The Budget: a positive for clients' investments
The 2017 Budget was a net positive for our clients' Australian share portfolios.
In fact, we would consider this to be one of the more positive Budgets we have seen in recent times (from the perspective of net benefits to the companies in the equity portfolio, without any negative hits).
Earlier in Investment Matters the new bank levy on liabilities was mentioned. This levy will actually be a positive for the smaller banks such as Suncorp. In effect, the small banks' relative competitiveness has just taken a step closer to the big 4. To respond to the levy the big 4 will need to:
- Put loan rates and fees up (and ~60% of their lending is residential) to retain the same profitability. This means more business will go the way of Suncorp (and the other smaller and international banks), reducing the big 4's revenue and profit. OR
- Take no action, in which case the levy amount will directly impact on the profit line of the big 4, making Suncorp (and the other smaller banks) a more attractive investment vis-à-vis the big 4. OR
- Somewhere in the middle of 1) and 2) - the most likely outcome.
In contrast to the share price falls from the majors (except ANZ), Suncorp rallied 2.8% on the post-Budget Wednesday.
Southern Cross Media
The Budget contained provision to abolish $130m in licence fees p.a. applied to free-to-air networks, to be replaced with a $40m in spectrum fees p.a.
This is positive for Southern Cross Media, as it pays licence fees through its affiliate arrangement with Channel Nine.
The budget contained measures to encourage retirees to downsize their home. Specifically, house sale proceeds from people >65 years old can contributed to superannuation (non-concessional, up to $600k for a couple). Any such contribution will be excluded from the $1.6m balance cap.
Selling a long-held family home is a key barrier to older people moving into a retirement home. This measure provides an incentive for them to do so. Aveo is a provider of retirement units, and thus is expected to benefit if this measure gains traction in the community.
The infrastructure spend announced by the Government (including projects such as inland rail) will utilise large yellow equipment such as graders, dump trucks and loaders. This is expected to tighten the equipment market up in the civil space.
Although civil generally uses smaller equipment than the mining sector, there is some degree of cross over. This measure is expected to flow through to a degree of tightening of yellow equipment demand, and combined with the recovery we are starting to see in the mining sector, Emeco is expected to be a beneficiary.
Primary Health Care
Primary's major business unit is provision of GP services. There has been a freeze on the Medicare rebate, which has impacted providers of GP services - their costs (e.g. electricity) and wages continued to increase, so either patients have had to pay more out-of-pocket, and/or GP earnings have gone down.
The Budget has allowed for the progressive lifting of the freeze, starting with incentives to bulk bill children under 16 from 1-Jul-17. Indexation for GP consultations will recommence on 1-Jul-18.