Hugh Dive, Head of Listed Securities

Welcome to Philo Capital Advisers' Blog on portfolio construction and management issues. We welcome your comments and feedback.

  • Home
    Home This is where you can find all the blog posts throughout the site.
  • Categories
    Categories Displays a list of categories from this blog.
  • Bloggers
    Bloggers Search for your favorite blogger from this site.

Tales from the Trenches - A liquid stimulus package care of OPEC

Posted by on in Market Commentary
  • Font size: Larger Smaller
  • Hits: 1704
  • Subscribe to this entry
  • Print

After over four years of relatively stable global oil prices the price of oil per barrel (the equivalent of 159 litres) has more than halved since June 2014. Whilst this has placed a significant amount of stress on oil producers and in particular companies such as Santos that are constructing large projects that require a high oil price to generate commercial returns, the dramatic fall, if sustained, will have positive impacts for investors. In this week's piece we are going to look at the beneficiaries of the decline in hydrocarbon prices.

What a difference 12 months makes! The 60c decline in the petrol price at the bowser.

OPEC4.JPG                  OPEC3.JPG

Australian consumers

An Australian Bureau of Statistics (ABS) survey reveals that households spend an average of $60 each week on fuel for vehicles, and $41 on gas and electricity for their homes. This equates to average energy expenditure representing 5.3% of total gross weekly household income (2.0% for dwelling energy and 3.2% for fuel for vehicles). If current petrol prices are sustained at January 2015 prices, this would result in an additional $1,154 per annum being added to the average household's finances.

To put this in perspective Kevin Rudd's $10.4 billion "GFC economic security package" from October 2008 delivered a one-off $1,400 to pensioners and $1,000 per child to families. Arguably the benefit received from falling petrol prices should have a more sustained impact than a well telegraphed one-off payment.

Increased domestic spending

The largest beneficiaries of the stimulus package derived from falling petrol prices will be the consumer staples and consumer discretionary retailers. Savings on energy are spent on food and liquor as well as consumer goods such as televisions and clothes. As such we would expect to see stronger sales figures from Woolworths, Harvey Norman, JB-Hifi and Coca-Cola. The falling AUD is likely to boost the proportion of this additional retail spend that is directed to domestic retailers rather than foreign online sales. Flight Centre is likely to benefit from both higher consumer spending and falling airline ticket prices (once fuel surcharges are removed).

Gaming stocks such as Crown, Tatts and Tabcorp benefited from the 2008-2009 stimulus packages. The Melbourne Institute found that the lump-sum windfall stimulus cheques substantially increased gambling at electronic gaming machines in Victoria. An estimated 5% of Victorian stimulus cheques were spent on gaming machines. We would expect the more gradual impact of falling fuel prices to have a less pronounced impact on gaming revenue.

Higher retail sales will also benefit retail listed property trusts such as Novion, Scentre and Stockland. Typically a tenant in a shopping centre will pay a base rent, variable outgoings to recover the costs of running the centre and turnover rent based on a percentage of the retailer's gross sales. This provides an automatic mechanism for rent to rise when there is an uptick in retail sales.

Large energy consumers

Amongst the companies that consume large amounts of hydrocarbons, Qantas is the most obvious beneficiary, as $4.5 billion spent on jet fuel in 2014 represents 40% of the company's costs. In January 2014 Qantas is benefiting from both the large fall in fuel prices and the retention of fuel surcharges which are as high as A$680 for a return economy ticket to the United States! Unfortunately this windfall benefit may prove to be short-lived for the troubled airline, as the ACCC has announced this week that they will be investigating these fuel surcharges.

Miners such as Rio Tinto and BHP are significant consumers of hydrocarbons. Moving dirt consumes a large amount of energy in both cracking the rocks and removing overburden through explosives and in moving the ore to the ports on the coast of Western Australia. Indeed BHP's West Australian iron ore division alone spent A$600M on fuel in 2014. Similarly petrochemical companies should see a benefit from falling energy prices. Orica and Incitec Pivot are major consumers of natural gas and ammonia, which they use to manufacture explosives and fertilisers both in Australia and globally.

It is not only large companies that will benefit from falling petrol prices. For example a fine boutique NSW South Coast Winery (whose rosé is more crisper on the palate than a tonne of iron ore) has seen their monthly energy bill decline from $1,300 to $950 over the past quarter. When combined with a falling AUD, that should encourage more domestic travel and local wine consumption; broader macroeconomic conditions are looking a bit brighter for this small business.

Oil importing nations

Whilst falling energy prices have been causing much angst in the oil exporting nations, these declines should provide a boost to the major oil importing economies of China, Europe and Japan. Earlier this week the IMF upgraded their growth expectations for the US and noted that lower oil prices were undeniably good for the Euro zone growth. Improving sentiment in Germany and the US will have a bigger impact on the prospects for global growth and Australian exports than oil-induced recessions in Russia, Venezuela or Iran. The nation that is likely to see the biggest benefit from falling oil prices is China, which in 2014 surpassed the USA as the largest net importer of crude oil and other liquids in the world. Clearly a factor that stimulates the economy of Australia's largest export partner (23.9% of Australia's trade in good and services) will have a positive impact on a number of Australian listed companies from miners to foodstuff exporters.

