Investment Matters

Company news: Pact Group, TZ Limited, QBE, APN, Origin and Heemskirk

Pact Group, a manufacturer of containers that are used in a great variety of applications, is in some ways a bellwether for economic conditions generally.  And as currently articulated by many other companies, suggests that economic conditions remain difficult. 

This week it advised that trading conditions remained subdued, with April being particularly weak in rigid packaging.  Although it is still expecting to achieve higher revenue and earnings in FY-17, this is being supported by acquisitions and cost-out programs.  Underlying volumes will decline, and there are one-off contract start up costs, which will both act as a drag on earnings.

TZ Limited released its quarterly update with sales up 20% vs the prior corresponding period, although considerably lower than the Dec-16 quarter - the first quarter of the calendar year is seasonally slow.  We are cognisant of the company's cash position, which was in line with expectations for the Mar-17 quarter.

On some more positive notes, QBE Insurance held its AGM this week.  The company provided confirmation of key drivers for its earnings  - Gross Written Premium is expected to be relatively stable for FY-17 (=CY-17), combined operating ratio is forecast to be between 93.5% and 95.0% (compares to 94.0% for FY-16), and investment return is expected to be between 2.5% and 3.0% (compares to 2.4% for FY-16).  [A combined operating ratio under 100% indicates profitable underwriting results; above 100% is unprofitable.]

Also holding its AGM was APN News & Media.  It is soon to be renamed HT&E - Here, There & Everywhere.  The APN name was considered in need of change, as it reflected the company's (dated) heritage: Australia Provincial Newspapers (it no longer owns newspapers).  In relation to trading conditions, the company has started the financial year (FY = CY for APN also) with overall revenue is in line with FY-16.  Radio revenue is behind expectations.  Efforts to reduce costs have been undertaken, but contract cost increases means that margins and earnings are under pressure.  By contrast, Outdoor (Adshell) is experiencing more favourable conditions with revenue growth, and margin expansion.

Origin Energy also confirmed it is on track to meet its FY-17 guidance (with the usual stipulation of being subject to market conditions).  The guidance included underlying net profit between $480m and $590m.  Net debt is also forecast to continue its reduction, to be well below $9b.

Last Friday, Heemskirk released its quarterly update (to 31-Mar-17).  The company made very considerable progress on the construction of the Moberly frac sand project, now moving into final activities such as installation of mechanical connections and electrical connections and controls.