Investment Matters

What matters this week: banks' outlook downgraded, and more

To start the week, Australia's market was one of the first to open following the failed Italy referendum (more on this in W&D).  The result, which will likely unsettle the EU project further, as well as make it considerably more difficult to rescue a number of Italy's highly troubled banks, didn't bring a change in momentum to the post-Trump lolly water rally.  Instead equity markets continued their sugar rush.  Whether it be a Santa rally, bond to equity rotation, or whatever the reason, equity markets really want to rally at the moment.  Wall Street marked new highs this week.  In Australia there were actually quite a few developments in relation to listed companies. 

The pain that ended last week for shareholders of Bellamy's (producer of organic baby formula and other baby and toddler food products) continued into this week - although it was somewhat less than last Friday's 44% fall.  Changes in Chinese import regulations, competitor behaviour and marketing spend meant revenue and margins for FY-17 will be considerably below expectations.

Duet (investor in energy utility assets) received an informal takeover approach, from Singapore-based global infrastructure company CKI (Cheung Kong Infrastructure).  At a 28% premium to last week's close, the market reacted positively, up 17% in Monday's trade.  Lots of water to go under the bridge yet on this one (regulatory approvals, price negotiation, etc) .

TPG, a telecommunications services company - Australia's second-biggest provider of fixed-line broadband and owner of brands iiNet and AAPT, as well as TPG obviously - provided a positive update at their AGM.  Revenue targets are on track and healthy subscriber growth is being achieved.  Ten Network also held its AGM - the ad market remains short in relation to forward bookings, however positively television revenue increased 1.9% in Q1 FY-17.

Santos is going to create an entity to hold non-core oil and gas assets (read smaller, declining production assets), to be separately managed with the view to spin them off and reduce debt.  Five core assets will be the focus of the company's relatively new management team for the future.  Origin Energy wasn't to be outdone on the restructuring front - more on this in Company News below.

ABARE (Australian Bureau of Agricultural and Resource Economics and Sciences) made material increases to Australia's winter grain crop forecast; up 32% to a record high 52.4mill tonnes (and actually a 49% increase in Vic, NSW and Qld, the states in which Graincorp operates).  Graincorp, hauler of grain amongst other things, shareholders welcomed the news, with the company's share price up 2.5% over the week.

The head of the highly successful Bunnings (a division of Wesfarmers) is leaving after 12 years.  He will act in a consultancy capacity for the company. 

Woolworths was found not guilty of unconscionable conduct by attempting to force refunds from suppliers in order to meet profit targets.  It was a big win against Australia's competition regulator, the ACCC.  The behaviour may not have been legally unconscionable, however...

Finally, and hot off the press, one of the three major ratings agencies, Fitch, has downgraded the outlook for Australia's banks.  Increasing debt levels, asset quality issues and margin pressure are factors that are likely to impact profit growth.  House prices (high) visa-via income growth (limited) was a point of note.  The agency did note, however, that capital buffers should be adequate.