Trent Primmer, our Director of Trading featured on ausbiz in an interview organised by Nadine Blayney, presenter and journalist discussing the reporting season themes this year!

We've made it again | The last call

The conversation delves into the impact of reporting season on the market and the benefits of investing long-term.

Watch the full video here.

This interview was arranged by Hans Lee, producer and journalist at ausbiz.

Barclay Pearce Capital team members are often featured by the media, sharing their insights on the market. Receive the latest market summaries and market-moving news, subscribe to Deal of the Week

Read the Conversation:

Nadine Blayney:

“ It was the miners today, the banks did well. Yeah, a bit of a mixed picture coming through in some other areas with CSL losing a bit of ground throughout the day today, but all things considered, nothing to complain about. Let's see if these guys have some complaints. Welcome Todd Warren from Tribeca Investment Partners, Trent Trimmer from Barclay Capital, and Alex Pikoulas from Harper Bernays. Cheers to the week that was.”

All: 

“Cheers to Friday.”

Nadine Blayney:

“Yeah, we didn't mention it and amongst all of that, there were a lot of quarterly reports coming out: production reports, Rio Tinto's results, was it a good week for you?” 

Todd Warren: 

“Yeah, well, Rio was an interesting one, right? That was probably the big one of the week, and actually probably was the biggest disappointment for many, because of their capital management was not what the market expected. Numbers themselves were actually okay but when you're making as much money as you are and you've got a net cash balance sheet paying out a 50% dividend yield, a bit *inaudible*.”

Nadine Blayney:

“No special divvy. Yeah. Look, we'll get into companies a little bit later, but I think that reminded me of Macquarie. So is that just Rio being cautious? Like Macquarie said, it's going to be going forward because of the whole macro environment?”

Alex Pikoulas:

“I mean, I think the macro environment's certainly uncertain at the moment and we're seeing macro data, you know, roll off a cliff and that's why we've seen interest rates, you know, 10 year bond yields have gone from, in Australia, what was it, 3.7 or so percent a month ago to 3 today. So there, there's been a big change in the market environment over the last month or two, I would argue. You know, economic data in the US has been disappointing since May. So, interest rates coming off has sent a bunch of short squeezes happening in some of that unprofitable tech space in the last couple of weeks. So the macro moves in the last couple of weeks are really, really big.”

Andrew Geoghegan: 

“Yeah. Trent, I mean we were just talking about 6% up for the month on the local index. Is that sustainable? What investors have markets got ahead of themselves?” 

Trent Primmer: 

“That's a million dollar question. Yeah. Well, I mean, like Alex said, it's difficult to navigate and I think like these times we haven't seen anything like this. You know, all the geopolitical tensions, the incredible amount of inflation, you know, supply chain issues, Covid, which is arguably, you could class it as a natural disaster that's squeezing economies globally. So I suppose when markets rebound, and particularly starting with tech heavy names that are obviously more volatile, the NASDAQ index I think bounced full odd percent. It's easy to put the optimistic hat on and start investing in some of these names, but I'd be cautious. I still think there's more downside to come and inflation really hasn't reached its peak. You ideally wanna see more movements from the RBA to start increasing those rates probably another 75 basis points, I'd say to sort of combat that high inflation. But I mean, look, they were pretty late to the parties originally.”

Alex Pikoulas:

“So it's an interesting one though, right, because the, you know, *inaudible* data out locally this week. We've had the Fed this week, *inaudible* data in the US actually, what was it, a week or two ago. And even though it surprised on the upside, the market didn't care because the market's sort of now looking at all the more immediate data, which is rolling over and saying, well, this backward looking inflation data, that's still pretty high. Not sure about it. Going forward, maybe we're gonna see it roll over at some point. You know, the Australian data that came out this week, it's quarterly to the end of June. What happened in April and May is a long, long time ago now.” 

Andrew Geoghegan: 

“Okay, so beyond that economic data, is that mean earning *inaudible* and is it going to be critical? So we're seeing that out of the states at the moment. The picture that is painting. What are you expecting? It's gonna really paint a picture here once we start getting more of those earnings coming through locally?”

Nadine Blayney: 

“But those are backward looking as well.”

Andrew Geoghegan: 

“Well hopefully, some guidance comes with it.”

