Investment Matters

Company News: Q3 reports, Cardno and 360 Capital

It was a week of quarterly updates.  Let’s start on these:

BHP released slightly downgraded production guidance for iron ore.  It was due to car dumper (big piece of machinery that empties whole rail wagons of ore) issues.  FY-18 guidance is for 272 to 274Mt (was 275 to 280 Mt).  The company also noted it is expecting bids for the onshore US energy business it has put up for sale by Jun-18, with conclusion in H1 FY-19.


South32 continued its strong cash generation in the Mar-18 quarter – US$477m, further strengthening the company’s net cash position.  FYTD production volumes were mixed (as compared to the previous financial year): manganese and nickel were higher, alumina and energy coal were down slightly, operational issues in NSW coal operations substantially reduced metallurgical coal production, and challenges relating to the ore body at the Cannington mine impacted silver, lead and zinc production (although the Mar-18 Q3 production improved).


Challenger Financial released its Q3 update and it is on track to meet its normalised (i.e. excluding market movements) guidance for net profit before tax.  Total assets under management increased 3% over the quarter.  The Funds division increased funds under management principally because of net inflows, further assisted by positive market movements.  The Life (annuity) business was mixed, with MS Primary (AUD annuities sold into the Japanese market) sales being the principal driver of lower total sales for the quarter.


Emeco released its Q3 update.  Earnings growth continues, on the back of improving demand and industry dynamics.  EBITDA (earnings before interest, tax, depreciation and amortisation) for Q3 was $41m, 15% higher than the preceding quarter Q2.  Margin remains in the low 40% range.  The increase in earnings was driven by a full quarter of contribution from the Force acquisition, redeployment of fleet, new project wins and expansion to existing projects.  Operating utilisation was 61% (vs 56% for Q2).


And to other matters:

Cardno’s newly appointed CEO (1-Mar-18) had previously worked for engineering firm SMEC, and allegations have recently been raised against him by the AFP regarding foreign corruption during his time at SMEC.  Cardno announced the CEO had been terminated by the company’s Board after he failed to follow directions of the Board in regard to this issue.  We consider this to be a positive in that Cardno’s Board and major controlling shareholder are acting to ensure the strong reputation of the company, and are reinforcing a positive corporate culture.


The Asia Pacific Data Centre (APDC) REIT, 67.3% owned by 360 Capital, has taken legal action against NextDC, seeking a declaration that NextDC should allow landlord access for property inspections.  Additionally, it is seeking a ruling whether NextDC has breached its lease obligations by preventing access to the M1, S1 and P1 data centre properties owned by APDC.