Investment Matters

What Matters this week

It was a sleepy week with respect to news, juxtaposed on the frantic end-of-financial-year scramble occurring Australia wide.

Kogan (-4.1%) rolled out its latest vertical, announcing a partnership with Powershop Australia that will see it offering power and gas as “Kogan Energy”. The company continues to find new ways to capitalise on its 1.5 million plus user-base and now provides telecommunication, financing, insurance, travel services, internet, electricity ...

Metcash (-18.1%) continued to see a slowdown in grocery (IGA) and hardware (Mitre 10, Home Timber and Hardware), with group EBIT declining by 1.4% to $330m, which was below analysts’ expectations.  There were, however, green shoots to be seen in convenience (its small format model) and liquor (with more consumers purchasing “premium” products).

Viva Energy’s (4.4%) announcement of weakening refining margins was unsurprising, given Caltex’s profit downgrade the week before.  However, Its share price rallied as it broadly reaffirmed its earning guidance for 1H-19 that it provided in April, with retail sales volumes stabilising (after it is now in control of pricing) and a reduction in terminal and corporate costs.

Once again, this week Orr put ANZ (-0.6%) to the fire.  We, of course, refer to the Reserve Bank of New Zealand’s (RBNZ) governor Adrian Orr (and not leading council to the Royal Commission Rowena Orr).  Last month, the RBNZ removed ANZ’s ability to use internal models for calculating the amount of capital it has to hold to account for operating risk.  On Monday, the RBNZ ordered the bank commission independent reviews of its capital models and statements signed by its directors – which if found to be false or misleading can carry a maximum penalty of 18 months in prison or a $200,000 fine.

Drilling and mining services company Ausdrill’s recent acquisition of Barminco bore fruits, after it was awarded an A$800m 5 year underground mining services contract, giving the company’s share price a significant leg up (+19.4%).

Fast food chain operator Collins Foods (+8.8%) continued to show impressive growth.  Its KFC franchises in Australia continue to grow steadily (3.7% same store growth) although sales in Europe are trending in the opposite direction (-3.7% same store growth).

Domino's (+1.2%) was delivered a class action lawsuit.  The suit alleges employees should have been paid according to the Award rather than an Enterprise Agreement (between 2013-2018).  Analysts have estimated the impact could be $170 or $2 share if the case goes against the company, which caused its share price to dip sharply on the day but recover later in the week.

Likewise, Slater and Gordon (-8.9%) hit AMP (+1.0%) with a lawsuit centering around high administration fees and below market interest rates on cash-only investments.  One wonders how long the potential for future remediation costs will hang over the company’s share price.

Building product manufacturer and aluminium producer CSR (-2.5%) took the opportunity to publicly shame the government with regards to domestic energy policy.  The profitability of its manufacturing operations and Tomago aluminium plant (which accounts for 12% of NSW’s electricity each day) have dwindled in part due to higher gas and electricity prices.

Lastly, just in-case you forgot that we were in the era of quantitative easing, it was also a week when companies refinanced/raised debt at eerily low rates.  Rare earths producer Lynas (0.0%) extended its loan facility for another 10 years at a rate of 2.5% per annum (from 3.75%).  However, this was usury relative the terms of property trust Unibail Rodamco Westfield (-5.0%), which refinanced 500-million-euro worth of debt at a fixed rate of 1.75% for 30 years! 

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

- Paul Grace