Investment Matters

What Matters this week

We slowly dipped our toe into reporting season this week with a handful of names reporting results.  This week also set another new watermark, this time it was the ASX200 that surpassed its pre-GFC high.  And then promptly fell by 1.5%. 

First cab off the rank was debt collector/lender Credit Corp.  While earnings per share were up 5% in FY-19, its forward guidance was under consensus estimates, which was reflected in its share price (-5.4%).

Infant formula producer Bubs continues to grow at an impressive rate, with its revenue in the fourth quarter alone exceeding numbers for FY-18 in its entirety.  Sales have boomed as the company has increased its presence in supermarkets nationally as well a rollout of its products in Chemist Warehouse.  The company is now “primed for profitable growth”.

Lynas’ (-5.0%) quarterly activity report revealed the company has been building inventory in low price environment of its rare (or technically not so rare) earth minerals for strategic customers.  Demand from China has been soft in the wake of the Chinese/American Mexican Standoff.  This double-edged sword, however, could leave Lynas sitting pretty if tensions escalate further (and Chinese rare earth imports to the US are limited), is one of few producers outside of China.

The big story this week revolved around allegations that Crown has been running money-laundering junkets for Chinese criminals.  Leaked files indicate Crown facilitated several suspect figures’ travel to Australia, aided by a “fast track channel” via Australian consular officials.  The allegations have been referred to a federal integrity probe to investigate federal officials’ dealings with Crown.  Meanwhile, Crown’s indignant retort to the allegations on Wednesday failed to quell investors’ nerves, with the company finishing the week 6% in the red.

The second biggest story came from Adelaide Brighton Company (-26.5%). The cement, lime and concrete producer signalled a ~25% downgrade to FY-19 earnings as construction activity remained subdued and raw material costs increased.  This marked the second downgrade in two months, with the company downgrading earnings by 10-15% in early May.  The market may have gotten a little ahead of itself in pricing in a post-election building recovery, with Boral (-6.8%), CSR (-8.4%) and Fletcher Building (-1.7%) also bearing some pain.

On a brighter note, Genworth’s half-year result showed little signs of mortgage stress, with delinquency rates only up fractionally.  Furthermore, new insurance written was up 20%, reflecting signs of moderation in the housing market.  This, in combination with the launch of a new “monthly” LMI product, buoyed the company’s share price (+10.9%).

There was some Sezzle in shareholders’ stakes this week as yet another buy now, pay later provider listed.  Minneapolis based Sezzle has a strong presence in the US, where it will be battling the now $6.7 billion valued Afterpay.  It debuted on the boards on Tuesday was up 72% for the week, with the current tech-crazed market more than happy to accommodate it.

Lastly, someone finally bothered to question Qantas’ 19.9% acquisition of fly-in-fly-out competitor Alliance Aviation (six months later).  The ACCC expressed “preliminary competition concerns” about the stake, which has “potential to impact Alliance’s future growth”.  Qantas is testing the waters, looking to take a majority stake in Alliance.