Investment Matters

What Matters this week: Royal Commission fallout continues, downgrades, but a little positive news

AMP's Chairman resigned: inevitably (especially given her role in the ‘independent’ expert's report manipulation), but seemingly begrudgingly.  Two steps taken (CEO resignation = Step 1.  Chairman resignation = Step 2).  The marathon of real reform has begun (hopefully).

Alinta made a ‘bid’ (highly conditional, non-binding, $250m indicative only) for AGL’s Liddell Power Station.  I could be eating humble pie, but I'm willing to bet AGL will tell them to go jump.  Especially if the nitty-gritty of the seemingly low ball offer means AGL retaining liability for environmental remediation, performance requirements for the power station, etc.

When it rains it pours for the CBA.  On top of the Financial Services' Royal Commission, it has lost 20m customer account statements over 16 years (names, addresses, where people had been shopping).   They may have been destroyed...  AND an APRA report released this week was damming (to say the least).  Including in regard to the conduct (or lack thereof) of the Board.  Brief summary (my words): rolling in profits for a decade (driven by the housing boom) = complacent, risky and ineffectual organisation that needs a third party to tell it how to manage itself.

APRA’s (Australia’s financial regulator) response: took strong action by using its powers to insert its own representative/s on CBA’s Board, thereby ensuring cultural, risk management and management change is enacted by the company – after all there isn’t a much better case to use such power as in this situation.  It asked the company to agree to $1billion extra capital [as compared to the $54billion Tier 1 capital it already held at 31-Dec-17, i.e. meaningless], which, surprise surprise, the company said yes to.

Staying on the banks, NAB is going to divest MLC its wealth management division.  It also released a good headline first half (ending 31-Mar-18) cash profit, but one-off ‘restructuring’ changes dragged down the result.  What is 'above' or 'below' the line is starting to get blurry…  The dividend was unchanged versus pcp.

ANZ’s first half result slightly disappointed the market.  Cash earnings were ~flat versus pcp, and the dividend was unchanged.

The downgrade of the week goes to JBHiFi.  The Good Guys acquisition is becoming an increasing drag on the company, with sales from the whitegoods retailer again disappointing vs expectations (= share price fall 9%).

And the downgrades haven’t been limited to JBHiFi.  It has been downgrade city out there this week, notable for Servecorp (serviced offices) and Genworth (mortgage lenders insurance).

But is wasn’t all negative, with positive announcements / updates from Qantas, SuperRetail Group, Woolworths (pretty good sales figures), Macquarie Group (strong profit growth for the year ending 31-Mar-18), and ARB (4WD accessories).