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SA listed firms strap in for bumpy ride amid market uncertainty

Business

South Australia’s largest listed companies have mostly weathered a tumultuous past six months on the share market despite a number of local firms limping to the end of the 2021-22 financial year.

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Six of the state’s 10 largest listed companies increased their market caps while five also gained ground with their share price.

The benchmark S&P/ASX200 index closed down 132.1 points, or 1.97 per cent for the day at 6,568.1, to end the 2021-22 financial year on Thursday.

The index lost more than 8 per cent of its value in June alone, its worst monthly performance since the start of the pandemic, with the fiscal year losses climbing to 10.2 per cent.

Listed investment company Argo Investments is the state’s second-largest company with a market capitalisation of $6.6 billion.

Managing director Jason Beddow said investors should “put the seatbelt on temporarily” amid challenging market conditions.

He said the economy was moving into a different phase that hadn’t been seen for a number of years and was likely to “make investing trickier”.

“It’s going to be challenging globally for a little while – definitely the next six months – and the reality is COVID still hasn’t gone away,” Beddow told InDaily.

“China is at an interesting juncture, what happens in Europe with energy prices and the impact of Russia/Ukraine, all of that is coming to a tipping point.

“We know where we think (interest) rates are going to go in the short term, the risk is that we get to those levels and inflation is still well above the bands that reserve banks and central banks are comfortable with and they have to go beyond that.

“I don’t think that’s priced into markets but we won’t really know that until we get there and that’s probably not until September or November.”

In terms of market capitalisation growth, South Australia’s top 10 companies increased their value by about $9 billion to $52.5 billion.

This followed a 44 per cent surge in the 2020-21 financial year, which increased their combined value to $43 billion up from $30 billion in July 2020.

But the gains in the 2022 financial year can largely be attributed to the $7 billion sugar hit to Santos’s bottom line following its merger with Oil Search.

This, coupled with booming gas prices, helped the state’s largest company increase its value by more than $10 billion to $25 billion, gaining it entry into the elite ASX20 in the process.

Strong gas prices also provided a boost for Beach Energy, moving it up to fourth place.

Lithium miner Core Lithium has jumped into the top 10 at No.7 with a market capitalisation of $1.65 billion, up 300 per cent on 12 months ago.

The sharp rise follows a major capital raise and a final investment decision to proceed with its Finniss Lithium Project near Darwin, with production expected to commence later this year.

Although Core Lithium’s June 30 share price of $0.96 is quadruple its $0.24 share price a year earlier, it is well short of the $1.60 its shares peaked at on April 4.

While most companies started the financial year reasonably, a lot of the losses have come since Christmas.

Adelaide-based copper miner Oz Minerals’ share price was just $10.96 on July 1 2020 and grew to $22.48 a year later amid rising production and global demand. It rose again in the first half of FY22 and was at $28.75 at the start of January.

However, a horror few months marred by floods, COVID-19 in its workforce, rising costs, production issues and falling copper prices has seen its share price steadily fall to $17.76 at Thursday’s close.

This resulted in a 20 per cent to its capitalisation for the year, ending at $5.94 billion and relinquishing its second place to Argo.

Metal detector and communications company Codan has seen its share price plummet from $18.03 on July 1, 2021, to just $6.96 last Thursday despite announcing in May it is on track for another record profit this year.

Beddow said FY22 had been a year of two halves with modest gains before Christmas wiped away by a 15 per cent downturn in the six months to June 30.

However, he said Argo had a good year “in a relative sense” as it was more focused on balance sheets than share prices.

“Not to say the asset values of the stocks we own won’t fall but we’ve done a fair bit of work on the balance sheets of our companies, their cash generation and what we think they can do with dividends and we’re pretty comfortable overall,” Beddow said.

“Corporate Australia is in pretty good shape, balance sheets are pretty good, most companies have been pretty sensible with their debt and we’re not walking into a GFC or anything.

“So from that side of things most corporates are positioned OK to handle higher interest rates and maybe some extra costs but from our perspective, we’ve got to make sure we are still collecting dividends because we pass those on to our shareholders.

“We don’t think dividends are at major risk but you wouldn’t be surprised to see some dividend cuts in the big miners because they’ve paid out huge dividends over the past two years and with commodity prices softening they are likely to cut their dividends a little bit.

“We’re more focused on that than the pure asset value because we can’t control what the share prices are doing on any given day but we largely stay away from that highly speculative end so we’ve avoided most of that carnage.”

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