Investment Matters

What Matters this week: Premier Investments, Wesfarmers, Afterpay, Retail Food Group and more

This week the share market played out in front of the usual backdrop of trade posturing, political gyrations and controversy.  Understandably, some are a little numb to it all at this point.

Premier Investments (+14.3% last Friday) was another bright spot for retail, as its share price regained its footing.  Its results on Friday demonstrated that sales and profit growth continue to be strong (4.2% increase in like-for-like sales, 11.5% increase in EBIT – earnings before interest and taxes) with earnings largely meeting analysts’ expectations (yet exceeding the market’s).  However, the company continues to feel the pressure of rising rents (taking the opportunity to make a very thinly veiled threat to landlords – comparable rents and incentives to our competitors or else!) as it closed 35 stores and had landlords fund upgrades and refurbishments over FY-19.  Interestingly, like for like sales growth in apparel of 7.8% continued to be strong, particularly in light of the general weakness in fashion.

Wesfarmers (+0.4%) completed its takeover of lithium developer Kidman Resources on Monday.  The ticker disappeared from the boards as Wesfarmers scooped up Kidman’s 50% stake in the Mt Holland lithium project, looking to position itself for a coming electric vehicle revolution.

There was a lot of buzz and anticipation as Afterpay (+8.6%) updated the market as to the independent review of its compliance with AML/CTF (anti-money laundering and counter-terrorism financing) obligations.  However, the announcement read, simply: an interim report has now been provided to AUSTRAC.  A case of no news (along with a buy recommendation from Goldman Sachs) is good news.  Their shares rallied 12% on the day.

Regulatory technology company Kyckr (+11.8%) has suddenly caught the attention of the market.  Twice the number of shares in the company have changed hands this week than have for the year to date.  The company provides a solution that automates the know your customer (KYC) process by connecting customers to a network of registries held by other companies.  Sudden interest from the market has come after the company received a glowing endorsement from Richard White, founder and CEO of WiseTech (in the form of a $5.2 million dollar placement) and an announcement that illion (a data and analytics provider) will become a reseller of its solutions.

Embattled franchisor Retail Food Group (-2.8%) is searching for a lifeline, with the company entering a trading halt in relation to a potential equity raising.  The company has some dark clouds hanging over it, including a number of contingent liabilities (class actions lodged on behalf of franchisees, potential future fines and penalties), a high level of debt and a need to transform what has in the past been a less than equitable business model (putting it mildly).

Lastly, Webjet (-2.1%) flagged that it will feel the effects of the collapse of British travel group Thomas Cook.  The company had anticipated it would process $150-200m worth of transactions relating to the agent and is owed $43m in receivables from the company (these, much like Thomas Cook, may have just vanished into the ether).  In sum, a potential $43m one-off hit to earnings and up to $7 million of lost earnings this year.  On the flip side, change bring opportunity, and may enable Webjet to acquire some more hotel contracts from the defunct operator.