Investment Matters

Company News: BHP and TZ

BHP announced the sale of the majority its US onshore oil and gas assets to BP for US$10.8 billion cash (and the sale of some smaller assets in Arkansas and Fayetteville to a smaller player for US$0.3 billion cash).  This announcement was not a surprise, given the company announced it was putting its US shale assets up for sale last August.

The company expects to return the net proceeds of the sale to shareholders (we believe it will be via special dividend/s).

BHP will take another US$2.8 billion impairment charge associated with selling the assets (on top of prior impairments on these assets).  Effectively this means the company used ~US$20 billion of shareholder funds and debt to buy the shale assets, earned very little on them, then sold them for billions in losses.

So, whilst we view the decision to sell these assets as the correct strategic decision, the write-downs show the decision by the company’s management and Board to purchase these assets was clearly flawed.  In no way should today’s announcement be seen as a win for shareholders.

Earlier in the week BHP also announced it has had a class action lodged against it – for disclosure matters around the Samarco dam failure.

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Smart lock company, TZ Limited, released its quarterly report. Whilst at a headline level revenue was 19% lower than FY-17’, the “core” or “high margin” product line (that is the businesses focus under its new Board and refreshed management) grew 40%.   As a result, gross margins continue to strengthen (53% for Q4, 52% for FY-18, versus 46% for FY-17 and 33% for FY-16), indicating that the focus on more profitable projects is working.  Cash flow was markedly improved vs FY-17, but was still negative.

Over FY-18 a lot of work has gone on behind the scenes at TZ, with operating and corporate expenses being cut significantly, and capacity and processes improved significantly.  The business has a new culture and attitude, and with the many growth opportunities that it has in front of it, we look forward to seeing its significant backlog and book for FY-19 being delivered (and as a result the business move towards positive cash flow and profit).