Investment Matters

What matters this week

The AUD mattered this week.  It hit the physiological 80 cents barrier - whether this is a good this or a bad thing depends on your perspective.  Holiday to the US anyone?  It is generally considered a negative for Australia's economy and certainly isn't preferred by the RBA (Australia's central bank).  The last time the AUD was over the 80 cent barrier was mid May-15.

The driver behind the increase?  To ascribe cause in relation to currency markets is fraught, but in this case it certainly appears to be driven by the US Fed Reserve's indication that rate increases won't be too aggressive (however, it is going to pare back money printing aka bond buying, which was done as a, perhaps ineffectual, response to the GFC).  The AUD's movement is more about the weakness of the USD rather than the strength of the AUD.

To other matters of interest this week...

Downer EDI's play for the Spotless Group has taken a step forward this week with 72% of Spotless' shareholders accepting the offer.  [And yes many in the investment world, and elsewhere, are still scratching their heads about an engineering / technical services firm taking over Spotless - a services company with major operations in cleaning, hospitality, catering, laundry and facilities management.  But hey.  Spotless shareholders shouldn't mind, given the hefty $1.15 price they are receiving.]  Downer is now close to being able to de-list Spotless from the ASX, and as they have Board representation they have effective control over strategy and direction of the company. 

Macquarie Group held its Annual General Meeting, which in a quiet business week, garnered some attention.   Executive pay resolutions didn't fall over, but unsurprisingly there does seem to be an increasing focus and backlash about pay disclosure and quantum at the 'Millionaire's Factory'.  And surprise surprise there was a little winge about the government's new bank levy (which is set to be levied on Macquarie as well as the big 4 banks).  But to be fair, some of Macquarie's points are valid (unlike perhaps the squeals from the Big 4).  And as an international business they do have the option of relocating to another country.

GUD Holdings kicked off reporting season with an okay result.  The owner of three eclectic businesses Oats (as in cleaning), Davey (as in pumps) and Automotive.  It reported a net loss, but it was a lot less that for FY-16.  The underlying result showed strength in Automotive (assisted by acquisitions), but the other two businesses remaining under revenue and earnings pressure.

Rail freight operator, Aurizon, released unaudited earnings figures (EBIT within their previous guidance range), and more large impairments.  These were mainly in the bulk business (e.g. carrying iron ore and agricultural products).  The writedowns in this company reflect poorly on the earnings outlooks across many of their operations. 

The supermarkets are feeling the pressure, and they are consequently pushing that down to their suppliers - and in an increasingly public manner.  This doesn't mean they don't have a valid point.  However, Coles (owned by Wesfarmers) and Woolworths have some of the highest margins in comparison to their world peers.  Pot.  Kettle.  But anyway, this week Coles' point is that Australian's pay some of the highest prices in the world for products such as branded chocolate and Coca-Cola and baked beans.  And to ramp up that pressure on another Australian listed company, Coles is going to de-stock Coca-Cola Amatil's Mt Franklin mineral water because they view it as too expensive for its customers.