Investment Matters

What Matters this week

Withering insurance business Freedom Insurance Group offloaded its policy administration business to an undisclosed buyer for $5m. The only remnant left of the company now is its Spectrum Wealth Management business. The sale price is a far cry from its peak market capitalisation of $220 million in mid-2017. Readers will recall that Freedom Insurance was lambasted during the Royal Commission for predatory sales tactics and questionable incentive structures, which led to a ban on the direct sale of life and funeral insurance through outbound calls. 

Cochlear (+8.7%) is aiming to claw back market share by releasing a MRI-friendly implant. The “Nucleus Profile Plus Series” implant is designed to be safe during routine MRI scans.  This follows concerns that the company is losing market share with the US, after a competitor launched an MRI-safe implant in August last year.

Brambles posted strong sales revenue on the back of price and volume growth across all regions (although volumes in Europe slowed as expected), while API (+2.0%) delivered a better than expected result, with like-for-like sales in its Priceline Retail network growing and operating profit ahead of guidance. Helloworld’s (+13.3%) result snuck under the financial press’ radar, posting an 8% increase in revenue for the 9 months to March compared to last year, and an improvement in operating profit of 14.7%.

There were few signs of improvement for vitamin manufacturer Blackmores (+2.4%) as it announced that net profit for the March quarter was down 43% compared to last year. While sales grew in China by 19% (on the back of a decline of 11% in 1H-19) sales in Australia and New Zealand declined by 26%, as the company redirected inventory to more profitable direct to China channels. This led to an overall decline in revenue of 4% and lower EBITDA margins (on the back of increased marketing spend). It appears that thus far that the company is getting little bang for its marketing bucks. Conveniently the company said that it is abandoning quarterly reporting from next financial year (to discourage the "short-termism" it was happy to indulge when its share price was rallying) …

Mortgage broking group Australian Financial Group (-3.3x%) revealed that lending activity has fallen to its lowest level in five years. Lodgement volumes over the March quarter were 10% lower than the previous quarter, and 15% lower than the March quarter of 2018.

Dulux’s shareholders woke to a pleasant surprise on Wednesday, with Japan’s Nippon Group offering to acquire shares in the company for $9.80 in cash, a 28% premium to its closing price of $7.67 on Tuesday. Dulux’s board has unanimously recommended the proposal, which (as always) will be subject to FIRB approval.

Shares in investment manager Pendal Group (-6.5% - formerly BT Investment Management) sunk as its subsidiary J O Hambro Capital Management recorded a net outflow of funds over the March quarter as a result of redemptions from its European, global, UK and Japanese funds. Meanwhile the rumour mill speculated that fund manager Perpetual may be running its ruler over Platinum Asset Management, as Macquarie Capital is reported to be working on an acquisition for the fund manager.

Lastly, the wave of remediation costs is yet to break for the banking sector, with NAB announcing on Thursday morning an addition $525m (after tax) remediation charge. Much like Westpac’s announcement last month this does not include remediation for service fees charged by self-employed advisers, which may result in this figure creeping upwards …

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

 

- Paul Grace