Investment Matters

What matters this week

Announcements regarding Australia's economy were significant this week, with GDP in line with expectations (3.3% for the year to 30-Jun-16; 100 consecutive quarters without recession), and the RBA left the cash rate on hold.  The market was quite nonchalant about both.  (And, to the disquiet of the RBA I'm sure, mid-week auctions in Sydney show the property boom continuing.)

The aged care dramas continued in earnest this week - for Estia Health (as mentioned in 'What matters this week' last week), and now for the other two listed players, Regis and Japara.   (Quite sensible) Government restrictions on capital works, maintenance and building refurbishment charges to aged care residents will curb income to aged care providers.  It ended up that the now-ex Estia CEO sold out at the just right time.

Please note that First Samuel clients own Aveo.  Aveo does have a limited exposure to aged care, through provision of aged care services within three of its retirement villages - as part of offering a continuum of care.  i.e. Aveo's core business in not aged care - rather operation and development of retirement villages.

The entrails of Dick Smith are becoming evident, as court hearings associated with the company's administration continue this week.  Poor management, most particularly the use of supplier rebates and flawed inventory management, Board and management disagreement, as well as strategy more broadly (e.g. store expansion, development of private label products) were a focus.  The company apparently had 12 years (not months, years) of own-brand AAA batteries in stock when it collapsed!