5 shocking predictions for 2027 and beyond

Dougal Maple-Brown (0:15)

I don't think I've been on stage to music since the Sydney University Review in 1988

I did dance then, but I won't dance today. Okay, so my day job is to manage people's money, which I take very seriously. People's savings, whether it be superannuation, whether it be ordinary money. I'm actually not in the business of making shocking predictions. But my new best friends in Livewire, I'll play along.

For me, playing along with the shocking predictions, you people have to listen to my lesson on value, because valuations always matter.

Okay, first of all, a history lesson about why valuations matter. I've been with our firm now for 25 years, and I've seen some extraordinary valuations. I went back over 25 years and looked at some of the most extraordinary things that I have seen and put them on the chart. Companies across the bottom, Telstra, Newscorp, BHP, CSL and CBA. We'll come to the latter two later. The blue columns are where they peaked as a percentage of the Aussie equity market and the brown columns are roughly where they are today. I won't go through them all. Telstra peaked at 10% when I arrived at the firm in 2000 The tech boom was just heating up. Telstra today is 2%.

If you had bought an index fund in Telstra in November 1999, 10 cents in the dollar would have gone into Telstra. That would be now 2 cents. Newscorp, the most extraordinary of the lot in the absolute peak of the madness, got to 16.16 of the Aussie equity market. Now, Newscorp has gone back to the US. US dollars, Fox has been spun off, blah, blah, blah. But if you bought it back today, Newscorp in the Aussie equity market would be about 2%.

So 16 has gone to 2 BHP in the middle of GFC peaked at about 15 as well. BHP has done the round circle. It's got down to about 6, 8 years ago. Today, it's back as the biggest stock in our market. And in the end too, CSL and CBA are the two stocks that I want to talk about today in my so-called shocking prediction.

Okay. God, I don't know why I do these things.

My shocking prediction is that CSL will double off its lows and CBA will halve off its highs.

Now, when Livewire asked me to do this a week, sorry, about a month ago now, both those calls were very live. The CBA call is still very live. This little friend here, CSL, has had quite the run over the last month, which we'll come to in a minute. But I still think it's illustrative to see why valuation matters. Okay. Turning to CSL in a quick Cook's Tour.

CSL share price, the brown line, peaked about 300 bucks five years ago. We did not own a share. The stock traded close to 50, five zero times forward earnings. Absolutely insane. CSL's had a miserable five or six years. CSL bottomed, and I kid you not, in May this year at $90 a share. It had been derated from close to 50 to 10 times forward earnings. We had zero at 50 times 300 bucks, and we had a shitload.

That's a technical term for portfolio managers. A lot of stock at $90 at 10 times. So to double off $90 at 10 times, you can do it lots of ways. The simplest, and frankly, what's largely happened, earnings have been flat, but the multiple has doubled. And so in fact, CSL, I think, almost went through $180 this morning, would you believe, two times 90, as the stock has been rerated from about 10 times earnings to about 20 times earnings. Maybe that doesn't count as shocking, but the next one does.

CBA peaked about a year ago now at close to $200 a share. It's what actually inspired me to do the first chart. People were saying it was unprecedented. The valuation was unprecedented, but the 10% of the market wasn't. 190 bucks a share, CBA was trading on around 30, three zero times forward earnings. The most expensive bank in the world by, you know, daylight was second, third, fourth and fifth. So, my shocking prediction is that CSL goes from round numbers, 200 bucks a share, down to 100 bucks a share. Why I say that call is still very live, today it's about 160 bucks a share, give or take. Okay, so this is a real call. Why does Dougal think that CBA can go from 200 bucks a share to 100 bucks a share? It's all valuation. CBA traded, as I said, about 30 times. If earnings are flat, valuation goes to 15 times, I'm going to be right. Why do I think that's pretty possible? Major peers, Westpac, NAV and ANZ, today are trading on 15 times forward earnings. So if CBA just trades like it's peers, I'm going to be right. And by the way, ANZ and Westpac traded on 10 times forward earnings, not two and a half years ago. So it could be far worse. On top of that, that's the easy way to do it. Look at the earnings backdrop for the banks as a whole. And here I'm not just picking on CBA. All these factors apply to all the banks. And we are heavily underweight in the banks and we have zero CBA. Credit growth is flowing, costs are rising, credit losses are likely to rise, depending on how good your crystal ball is with property prices, all of which means earnings. And on the bank balance, my day job, earnings are going to be flat at best. Okay, and if you got a big bearish house scenario, a big bearish recession scenario, earnings are going to go backwards. So CBA could halve in share price, either with the rating halves, or maybe the rating only goes to 16 or 17 times, but the earnings go back a little bit. I don't find any of those things particularly shocking.