Investment Matters

What matters this week

The week kicked off, again, with Bellamy's.   There are more snags on this one than on a Melbourne train.  It followed last Friday's advice that the Chinese authorities have suspended the canning licence for the recently acquired Camperdown milk powder processing facilities.  The strategic rationale for this acquisition was to actually shore up access to the Chinese market.  The company is again in a trading halt, assessing the impact on the capital raising it is conducting (that was being done in part to fund the Camperdown acquisition).  Some sympathy for Bellamy's on this one (unlike in relation to Melbourne's [insert a word of your choice here] trains)...

This week it also become quite apparent that Ardent Leisure's paper mache approach to their theme parks (in relation to the tragic incident last October) is not working.  Jun-17 revenue was 35.3% lower than in Jun-16.  Although there was some recovery in revenue (and visitation numbers) subsequent to the really poor Dec-16 and Jan-17 figures, revenue is since been tracking >30% lower that the pre-incident figures every month.  Refer to our thoughts at the time, click here

Adairs had a troubled H1 FY-17 (year end for Adairs is ~31-Dec), with declining sales - strongly declining in Q2.  This week, the company released a positive trading update, indicating a turnaround to positive same stores sales growth.  And abracadabra - a 33.7% increase in the share price.

It has been a quiet week on the markets - not unexpectedly given the conclusion of the financial year.  Therefore, we thought it would be pertinent to mention what we have observed on the bond markets in recent weeks.  Specifically we have seen a quite pronounced uptick in bond rates, in Australia and globally.

Bond rates

Source: IRESS

Whilst an increasing bond market is generally viewed negatively in relation to the share market, 1/ we don't see the rates going back to pre-GFC levels (there is little inflation around, and the ability of many countries to sustain high bond rates is low given debt levels), and 2/ the traditional inverse correlation between bond markets and equity markets is not holding as true as it did historically - well to date anyway.