YEAR OF OPPORTUNITY

Written on the 5 March 2010

YEAR OF OPPORTUNITY

OPPORTUNITIES abound in 2010 for companies with liquidity, but those with dwindling cash flow – no matter how great their prospects – face a great regression when it comes to lending. Brisbane Business News tracked down some of the city’s leading finance experts about the year ahead and even let the banks add their five cents.

The old adage that ‘the customer is always right’ will be of great significance this year, particularly as a recent Suncorp survey showed 26 per cent of Brisbane residents are concerned about paying their weekly bills.

To Suncorp bank executive manager Tony Meredith this could translate to lower retail sales, using the analogy of Queensland’s water restrictions to the current financial situation.

“People just didn’t realise how much they were using. Due to the GFC our customers realise that they’re going to have to get by with what they have,” he says.

And for small business the situation looks like something similar. This needn’t mean that funding will be completely dry, but as banks try to boost their involvement in commercial lending amidst an air of conservatism, companies will need to prove their business prospects with money in the bank.

And the growth looks likely to be a trickle, with National Australia Bank (NAB) private wealth manager David Pourre predicting economic growth of 2 per cent.

“Much of that will come through household consumption and construction as well, so lending is going to be crucial for that, and we do expect it to grow in 2010.

“The lesson learned from the financial crisis has been that diversifying your portfolio is going to be crucial to avoid any downside from the market. As for business, there’s going to be opportunity across markets and a lot of large businesses that are well capped may well look at acquisitions.”

NAB claims to have increased its SME lending book by $5 billion last year and Suncorp may claim to offer the lowest small business lending rate in the country, but financial experts are getting mixed messages from the current climate – recovering but reticent, confident but cautious.

ROSS MUNRO
Adviser at Genesys Wealth Advisers

IPOs
For smaller business and IPOs it’s hard to pick – there’s now a difference with risk. As the economic situation improves the appetite for risk improves, but it will probably be a bit subdued in the first half of the year.

Funding?
The terms and conditions for lenders will be stricter than in recent years. Easy money for those with lower financial capacity will be more difficult, but those with good business proposals should find an increasing availability of funds

Sectors to watch?
Material and resources are the major sectors - energy organisations have a play because of the ‘green’ factor. I’d also pick the consumer discretion sector, the Billabongs that thrive when things get better. The industrials, they’ll tag along and the banks have done the majority of what they could do to come back off the floor.

Companies to watch?
Campbell Brothers are a stock in my mind that have done well. They used to be mainly household products, detergents and all that, but they moved into technology services for the resource sector. There’s going to be a lot of plays in the resource sector, the China play will happen and there’s opportunities for someone who knows what they’re doing. I’d also pick GWA – they’ve been a bit flat, been knocked around, but they’re a significant market player.

WAYNE SMITH
General Manager at Cashflow Finance

Lending
There will still be an appetite amongst the banks to fund the larger organisations, but SMEs will have to continue to look more to non-bank lenders, VCs and Business Angels for funding solutions.

Private Investment
On the one hand confidence is likely to remain fragile and active private investors will be looking closely at the risk-reward balance before committing capital into the private or SME sector. On the other hand there are good businesses with growth potential seeking additional funding and there are potential investors out there looking for a good return on their capital.

Where to invest right now?
Non-bank businesses and commercial lenders, mining companies, those involved with public infrastructure, as well as the Top 200.

US recovery?
The US recovery will be tentative, prone to stalling and taking backward steps. The main direct impact will be on importers and exporters, particularly those trading in $US. The impact of the US economy is as much psychological as it affects confidence, but the impact on the majority of Brisbane companies is likely to be minimal.

What to keep an eye on?
Liquidity is critical in the current climate, as businesses with solvent balance sheets can still find themselves unable to meet their liabilities as and when they fall due if they’ve got too much “cash” tied up in debtors and stock. Foreign exchange rates will be an issue for exporters too.

DAVID JACKSON
CEO at HLB Mann Judd

Banks
Businesses at the moment can’t get money and that’s the main impediment we’re seeing. It’s tightening up, they’re picking the eyes out of all proposals they want to do and they’re very much doing it on their own terms. The banks are doing home loans but they’re not doing business lending.

Expansion stunted
Some SMEs can get lending but they’re not getting as much. Whereas before they could get 60 to 70 per cent, now the bank is giving 50 per cent and saying ‘you tip in the rest’. But the thing is, they don’t have the rest.I think if you look at the SME market those that have been better off would be keen to take advantage of the current situation, they’d been keen for acquisitions or mergers, but they’re not able to get the funding to do it.

IPOs
The appetite for IPOs is going to dramatically rise – it’ll push up because companies of a certain size won’t be able to get funding from the banks and will need to raise capital by other means.

Economic Outlook
All the indicators are showing economic improvement, but it isn’t going to keep improving if SMEs can’t get the finance they need.


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