What Matters this week
Welcome back to What Matters this week.
Unfortunately, a combination of a public holiday on Monday and a lack of news' flow post-reporting season has left us with less fodder than usual.
There were, however, a few happenings that got our attention:
Norway’s Sovereign wealth fund (administered by Norges Bank) made a decision to sell its investments in oil and gas related companies. Several prominent companies were caught up in the wave of selling including Woodside Petroleum, Beach Energy, Caltex, Santos and Sundance, which spilled over to companies exposed to hydrocarbon production more generally.
Tech high flier Appen (-3.2%) announced it would seek to raise $285m to fund the acquisition of Figure Eight, a rival firm, which looks to bolster the company’s ability to automate its annotation of unstructured data. Time is clearly critical in the AI race, Appen has decided to purchase Figure Eight for a sum of $428m as an alternative to the $4m cost and five years it would take to develop the same platform internally!
NAB’s Chairman issued a repentant letter, admitting NAB had “let down our customers, we have let down you, our owners. And we have let down the community”. Hopefully this signals a genuine desire to change the bank’s culture and is not the moral equivalent of a big bath 
January home loan data showed that home loan values dropped over 20% year on year, the worst fall since 2008. Adding to the bank’s woes, the Reserve Bank of New Zealand (RBNZ) has stood firm in its proposal for increased capital requirements. From an investor’s perspective the banking equation has become a lot simpler: slower loan growth, higher capital requirements and higher risk/compliance costs equal lower Returns on Equity (NAB: -1.2%, CBA: -0.3%, ANZ: -1.8%, WBC: -1.3%).
There were more political acrobatics this week as the government backflipped on its post-royal commission commitment to ban trailing broker commissions by 2020. In its place will be a review by the ACCC and the Council on Federal Financial Relations in three years' time. Shares in Mortgage Choice and Australian Financial Group responded accordingly (up 15.4% and 11.0% respectively).
In related news CBA has put a pause on the divestment of its collection of wealth businesses ("NewCo"). The sale has been put on hold until it get its house in order and the regulatory/political dust settles.
Shares in Sigma Pharmaceuticals plummeted, after API announced that its merger proposal issued late last year (at a healthy 41.8% premium to Sigma's then share price) has been rejected. API stated that the merger would have delivered a combined EBIT of $132m and was anticipated to generate $60m per annum in synergies. Sigma will instead proceed with its restructure which it estimates will achieve $100m per annum in cost efficiencies. It does, however, seem like Sigma is simply delaying the inevitable.
Buy now, pay later firm Zip Pay (+0.9%) announced the completion of a $42.8m placement (at a ~8% discount) and a share purchase plan (with retail holders capped at a not-so-equitable $5m!). The company is looking to pay down debt and increase working capital as it continues to chase growth (and AfterPay’s tail).
Retail Kathmandu (-3.4%) had more than just its disappointing sales growth over 1H-19 to groan about, after it revealed that it is investigating a hack that occurred early this year. I suspect we are still working our way down the tip of an iceberg, with a total of 262 notifications being made since mandatory data breach laws were put in place early last year (now averaging 80 per month!).
Kogan (-3.5%) announced a “win-win-win”, launching its online marketplace on Thursday, as it looks to extract more sales out of its customer base. This follows its announcements over the last few months of the Kogan Money, Kogan Super, oh, that’s right, a 6% drop in EBITDA for the half year to December…..
 The term big bath is used to describe a strategy by management to manipulate a company’s financial results to make them appear worse than they actually are, in order to make future results seem better.