Investment Matters

What matters this week

The life of woe continues for retailers.  It started this week with Baby Bunting.  The company, which IPO'd in Oct-15, has delivered good top and bottom line growth, and had proven remarkably resilient to pressure being experienced by other retailers.  Until, that is, the trading update it released this week - with FY-18 earnings now expected to be flat vs FY-17.  The market was disappointed: down over 10% in the two days after the announcement.

Speciality Fashion (Katies, Rivers, Millers and others) held its AGM, also noting difficult trading conditions continuing into the start of FY-18.  It is taking fairly aggressive action to address the pressures, including reducing its 1,019 store footprint (as at 30-Sep-17) to around 700 by 2020.  It may also rationalise brands, and is implementing other cost reduction measures.

In a sign Woolworths is quaking in its Amazon boots - this week it reportedly openly threatened suppliers.  Basically us or Amazon.  If they sell through the latter, the supplier (read Woolworths) won't be able to control prices any more, and therefore Woolworths may destock the product/s.  And that really is the crux of the issue with Amazon.  The focus has been on which retailers won't be able to compete and survive.  The broader and more incipient issue will be margins, and therefore the impact on profits - as people either buy cheaper on Amazon, or use Amazon as price discovery thereby forcing other retailers to reduce their margins to get sales.

The week ended with the spat between Solomon Lew (of Premier Investments) and Myer.  The hostile atmosphere in the AGM currently being held (as we go to press), is set against the backdrop of Lew now reportedly threatening legal action (one assumes for the $39mill loss he has made on the shares since he purchased them - with the turn-around in Myer's fortunes, and sales, not coming to fruition in the time frame he hoped).

There were two IPOs which started trading this week.  There hasn't been too many 'stag' IPOs of late.  [A 'stag' is selling for a quick profit shortly after an IPO commences trading.]   Netwealth certainly was.  The company, who provides financial platform services, started trading $3.70, and rose to $5.51 as we go to print (+48.9%).  It is now trading on a forward P/E of 47.9x (source: IRESS, IPO prospectus).  Aaah, no.

People Infrastructure, a labour hire services firm,  also listed.  It achieved a nice little return for investors - trading at $1.36 as we go to print vs the $1.00 IPO price.  But it is now trading on a much more moderate forward P/E of 14.6x (source: IRESS, IPO prospectus).

Automotive Holdings, owner of car dealerships and a non-synergistic refrigerated transport business, has sold said refrigerated transport business.  The market liked that it had done so - +6.9% on the day of the announcement.

ALS, a global testing company - of everything from coal to food and pharma - released its H1 FY-18 results (for the 6 months ending 30-Sep-17).  It wasn't a bad result, but the market had got a bit ahead of itself in regard to the speed of a future commodity-driven ramp up.  Thus, the share price also had a reality check; down over 10% in the two days after the release.

And to wrap things up, the oil price has been getting a lot of press over the last week or so.  It comes with uncertainty over OPEC production levels, a major US pipeline (Keystone) break, and Saudi geopolitical jitters.  Energy stocks have benefited - generally up over 2% this week in a flat market.