Investment Matters

What Matters this week

We traversed rough waters this week (All Ordinaries -2.3%), with a swell of trade troubles capped off by some soggy economic data. 

Data pointed to dark clouds looming over the Australian economy, with a weak print for September’s GDP figures. Public spending and net exports largely kept the ship steady. In addition, we saw another weak retail sales number (flat, month on month for October) which was held up by food, coffee and smashed avocado (growth in food retailing and cafes, restaurants and takeaway food services).

Likewise, new vehicle sales continue to slump. VFACTS reported sales of new vehicles have dipped 8.2% for the 11 months to November, which weighed on companies in the auto industry, including AP Eagers (-1.5%) and Autosports Group (-5.0%).

Adairs (+25.3%) bucked the prevailing economic trends and did some spending, purchasing New Zealand based online furniture and home décor retailer Mocka. Mocka is vertically integrated, designing and manufacturing its own products. The A$75.5m purchase will allow cross pollination of products and cushion Adairs’ push into online retailing.

Outdoor advertiser oOh!media (+22.7%) provided a spot of green on the boards, upgrading its guidance for FY-20 earnings by 8% (at the mid-point) after downgrading earlier this year. It is likely the change in prospects has come from growing market share, given the recent slump we have witnessed in the advertising market overall.

Grocery wholesaler Metcash (-8.0% and supplier to IGA) booked a $237.4m write-down of its Food division, after losing its contract with 7-Eleven and almost $15 million in operating profit with it. On the positive side, the slide in grocery sales (ex-loss of its contract with Drakes) has arrested, although sales in hardware (Mitre10, Home Timber and Hardware) have slumped, with Bunnings encroaching into Trade and sales in Liquor (Cellarbrations, Duncans, Thirsty Camel) slowed, with volumes dropping as it leans towards a more premium range.

As foreshadowed, Caltex’s (-0.52%) Board shunned the offer made by French convenience retailer Alimentation Couche-Tard last week, with the indicative price of A$34.50 deemed to “undervalue the company” given its share price traded above the offer price last week. Its share price barely flinched after the announcement, indicating the market is giving the planned sale of half of its freehold convenience assets a huge tick.

In limbo (or perhaps purgatory) payments provider iSignthis (trading halt) spat the dummy, commencing Federal Court proceedings against the ASX after its shares have been placed in a halt for over two months. The company claims the exchange has not acted in good faith or afforded the company procedural fairness. This coincided with further requests for information as its operations and links to questionable institutions and merchants continue to be investigated.

Lastly, the Reserve Bank of New Zealand stuck to its guns – it will now require the big four banks to hold the total capital equivalent of 18% of risk weighted assets in New Zealand, 13.5% of this to come from common equity Tier 1 capital (vs the “unquestionably strong” requirement in Australia of 10.5%). There were some concessions, with the banks allowed to make up 2.5% of their 16% Tier 1 requirement from additional Tier 1 Capital (i.e. preference shares) and given an additional two years (a total of seven) to meet the requirements. The most exposed of the big four, ANZ (-0.6%), will not need to raise additional capital and rallied on the day (up 2.4% vs an average of 1.3% for the remaining three on Thursday).