Alex Pikoulas:

“Well, we'll look at MasterCard, what they're saying, what Bank of America's saying, what JP Morgan is saying. They're all saying, wow, the consumer's still great and the consumer's still spending, but the market's a forward-looking beast and the market is looking you know, housing rolling over in the US and thinking, okay, the consumer's still spending today, but are they going to be spending in in six months time? And there are big changes in thinking of what the market's starting to price in looking forward versus what we've just seen in the last, whether it's three months or six months. So, I think, you know, the proof will be in the pudding, but at the moment that the market's really starting to price. The economy's gonna slow here. You know, the US has just printed another negative GDP print. So technical recession, we can put that to one side, I don't think that matters that much, it's whether or not unemployment's going to go up and how much the consumer's gonna slow. But that's what the market is starting to think a lot about and starting to cross in.”

Nadine Blayney: 

“What's your view, Todd? Because I know you follow energy markets very, very closely. We've watched the price of gas in the states coming down. There's expectations that it will fall further. What's your view on the economy, the macro environment and how that's focusing your mind for investing?” 

Todd Warren: 

“Yeah. Well, certainly you've seen, I mean, that there's that fear that we get, you know, a recession playing out. What you're also seeing though, is the market telling you that they already are doing, they expect that to come. We've seen copper prices roll over. I mean, oil apparently is going to bear market at a hundred dollars a barrel. Go figure, but I think most of these companies that are producing oil will be pretty happy right now. Obviously there is a wild card in terms of the broader macro piece, certainly with regards to Russia, Ukraine, et cetera, but what we're sort of seeing in the resources patch is that the market's very much focused on demand and focusing very little on supply. And that's the bit that I think the market's missing. You know, we've seen constant disappointment on the supply. And indeed, you know, looking out over the next 12 months. Coming back to Andrew's question about guidance, we've seen half a million tons just from a handful of companies in the copper market supply come out. That would take out, you know, pretty much your bear case with regards to demand destruction. So what's priced in, you know, in a fear trade, we don’t know, how do you price fear? But there's still, there's a considerable amount of fear that's already priced. And I mean, oil, copper, you know, obviously different, different supply demand scenarios. But broadly speaking, we think, you know, they're all marketed a hundred dollars a barrel still feels pretty good. And the market's got its hopes way too high on supply.” 

Alex Pikoulas: 

“Can I ask, I mean, you know, people refer to copper as Dr. Copper from an economic perspective. Being the materials expert, the copper price is elevated on a longer term view, but it's come off a reasonable amount. Do these levels reflect an assumption that the economy's gonna slow a lot, or do you think there's still downside in copper?”

Todd Warren:  

“Well, I think there is a significant reflection already here. I mean, and so the point is, you know, we've had copper trade above $4 a pound now for a couple of years. And the bears will point to about a million tons of supply coming from new mines that'll be commissioned in the next 18 months. But the problem is if we want to go down the path of decarbonization, we are gonna need an absolute truckload more copper that we haven't even started to contemplate in terms of new mines being built. So if these mines weren't being commissioned or committed to; at $4 copper, they're not gonna be committed to a $3 copper. So, you know, and to be fair, the capital markets have told these mining companies, whatever you do, don't put it in, don't put your money in the ground, you know, so pay a dividend, buy back your stock, pay it down your debt, which just comes back to the point of about Rio Tinto which was the disappointment, right?”

Trent Primmer:

“It’s incredible as well. Not a lot of people understand how much of that material is actually used in some of this emerging, you know, renewable energy, thematic, all this new technology. Like even in your electric vehicles, it's something like 40 kilos of copper wiring in the average vehicle.”

Todd Warren: 

“Four times as much as an ICE, right?” 

Trent Primmer: 

“Yeah, exactly. Internal combustion. Yeah, it's crazy. So yeah, I don't think the market's caught up in our *inaudible*.”

Alex Pikoulas:

“Cause we've been dazzled by lithium, we should actually be focusing on copper.”

Nadine Blayney: 

“Do you think copper names, I mean, if you don't wanna get stuck specific, are copper names generally cheap?”

Trent Primmer:

“I'd say so obviously on the small cap end, like a lot of money's been wiped outta that small cap market. You know, you got some of the companies which are probably a bit disappointing. Now you've got the recent due TSX listed Hot Chili, with its Chilean operations, and I think they're 250 million tons or something away from a tier one resource. But they've halved in value, they're still cheap.”

Nadine Blayney:

“I heard from Oz Minerals, didn't we this week? Yeah, that was this week. It's all a bit of a blur sometimes on a Friday.” 

