Investment Matters

What Matters this week

The All Ordinaries Index surpassed its pre-GFC high this week, closing at 6901 on Thursday.  This was in spite of the big miners (Rio Tinto -5.9%, BHP -1.1%) holding it back after a slight pullback in the price of iron ore. Brazilian producer Vale received approval to resume dry processing operations, which will bring back a small amount of production that was taken offline (following the Brumadinho dam disaster in January).  The remaining tons, however, will likely take several years to make their way back to the market.

Likewise, Fortescue’s (-5.2%) share price took a breather on Thursday after the 123% run it had in FY-19.  It has run slightly ahead of the 50% increase in prices over FY-19.  While it would be crass to call the recent price spike good fortune, it has allowed the company’s net debt levels to shrink by a third to $2.1 billion, despite its dividend and franking credit purge earlier this year.

It was business as usual at Macquarie Group (+2.5%).  Its presentation this week began by outlining its risk culture and conduct (not that it need to, being the only big bank to come out of the Royal Commission unscathed) and ended with highly regarded CEO Shemara Wikramanayake reaffirmed the group's guidance for FY-20, which is expected to be down slightly in FY-19.

Kogan (-5.4%) continued to collect customers on its march towards becoming all things to everyone.  The headline numbers: active customers are up 24.4% year-on-year, exclusive brand revenues were up more than 30% in 2HFY-19 vs 2HFY-18, gross transaction value was more than 9% comparing 2HFY-19 to 2HFY-18.  After a brief rally, it ended this week down.  This might have something to do with the fact it is trading at a forward P/E of 23 vs JB-Hifi’s 14.

Buy-now pay later providers continued to clamber for retailers, with FlexiGroup (+7.0%) adding 2000 locations since May to its humm buy-now pay later platform.  Not to be outdone, competitor Splitit (+27%) continues to marks its territory in Asia, adding more than 2000 online merchants in through a partnership with GHL ePayments.

Gold producer Regis Resources (-10.9%) posted a solid June quarter update, with production slightly above analyst estimates, however, it revealed costs were up circa 17% (All-in Sustaining Cost), with higher mining contractor costs and slightly lower grades.

It looks as if CEO Francesco Ferrari is hoping to shrink AMP (+2.2%) to greatness, with rumours that the company will let go of up to half of its advisers.  Meanwhile, AMP’s general counsel of Australian Wealth Management Lucinda McCann served her notice at the company.  The lawyer is moving to greener pastures at the prudential regulator APRA.  That’s right, from AMP to APRA.  Reassuringly, any potential conflicts of interest will be managed by ensuring Ms McCann does not handle any issues involving AMP for a whole 12 months.  Last week’s scathing Capability Review is no doubt already collecting dust at the bottom of the regulator’s drawer.

Meanwhile, IOOF’s (+12.2%) financial advice business surprised, with inflows of $432m over the June quarter.  The group overall saw inflows of approximately $800m over the quarter.  This is in spite of five of its directors and executives being on the road to disqualification due to their poor showing at the Royal Commission.

Lastly, Magellan’s (+5.9%) Hamish Douglas was all smiles talking to the media at his local McDonald’s, as his Magellan Fund hit a price of $60/share this week.  The fund’s share price has almost tripled since December last year, after funds under management increased by almost $17 billion or circa 22%.  While this growth has largely been on the back of strong investment performance, its current share price is looking rather bloated.

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

- Paul Grace