Investment Matters

Company News: NAB, Pushpay, Aurelia Metals and Woolworths

Australian Equities Portfolio

National Australia Bank (positive impact) released its 2nd half FY20 results this week. In a sector that is clearly challenged by COVID uncertainty and low-interest rates crimping profitability, NAB’s result along with ANZ’s stood out amongst all the banks.

NAB appears well placed in a structurally challenged sector and has set itself ambitious medium-term goals to lower absolute costs and generate double-digit return on equity. This will be difficult in the best of circumstances and harder still with the ones we face but highly rewarded if successfully executed. Critically we believe it has the right business mix and management to begin with.

At an operational level, NAB has reinforced its provisions against expected losses, recognising the possible downside to recovery in Australia now, rather than admitting they were wrong later. Deferred loan balances, especially in mortgages, which could be indicative of stress in the economy due to COVID continues to improve (falls in size).

Dividend expectations for FY21 are supportive for the current share price (75 cps, 3.8% yield), and are likely to improve into 2022. Banking isn't the business in Australia that it once was, but neither are bank share prices as high as when your portfolio had no exposure. We are comfortable both the level of exposure to the sector and the choice of NAB and ANZ as exposures.

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Pushpay (neutral impact) released its result for the first half of its fiscal year to September. The growth we have seen in Pushpay’s revenue over the past year has been outstanding and it has been an incredibly successful position in the portfolio. We chose to sell the majority of your holding early in the year, as we felt the share price had begun to factor in a high level of future growth. This result didn’t drive any upgrades to our expectations, despite operationally pleasing outcomes. The market is beginning to question the pace of client growth, and this may provide an opportunity to add to our position in the coming months. The result was still impressive overall, with an improvement in margins (a mixture of good cost control and payment mix) and a strengthening of digital penetration amongst existing customers (with digital giving at churches rising from 40% pre-covid to 60%). This is a technology stock that makes cold hard cash and lots of it, and despite the lofty share price remains a worthwhile position.

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Aurelia Metals (positive impact) provided an update to its Federation Project. Readers will recall that the Federation project is a key exploration site/growth project proximal (10km south) to existing processing infrastructure at one of the company’s two flagship mines, Hera. The company has undertaken further drilling to define the deposit over the past six months, with results confirming high-grade gold and base metal seen in several zones previously. The scoping study for the site continues with a maiden resource estimate anticipated in March of 2021.

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Woolworths (positive impact) released an update for the first quarter of 2021 (to September). Sales continue to be strong, with like for like supermarket sales growing by 11.5% compared to the previous year (ahead of Coles’ growth of 9.7%) and pricing strengthening. Elevated costs in maintaining a COVID-safe environment have however continued to offset some of this growth. Several trends we witnessed during the height of the pandemic continue, with customers preferring to shop locally with less frequent, larger shops. Notably, eCommerce sales penetration – an area in which we see Woolworths has a significant competitive advantage, continues to grow, with penetration growing from 6.3% of sales in the quarter to June to 8% in the September quarter.