Investment Matters

What Matters this week

Macquarie’s Australia Conference (held this week) can be viewed as a ‘mini’ reporting season, with several companies providing updates.

Nine Entertainment (+8.6%) jumped by 10% on Wednesday after it guided towards a 10% increase in operating profit (EBITDA).  The increase was attributable to its Stan streaming service, growth of 9Now and cost synergies achieved after its merger with Fairfax media.  The straggler of the group was Domain (-10%) (which it has a 59% stake in) which posted weak listing volumes, partly offset by growth in revenue achieved per ad.

Beacon Lighting (14.2%) was itself a beacon for the headwinds facing the housing sector and retailers this week, downgrading its guidance by 12% (at the midpoint) after a 11.6% decline in operating earnings for the financial year to date.  Meanwhile, JB-Hifi (-1.1%) continued to post better than expected sales while Super Retail Group (-8.8%) showed solid growth in sales but softening margins.

One we missed last week was Flight Centre (-10.6% last week) which stalled, flagging a 15% downgrade in its guidance for FY-19.  The company’s Australian business has seen a material fall in sales (total transaction value) in the crucial May-June trading period as well as rising costs (fewer employees paid $30k base salaries?) and margins (less price 'mark-ups').  Add a class action lawsuit by employees to the mix and there is little wonder its share price was in a tailspin.

Seek (+2.9%) firmed its position in online education, acquiring stakes in Future Learn and Coursera, as it looks to siphon learnings for its own Online Education Services.

Ebos (+2.2%) went to the market cap in hand this week, looking for NZ$150 in capital.  The placement, completed on Wednesday, will help bolster the company’s balance sheet and prepare it for the $100m in working capital required to service (newly contracted) industry goliath Chemist Warehouse.

Part of this inventory will be goats' milk, which is now on the menu for newborns in China.  Infant formula producer Bubs (+11.2%) announced a 100% increase in revenue in the third quarter after announcing a strategic alliance with Chemist Warehouse in April.  Almost 60% of this came in the month of March alone with sales in China up 884%.  Shares are now up 50% in two weeks (reminiscent of Blackmores and Bellamy’s?)

An announcement from Fund Manager Pendal Group’s (formerly BT Wealth Management) (-11.8%) weighed further on its share price (on the back of outflows from its subsidiary J O Hambro).  Its profit was down 26% after performance fees fell a whopping 91%.

The market gritted its teeth as two of four banks presented this week.  Headline results were sanguine, however hidden under the carpet there were signs of rot.

ANZ (-0.5%) posted an increase in underlying profit (excluding one-offs) of 2.4%.  Looking past the headline, however, much of this was due to strong trading performance and cost reduction, with retail lending continuing to decline in Australia.  More worryingly, the bank saw a sharp uptick in delinquencies with 5% of its Australian loan portfolio underwater (i.e. with negative equity).

Taking a lead from BOQ in April, NAB (+0.1%) cut its annual dividend by 16% while announcing a discount and partial underwriting of its dividend reinvestment plan (delivering some dilution for shareholders to boot!).  In a “more challenging operating environment” the capital raised will provide greater flexibility to “accommodate further regulatory change”, i.e. cope with a potential wallop from higher capital requirements by the RBNZ.

It seems that Woolworths (+0.8%) won the battle for Easter, with sales growth of 4.3% over the quarter beating out the 3.2% growth seen by Coles (0.0%).  Woolworths offered sharper pricing over the holidays, with the two supermarkets implementing price declines of 1.7% and 0.9% respectively (excluding fresh fruit and vegetables and tobacco).

Finally, Coles' former parent Wesfarmers (-0.9%) continued its hunt for rare elements by lobbing a takeover offer at Kidman Resources (+38.0%) (after making a less than cordial bid for Lynas in March).  The lithium producer received an offer at a 47% premium to its last closing price, which has the support of Kidman’s board and management.

 - Paul Grace