen global defense spend really accelerate again this year, which is obviously scary, but it's good for companies like this. So a near-term catalyst, we expect about three to twelve. a lot of contract wins over the next three to twelve months and that kind of supports valuation upside. So a company like this, they don't just sign one year deals, they've got five to ten year deals coming through. So that really kind of supports their structural earnings growth and a structural upside for a company like EOS. So yeah that's kind of our pick of the bunch in the defense sector right now because as we know they've got substantial contracts into their pipeline that have been signed the despite elevated costs we've just got the earnings potential coming through. So we really like the outlook for EOS at the moment. Juliette Saly: Any other stocks on your radar, Grady? Grady Wulff: Yeah, ALS. So EOS and ALS this Juliette Saly: Yeah. Grady Wulff: morning. So ALS provides obviously the testing, inspection, certification services for laboratory, so testing of mining, minerals, environmental, and food industry. So quite a lot of industries over there, and they've got diversification of earnings across those industries. But mining activity is really booming right now. We've got all of these companies that are exploring for further growth of their assets, not only in Australia but around the world. But ALS obviously targets Australia. And you've got like all of these copper miners, so we know that copper miners are really aggressively exploring further out from their current their current reserves underground and their ores underground because there's not enough copper in the world. So with such high activity of exploration going on, we've got all of these assays needing to be tested to see the grades, the qualities coming through, and ALS is the company that does this. So, with that in mind, they benefit from the increased mineral exploration and laboratory services and testing. Testings. There is a slight risk that we've got some junior capital raisings declining and a weaker gold price. But again, you've got risk with any company out there. So the bottom line is that there is strong near term earnings momentum for a company like this, especially with what you're looking at increasing exploration activity in Australia, especially on the copper front. They're highly profitable. Underlying EBIT rose 19% in the last financial year, NPAP rose 24.4%. The free cash flow positive and generated 674 million. million dollars. So again, a company like this, if you're looking to get copper exposure, I always like to look at the di the diversified way of exposing yourself to that kind of activity and a de-risked way of getting that. And that's through ALS because their services will always be needed. Juliette Saly: All right, EOS and ALS. Grady Wolf from Bell Direct, thank you. Have a fabulous trading week ahead. And of course, everybody can catch experts like Grady on Osbiz. We'll be live from 9:45 AM Eastern this morning. And you can also try out Osbiz Plus free for seven days. Have a great trading day.