What matters this week
Telstra and Harvey Norman had market-defying runs in the month of August - Telstra to the downside, and Harvey Norman to the up. (Telstra fell 9% in August, the market [XAO] fell 2%, and Harvey Normal increased 11%.) Telstra's numerous network dropouts, additional capital spend on its network announced as part of its recent results, and concern about dividend sustainability, have weighed on the share price. By contrast, Harvey Norman is the current market darling. It had strong FY-16 earnings, with net profit up 30% to $349m. Sales have been assisted by strength in the residential property market, along with the one-off benefit of the Dick Smith closure.
Estia Health, an aged-care provider, had a bad week to say the least. It started on Monday, with the release of its FY-16 results. Which were not good - worse than the already gloomy market expectations (driven by Treasurer Morrison's May budget cuts to the sector and subsequent claims crackdown). Reported profit was 7.5% below guidance the company had confirmed just 10 weeks before the end of the financial year. But it doesn't end there. Company co-founder and director, Peter Arvanitis, resigned on Wednesday, dumping his 9.43% stake in the company in conjunction with his exit. The company's share price was down 17% on the results release day (Monday), and it is down 36% this week.
Woolworths and Wesfarmers (Coles) are already facing sales pressures from budget operator Aldi. Now it's not just the sales to low to middle income earners under pressure - David Jones is going to roll out food stores aimed at high-end consumers.
And speaking of Woolworths, Lowe's launched legal proceedings in the Federal Court against Woolworths, its greatly surprised and now estranged hardware joint venture partner. Lowe's is seeking an independent liquidator be appointed in a dispute that, at its heart, is about how much Lowe's gets vs how much Woolworth's gets in the Masters wind up. Lowe's' action may jeopardise Woolworths' exit plans, including some sale agreements that Woolworths has entered in to.