Australian Equities sub-portfolio
Lynas Corporation (positive impact)announced that it has been awarded a Phase I contract to construct a heavy rare earths (HRE) separation facility for the US Department of Defence. The company had made a tender submission late last year. Phase I funding will allow Lynas to complete detailed planning and design work for construction of the facility. Successful completion will lead to further contracts for commercial-scale production and operation of a US HRE separation facility.
The contract and move to shore up domestic supply reinforces our thesis that Lynas’ technical capabilities and resources hold significant strategic value, being one of few rare earth producers outside of China.
Incitec Pivot (neutral impact) announced that it will not proceed with the sale or divestment of its Fertilisers business. Market conditions and uncertainty created by COVID-19 have interrupted discussions with potential buyers, with a demerger also not seen as being in shareholders’ interests. The fertiliser business is subject to volatility in pricing and weather conditions, however, is expected to benefit from recent widespread rainfall across eastern Australia.
NAB (neutral impact) announced a number of one-off charges that will impact its earnings in the first half. This includes an increase in provisions for customer remediation, a change in its software capitalisation policy and the impairment of the carrying value of its investment in MLC Life. We also note that while these changes will impact accounting earnings (or cash earnings) for the half they will not impact cash flow. Further remediation provisions were largely expected and the impact of these changes overall on NAB’s capital position is marginal.
Freedom Foods (neutral impact) provided a trading update to the market. Recent conditions (CV-19 purchasing) have resulted in increased demand for its products as well as customer interest in key channels and markets. Growth through the Retail Grocery channel has been above expectations in a majority of categories (dairy, plant-based beverage, cereal, snacks and speciality seafood). Sales have however declined in Out of Home (OOH) channels (MilkLab plant-based milk used in cafés and alike) which are expected to recover as a stay at home restrictions are eased. Demand for Lactoferrin (used in infant formula and pharmaceuticals) has also remained strong. The company has restructured its existing banking facility to allow for additional short term funding if needed (primarily for working capital) and is continuing with committed key capital expenditure projects.