Whilst most of the attention in the financial media relating to falling oil prices has been focused on its impact on the still to be completed LNG projects in Queensland and Western Australia, the companies that are exposed to these projects only comprise a small proportion of the ASX200 and the Australian economy. We consider that if the oil price remains at the current level for an extended period the impact will be akin to an extended stimulus plan with greater and more lasting benefits than the hand-outs of 2008-09.


This article has been prepared by Philo Capital Advisers Pty Ltd ABN 70 119 185 974 AFSL 301808 (Philo) and contains general investment advice only. The information in this article does not take account of your objectives, financial situation or needs or those of your client. Before acting on this information readers should consider whether it is appropriate to their situation. We recommend obtaining financial, legal and taxation advice before making any financial investment decision. To the extent permitted by law, neither Philo nor any of its related entities accepts any responsibility for errors or misstatements of any nature, irrespective of how these may arise, nor will it be liable for any loss or damage suffered as a result of any reliance on the information included in this article. The information in this article is based on information obtained from sources believed to be reliable and accurate at the time of publication but we do not make any representation or warranty that it is accurate, complete or up to date. We accept no obligation to correct or update the information or opinions in it. Opinions expressed are subject to change without notice. Past performance is not a reliable indicator of future performance. Any forecasts included in this article are predictive in character and may be affected by incorrect assumptions or by known or unknown risks and uncertainties. Nothing in this article shall be construed as a solicitation to make a financial investment.

Rate this blog entry:

Hugh Dive, Head of Listed Securities

Prior to joining Philo, Hugh was Head of Basic Materials Group Investment Research; covering the chemicals, building materials and steel sectors. In the 2011 Reuters StarMine Equity Analyst Awards, he was rated 5th overall in Australia for stock picking and first in the Diversified Industrials and Chemicals sectors. Hugh has extensive portfolio management experience gained at Investors Mutual, with a successful track record managing both small and large cap value funds. In 2009, one of the funds he helped manage, the IML Future Leaders Fund, won the AFR Smart Investor Award for the best Australian small cap fund.

Hugh started in funds management with CC&L Investment Management in Vancouver; Canada’s largest independent fund manager with C$37B under management. At CC&L he focused on asset allocation and then Canadian equity analysis. Hugh holds bachelor’s degrees in both Economics and Law from Sydney University and the University of British Columbia, Canadian Securities Course (Honours) and is a CFA charter holder.


  • No comments yet

Leave your comment

Guest Monday, 19 November 2018
Powered by EasyBlog for Joomla!

Privacy Statement 


We may hold personal information about you, principally because you are a client of ours or give us information through this website. Personal information means information we hold about you from which your identity is either apparent or can be reasonably determined.

We respect your rights to privacy concerning your personal information which we hold. Our privacy policy is consistent with Australia's legal requirements.

Things change

If you think our records about you might be wrong or out of date - particularly your name, address, phone, email address or financial adviser - it’s important that you contact us and they will be corrected free of charge. 

Why is personal information collected?

Broadly, we use personal information you provide only for purposes consistent with the reason you provided it, or for a related purpose, for example to:

  • Subscribe to research or another service using this website;
  • Contact you regarding our services ~ you can opt out of these communications of course, just contact us;
  • Comply with legal obligations such as identifying you if you become a client; and
  • Administer your account (should you be a client).

If you do not provide us with the information which we ask for, we (or others) may not be able to provide you with some or all of the services available through us. 

How we collect

Most information is collected when you become a client of one of the financial services which we make available, often a managed discretionary account. But there may be other ways we collect personal information such as through contact with you and from this website and your advisers. We will collect personal information from you only by lawful and fair means and not in an unreasonably intrusive way.

What we collect

The kinds of personal information collected can include the following:

  • Name, gender and date of birth;
  • Contact details;
  • Bank account details;
  • Tax file number;
  • Any access and use details for this website; and
  • Other information you or others for you (for example, your financial adviser) might tell us.

Disclosure of personal information

We will not disclose personal information we hold about you unless:

  • This policy allows or with your other express or implied consent;
  • It is to joint account holders;
  • It is to companies within our group;
  • It is to those who help our business to run;
  • It is in the public interest (for example where a breach of law is committed or suspected, and we consider that disclosure against your rights to confidentiality is justified);
  • We consider that law requires disclosure, or a regulator requests (for example, to various government departments and agencies such as the Australian Taxation Office, CentreLink, the Child Support Agency, or disclosure to courts under subpoena or to ASIC or AUSTRAC if asked);
  • We consider someone relevant to you needs the information, for example your financial adviser or someone who we have no reason to doubt is acting for you; or
  • It is to administer your account.

What about security?

We are committed to ensuring that your personal information is kept secure. We have a number of physical access and technology policies and procedures in place designed to provide a robust security environment. No personal data is stored on our web site.

