Investment Matters

What Matters this week

The middle of July represents the calm before the ensuing storm (i.e reporting season).

Retail Food Group’s share price was up by 21% last Friday.  The ASX’s “please explain” on Monday was met with the assurance that the price was buoyed purely by “media speculation”.  Coincidentally (or not), the debt-laden retail food franchisor announced on Tuesday it had received an “indicative non-binding proposal" for a $160m equity injection.  According to RFG this information was not material and was not expected to “have a material effect on the price or value of its securities”.  The 24% rally in its share price since Friday would say otherwise.

It was a busy week for corporate regulator ASIC.  It had a chance to exercise its new product intervention powers, putting in motion steps to limit fees charged by short-term credit providers (such as pay-day lenders).  It followed up later in the week by drawing a hard line in the sand for consumer credit insurance after finding these products are of “poor value”.  It outlined that it “expects” banks and insurers to cease selling these products until they comply with its newly published guidelines.  Why wasn’t its product intervention power exercised in this instance?

Not to be outdone, prudential regulator APRA announced the banks will have to hold an extra 3% of risk-weighted capital by 2024, to bolster their loss-absorbing capacity.  This was scaled back from its proposal in November of 5% as the banks wouldn’t be able to raise that amount of capital in time.  As an indication, this represents an additional $13 billion of capital for CBA alone.  The move will provide plenty of fodder for yield hungry investors in the years to come.

A second blow was delivered on Thursday after APRA ordered Westpac (-1.3%), NAB (+1.9%) and ANZ (-3.0%) to collectively set aside another $1.5 billion dollars to reflect their “higher operational risk”.  This was after the bank’s self-assessments revealed “gaps” in their risk management.  The ramifications from the Royal Commission continue …

Marijuana producer THC Global Group (+21.4%) was granted a Manufacture License from the Australian Office of Drug Control for its Southport Manufacturing Facility in Queensland.  The facility is the largest bio-pharma extraction facility in the Southern Hemisphere and will allow the production of 12 tonnes (!) of extracts per annum from early 2020.

Shares in Andrew Forrest backed biotech Invex Therapeutics (+28.3%) had tripled by Thursday, after listing on Monday.  The company is looking to repurpose a drug used to treat diabetes for conditions involving raised intracranial pressure (acute stroke, hydrocephalus etc) after the medication was found to reduce cerebral-spinal fluid secretion.  It would not be the first time a drug was successfully repurposed.  After-all one of the most commercially successful drugs in history made a similar transition (Viagra: from angina to erectile dysfunction to pulmonary hypertension).

Lastly, ACCC Chairman Rod Sims squashed Telstra’s hopes of purchasing the NBN, echoing statements from communications minister Paul Fletcher.  Both highlighted that the policy structure of NBN Co means it cannot be vertically integrated (i.e. owned by a retailer).  This extends to InfraCo, the soon-to-be spin-off of Telstra’s infrastructure assets.  However, Telstra’s share price did not flinch over the week (and the problem of unsustainable wholesale pricing of the NBN is yet to be solved).