Investment Matters

What Matters this week

China Mengniu Dairy's taste for Australian dairy remains strong, acquiring Lion Drinks and Dairy (maker of Pura, Vitasoy, Dare Iced Coffee, Big M) for $600m from Japanese company Kirin Foods. The company, which is partly owned by a state-owned enterprise purchased the company shortly after receiving FIRB approval to buy $1.5bn baby formula company Bellamy’s.

Convenience store operator Alimentation Couche-Tard, or, loosely translated “Late Night Feeding” made a bid for Caltex (+23.9%). The company received a non-binding indicative offer of A$34.50 per share. Announcement of the bid followed an announcement from Caltex that it plans to IPO a 49% interest in its service station freehold sites (which generate approximately $80-$100m in rental payments per annum). With the market now better recognising these assets and factoring in the potential takeover, its share price has climbed from ~A$28 to A$34.50.

Following on from last week, Westpac (-0.3%) announced a slight management and board reshuffle. On the alter were Chief Executive Officer Brian Hartzer, Director Ewen Crouch and Chairman Lindsay Maxsted, all of whom will depart the bank. Thus, it appears we have reached the conclusion of Survivor: Royal Commission, with ANZ’s CEO Shayne Elliot emerging as the winner – being the only Big 4 CEO to hold onto his crown. Later in the week (after discussions with ASIC) Westpac back-peddled from its recent (and conveniently timed) capital raising by giving shareholders, who nominated to participate in the company’s share purchase plan, the option to withdraw.

Those on the Afterpay (+6.6%) bandwagon breathed a sigh of relief as the company released a summary of the final report into its AML/CTF compliance by an independent auditor. The broad conclusions were that Afterpay’s business has little vulnerability to being used for money laundering or terrorism financing and that its current controls are now “more appropriately focused”. These conclusions however do not address the fact that the scope for the review was to investigate whether Afterpay “has contravened and/or is contravening” sections of the AML/CTF Act of 2006. The announcement also included a neat timeline of the evolution of its processes and AML/CTF compliance - which, mind you, highlighted that it took 3 years for the company to begin verifying the identity of its consumers. The report is still to be considered by AUSTRAC.

Lastly, retailer/property REIT Harvey Norman’s (+2.1%) remuneration report received a second strike at an annual general meeting, though its board survived a spill. Shareholders continued highlighting the usual grievances, including the structure of its board, previously perceived to be value destroying non-retail ventures and, of course, its lack of consolidated accounting. Like any sane, rational discussion, the meeting eventually became a forum for personal attacks, with Gerry Harvey asking would-be replacement CEO Stephen Mayne if he is a “sexual predator” – in reference to a list he published ranking female politicians by their attractiveness. Oh, and there were some murmurings about performance - comparable sales year on year to October for to the group’s Australian franchises more or less flat (0.6%) with the group’s international operations doing most of the heavy lifting.

Note: Price changes represent performance for the week to market close on Thursday afternoon.

 - Paul Grace