Todd Warren: 

“Yeah. It was earlier this week. So, I mean, you know, that's another supply disappointment potentially. You know, they're big growth project is obviously *inaudible* they're coming up to nameplate and their growth project West *inaudie*, they'll probably delay that just on the basis of their balance sheet.” 

Andrew Geoghegan:

“So just in terms of production, obviously all these miners are struggling at the moment. Obviously labor costs, those costs are rising in general, and we've seen that particularly with the gold miners as well. So is that playing out and you're gonna continue to play out across the sector, do you feel?” 

Todd Warren: 

“I do, yeah. You know, you're seeing, broadly speaking, cost inflation of 15, 20%, broadly across the board. So yeah, they're feeling it. Obviously labor is the big one and fuel. So some of the labor issues we've probably seen the worst of, you know, in terms of labor availability. It just takes time to work our way out of that.”

Nadine Blayney: 

“So I think we've taken this to a very big picture sort of conversation, all of a sudden. Alex, so on everything we've spoken about, we had a lot of the reports coming through this week. We had Macquarie this week. We had, well, we're not gonna talk about Buy Now, Pay Later, should we? No, let's not.” 

Andrew Geoghegan:

“Well, let's just quickly go there. We should probably touch on that. Because I mean, obviously seen those, significant price moves. Sezzle? Goodness.”

Alex Pikoulas:

“Sezzle was 20 cents a week ago, it opened this morning at a dollar 40. And it's a dollar now. Yeah. So, No, I'm not piling money and how you control that. I have no idea. So good luck to the people who have, but to be honest, I think those, when you get massive price caps and, and I've spent a long time of my career dealing with hedge funds around the world trading Aussie equities. When you get big price gaps like that, it's more often than not people losing money rather than making money. And I think what you're seeing in a bunch of those stocks is a short squeeze, right? You know, it says 20 cents to a dollar 40 this morning. Zip’s not quite as much, but a similar rally and Zip this morning was up 15%. Now it's down 20 this afternoon. So some huge moves, but I think that's more people losing money unfortunately, rather than making money.”

Nadine Blayney: 

“Okay. So let's assume you're staying away from the Buy Now, Pay Later sector. Are you staying away from retailers given all we've spoken about as well. Like are you particularly nervous about consumer discretionary or are you attracted to consumer staples.. or nothing of the above?”

Alex Pikoulas:

“So for us, neither of those two, but we are quite cautious about consumer discretionary. We're quite cautious about the consumer outlook over the next, you know, 12 to 24 months. With the selloff that we had seen, we started increasing a little bit of exposure to some housing-related like James Hardy, so more US than than Australia just because we thought they were oversold and we thought that some of the interest rate increases that we'd seen would actually cool down a little bit, which we have seen. So we've dipped our tail in some of those sorts of things, you know, a month or so ago. But we're staying pretty clear of the consumer and we've just, from the staples perspective, we've just found them hard because as much as they're defensive and we think you want to play a bit defensive at the moment, the staples are incredibly expensive. You've got Woolworths trading it. You know, I haven't looked at it lately, but a month ago it was 28 times earnings for a business that's not growing by much, I'm not that interested in paying 28 times earnings for that. So, we're not in either of those spaces at the moment.”

Andrew Geoghegan:

“Trent, what sectors are you finding attractive at the moment?” 

Trent Primmer:

“Well, we had this chat before, briefly before we came on the show, but I think around earning season, we're probably gonna look at, and obviously various sectors, but companies that look cheap. Companies with relatively good outlook statements, but not blue sky or fluffy outlook statements. Companies that look reasonably cheap. And then we'll look at throwing some capital into these companies and building out some portfolios long term, if they're cheap enough. But there's nothing at the moment. We're sitting at about 30, 40% which we have for quite some time. We've held gold names, but obviously gold hasn't been doing much.” 

Nadine Blayney: 

“Sorry, Trent.”

Trent Primmer: 

“I know, I know. I come on the show every, every time when the gold price goes down. It's crazy. And this is the thing that we spoke about before. This isn't a market that you can pick easily. And I think it'll be a good case study for future markets. Like you'll see what we're going through right now in economic and commerce, textbooks, ages, but it is a very difficult market to pick and, you know, When nothing particularly stands out to you, I think it's better to err on the side of caution and hold some cash behind you and just wait to deploy it appropriately. I think patience is a big thing in this market and earning season will give us a good idea of where these companies are heading. Insane that the sectors I look at, we still like gold. As much as it pains me to say that, yeah, probably gold look, energy. Definitely, a lot of these good, you know, unlisted renewable energy companies look quite good, quite attractive. Some with healthy balance sheets, some producing even in the hydrogen space. But, yeah, I mean even that capital markets, so be wary of parking money in some of these claims.” 

