Investment Matters

What matters this week

The US market had a fairly buoyant week, on the back of progress with the US tax reform legislation.  Locally, the announcement of the banking royal commission (impacting the share prices of the big 4), and a damp resources sector (understood to be because of commodity prices) weighed on Australia's market.

To local matters, Domino's has achieved great success with its online endeavors.  However, the pizza chain is in the centre of IP legal action, disputing who owns the Intellectual Property (IP) associated with the GPS tracking functionality it is using.  Now Domino's is making a cross claim, and the case is expected to start in Jul-18, at the earliest.

Mayne Pharma advised it is facing tough competition in the US generics market.  But the company is taking initiatives to try to stem the pressures and introduce new drugs, thereby improving financial performance.

Telstra's share price continues its downward trajectory.  This week was an unexpected whammy.  NBN announced a delay in the rollout of HFC based NBN, by 6 to 9 months.  It is due to technical issues using the HFC cable. The impact will be offset to a degree by retailing the HFC customers directly for a longer period (rather than through lower-margin NBN contracts).  However, there will still be a substantial $600m impact to the FY-18 earnings guidance (EBITDA, or earnings before interest, tax, depreciation and amortisation) for Telstra, to now between $10.1 billion and $10.6 billion.

It was ominous on Tuesday when Oroton shares went into a trading halt.  And sure enough, the company, which has been facing trading pressures and issues attempted entry into adjacent brands / channels (e.g. Gap Australia), went into administration on Thursday.  The goal now seems to be to save the iconic Oroton brand, but shareholders and most probably debt holders, won't be so lucky.

Collins Foods released H1 FY-18 financial result.  The market was disappointed, by a quantum of -5% on the day of the announcement.  The operator of Sizzler restaurants and KFC food outlets (and others), achieved underlying profit increase of 3.7% (vs H1 FY-17).  However, same store sales were sluggish, and no guidance for the full year was provided.

Billabong has received a takeover proposal (indicative and non-binding) from Boardriders (owner of arch rival brand Quicksilver).  With a troubled listed past, the $1.00 price is a 28% premium to Billabong's last trading price.

Also on the takeover front, oil and gas production and exploration company AWE (part owner of assets including BassGas [SA], Casino Gas [SA], Cliff Head Project [WA], onshore Perth Basin [WA], Tui Oil Project [NZ] and some projects in Indonesia and Texas USA) received a takeover offer (indicative and non-binding) from a Chinese state-owned energy corporation.  There may be some (insurmountable) foreign takeover hurdles on this one...  And the company's Board has given a preliminary indication that the offer isn't high enough to provide access to due dilligence.