Investment Matters

What Matters this week

Coles’ margin on its supermarkets are thin (but no too bad vs many global peers).  For home delivery, they are even thinner.  And along is marching Amazon, and others, trying to get a foot in the grocery home delivery space.  So this week Coles announced a deal with UK-based Ocado – to be the foundation of a new online offering.   The robots made me smile.

Meanwhile, Wesfarmers wants to put to work some of the capital it didn’t have to invest with the old Coles ball and chain.  Rare earth miner Lynas Corp wasn’t that receptive however, saying no thanks to the $1.5 billion conditional offer (at a 44.7% premium to Lynas’ share price immediately before the announcement).  But Wesfamers’ shareholders weren’t that enamoured either, given such little technicalities such as geopolitical risks.  Thus they sent a memo, via a share price fall of 3.5%, to their Board indicating they weren’t in favour either.

Eclipx Group’s (financial services such as fleet management, online auctions and car financing and leasing) shares have risen 18.8% after the company said it might have buyers for two divisions Grays and Right2Drive (at what price though…).  It also provided a little bit of confidence that it isn’t about to breach its debt covenants (i.e. potentially be put in administration).   It was a small relief rally.  “Small” because it came after last week’s disastrous earnings downgrade and resultant 56% share price fall on the day of the announcement (with another 12% the subsequent day, and same again on Monday this week, and again on Tuesday this week). MacMillian Shakespeare escaped by the skin on its teeth, getting out of its quite imminent takeover of Eclipx.

Macquarie Group is tracking along quite nicely, indicating FY-19 earnings are forecast to be 15% higher than FY-18. Commodity risk products (e.g. derivatives) are a major driver, with other areas such as banking and finance, and asset management, more benign.

Intellectual property (IP) lawyer IPH received ACCC approval to pacman its smaller rival Xenith IP Group.  However, Xenith’s Board is recommending a rival bid from another rival QANTM.  IPH should be pleased the Xenith/QANTM Scheme Meeting scheduled for 3-Apr has been delayed (driven by the ACCC decision) - keeping their counterbid alive.   The IP children aren’t playing nice, and this week means IPH remains alive and kicking (it has been doing the latter since acquiring a 19.9% stake in Xenith in an attempt to circumvent QANTM).

Prize of the week goes to the person how can tell me how many downgrades McGrath Real Estate has had since it listed with much fanfare in Dec-15 (at $2.10 per share).  After market last Friday (nice one) it announced that lower listing volumes, and property price declines in Sydney and Melbourne, are making things worse than ever.  The share price hit an all-time low of 24 cents on Monday.  And it also indicated FONGO is kicking in.  (FONGO = fear of not getting out, the antithesis of FOMO).

There was a successful IPO this week: Ecofibre, a producer of hemp-based products (from food, nutritional products, and textiles to pharmaceutical cannabinoids), has a market cap of $179m after its share price rose to $1.545 (as we go to print).  The IPO offer price was $1.00.

And we still can’t finish What Matters without a note on the continued Royal Commission fall out.  In a week where ASIC had to remind the banks to obey the law (and also expressing an associated disgust and disbelief for having to do so), Westpac announced another $260m hit to cash earnings - for more remediation costs.  And there will be more to come…

- Fleur Graves