What Matters this week
It was a turbulent week in the markets. Wednesday saw a snap sell-off in the US (NASDAQ -4.43%, S&P500 -3.09%), which spilled over into the Australian market on Thursday with the All Ordinaries down 2.8%. Investors remained on edge due to fears around inflation, trade (and its impact on global growth), the Italian budget and the fall-out from the Khashoggi fiasco. US earnings season was mainly positive, however, there were signs that the impact of tariffs are trickling through to input costs.
For more on how we viewed this week's market developments in the context of your portfolio, please refer to the article by Fleur Graves below.
There were mixed results for retail this week. On the upside, JB-Hi Fi posted results that indicated continuing growth, with like-for-like sales growth of 3.4% in Australia and 9.8% in New Zealand (despite languishing growth for The Good Guys at 1%). Retailer Super Retail Group posted solid Q1 numbers with comparable sales for Supercheap, Rebel, BCF and Macpac up (3.1%, 2.4%, 2.4% and 8.4% respectively). Exiting CEO Peter Birtles, however, cautioned that consumer spending is starting to look soft.
WPP Limited (-31.6%) was smashed after revising down its CY-18 earnings guidance by 15-18% and the exit of its CEO. The company cited a reduction in client marketing spend in retail and consumer facing sectors as a primary cause.
There are further signs of property weakness with Sydney’s clearance rates last weekend expected to be revised down to 35-40% - a level not seen since the GFC. Data from Domain showed that Melbourne is now leading the price decline, with prices falling 3.9% over the September quarter vs Sydney’s 3.1%.
Furthermore, Real Estate agencies are starting to feel the pinch, with McGrath (who has exposure to NSW and QLD markets), posting a $1.9m loss for the quarter. The company pointed to declining clearance rates, longer sale times, price reductions and lower sale volumes.
A bright spot was Stockland, with results that indicate the affordable end of the housing market appears to be holding up. It reaffirmed it was on track to reach 6,000 settlements and its profit guidance in FY-19 despite conditions that are “moderating” due to tighter lending restrictions.
Incitec Pivot signalled that its Gibson fertiliser plan may run out of steam (gas) unless it can source cheaper gas beyond 2019. Australian manufacturers are having to pay up for their inefficiency – being the most energy intensive in the OECD (counting on cheap energy prices when many factories were built) and are struggling to adapt to the recent rise in energy prices.
Oil and gas companies continue to ramp up investment, with Santos looking to acquire Origin Energy’s Ironbark coal-seam gas project to supply its Gladstone LNG project.
Former market darling Bellamy’s dropped over 8% on the Wednesday opening as it forecast a 10-15% decline in revenue for 1H-19 due to slower cross border trade, competition and running down of stock before their rebranding. In contrast, fellow Daigou favourite Blackmores continues its impressive growth with revenue growing 15% in Q1FY-19 on the back of Chinese demand.
On the Royal Commission front, the good news: ASIC has got moving, with 50 criminal and civil prosecutions in the pipeline against executives and corporations in the next 2 years. The bad: they need more money from the government to do it.
Meanwhile Treasurer Josh Frydenberg announced a crackdown on white collar crime, bringing Australia in line with international standards. The legislation being before parliament next week that will significantly increase civil penalties and jail time for criminal misconduct by both individuals and corporations.
Flight Centre (-6.4%) delivered a disappointing earnings outlook at its AGM, forecasting an underlying pre-tax profit of $390-420m. This was at the bottom end of analyst’s expectations and represents a poor outlook for growth given FY-18 underlying pre-tax profit was $387m.
ANZ continued to kick up a fuss about Australia Post’s newly levied fees for access to its Bank@Post branches. The bank claims that the flat fee of $22m per year is significantly higher than that of rivals CBA and Westpac on a per transaction basis. I do, however, imagine $22m is still a saving compared to the cost of operating branches in regional/remote areas which they have shut en mass…
There was bad news for NuFarm (-7.2%) as a verdict was upheld that the weed-killer Roundup (which it distributes in Australia) causes cancer. The company is down a whopping 35% for the year to date.
Finally AMP (-19.29%) was thumped this week, after a decision to sell its AU and NZ Wealth Protection and Mature (life insurance, income protection and disability insurance) businesses, as well as its New Zealand wealth management and advice businesses.
- Paul Grace