Ryan Stokes, the head of $10 billion industrial giant Seven Group Holdings, has warned that another rate hike from the Reserve Bank could push the Australian economy into recession.
Stokes said the pain from the central bank’s barrage of interest rate rises over the past 15 months had been manageable for the economy, which has proven more resilient than expected thanks to factors such as low unemployment.
“If we roll back 12 months, we probably expected to be in a tougher environment than we are today,” he said after the conglomerate’s strong full-year earnings on Thursday sent its shares to record highs.
“I think the issue which will determine the outlook for a recession – and its intensity – is going to be the future decision points of the RBA […] That’s going to be the biggest factor weighing into whether we have a genuine recession versus a technical one.”
The nation’s unemployment rate has unexpectedly jumped to 3.7 per cent with a drop in the number of people holding down a job in July, the Australian Bureau of Statistics reported in the morning.
Looking beyond Australia, Stokes assured investors that the economic malaise in China would not become a problem for Seven’s industrial businesses like Caterpillar dealer Westrac, which helped the company deliver an 18 per cent rise in net profit to $654 million in the year to June 30 amid strong demand for mining equipment.
The size of China’s economy meant there would still be sizeable demand for Australian iron ore, benefitting Seven’s customers, who he said were further hedged against a softening in global metal prices by maintaining the lowest-cost production in the mining industry.
“We haven’t seen a preparedness to change that production volume,” Stokes said.
Seven released its full-year results on Thursday morning, which included a 55 per cent rise in operating cash flow to $1.57 billion from a group of businesses as diverse as the Seven television network, building products group Boral and equipment hire firm Coates.
The mining, infrastructure and construction sectors helped drive the result, which beat market expectations with a 20 per cent lift in revenue to $9.63 billion. The group declared a fully franked final dividend of 23c a share.
Analysts welcomed Seven’s stronger-than-expected forecast for high single-digit growth in full-year earnings before interest and tax (EBIT), which sent its stock up 3.2 per cent to a record high of $27.16.
“The core industrial businesses continued to outperform expectations, and guidance for high single to low double-digit [growth for the current financial year] is ahead of our current forecasts,” said Macquarie analysts Mitchell Sonogan and Sophia Owad in a note to clients.
UBS said the result beat both market estimates and the company’s own forecasts, and the outlook was also ahead of expectations thanks to the strong outlook for industrial services.
“Growth is supported by the ageing mining fleet thematics and bulk commodity production at Westrac. Coates and Boral will continue to be supported by strong infrastructure and construction investment,” said the UBS team led by Nathan Reilly.
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
Source: Thanks smh.com