Investment Matters

What Matters this week: banks and farms, things can get worse for AMP, and oil

With Royal Commission hearings resuming this week, the focus has been on the farm sector.  The conduct of ANZ and its Landmark business was a particular focus, with ANZ admitting a number of failures.  Can’t wait for the two big questions to be addressed: 1/ on what planet has ASIC been? and 2/ how does such a huge and systemic mess get fixed from here?

And the banks (ex Westpac) are also getting on with selling the farm, so to speak – with CBA announcing a major spin off its wealth and mortgage broking business (synergies of combining wealth management and spivvy mortgage broking, hmmm).  Additionally the ANZ continues its downsizing, selling its retail and SME operations in PNG to the ASX-listed PNG-based finance services company Kina Securities.  Kina got a bargain.

And remaining on financial services, maybe ASIC (Australia’s corporate lapdog regulator) is starting to hear the beating drums re its inaction and enforceable undertaking slaps on the wrist – taking legal action against AMP for churning insurance clients (planners reportedly received kickback commissions for changing clients into policies that were not in their best interests).

French-based global JC Deceaux made a takeover offer for APN.  APN is the underbidder for HT&E’s Adshel business – more on this below.  Definition of what the ‘market’ is (outdoor advertising, or a level more defined) by the ACCC will determine whether one or both corporate actions get up.

In retail land, Metcash (retail wholesaler e.g. to IGA) reported a net loss of $149.5mill for FY-18 (ending 30-Apr-18), impacted by writedowns.  It is working hard to turn the tide at an operational level, with a green shoots of +4.3% group sales and their thin margins not being withered further.

Kathmandu (+12.0%) listed many different factors for booming sales.  Maybe it is as simple as it is b****y cold!  Well that is likely the biggest driver anyway.  It upgraded its FY-18 (ending 31-Jul-18) earnings forecast, to be 30% higher than for FY-17.

The booming oil price (pushing through US$70 a barrel) has flowed through to the share prices of oil and gas player this week.  Santos +5.7%, Beach Energy +5.9%, Oil Search +6.1% and Woodside Petroleum +3.8% (prices as at COT yesterday).

In resources land, NRW Holdings, principally a civil contractor in the resources sector and expanding e.g. into infrastructure, announced that its order book has increased to a near record level of $2.05bn, and it expects revenue growth in excess of 40% for FY-18.  Share price +9.1% after release of the announcement.  The mining downturn is well and truly over.

The iron ore miners are definitely not playing nice this week.  Fortescue Metals (Andrew ‘Twiggy’ Forrest) has made a formal complaint to the Takeovers Panel alleging misleading and deceptive conduct by Redstone (Hancock Prospecting, Gina Rinehart).  Both of them are not prepared to let the (maybe) strategic positioning of Atlas go.

It a "maybe" because Gina and Twiggy seem to be banking on the WA government changing its policy re the Port Headland facility.  This shows:

  1. how stupid Australia’s infrastructure situation is when major players need to take over a company to get adequate access to export facilities and
  2. what a precarious position the WA government has potentially put itself in through making informal statements that differ from policy.

And to wrap up, the international takeover giants are out on the town at the moment.  Gateway Lifestyle (retirement communities) turned into a two way battle between US-based Hometown and Canadian-based global asset manager Brookfield.  And APA (gas pipelines) is trying to solicit a counterbid from a US-based suitor, to the bid from Hong Kong based CK Group.  Two benefits – push up the price, and remove any FIRB ownership concerns.