Investment Matters

What Matters this week

Woolworths (+1.0%) announced on Monday that the proceeds from the sale of its petrol business are to be returned to shareholders to the tune of $1.7 billion.  The funds will be returned as part of an off-market buyback (as companies rush to purge themselves of franking credits pre-election).  Mixed in with the good was the bad: the company will shut 30 Big W stores over the next three years and two distribution centres.  The closures will cost the company $270m in cash, while Big W is expected to generate a loss of $80-100m for current the financial year (FY-18 -$110M).

Personal care and hygiene company Asaleo (-0.6%) announced that it has completed the sale of its Australian Consumer brand to Solaris Paper Pty Ltd for $180m.  The sale will see the transfer of iconic brands including Sorbent, Handee Ultra and Deeko.  Shares were up 44% when the divestment was announced in December.

Millennial-fuelled rocket ship Afterpay (+12.2%) reached an all-time high on Tuesday, which officially marked its entrance into the $5 billion club.  As we have highlighted, high prices bring high expectations and with the company sitting on a forward P/E of 193 (Source: Iress), investors had better hope the company is able to meet them.

Private equity firm KKR’s bid for MYOB (+1.5%) looks to be on firm footing, with majority shareholder Manikay Partners indicating they would vote 'for' the $3.40 per share bid.  This comes after what you may call a dragged out process - several buyers have run their ruler over their company all the way back to 2011 including Blackstone, Sage Group and Hellman & Friedman.

Fortescue Metals Group (+8.3%) is looking to bolster the grade of the iron ore it produces, approving stage 2 of its A$3.6b Iron Bridge project.  The company will develop its more-difficult-to-process magnetite deposit which is expected to produce ore with 67% iron content, producing 22m wet metric tons per annum once ramped up.

Incitec Pivot (+2.6%) won the award for the most material information in a single announcement.  It flagged that its results for 1H-19 will be impacted by the drought, with a drop in fertiliser sales resulting in a $20m hit to FY-19 EBIT.  It did, however, revise its estimate for the impact of the Queensland rail outage it experienced in February down to A$60m (previously A$100m).  It also announced that its Single Super Phosphates (SSP) manufacturing facility in Portland will be closed and consolidated to its Geelong operation.  And on the last page, just-in-case (or so) you missed it, it announced its Louisiana Ammonia plant was experiencing issues (again) and had to be taken down in late March.  The net result of all that?  Its share price rallied.

Adding insult to injury, fleet management and novated leasing company Eclipx (+29.7%) will be reimbursing McMillan Shakespeare for $8.2m worth of legal fees after a proposed takeover fell apart on the back of the firm’s worsening financial performance.  Eclipx’s share price has fallen by a whopping 73% for the financial year to date.

After a recent bid from Long Term Asset Partners (LTAP) went quiet, Graincorp (+0.3%) has announced plans for a demerger which will see it split into 'MaltCo'- comprising its global malting business and 'New GrainCorp' – comprising its integrated grains and edible oils business.  It seems that the company has stolen some of LTAP’s thunder, indicating it is evaluating a “grain production derivative instrument” of its own to reduce cash flow volatility.  Wonder where they got the idea for that from …

Lastly, it looks like consolidation of the auto sector is in full swing, with AP Eagers (+4.4%) launching an all-scrip (share based) off-market takeover bid for Automotive Holdings Group (+13.5%) representing a 7.67% premium to its price at last close.  The merger would produce Australia's largest retail automotive group (pending ACCC approval of course).

 - Paul Grace