Investment Matters

What Matters this week

This week we sat back and took a breath, taking time to inspect what the whirlwind of news, charts and stats (otherwise known as reporting season) over the past few weeks has left in its wake (for analysis please see below).

Not to say the week was completely absent of news (although it was admittedly light).

Telstra (-3.6%) downgraded its guidance as the NBN rollout (and consequent one-off payments to the company) is anticipated to take longer than expected (surprise, surprise).  A bad day for Telstra shareholders, several more months of frustration for a number of homeowners.

Incitec Pivot (-0.9%) announced a strategic review of its fertiliser business, along with a downgrade to its earning guidance due to the cost of gas, lower fertiliser earnings (continued drought impacts in NSW and QLD) and lower than forecast ammonia production.

The current calm also presented an opportunity for directors, now out of their blackout period.

And with it we saw some more stock “gifted” to institutional shareholders by benevolent management/directors (à la Kogan last week).  This week it was the directors of environmental technologies company Phoslock who gifted (sold) investors approximately 5% of the company.  Now usually such “insider” sales are met with a degree of scepticism or trepidation from the market.  Nope.  Up 1.2% on the day.

John King continues to work wonders at Myer (+18.2%), with the company delivering its first increase in net profit since 2009.  King, who has occupied the top spot since last September has led an impressive turnaround which has seen the retailer downsize its floorspace and grow its gross margins (with a particular focus on growing its private label ‘Only at Myer’ brands).  Sales however continue to decline (-1.3% on a comparable store basis), although the slope of the decline has stabilised (sales were -2.7% in FY-18 on a comparable store basis).

Lastly, Cybg (-25%) (Clydesdale bank or should we say Virgin Money – still don’t understand that choice) announced an increase in provisions for legacy payment protection insurance remediation (you know, that expensive insurance customers were sold against their ability to repay loans, which wasn’t of much use). With a deadline of 29 August 2019, consumers rushed to lodge their complaints, with the company receiving more than eight months’ worth of information requests (filed to see if a customer is entitled to compensation) in a single month.  The net result, an increase in provisions for remediation of 300-450 million.  That’s pounds.  Approximately 30% of the equity value of the company (hence the markets response).