Investment Matters

What matters this week: McGrath shows residential cracks, Orica a bit ahead of itself, other tit bits

The cracks that are starting to appear in the residential property market are being talked about, not just in the press.  This week we saw ripples with Australia's third largest real estate agent McGrath, downgrading earnings expectations for this financial year.  The company cited slow sales from its owned (as opposed to franchised) agents, including project marketing (aka new apartment sales).

The share price did not react favourably: -15.6% on the day of the announcement, to a new low of $0.515.  This is the third profit downgrade released by the company since its Dec-15 listing.  And now the company is up there with Myer in regard to the award for most disastrous IPO (Myer's ASX listing price was $2.10, today it is $0.72).

Orica (explosives for mining, O&G and construction, sodium cyanide for gold extraction, and services provider in tunnelling) got a little ahead of itself.  Its share price increased 20.9% this calendar year, versus the All Ordinaries at 6.9%.  This was on the back of an expected recovery in mining services demand.  Their FY-17 results (for the year ending 30-Sep-17) showed that the pick up in demand has been slower than Orica's shareholders had been anticipating.  The share price fell 9.8% in response.  The company anticipates a step-up in demand in 2019 and 2020.

There were a number of good news stories this week too.  Firstly, Flight Centre had an upbeat AGM, indicating improving trading conditions and an expected recovery in earnings for FY-18.  

Global building products (e.g. fiber cement boards) manufacturer, James Hardie, released Q2 FY-18 results that were ahead of expectations.  Price increases supported the profit line, even though volumes were a little soft.  Conditions in North America and Australia have been positive.  The company also announced a major acquisition of a German fiber gypsum board business (~US$550million, to be around 15% of the company's post-acquisition revenue).

None of CBA's troubles has (yet) translated into the bottom line.  The company's first-quarter cash earnings of $2.65million (up 6% vs the average of the two-quarters of the second half of FY-17.  And yes that is the comparison baseline they provide.  Everyone else keeps it simple.)  Home lending increased 2.7%.  Business lending decreased 1.0%.  (= further residential contraction.)   Bad and doubtful debts on the consumer side further declined, defying trends being articulated wider in the economy (record household debt, increasing mortgage stress, underemployment, booming electricity prices, etc, etc).

Also, Nufarm (manufacturer and seller of crop protection and seed products) has announced its second acquisition within three weeks.  This one is a herbicide product portfolio also in Europe, which targets cereal crops and is complementary to the recent acquisition.

Other titbits: Virgin Australia has contemplated going private (delisting from the ASX).  Telstra is going to compensate ~42,000 of its NBN customers for false advertising in relation to internet speed.  With developments in Saudi Arabia and concerns about the US non-conventional production outlook, oil prices have been buoyant - flowing through to the share prices of Origin, Santos, Oil Search and Woodside.  The forthright accounting software firm Xero plans to delist in NZ and list in Australia, to boost liquidity.