Investment Matters

What matters this week: Fairfax Media, Virgin Australia, Coca Cola Amatil and Flight Centre

The week kicked off with the papers themselves making the headlines.  Fairfax Media, facing structural decline in its core newspapers business, will progress the spin in its Domain business (online real estate) - its original plan.  After announcing Plan A, two private equity players put their hands up.  But it seems they didn't like what they found under due diligence, as they walked away.  Plan B then failed and Plan A is back on.  The market was disappointed: -10.3% on the day.

Tuesday was a very buoyant day on the market (+1.61%, with the remainder of the week showing red); the day when the RBA also decided, not unexpectedly, to leave the cash rate unchanged.  The banks really led the charge (+~2-3%), supported by the miners (excluding of the gold variety).  Another stock of note was Myer, +3.6%.   Yes retail sales figures released on Tuesday were slightly better than expected (still weak), but department store sales figures went backwards by 0.7%.  Go figure.

Virgin Australia announced it is going to be free cash flow positive.  Whoo hoo.  Yippee.  Major success.  Well, not really.  The fact that this is seen as such a major success highlights the difficulty of investing in airlines.

Coca Cola Amatil was the fizzer of the week.  The company is trying really hard to respond to structural decline (anti sugar) - with the latest new product called 'No Sugar'.   Perhaps too many low-sugar products (Free, Stevia, Zero, Diet, the failed Life, and now No Sugar) contributed to Woolworth's slap to CCA - with their decision not to stock it.  (Plus it can probably get higher margin on its own-branded drinks.)  But things got worse for CCA, with the pizza chain Domino's ending its long standing supply agreement and swapping to competitor Schweppes (Pepsi).  It isn't a big hit financially for CCA (relatively low volumes and low margin), but it speaks to price competition / pressures, and isn't a positive in relation to its brand.

Flight Centre announced it is up for a better second half, after difficult trading conditions in the first half (particularly low air fares).  It is on track to reach the top end of the guidance released in February (then a downgrade).  The market was expecting another downgrade, thus the stock bounced +10.3% on the day of the announcement.

And to wrap up the week with takeovers, the private equity player KKR demonstrated its diverse taste by making a takeover offer (indicative, non-binding, etc) for the non-bank lender Pepper Group,   Also in its sights is Vocus, provider of communication services including internet, dark fibre, business telecomms and data centres.  This week the company agreed to allow KKR to conduct due dilligence.