Investment Matters

What matters this week: RFG woes, US tax wins

Things usually slow down for the Christmas break.  But it doesn't seem to be the case this year, with many developments garnering our attention.

The tale of corporate woe continues to be Retail Food Group, franchisor for brands including Gloria Jeans, Crust Pizza, Donut King, Michel's Pattisserie, and Brumby's.  This week it announced that all brands, except Donut King and Crust, are performing below expectation.  H1FY-18 profit guidance is now ~$22m, versus $33.5m for H1FY-17.  A major shake-up is now underway, including slashing corporate costs and perhaps reviewing franchisee 'support' i.e. financial and non-financial compensation for franchisees (press reports indicate a number of whom are struggling to make a profit).  The company's share price graph has a similar profile to that of Myer, but quicker.  And to make matters worse, the company is now embroiled in a 'speeding ticket' (a request for information / confirmation of compliance with listing rules and disclosure requirements) to-and-fro with the ASX.

Source: IRESS, First Samuel

Trump's tax win (a win for corporates and the wealthy anyway) led to the first wave of announcements from Australian-listed companies with a US exposure - increasing their FY-18 profit guidance.  These included Ansell and Bluescope Steel.

It was another fairly significant week on the M&A front.  The biggest news was the $7.80 per share or $1.56 billion takeover offer for construction software firm Aconex from US IT giant Oracle.  Aconex's Board has recommended shareholders accept the offer.  Another big number, $1.03 billion, was offered for Metronode by US data centre giant Equinix.  Metronode owns data centres across Australia and is owned by a Canadian pension fund.  The transaction is interesting in relation to other listed players in the field, including Asia Pacific Data Centres.

Other takeover developments of note: Mineral Resources' (diversified mining play - providing mining services, as well as being a producer of iron ore, manganese and lithium) $526m acquisition of energy producer AWE is heading for done-deal status, under a binding scheme of arrangement.   Ardent Leisure has sold its bowling division, to private equity.  It is expected that the proceeds will be used to reinvest in its other capital-needing operations, including theme parks (Dreamworld), and its US entertainment centres.   ANZ has also been active on the divestment front - paring back its operations to more closely match what is suitable to the new regulatory world.  But its latest sale, the NZ business UDC Finance to a Chinese entity, has been blocked by NZ's Overseas Investment Office.

ANZ's asset sales and cash generation have allowed the company's Board to determine their balance sheet is strong enough to conduct a $1.5 billion share buyback.  One gets the feeling it will be interesting to look back on this in a few years time...

Downer EDI lost its preliminary contract (Letters of Award) with Adani, associated with the Carmichael coal mine.  This follows continued difficulties Adani is having in obtaining funding to develop the project - so Downer should probably be breathing a sigh of relief given funding uncertainty = getting-paid-for-services uncertainty.    And there were also smiles as Downer was awarded a $400m mining services contract for the Gruyere Gold Project Project (WA).

And finally, things are not all dire out there.  Dulux provided a positive trading update for the start of their FY-18 year (year end 30-Sep) - with good revenue growth, 'comfortably ahead' of the same period in FY-17.