Investment Matters

What Matters this week

It has been a rocky road for Afterpay (+7.7%) shareholders over the last few weeks.  The company’s shares went into freefall last Friday with approximately $39 million dollars trading in the last 2 hours of FY-19 (wiping circa 25% and almost $1.45 billion off its market capitalisation).  What happened?  The inevitable: serious competition (or at least signs of it).  Shareholders ran for the exit as Visa announced it is entering the “buy now, pay later” space (although we do acknowledge it is rolling out a very different - bank led solution).  This adds to headaches for the company, who have recently been forced by AUSTRAC to appoint an external auditor to examine its anti-money laundering and counter-terrorism framework.

In the midst of all of this commotion (and questions around corporate governance) the company decided it would be a good time for a reshuffle of management.  This week an independent Chairman was appointed in place of Anthony Eisen who took the top spot (CEO) from co-founder Nick Molnar.  The net result of all of the above is depicted below.  In summary: if you are willing to pay up for growth, be prepared to wear the volatility (and potential for capital loss) that comes when that growth is questioned.


Source: IRESS, First Samuel


It just wouldn’t feel right if a week went by without an announcement from Kogan (+4.6%).  This week the company kept itself busy by brokering an agreement with buy now, pay later service Splitit, which will provide customers with “greater flexibility”.  Giving the list of services it now provides I would say its customers benefit from plenty of “flexibility” already.

We saw further clandestine virtue signalling this week.  First was CBA (-1.5%), who changed the name of their remuneration committee to the “People and Remuneration committee” to reflect its renewed focus on “talent management, diversity and inclusion and organisational culture”. And? A name change is easy enough, a change in culture on the other hand …

Second was Woolworths (+2.5%), who have decided to spin off their drinks and hospitality business (Endeavor Drinks and ALH Group) into a separate entity - the “Endeavour Group”.  The decision reflects a focus on “maximising long-term shareholder value”.  It also has the side benefit of minimising further embarrassment for management.  We remind readers of accusations made early last year that its staff kept databases which were used to encourage problem gamblers.  And it also polishes the company up for any capital that is waiting on the sidelines, hesitant to invest on ethical grounds.

Satellite communications provider Speedcast (+45.7%) cemented its position in the too hard basket on Tuesday, after announcing downgrading its forecast for underlying EBITDA (earnings before interest, tax depreciation and amortisation) by 14%.  This was due to a multitude of reasons, among which was higher churn and a lower contribution from its recent acquisition of Globecomm.  The company is once again flirting with danger as it gets closer to breaching its debt covenants.

High flying hemp producer Ecofibre (+31.4%) (yes, the same Ecofibre that listed in March of this year, with no underwriter and has a current market capitalisation of $306m despite only having run-rated revenue for FY-19 of $24m dollars) highlighted that over 3000 independent pharmacies now stock its product.  Stockist numbers are the latest in a string of new and fashionable valuation metrics (which superseded that boring old thing called net profit a long time ago).

Management of popular daigou (buyers who purchase products domestically to resell into China at a markup) brands played musical chairs this week.  Masstige (mass produced, relatively inexpensive goods that are marketed as luxurious or prestigious) skincare manufacturer BWX (+11.8%) announced the official appointment of former Blackmores CEO David Fenlon as CEO and manager on Monday.  Blackmores (+2.3%) subsequently announced appointment of its new CEO Alastair Symington the following day.

And lastly, the Nine Entertainment Company (+7.2%) executed the sale of more than 160 regional mastheads (which it acquired after absorbing Fairfax) to a consortium backed by former Domain executive Antony Catalano and Thorney Investment Group.  The total consideration was $115m.  Time will tell who got the better end of this one.


- Paul Grace