Investment Matters

What Matters this week

It was a week filled with oddities and corporate shenanigans.

They kicked off on Monday as the Malaysian Government revealed it has been in talks with Wesfarmers over rare earths producer Lynas' (-1.4%) operating license.  Wesfarmers made an indicative offer for Lynas several weeks ago, which was promptly rejected, however, this did not stop the company from interjecting (even though it does not own or have a stake in the company!) in what have been delicate discussions around Lynas' future in the country.  Discussions involved plans to build a processing facility to remove radioactivity from materials before sending them to Malaysia. This has somewhat forced Lynas’ hand, as the Malaysian government has now indicated this will be a key requirement for Lynas to retain its operating license.

Flight Centre (-0.7%) continued its push into the corporate travel market, purchasing a 25% stake in The Upside Travel Company.  The purchase gives Flight Centre access to the company’s technology and software development, including its “cutting edge artificial intelligence”.

On Wednesday, Wynn Resorts performed a disappearing act.  Its take-over offer for Crown Resorts (+12.2%) on Tuesday (of $10 billion dollars or the equivalent of A$14.75 per share – a 25% premium!) evaporated before the market had a chance to blow the dust off its calculators.  The proposal, which was disclosed by the Australian Financial Review, was promptly withdrawn due to “premature disclosure of preliminary discussions”.  It appears the global casino hotel giant did not take kindly to the disclosure of what appeared to be confidential discussions.  The offer has, however, hung a giant “for sale” sign over Crown Resorts.  This might explain why its share price remains elevated (or perhaps there is a belief that the bid might again reappear).

Shares in Seven West Media (+10.4%) were given a kick as it disposed of its 50% interest in Yahoo7.  The sale for $20.7m to Verizon Media was on the back of progress attracting visitors its wholly owned news website.

In a sign of waning confidence in the retail sector, LendLease (+1.2%) put half of its stake in Adelaide’s biggest mall, Westfield Marion up for sale.  The sale is in response to withdrawals by investors late last year and maybe an omen for the retail property values moving forward.

Domino’s Pizza (-3.2%) paid $4m for 20 “rat-infested” stores in Denmark after their local operator went into administration.  This comes after a local Danish TV show exposed the use of expired food, poor hygiene and rat infestations in the franchises.  Ambition is something Domino's definitely isn't lacking (just take a look at how many times it has missed guidance over the last few years ...).

Independent wealth management platform Praemium (-18.9%) sunk like a stone on Monday after losing a key customer in ANZ Private (responsible for 8% of its revenue) to competitor NetWealth.  The highly priced independent wealth management platform sector (which has a market value weighted P/E of 63) has been rapidly taking market share from larger incumbent platforms.  This latest development shows that competition between platforms may be heating up (and their valuations may start to look a little more 'fragile').

The Bank of Queensland (-5.7%) released its 1HFY-19 results, which revealed its cash earnings after tax was down 8%.  It was hit by a double whammy of slowing demand for home loans (resulting in discounting, which reduced its net interest margin) and increased regulatory and compliance costs as a result of the Royal Commission (causing operating expenses to grow).  It has subsequently revised down its profit outlook for FY-19 and cut its dividend.  A sign of things to come?

Note: Price changes represent performance for the week to market close on Thursday afternoon.

  - Paul Grace