Investment Matters

What Matters this week: Banks' credit card binge. Penfolds. And Myer and the cold weather.

It is a week of random news.

Treasury Wine Estates has announced it is going to sell Penfolds wine produced from Napa Valley (California) grapes.  Sacrilege.

Pharmacy wholesaler Sigma’s share price was thumped (by -40%) when it announced it had lost a distribution contract with Chemist Warehouse.  The company advised earnings (EBIT) are forecast to go from $75m in FY-19 (with Chemist Warehouse) to $40m - $50m in FY-20 (without it).  Ouch!  Also, listed player EBOS announced it had been awarded said contract, and stated it was ‘confident’ that an acceptable return on capital would be generated – tough given the thin margins and the counterparty’s bargaining power.

ASIC has acted with lightning speed and effectiveness to stamp out banks not acting in customers interests re credit cards (for instance, debt limits too high, wrong types of credit cards e.g. 20%p.a.+ interest rates for customers who don’t pay their monthly balance, and balance transfers).  [And yes, the previous sentence is sarcastic.]  Their analysis released this week highlighted the huge credit card debt that exists in Australia.  A (belated) crackdown, if effective, will equal more pressure on the earnings outlook for the banks.

Ardent Leisure’s reputation has been smashed under the coronial inquest into the Dreamworld Thunder River Rapids' ride accident.  One would have thought their internal knowledge and investigations about the Oct-16 accident would have uncovered the failures being identified by the inquest over the last two weeks.  But it appears not.  Thus the CEO of Dreamworld (who was CEO at the time of the accident) resigned last Saturday.  Should these disclosures make us question whether they really have adequate risk management / operational processes at their Dreamworld and WhiteWater World rides (we had been assured all was okay)?

The proposed deal for China’s HNA (indebted global investment conglomerate) to acquire the refrigerated logistics business of Automotive Holdings has collapsed.  So did the company’s share price (-9%).  HNA reportedly experienced “liquidity problems” (as well as FIRB delays), speaking perhaps to the credit squeeze that is going on in China.

Retail sales were higher in May (+0.4% seasonally adjusted, higher than expected but still pretty weak).  The laggard department stores, such as Myer, did unusually well.  Looks like Kathmandu wasn’t the only one benefiting from the cold.

And to wrap up this week, the rose coloured glasses are starting to come off the sky-high P/E stocks.  Yesterday Domino’s (pizza) was -9%, and Bellamy’s (infant formula) -10% (and another minus 6% the day before), both on the back of cautious comments from analysts.