Investment Matters

What matters this week: BIS, Woolworths, IAG and others

US markets, the NASDAQ especially, continued their technology-led volatility this week.  A delay to the vote on Trump's healthcare reforms also weighed on their markets this week.  To finish the financial year, the Australian market had a reasonably strong week, dampened by a 1% fall today (as we go to print).

The week started with a warning from BIS (Bank of International Settlements, which is essentially the central bank for central banks such as the RBA and the US Federal Reserve).  It raised concern in their 87th Annual Report regarding countries including Australia, that were less affected by the GFC - because property prices and household debt had continued to rise in there countries, they are at an increased risk of a debt crisis.  The warning comes as we are imminently expecting the latest guidance from APRA (Australia's banking regulator) as to new capital requirements for the banks, which will meet the goal of being "unquestionably strong".  Testing times in banking land.

For company specific news this week, Woolworths has finally sold its NZ-based Ezibuy business (catalogue and online retailer of clothes and homewares). It purchased the business in Aug-13 for $318m.  It was reportedly sold to Noni B owner Alceon Group for a nominal sum.  Oh dear.

Metcash released its results for the year ending 26-Jun-17.  At headline level it wasn't as bad as feared, with profit slightly exceeding expectations.  Mitre10 performed well.  However, the core food division (distributor to IGA supermarkets) is still up against it, with marginal sales growth and margin pressure (albeit slight).  Lower interest costs assisted the overall result.  The dividend was reinstated, giving shareholders a reason to smile.

One of those companies that is not often on the news radar is WA-based Austral.  The shipbuilder received an order for the 14th littoral (close to shore) ship for the US Navy.  Well done Austral.

The removal of licence fees mentioned below led to a generally buoyant media sector: Nine +3.4% for the week, Seven West Media +2.2% and Prime Media (regional distributor of Channel 7) (+11.9%).

The general insurer IAG released an update advising that reserves releases for the FY-17 year will be higher than expected - at >5% of NEP (net earned premium) rather than the previous guidance of >2% of NEP.  This essentially means that IAG has over-provisioned for past claims, and now can release some of insurance claims reserve.  This will flow into higher reported profit.

And finally, Slater & Gordon equity holders held the poisoned chalice of the week.  Debt holders have in effect taken over the highly troubled company, and they have removed the Board and CEO.  The company's share price is closing the financial year around 8.6cents.  It peaked at $7.85 on 3-Apr-15.