Investment Matters

What matters this week: Spotless takeover offer. Retailers hit.

To start the week, the share price of Harvey Norman - the retailer which was one of the darlings of the recently completed reporting season - was under pressure.  A broker report about the possible impact of Amazon on Australian retailers hit hard (-8.2%).  Hardly normal.  Myer (-3.1% on Monday), JBHiFi (-2.8%) and Super Retail Group (SuperCheap Auto, Rebel, BCF, Rays Outdoors and other retail brands) (-3.4%) were also named.  

And it isn't just Australian retailers - Sears, the iconic US department store present in almost every mall in America (ok, not quite, but you get my point) is in deep trouble - “Our historical operating results indicate substantial doubt exists related to the company’s ability to continue as a going concern" (from the company's Annual Report).  But it isn't all doom and gloom in retail land: Kathmandu's first half year results (to 31-Jan-17) were overall quite positive, with same-store sales growth in Australia and NZ, and strong online sales growth.

Also releasing results this week was a motley bunch: Washington H. Soul Pattinson, the investment house, Nufarm, the ag company, and TPG, the telecom company.  Soul Patts reported strong profit growth - on the back of a few of its key investments performing well.  Nufarm also released a strong profit step-up, which beat expectations.  TPG also beat expectations, and it confirmed it was on track to meet full year guidance.  So overall, quite good results for those companies with a non-traditional 31-Jan financial half close.

Fletcher Building had the downgrade of the week. In an announcement that implied it really doesn't have a timely handover of at least some of its construction contracts, forecast earnings (before interest and tax) for the FY-17 year were downgraded 14.9% (at guidance midpoints) on those advised only 4 weeks ago.  The market reacted adversely - down 10.0% on the day of the announcement.

Chinese Premier Li Keqiang arrived in Australia for a 5 day business-oriented visit.  Perhaps not by coincidence, on Tuesday Chinese e-commerce regulations that would have hurt importers like Blackmores (vitamins) and Bellamy's (formula) were sidelined.  The market reacted positively - Blackmores up 13.1% and Bellamy's up 15.7% on the day. 

The big news of the week started after market close on Monday, when there was a press leak regarding a mooted takeover bid of Spotless from another ASX listed company Downer.  It turned into a formal takeover offer, and an associated rights offer to Downer shareholders - to provide funding for the $1.326 billion price being offered.  Institutional shareholders weren't that keen on the raising, which provides a pretty good read through to their view on the takeover offer itself.  More on the Spotless takeover bid below...