Pivot to growth tipped for ‘24
Firms ready to expand
Australian companies will increasingly pivot to growth and expansion strategies this year as confidence grows that economic headwinds are easing.
Investment and advisory group Jarden says not only were earnings results over the past few weeks better than expected, the commentary and tone pointed to optimism not seen in several years about companies looking to expand.
Jarden managing director of institutional equities Chris Tolj said results pointed to an increase in mergers and acquisitions throughout 2024, along with more planning around long-term strategies.
“After a couple of years of playing defence, companies are starting to talk about offence, whether that is through M&A or increasing capital investment in their own business,” he said. “This ultimately comes down to corporates having a greater understanding of their cost of capital, whether through debt or equity.”
Resilient consumer spending, tight cost management, inflation moderation and positive economic outlooks typified commentary from Australia’s biggest companies.
Smaller companies were the biggest positive surprises, with 32.9 per cent of All Ordinaries listed groups beating market expectations, while 39 per cent had a result in line with forecasts and 28 per cent fell short, according to CommSec.
That compared to 35.5 per cent of ASX 200 companies that “missed” or fell short of analyst forecasts; 32.2 per cent beating expectations and 32.2 per cent of companies meeting expectations.
While economists expect the Reserve Bank will cut interest rates in the back half of 2024 thanks to cooling inflation and a weakening economy, Jarden expected it would cause minimal disruption to plans by companies to move forward given the impact over the past three years from Covid and rapid rate rises.
“Even with a hike, which no one is calling for, you’re still going to have light at the end of the tunnel. And that’s why you’ve seen some high beta names rally,” Jarden head of Australian research Ben Gilbert said.
Jarden noted strong cash flows coming through this period as well, which suggested it was the first step in creating more opportunities for companies to expand.
“There was a greater focus on growth opportunities this reporting season, as it relates to M&A, new projects or adjacencies,” Mr Gilbert said.
“And if you look across discretionary retail, you’ve got companies like Super Retail Group and Harvey Norman with very strong balance sheets, which provides optionality for M&A.”
Mr Gilbert said Harvey Norman had shifted to a growth mindset, with plans to open 80 stores in Malaysia over the coming years and expand into Britain.
An undervalued Australian dollar combined with favourable operating conditions made Australia an attractive destination, which Mr Gilbert said could also see more companies fall into foreign hands.