Investment Matters

What Matters this week

This week we saw long term bond rates continue to inch upwards.  Perhaps this gives an explanation as to why some of the 'growthier' names on the market had a soggy week (Wisetech:-7.8 %, Afterpay: -13.8% , Appen:-6.3 %, Altium:-3.6 %, Xero:-6.3%).  As rates rise, this future growth is given less value by the market (i.e. is given a larger discount when arriving at a value in today’s dollars).

Maybe it was the market waking up to some of oddities that cheap money created, with Japanese technology investor (or in some people view, philanthropist) Softbank lukewarm on the IPO of its shared workspace provider WeWork (the same loss-making company who paid its CEO $5.9m for use of the trademarked name “We”).  Softbank is staring down the barrel of having to write down its investment, as the company looks to IPO at a value as low as US$15 billion, in contrast to the US$47 billion implied in its last funding round.

The ABS released mortgage lending data this week, indicating it is back to risk-on for residential property.  The value of new lending commitments increased a very strong 3.9% in Jul-19; the biggest increase since Oct-14.  The share prices of Realestate.com.au and Domain Holdings, along with auction clearance rates, have been equally buoyant through September (see charts below).  It appears the RBA's desire to boost the economy through interest rate cuts have certainly been achieved for residential property sectors - other sectors? ... tbd.

Source: IRESS, First Samuel

Story of the week came from Ownership Matters, who put a halt to the hype surrounding payments provider iSignthis (-38.7%).  The advisory service, which specialises in issues of corporate governance, highlighted that the company had exceeded its final revenue hurdle in 2018 of $5.5m by only $1,347 (after removing one-offs).  Revenue subsequently fell by $1.1 million the following half.  Hmmm.  In return for exceeding this hurdle, the company issued 336.6 million shares to its executives, which up until recently were valued of $500m.  That figure has now almost halved, with the company’s share price chart ending the week looking more like a ski-ramp (and we still don’t have an answer to who those “mystery” entities sitting at the top of its shareholder register are ...).

Lastly, weak graphite prices meant that money pit (the technical term for a company that has had to raise money five times in four years) Syrah Resources hit the breaks this week, as did its share price (-24.8%).  The company will cut production by about 2/3rds in the December quarter as prices have now dropped below breakeven, with the company now focusing on higher-value premium grades.  This one has been painful, with Syrah's current share price of 55c only a fraction of its $2.36 price only a year ago.  In contrast, former CEO Tolga Kumova’s continues to be all smiles, after selling a majority of his stake early last year at prices well above $2 per share, as are short-sellers (who have ridden its share price down since early 2018).