Investment Matters

What Matters this week: Nufarm, Silver Chef, iSignthis and more

The week kicked off with Nufarm (+37%) (global distributor and supplier of insecticides, pesticides and seeds) announcing the sale of its South American business for the cool sum of $1.2 billion to Japanese conglomerate Sumitomo (thank you Japan, thank you cheap money!). Terrible, terrible news for short-sellers (those who bet on the company's share price falling), and there was a whole lot of them - representing approximately 18% of the company's shares on issue. The net result on Monday morning: lift-off. Shares were up by around 40%. And at the same time, in one fell swoop the company has been able to dispel the worry around its debt levels. Lovely.

Hospitality equipment financier, turned transport, construction and farming financier, turned-debt-laden-cry-for-help Silver Chef (-1.5%) announced an (other) offer for its business. The offer: the princely sum of $18m (for what was up until the beginning of this year a $96m business). The deal will leave the company debt free (still holding any contingent liabilities), with remaining shareholders hoping to recover what it can of its remaining receivables.

After a month in the trenches battling Ownership Matters (with regards to management remuneration, corporate governance and its accounts), the media and some Trump-esque tweets from its CEO, payments provider iSignthis was suspended from the ASX this week pending enquiries to be made by ASIC and the ASX. Depending on the result, it could be a long way down for shareholders from here.

In other news, directors of fellow high flying environmental remediation company Phoslock (-0.8%) continued to sell shares (approximately 2% of the company – with a total of 7% of the company’s shares sold by directors within the last month - eek), which the market was more than happy to take up. This came after the company announced that it has signed an agreement to remediate a 3,362-hectare lake in Central China.

We also saw more consolidation in the automotive industry flagged (post-AHG and AP Edgars merger). Collision repair workshop owner AMA Group (+10%) has acquired (or knocking into place) Suncorp’s Capital Smart repairs business. The $420m transaction will see AMA purchase the business with a 25.5 year agreement with Suncorp to be its “recommended repairer” (and by the time that contract’s over, autonomous vehicles…). The combined entity, comprising of the industry’s two biggest players will have a market share of around 10% - that’s what you call a fragmented industry.

Pharmaceutical company Mayne Pharma (+18.2%) was one of few spots of green showing up on our IRESS screen on Wednesday (with the All Ordinaries down 1.5%), after it announced it has entered a license and supply agreement to launch a new “next generation” contraceptive in early 2021. The new contraceptive, manufactured by Mithra contains a form of estrogen naturally produced by the body that thought to have an improved side effect profile.  

Part of the reason the market was driven down on Wednesday (US ISM data aside) was NAB (-6.3%), which notified the market of a slight rounding error when it announced its provision for remediation for advice given by self-employed financial advisors. It has now booked on another $1.2 billion (before tax), a 108% increase on the $1.1 billion it already had provisioned. Good thing the banks aren’t passing on the full rate cut…

On the subject of the banks, if you would like a summary of the impact that the buy-now-pay-later sector has had on credit card loans, look no further than the graph below. Grab those your frequent flyer points while you can!

 

Credit Card lending is at a 9 year low

4.10.19 Credit Card lending WM

Source: APRA, CommSec

 

Lastly, Retailer Kathmandu (0%) scooped up iconic surf brand RipCurl this week for AU$350m, with a price that represented a 7.3x EV/FY19 EBITDA multiple. The acquisition, which will bring greater “seasonal balance” (us Melbournites wouldn’t mind some of that too) will be composed of both shares and cash (entitlement offer and debt). It will also provide a foothold for the company to grow its business internationally and through wholesale channels.

Note: Price changes represent performance for the week to market close on Thursday afternoon.

- Paul Grace