Investment Matters

What Matters this week: Wesfarmers, GetSwift, Myer, Magellan and LifeHealthCare

The week started with a mea culpa from Wesfarmers.  Bunnings UK and Ireland (known as Homebase) is not going well – with significant writedowns ($953m, ouch), along with an expected loss of $165m for H1FY-18.  The company is looking at ‘actions required to improve shareholder returns’.  But such actions are unlikely to reverse the value destruction that shareholders have incurred to date.  Wesfarmers also took a writedown ($306m) on its struggling Target operation.

But Wesfarmers did fess up.  Unlike, it appears, GetSwift (delivery management software for the 'last mile').  The company is in hot water, and suspended from ASX trading, due to disclosure issues.  In 2017 it had announced it had been awarded a number of contracts (including with Amazon and Fruitbox).  Contracts (or any piece of news) should be announced to the market when they are materially significant.  And it did a major capital raising. 

But it appears trial contracts were given more significance than they should have been and contracts that were lost were not announced (even though their award was announced), as the company decided that contracts that were significant in the past weren’t so anymore.  Hmmm.  The ASX is saying hmmm also.  Now PWC have been engaged to sort out their disclosure governance.  And a second director has fallen on their sword in a little over a week.  Waiting on a class action announcement...

Myer put out an announcement today.  It wasn’t good.  January sales were down 6.5% on the previous stocktake sales period (Jan-17) – which follows disappointing sales result at the end of last year.  Share price down 8.5% (aaah; it keeps going down, as I type) (now @ 59 cents vs float price of $4.10).  It comes in the same week as Premier Investments’ Solomon Lew is apparently set to again agitate for Board changes.  But Myer’s other major institutional investors have been sticking to the status quo in the context of the Board.  Separately, given the operating trend and balance sheet (including an accounting change to bring leases on balance sheet), bring on the capital raising – the sooner the better for all concerned.

On the M&A front, listed fund gather Magellan acquired two funds, one Australian (Airlie) and one based overseas.    LifeHealthcare (medical devices) received a takeover offer from private equity player Pacific Equity Partners, at $3.75 per share (vs last close $2.57), or an EV/EBITDA of 10.8x.

It wasn’t all doom and gloom this week.  Actually, there has been a number of good company announcements, many kicking off company profit reporting season in a positive light.  They include:

* CIMIC (construction, mining services, PPPs, including names such as Theiss, Leighton and UGL) reported a net profit up 21% plus upbeat outlook.

* Carsales (online auto retailer) reported H1FY-18 revenue increased 12% half-on-half, and profit up 11% half-on-half.

* Defying the retail trend, Nick Scali grew revenue 8.1% and profit 15.0% in H1FY-18 (vs H1FY-17).

* Macquarie Group advised trading conditions had been ‘satisfactory’ for the Dec-17 quarter, and that it expects 10% profit growth for the FY-18 year (ending 31-Mar-18).

* AMP delivered good growth in wealth earnings, a return to profit for life insurance (noting the difficult backdrop in this sector for a number of years), good returns and inflows into the capital investment business, and good earnings from the bank division.

* AGL Energy did deliver a 27% increase in underlying profit, with higher wholesale electricity prices flowing through to the bottom line.  But scratch the surface and there may be a few challenges arising in the retail side of the business.

* NAB’s Q1 trading update (ending 31-Dec-17) was generally viewed in a positive light by the market.