If you have missed some of the earlier parts to Sid Ruttala’s latest Talking Top Twenty, you can find them here:

Part 1: The Banks – CBA & WBC
Part 2: The Banks – NAB & ANZ
​​Part 3: BHP & Fortescue
Part 4: CSL & Wesfarmers

Numbers wise, group sales were reported at $16.56bn AUD. More pleasingly, online sales growth continued its upward momentum with Q1 sales up 90.5% vs. the 69% reported in my notes six months ago. This is one area that remains a key metric for management given its omnichannel strategy. The big headache seems to be the NZ business, contracting -7.5%, with a -6.9% for transaction growth. However, even here online penetration continued to grow at 37.9%. What surprised on the upside however was the performance of Big W, seeing sales growth of 20%.
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Overall, management continues to deliver on its outlined strategy and we remain convinced that it has a better investment thesis/case than Coles.

Red Flags & Risks: Management continues to be disciplined when it comes to cost management and balance sheet discipline. The big question mark when we last undertook this exercise was the uncertainty around the divestment of Endeavour. Pleasingly, this has now been resolved. Big W continues to surprise on the upside though we remain of the view that it may be better off sold than remaining a part of the broader group.

In addition, last-delivery remains an issue for the business with much being reliant on management turning existing stores into effective distribution centres (DCs).

My Expectations: In the right context, WOW remains a buy with management continuing to execute on its strategy. Their footprint across regional areas gives them a competitive advantage in comparison to pure-play online retailers. The company’s demerger of Endeavour is, in my view, a good move.

Dividend Yield: The current yield stands at 2.6%, assuming a share price of $43.50 AUD.
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We remain convinced that this will stay at $1 AUD per share (give or take 0.2c) for the foreseeable future as the business continues to reinvest in order to keep up with competition and margin pressure.

Macquarie continues to deliver with NPAT up 10% to $3.015bn and CET1 ratio of 12.6%, it remains well capitalised with a stellar balance sheet. Nevertheless, guidance from management suggests that FY22 is likely to be flat. Division wise, MAM (i.e. Asset Management) continued to deliver stellar performance fees of $660m AUD. While this was down from the previous year, to the tune of 20%, it was certainly better than expected. The decrease in AUM (Assets Under Management) was slightly concerning; this was probably a result of a strong AUD and the reduction in contractual insurance assets though.

Of particular interest, CGM (Commodities & Global Markets) continued to deliver with operating income increasing by 22% to $4.7bn AUD. BFS (Banking and Financial Services) remained broadly flat however. Again, a strong AUD remains a problem for the institution, given that 69% of their revenues are derived globally, as mentioned in my notes six months ago. A 5% swing in the spot rate will result in a 3.5% swing in the NPAT (either way).

Red Flags & Risks: The big risk for Macquarie is the headwinds faced via a bullish AUD, with AUM remaining a key concern. There continues to be downward pressure on EPS with the need for management to be diligent in increasing AUM going forward. Would also have liked to see more clarity around the strategy for increasing FUM on the MacWrap platform.

My Expectations: Remains a fair substitute for the Big Four with a well-diversified business and is arguably a greater risk-reward proposition. However, at a $149.540 AUD share price at the time of writing, it remains fairly valued.

Dividend Yield: The current dividend yield stands at an exceptional 3.15%, assuming a price of $149.540 AUD.