In those instances where we secure your personal information in transit to us and on receipt, we use the industry standard encryption software, Secured Socket Layer (SSL) 128 bit encryption. The URL in your browser will change to "HTTPS" instead of "HTTP" when this security feature is invoked. Your browser may also display a lock symbol on its bottom task bar line to indicate this secure transmission is in place. But the internet is not a secure environment and we cannot guarantee the security of information we exchange electronically.

Website use

Our internet server logs certain information which is provided by your browser:

  • The type of browser and operating system you are using;
  • Your Internet Service Provider and top level domain name (for example - .com, .gov, .au, .uk etc);
  • The address of any referring web site (for example - the previous web site you visited); and
  • Your computer's IP (Internet Protocol) address (a number which is unique to the machine through which you are connected to the internet).

We may use cookies to obtain information with regards to web site activity (such as the type of browser used, the number of pages viewed, time of the site and navigation patterns) and to help you use this site when you visit again. This information on its own does not identify an individual but it does provide us with statistics that can help us with design of the web site. You can configure your browser to accept or reject cookies. If you reject all cookies you may not be able to use some or all of our web site.

Telephone services

We may monitor or record telephone calls for training, record or security purposes. If we do so, we will tell you at the time.

Access to personal information

In most circumstances, you have the right to access any personal information we collect and hold about you. In certain circumstances, the law permits us to refuse your request to provide you with access to your personal information, such as when:

  • We reasonably believe that access would pose a serious threat to the life or health of any individual;
  • Giving access would have an unreasonable impact on the privacy of others;
  • The request is frivolous or vexatious;
  • The information relates to a commercially sensitive decision making process;
  • Access would be unlawful; or
  • Giving access may prejudice enforcement activities, a security function or commercial negotiations.

Please contact our Privacy Officer at the address below if you wish to access, update or correct your personal information, or if you have a complaint about how we have handled your details. We have a compliance process for dealing with complaints and we undertake to deal with your complaint as quickly as possible, and to keep you informed of its progress. 

Further information

You can obtain further general information about your privacy rights and privacy law from the Office of the Australian Information Commissioner by:

  • Calling their Privacy Hotline on 1300 363 992; or
  • visiting their web site at, or
  • by writing to:

The Australian Information Commissioner
GPO Box 5218
Sydney NSW 1042


The Australian Information Commissioner
enquiries @ 


We may make changes to information handling and privacy policies and practices and this privacy policy. We will publish important changes on our web site and if necessary update this policy.   

Privacy Officer

Attention: the Privacy Officer
Philo Group

Level 11

37 York Street
Sydney NSW 2000

Tel: 1300 303 323

or send a message on Contact Us page


Terms of use 

This website is published by Philo Capital Services Pty Ltd ABN 91 154 859 284 and is operated by Philo Capital Services Limited and other companies that are associates of Philo Capital Services Pty Ltd including Philo Capital Advisers Pty Ltd ABN 70 119 185 974 AFSL 301808  (referred to collectively as the Philo Group).

Using this website is your agreement to these terms as amended from time to time. Please take the time to read them. Contact us if you have any suggestions or complaints.

We do not promise that this website is always up to date, always available or virus or third party cookie free.

We take reasonable care in the maintenance of information on this website. However, to the extent permitted by Australian law, all obligations which might otherwise be implied or imposed on us by law or equity in relation to this website are expressly excluded to the extent permitted by law. Loss arising to you from use of this site is limited to resupply by us of the services. Under no circumstances will we be liable for any special or consequential damages.

We may amend this site or any part of its contents without telling you. You must not modify this site. Contact us if you wish to link to this site. We are not responsible for links to outside this site.

Unless otherwise expressly stated to the contrary, this website is not designed for the purpose of providing personal financial or investment advice. Information provided does not take into account your particular investment objectives, financial situation or investment needs.

You should assess whether the information on this website is appropriate to your particular investment objectives, financial situation and investment needs. We recommend you seek financial, legal and taxation advice. You should do this before making an investment decision on the basis of the information on this website.

Opinions expressed are subject to change without notice. Past performance is not a reliable indicator of future performance. Any forecasts included on this website are predictive in character and may be affected by incorrect assumptions or by known or unknown risks and uncertainties. Actual results may differ substantially from the forecasts.

Unless otherwise expressly stated to the contrary, the information on this website is not a recommendation to invest or refrain from investing in any investments, securities or financial products, including those which may be offered by any member of the Philo Group.

This website and all it displays are the property of Philo Capital Holdings Pty Ltd and related entities and are protected by copyright, trade mark and other intellectual property laws. You may reproduce information for your personal use only. We reserve all other rights.

Unless otherwise stated, all figures are in Australian dollars and include GST. Examples used on this website are not exhaustive.

This website is for persons located in, and is designed to meet only the laws of, Australia. This website is not for use by people not located in Australia. It is very likely that it does not comply with all foreign laws. In any dispute arising from this site, New South Wales laws apply. You consent to the exclusive jurisdiction of the courts of New South Wales.