Investment Matters

Company news

As per the rest of us (hopefully anyway), it was a quiet time over the Christmas / New Year break.  There were, however, some developments of note in relation to your investments:

Aveo

Retirement operator Aveo made a significant step in finalising its exit from legacy operations, with the sale of the Gasworks property in Brisbane.

The retail, office and car park property, with two stages complete, and the final stage expected completion in Sep-18, was sold for an effective price of $284m.  Net proceeds (post transaction costs, tax etc) are expected to be $61m.

This equates to an 11 cent per security increase in Aveo’s NTA (net tangible asset) – a very good outcome.

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Moreton Resources

Moreton provided an update as it ramps up operations at the Texas (Qld) silver operation.  One of the first stages of the ramp-up is recovering silver from the ponds of the legacy operation.  Moreton advised that the pond sludge volumes are 3 times predicted (by an independent and credible third party) – which is negative because of the additional processing effort required, and it will cause a delay in moving into the next stage of the silver recovery operations.  But potentially it will mean a higher silver volume will be obtained from the legacy ponds than anticipated (depending on the concentration within the ponds vs the prior assessment). 

Also on the negative, damage has been found in the pond liners – requiring additional cost and effort to rectify.  Moreton advised it will take action to correct this, and ensure it does the right thing from an environmental perspective (which we obviously support).

Moreton also instigated a capital raising – a 1 for 10 rights offer at 12 cents per share, to raise up to $3.1m.  The proceeds will be used to continue to move its Texas silver operation into full production, to progress environmental and mining studies of the South Burnett Coal opportunity and to facilitate exploration (including drilling) of Twin Hills for copper.  First Samuel participated in the raising on your behalf.

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Paragon Care

Paragon announced two acquisitions – Insight Surgical (manufacturer of its own ophthalmic products, as well as a supplier of US and European products in to the Australian market) and Medtech Solutions (medical engineering, complementary to one of Paragon’s existing businesses).  Both acquisitions are expected to be EPS accretive in FY-18.  Additionally, Smiths Medical will become the first overseas medical products manufacturer to join Paragon in South Australia.

The company updated its FY-18 outlook.  As previously articulated, it is a highly seasonal business (with a large variation between H1 and H2 revenue and thus profit, due to customer budgeting).  This is expected to continue this year – actually to be greater than normal.  Full-year NPAT guidance of $10.5m-$11m is unchanged.  It has been advised that H1 NPAT is expected to be $2.5m-$3.0m.  It is also noted that the company is absorbing a number of one-off costs into H1, as it continues investing for the future.

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Primary Health Care

Primary announced it has acquired Brisbane Private Imaging, the provider of imaging (radiography) services at Brisbane Private Hospital.  While not material to the company overall, it will expand existing in-hospital services, and extend operating reach in the radiology sector.

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Suncorp

Suncorp announced the anticipated financial impact of the 19-Dec-17 hailstorm in Melbourne.  Claims, principally car and home, are expected to be between $160-$170.  Disappointingly, this means that Suncorp has again exceeded its natural hazard allowance – exceeding the reinsurance it has for natural hazards by $60-$70m for H1 FY-18 (the 6 months ending 31-Dec-17).   That said, we are still expecting a good result from Suncorp for H1 FY-18; just not quite as good as it would have been without this natural occurrence.

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360 Capital Group

360 Capital (comprising a company and a trust) announced security holders have voted in favour (98.8%) to proceed with a special dividend and associated capital reallocation.  The special dividend will be paid to the 360 Capital trust (no cash proceeds to be received by shareholders).  This capital re-allocation will facilitate the trust making real estate debt and equity investments (it is more tax effective to do so from the trust than the company entity).

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Emeco

Emeco released its Q2 trading update (for the period ending 31-Dec-17).  Earnings (EBITDA or earnings before interest, tax, depreciation and amortisation) increased 15%, as compared to Q1, and EBITDA margin increasing from 35% to 43% over the same time period.  The positive trend in earnings continued.  Pay-down of debt has also continued.

Operating utilisation (56%) was down slightly as compared to Q1, due to wet weather and redeployment of fleet (we consider the latter a positive in that redeployments / new contracts are being written at a better financial return than legacy).

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QBE Insurance

QBE downgraded profit guidance for the financial year ending 31-Dec-17 (for QBE CY = FY).  It comes on the back of a 2017 year which had significant global disasters, and thus is not unexpected – but is nevertheless disappointing.

QBE noted impacts from the California wildfires and December storms in Melbourne, along with Hurricane Maria earlier in the year.  The company also has increased provisioning for future losses.  All this will mean a reduced insurance margin and profit for the 2017 financial year.

Additionally, QBE has advised it has taken two write-downs.  Firstly, the US tax cuts will cause a US$230m decrease in the deferred tax assets the company has on-balance sheet (associated with past losses).  Secondly, the new CEO has written down the value of North American intangible assets by US$700m.  We view this as a re-baselining by the new CEO (commenced on 1-Jan-18). 

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TZ Limited

TZ released its Q2 (Dec-17) quarterly update.  Significant progress is being made on restructuring and repositioning the business, for instance, a focus on higher margin sales opportunities (gross margin up to 50% for the last six months), and Board costs reduced by 74%. 

Several large projects are in the pipeline and pending finalisation, which will boost second-half work on hand.  The company noted the timing of revenue and associated earnings is uncertain (ability to book it in FY-18) due to the timing of shipments and installations.

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Threat Protect

Also releasing their Dec-17 quarterly update was Threat Protect.  Operating revenue for the quarter was $3.5m, slightly ahead of target and representing a year-on-year revenue growth of 47%.  Over the quarter, Threat Protect acquired seven monitoring client bases (equating to 2,861 monitored clients, which were previously wholesale clients – and are now more profitable direct clients).