Investment Matters

Company News

WorleyParsons announced it has been awarded an EPCM (Engineering, Procurement, Construction Management) contract from Rio Tinto.  The 3-year contract is for the Koodaideri iron ore mine in the Pilbara (WA).

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BHP released its Q3 quarterly report (ending 31-Mar-19).  Production guidance for FY-19 remains unchanged for petroleum, copper, metallurgical coal and energy coal. Looking with more granularity at FY-19 close, petroleum production is expected to be at the upper end of guidance, whereas copper will be at the lower end.

Iron ore production has been impacted by Tropical Cyclone Veronica (impacting the Pilbara in Mar-19).  Guidance for FY-19 production volume has been decreased by 3.5% (at the midpoints), with unit costs also increasing from previous guidance of <US$14/t, to <US$15/t.

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Challenger released a disappointing Q3 update.  Total annuity sales were down 13% versus the pcp (i.e. the quarter ending 31-Mar-18).  Annuity sales in Australia were impacted by disruption in the local market (notably associated with the Financial Services Royal Commission) with lower sales through channels such as AMP and IOOF, and factors such as higher advisor churn.  Additionally, sales through Challenger's Japanese partner were lower.  This was due to higher US interest rates relative to those in Australia.  (Note that Challenger recently extended the agreement with its Japanese partner to include USD denominated annuities.)

The smaller funds management division had an acceptable result with funds under management increasing 4% over Q3, and a mixed funds inflow/outflow result.

We consider the Q3 performance as being driven by short-term factors.  The long-term outlook for growth remains positive for Challenger, given the increasing need for annuity products post retirement (with more people retiring, with higher superannuation balances).

- Fleur Graves