Investment Matters

What matters this week: Trump-led rally

Whilst the headlines were all about Trump's win, there were some other things going on...

The week kicked off with Westpac's FY-16 result's release. Westpac's disclosure and lack of manipulation in how they present their results is to their credit.  It was simply refreshing.

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Their openness extended to a downgrade in the target Return on Equity (ROE) for shareholders - from 15%, to 13-14%.  The market didn't react negatively to this - probably because it is anything but unexpected.  Higher capital (as is required under recent and coming regulatory changes) = lower ROE.

All that said, many of the same issues pertaining to NAB's and ANZ's recent results carry through.  Of particular note is their payout ratio is almost 80% of cash earnings, and bad and doubtful debts are low vs the loan pool size.

Also on Monday, Ingham's (as in chicken) listed its shares on the ASX. 

Image result for inghams logoPrincipal concerns about the float were the company's revenue growth (or lack thereof) outlook, along with it being floated out of TPG (the private equity firm - the same firm that offloaded shares with glossy Jen brochures to still suffering Myer shareholders).  Thus a big fat reality check was taken on the initial indicative price range of $3.57 to $4.14.  The final price was $3.15, which is a P/E of 10.8 (on forecast FY-17 earnings, excluding IPO costs and the like).  The first week's trading was in line with the listing price.

The focus returned to the banks on Wednesday, with the release of CBA's September quarter trading update (unlike the other big-3 it operates on a 30-Jun financial year).  It was in line with expectations.  Similarly to the other banks, it is paddling flat out just to keep earnings (and dividends) flat.  And as per the other big-3, bad debts are incredibly low versus the total loan pool.   The company also held its AGM.  This got interesting. 

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CBA received its first strike against its remuneration report - and not by a little bit - by a lot.  The threshold is 25%.  The majority of CBA's shareholders, 50.91%, voted against the millions of executive pay, and the astronomical growth of that pay in recent years - particularly for the CEO Ian Narev.  This puts the pressure on the Board to rein in the pay excesses before the next AGM - otherwise all the Board members themselves face being tossed out.

The market focused on the Trump turmoil for the remainder of the week.  More on this below.