Investment Matters

What matters this week: Channel 10, CSL, Bellamy's, A2 and Telstra

We started the trade-shortened week with a volatile lead in from US tech stocks.  More on this below.

Also in the US this week, their central bank (US Federal Reserve) lifted their interest rate 0.25% (the third time in 6 months), which was forewarned and widely expected.

Locally, consumer confidence is increasingly dowdy.   June figures from the long running Westpac / Melbourne Institute survey saw a 1.8% decline.  [>100 = optimistic and <100 = pessimistic.]

Consumer Confidence warning

By contrast, business confidence (NAB survey) released this week indicates businesses remain buoyant - however, not quite as buoyant as they were in previous months.  

Australia's unemployment rate supposedly dropped to 5.5%, from 5.7% in April.  [Supposedly = there is some question as to the accuracy of the unemployment figures, particularly on a month-to-month basis.  Certainly, however, there does not appear to be an underlying deterioration in Australia's employment trend, which is obviously very positive, and also somewhat aligned with the business confidence data.] 

It was quite an eventful week on Australia's markets. It was an interesting trading week in that there were some fairly significant daily movements.  And not in the expected directions given the overseas lead-in and news - Tuesday and Wednesday >1% increases, Thursday >1% fall, and a more moderate Friday (to ~midday) +0.3%.  Volatility has returned - for this week anyway.

Perhaps the biggest news is that Ten is heading for receivership.  This follows the company's two creditors indicating they would not provide refinancing in December.  Not all is as first appears though.   The company has been up against the wall operationally, with falling earnings (even though revenue has been okay), tough content deals and a restructure underway.  We view it as quite likely it will come out the other side having wiped out the equity holders, with debt reduced to a sustainable level, and with a major restructuring program (including content deals) complete.

CSL is buying up big in China.  The company has purchased an 80% stake in a major Chinese plasma fractionator.  This will greatly increase access to the growing Chinese market, and was positively received by the market (+3.5% for the week).

This week's 'giving' stock is Bellamy's.  It is going to cost the company an exorbitant $27.5m to exit its supply contract with dairy behemoth Fonterra.  It has also purchased a cannery, that has Chinese government approval, to shore up its Chinese distribution access (key to the success and growth of the company, and one of the underlying drivers of the troubles the company has had).  To fund both, the already suffering shareholders are up for a highly dilutionary capital raising. 

Bellamy's situation contrasts to that of A2 (the milk and infant formula) - today the company has increased its guidance for the second time in two months, on the back of booming formula sales.  The market liked it: the share price was up ~9% as we go to press.

And finally, Telstra announced it is going to make 1400 employees redundant.  This comes as the company faces increased competition in its mobile business and structural decline in its fixed phone line and internet business.