Investment Matters

What matters this week

The CPI (inflation) figure released this week was notable for two reasons.  Firstly, there was the whopping increase in electricity prices: 8.9% for the quarter (not year).  Secondly, was the languishing overall figure (0.6% for the Sep quarter, or 1.8% higher than a year earlier), which is especially anaemic when electricity is backed out.  Neither of these are of a positive note in relation to Australia's economic health.  They also make it unlikely that the RBA will normalise rates in the immediate term.

In regards to the Woolworths / Coles rivalry, the tide really seems to have turned in Woolworths direction.  Coles' damp squib results saw food sales up 0.3% like-for-like for the Sep-17 quarter, with overall sales for Coles (including convenience, i.e. the chocolate bar when filling up with petrol, and liquor) declining 0.3%.  For the other Wesfarmers businesses, it is a carbon copy for any other quarter I can remember - Bunnings (Austraila & NZ) is booming, Kmart and Officeworks are doing really well, and Target is a basket case.  The UK Bunnings' business had a tough quarter, as this business is still relatively new and ramping up.

In the same week ANZ reached a 'large' (speculated to be $50 million plus) settlement with Australia's corporate regulator, ASIC, regarding rigging of Australia's bank bill swap rate (BBSW), they also announced a cash profit for FY-17 of $6.9 billion - putting the fine into its slap-on-the-wrist perspective.   The settlement happened literally just as the BBSW trial was about to start, was confidential, and avoided the drawn-out public airing of embarrassing dirty washing.  With the results release three days later (changing the market's and press focus), that seems like some great whitewashing to me.  And ASIC let them do it.  [BBSW is the benchmark rate for many business loans and debt securities, including such things as listed hybrids.]

The major corporate deal of the week was by Nufarm.  The manufacturer and seller of crop protection and seed products purchased a portfolio of brands, with over 50 crop protection formulations, registered for use in Europe.  The US$490m (plus inventory) price was funded through a capital raising and existing debt facilities.

The spat between Solomon Lew of Premier Investments (Smiggle, Portmans, Peter Alexander and other retail brands) and Myer continues in earnest, and very publically.  This week it was in relation to Board member election at the upcoming AGM, as well as putting the company on notice in relation to release of sales' figures and the company's upcoming strategy day.

There was excitement this week in telecommunications.  Telstra received a reprieve on mobile roaming - it doesn't have to share its regional towers with others (this was proposed with the intent of improving coverage in regional areas, but the argument would have been how much compensation Telstra would receive).  Also, the government must be facing up to what many in the industry (e.g. tech entrepreneur Bevan Slattery) have been saying for a long time - an NBN Initial Public Offering (certainly with the return to government as currently budgeted) is only going to happen in Neverland (my words).  Government financial / debt projections will continue to live in Neverland until such time as NBN is realistically accounted for (i.e. not off-balance sheet as NBN Co.).  The situation became stark this week when NBN advised that $15 per month of every customer bill goes to paying back Telstra for use of the decrepit copper network, pipes and conduits, and access to exchange racks (Telstra spent a significant part of these proceeds propping up an unsustainable dividend, and when this dried up, surprise, surprise, dividends were cut).  By comparison Chorus NZ (the listed NZ company charged with the rollout of fibre to the home across most of NZ) doesn't have this legacy because when it was privatised when retail was split from network infrastructure (unlike Telstra).

And hot off the press – the troubled milk processor Murray Goulburn, who essentially put itself up for sale, will be acquired by Canadian dairy giant Saputo for $1.1 billion.  In a complex deal, with special arrangements for milk suppliers, shareholders will realise around $1.10 to $1.15 per share.  Saputo also owns Warrnambool Cheese and Butter.  Murray Goulburn floated at $2.10 in July 2015.