Investment Matters

What Matters this week

The All Ordinaries Index gapped lower on Monday after the US reacted to the arrest of Huawei’s Meng Wanzhou.  Understandably, the arrest of the CFO of China’s largest private company made the market a little jittery about the progress of trade negotiations.  The market slowly recovered over the week, with statements made by the Chinese government and President Trump (as well as Theresa May surviving a no confidence vote) helping ease the market's geopolitical jitters.  

Telstra walked away with a significant chunk of the 5G spectrum this week after purchasing 143 of 350 lots on offer for $387m.  Mobile JV (the joint venture between Vodafone and TPG) left with the second largest number of lots, acquiring 131 for $263m.  Telstra, therefore, paid a 70% premium per unit in comparison!

Speaking of the Telcos, it looks like the ACCC has some concerns around the planned TPG/ Vodafone merger.  It released a statement of issues on Thursday, which took the preliminary view that the merger could lead to less price competition in mobile as well as “less innovative plans for mobile customers”.  Shares in TPG took a tumble (-16.5%), with the market seemingly agreeing with the ACCC and re-rating Telstra as well (-2.5%).

IOOF’s Chairman and CEO stepped down early this week.  This was because of APRA launching proceedings on Friday to have management and senior executives disqualified from acting as superannuation trustees.

This doesn’t bode well for a company already facing significant change (as a result of the Royal Commission) and calls into question its deal to purchase ANZ’s dealer groups and pensions/investment business.  A statement by ANZ last week indicated that it was “assess[ing] the various options available” in light of the news.  Ouch.

Amazon continues to quietly chip away at brick and mortar businesses, with plans to launch its Subscribe and Save service early next year – the most popular subscription service in the US.  The subscription-based delivery service offers savings of up to 15% on regularly purchased items – with consumers in the US typically using the service to purchase consumer staples such as toilet paper and toothpaste.

The company is already selling over 2,000 food and grocery products from its website, some at prices that are reportedly below Woolworths’ cost price.  More competition is the last thing the food and grocery sector is asking for, with German hypermarket Kaufland gearing up for its Australian launch in the very near future.

Pathology service provider Sonic Healthcare raised $600m this week to acquire Aurora Diagnostics, a leading provider of anatomical pathology services in the US.  The acquisition will expand Sonic’s footprint in the region and increase its scale in the region. 

Lastly, in a widely anticipated move, Westpac received its first strike at its annual general meeting (AGM) on Wednesday with a 64% vote against its proposed remuneration report.  This came because of Australian Super expressing that it would vote against the resolution and reports that several other superannuation funds would do the same. The remuneration report proposed total remuneration that is largely the same as the previous year's (-5%), but more importantly reduced bonuses by a paltry 25% on average.  

The question is, what do executives have to do to not receive a bonus? Westpac has provisioned $281 million-dollars for customer remediations this year and had $19 billion dollars wiped off its market cap. All indications are that ANZ and NAB will face a similar backlash when they hold their AGMs next week ...

 - Paul Grace