Nadine Blayney:

“Are you chomping at the bit to get active or is patience a virtue right now in your sort of area of the market as well?” 

Todd Warren: 

“Yeah. We are nibbling.” 

Nadine Blayney: 

“I think we invested that term. Did we?”

Todd Warren: 

“We're always cautious to use the term, you know, averaging down cause it implies you got your first decision wrong, but yeah, look, there are areas where, you know, as Trent says, there are some companies out there that are bulletproof balance sheets, making money hand over fist. And, you know, based on what we can tell, in the resources sector at least, some of them trading at the dips. We saw, you know, in the previous dips of the downturns of early 16, you know, or even back to, 08, you know, GFC type. So that doesn't make sense when you got these balance sheets that are so healthy.”

Nadine Blayney:

“Name one, that's on behalf of the viewers.” 

Todd Warren: 

“Well, I can tell you that the world's largest copper producer, Freeport, is exactly that. They had a seven times geared balance sheet, the start of 2016. Today they're pretty much free, net cash. So, for us, that's where you start and everything away.”

Andrew Geoghegan:

“Give us a local copper producer then.”

Nadine Blayney: 

“Or gold. Do you like gold or you, I'd love to see a little bit of a barb crawling happening here.”

Todd Warren: 

“A little, little story. I did see a meme circulating the other day and it was a trader's guide to gold. And it said, you know, okay, if yields go up: bad, if yields go down: bad, inflation up: bad, inflation down: bad, bad, bad, bad, bad, bad, bad, bad. So the non-consensual investor says maybe that's the opportunity. Yeah. We, in the gold space, we still like Northern Star, it's actually of the gold guys, could potentially do some capital management. It's got the opportunity to pay out a dividend or buy back some stock, and maybe even grow a little bit. Although they seem to have stepped back a little bit from their growth plans in the local copper space, it's a more challenging question. I like, you know, Oz is a good go-to. It's a reasonably safe bet in the Australian marketplace. But yeah, as I touched on earlier, there may be some question marks around their commitment to some of their longer term growth projects.”

Nadine Blayney: 

“Alex, if you've known me long enough, you would know that it's only fair if I ask you what you would potentially buy. I mean, or strategically, are you waiting till after reporting season to get fluffy guidance statements or lack of guidance statements outta the way.” 

Andrew Geoghegan:

“Actually, just before you do that, you did gasp when you said, when Trent revealed he was holding 30% cash, what are you holding?” 

Alex Pikoulas:

“No, we're holding a reasonable amount of cash actually as well. So I think holding cash is a perfectly valid investment decision. You know, if you think there's gonna be better opportunities coming along, then you should sit on a bit of cash. So we're towards 15%. We'd find it difficult to have as much as 30, not that that's written into a mandate anywhere, but to be sitting on that much cash our clients are expecting us to deploy it for them. So we're around 15, just under. Okay. Nadine, to your question, I mean, we've really been sifting through for oversold growth names that's been the same thematic I've talked about for the last couple of months and we're still very much on that tack. I've talked about Zero on the program before. It's a name that we really like and we'd probably like to buy more of it. At some point we bought it initially at 77 and if it came back to 77 we'd probably double our position. James Hardy we've bought recently as well. Reliance we've added quite recently. So you know, I mentioned the US housing exposure between..”

Andrew Geoghegan:

“Despite what's going on in the US at the moment. I mean, we're seeing the housing market coming on.” 

Alex Pikoulas:

“Yeah, but we, I guess we just thought that some of those names were oversold and the sentiment towards US housing. So if you look at housing starts over a long, long term view on the US. We've only just got back from an incredible underbuild post the GFC to what is a more sustainable level of building in the US. It's not a, it's not some bubble like pre-GFC type level, it's just the sustainable demand driven level of housing construction that we’re at in the US. So from a longer term perspective, we don't see risk at the moment to the level of housing construction in the us.

Of course, rising interest rates is a headwind to that, but we think the stock started to reflect real risk to that number going forward. And we don't think there is a risk to that number. We think it's just a short term adjustment to the interest rate environment. And you know, the outlook statements are undoubtedly gonna weaken from the home building sector in the US but it got to a point where we thought all of that was well and truly reflected and the medium term outlook was better.”