Investment Matters

What Matters this week: impact of the Royal Commission, capital raisings

What matters - the Financial Services Royal Commission dominated the market commentary this week.

More on this in W&D, and more on it from the perspective our your portfolio below.  But a couple of quick points first:

AMP's Chief Executive Officer, Craig Meller, resigned today with immediate effect.  This was destined to occur - you can't be CEO of a company who has openly admitted to lying to ASIC on multiple occasions without very significant ramifications.  And the resignation of the Chair is just as inevitable.

The updated graph of the share prices of the banks, with AMP now added, is provided below.  The impact of AMP's testimony this week is clearly visible.

Source: IRESS, First Samuel, Banking Royal Commission Website

Please note we intend to update this chart as the Royal Commission holds more hearings in the future.  This chart does not account for other factors that may impact the share price of one or more of the banks or AMP.

To other news this week:

Data centre operator and developer NextDC has conducted a substantial capital raising to fund the acquisitions of properties in Melbourne, Sydney and Perth, as well as to assist with the development of the second Perth data centre P2.  This raising was a lot earlier than the market was expecting, as the company is some way off finalising and getting adequate occupancy levels at the centres it is currently developing and ramping up.

Fletcher Building, a New Zealand-based global building and construction products company, has been in the spotlight with speculation that Wesfarmers may be interested in buying it.  This week (and with the timely assistance of the takeover speculation's impact on the share price), it conducted a meaningful (NZ$750m) capital raising to strengthen its balance sheet, and also announced plans to sell some underperforming businesses.

Another notable company raising capital this week was Link Market Services, a provider of data administration services including, for instance, for equity investors.  The proceeds will reduce corporate debt and provide flexibility for future acquisitions.

Theme park operator Village Roadshow was penalised 15.2% by the market, after downgrading their earnings outlook.  Factors driving this were wet weather and negative impact from the Commonwealth Games.

Perpetual released a disappointing quarterly update.  Net funds outflow and negative market movements equating to FUM decline of $2.6billion, as well as a share price fall of 11.4% over the week.

In another sign of tough times in retail, Australian Pharmaceutical Industries (API), wholesale distribution and retail pharmacy (Priceline) operator, released a H1 FY-18 financial report (ending 28-Feb-18) ending slightly above expectations, but none-the-less 8% lower than FY-17.  Negative like-for-like sales decline for Priceline was of note in this regard.

And generally, mining and resources companies, including the smaller ones, have been quite buoyant over the last week.  A number of positive quarterly reports and upbeat earnings outlooks are factors influencing this.