The Australian dollar is currently buying less than USD$0.77, having fallen from its 12-month high of USD$0.8057 in early September. While a weak domestic currency is not good news for importers, it should benefit Australian companies with significant overseas earnings, exporters, and those with ties to the tourism industry.
Macquarie Group Ltd (ASX: MQG) generated 62% of its first-half FY2018 earnings from overseas business segments, which includes North America. The group recently announced half-year profit rose 19% on the previous corresponding period, as well as a higher Return on Equity and an increased interim dividend. The popularity of Macquarie’s annuity-style investments continues to grow and are a main driver of growth and increased profitability. According to management, a 10% drop in the Australian dollar will have a 6% increase in group net profit after tax. Macquarie’s share price is up around 10% over the last month.
Treasury Wine Estates Ltd (ASX: TWE) shares have been on a tear in 2017, up almost 30% in the last 6 months and they recently hit an all-time high. Treasury has vineyards in Australia, New Zealand, Italy and the United States; generating significant overseas revenue as it exports to more than 70 countries.
Exports to China are material to the company’s success, with management expecting to add new customers and reduce lead times through supply chain improvements in FY2018. Treasury trades on a relatively high trailing P/E of 43x, though this is to be expected given the company’s growth prospects and the fact that FY2017 earnings rose 55% on the previous period.
Qantas Airways Limited (ASX: QAN) is another company that should benefit from a weaker dollar as inbound tourism is therefore likely to increase and Australians have greater incentive to holiday domestically. Shares in Australia’s number one airline are down almost 7% over the last week, but that could represent a buying opportunity for a company expecting to increase underlying half-year earnings before tax by 5.5%-11.5%. It currently trades on a P/E of just 13x.
The Australian dollar is currently on a downward trend against most major currencies, following recent weak inflation figures and a federal parliament that could currently be best described as ineffective. The prospect of corporate tax cuts and interest rate rises in the United States will, in my opinion, place further downward pressure on the Australian versus the US dollar. This should result in higher share prices for quality ASX-listed companies with significant U.S. earnings.