Adairs Ltd (ADH):
Homewares retailer Adairs expects earnings to grow at least 7 per cent this year after blaming unfashionable bed linen for a 23 per cent slump in net profit in 2017. Chief executive Mark Ronan said on Monday same-store sales had risen 13 per cent in the first eight weeks of 2018, after falling 1.4 per cent in 2017, underpinned by demand for a new range of more fashionable sheets, doonas and throws. ‘‘The improved sales gives us increased confidence that we are on the right track, and that the changes we have made to our product offer throughout 2017 are gaining traction with our customers,’’ Mr Ronan said. Adairs’ net profit fell 22.6 per cent to $21.2 million in 2017 after a ‘‘fashion miss’’ in the second and third quarters forced the retailer to slash prices to clear excess stock. Earnings before interest and tax fell 21.5 per cent to $30.8 million, compared with revised guidance of $30.5 million to $31 million, but EBIT was flat in the June-half after falling almost 40 per cent in the first half. Total sales rose 7 per cent to $264.9 million (adjusting for an extra week of trade in 2016), swelled by 13 new stores, but same-store sales fell 1.4 per cent after Adairs missed sales because its bed linen range failed to keep up with trends amid increased competition from international retailers such as Zara Home and discount department stores Kmart and Target.
BHP Billiton Limited (BHP):
BHP’s Gregory-Crinum mine, which was unsuccessfully marketed back in 2013, shares borders with Glencore’s strike-bound Oaky Creek complex and with Rio’s Kestrel mine. Given Rio is a seller, it would seem some sort of consolidation play might be possible there. But these are options long appreciated and, so far, left well alone. The anti-coal lobby will see affirmation in the lengthening list of assets available for sale. That is fair enough. But the biggest problem in marketing an existing coal mine is that you are also attempting to sell its operational and functional legacy. Take Rollerston, but as an example only, because I am pretty sure no one in the wide world of coal is going to be interested in taking the thing off Glencore’s hands.
Commonwealth Bank of Australia (CBA):
The prudential regulator’s dramatic intervention in the affairs of the Commonwealth Bank of Australia does not augur well for the tenure of the current management team and the board of directors. The public report stemming from the Australian Prudential Regulation Authority’s independent inquiry into CBA’s governance, culture and accountability will form the roadmap for the transformation of CBA under a new chief executive. At this stage it is highly likely chief executive Ian Narev, who is retiring by June, will be replaced by an outsider. S&P Global said any ‘‘material adverse findings’’ from the Australian Prudential Regulation Authority’s review into CBA’s governance, culture and accountability could weaken the bank’s credit profile. The ratings agency also said any indications of weaknesses in CBA’s governance and risk management frameworks uncovered by the inquiry or material damage to its reputation could also weigh on its rating, which is already on a negative outlook.
Estia Health Ltd Downer (EHE):
The beached and broke Ten Network has been swallowed by US broadcasting giant CBS and, hilariously, not one of the legion followers of this seven-year debacle imagined (let alone predicted) it. When Hamish McLennan ran the ‘‘young at heart’’ station, media scribes could accurately preempt the frequency and consistency of its shareholders’ each and every bowel movement.The gravest omission (apparently) in our Monday analysis of Estia Health’s belttightening was the identity of the aged care operator’s second largest shareholder, Kerry Stokes , whose entities speak for 8.54 per cent of the register.
Japara Healthcare Lytd (JHC):
Investors punished aged care operator Japara Healthcare, stripping more than 12 per cent from the stock after its 2017 profits and distributions fell. Japara’s 2017 full-year earnings slipped 2.3 per cent to $29.7 million. Distributions fell as well, with a final dividend of 5.75¢ per share taking the total payout to 11.25¢. Last year it paid out 11.5¢ in total. Adding insult to injury, the final dividend was 70 per cent franked. Japara closed down 25¢ to $1.77. An increase in depreciation and financing costs affected the operator’s 2017 result, while a one-off tax benefit boosted the previous year’s result. Even so, CEO Andrew Sudholz described the result as ‘‘solid’’ with revenue and pre-tax earnings growth in ‘‘a sector currently experiencing ongoing regulatory reform’’. The aged care operator’s bed prices rose 8 per cent and it gained an extra 266 bed licences during the 2017 financial year. Japara expects its 2018 pre-tax earnings to be in line with or slightly above the 2017 result. From the 2019 financial year, it expects pre-tax earnings to rise as more greenfield developments are completed and indexation increases kick in for government funding.
Lendlease Group (LLC):
Funds giant China Investment Corporation has emerged as one of the candidates taking a closer look at Lendlease’s retirement villages portfolio. The sovereign wealth behemoth is controlled by China’s State Council. With its privileged position investing state-owned capital, it so far remains unfettered by the government’s drive to rein in investment abroad by local entities. CIC joins one or two other offshore heavy hitters in the ring for the $1.7 billion portfolio of villages that Lendlease owns and operates. Lendlease has $1.7 billion invested across 71 villages and in its annual result on Monday said it was ‘‘exploring the potential introduction of capital partners’’. For its full-year 2017 result, it posted a 9 per cent lift in after-tax profit to $758.6 million. CIC’s zeal for offshore deals shows no signs of waning. In June, it struck a blockbuster $24 billion deal to acquire European warehouse firm Logicor from Blackstone.
Macquarie Group Ltd (MQC):
Morgan Stanley Wealth Management has walked away from entering into a binding contract with Macquarie Group for back office platform administration. As Street Talk revealed on Monday, a transaction is off the cards for Morgan Stanley’s $27 billion in funds under management locally, after the firm shied away from the potential disruption caused by the deal. Under the proposed agreement, Morgan Stanley would have continued to manage its funds while the back office functioning was to occur on the Macquarie platform. Morgan Stanley is said to have opted against the Macquarie deal to maintain stability in the short to medium term and will review its platform arrangements again in 2019. The firm’s wealth business is now profitable after instituting a raft of measures including changes to commission payments for advisers. Macquarie’s growth of funds on its platform has been buoyed by the migration of ANZ Banking Group’s Oasis wrap and super investment assets. Macquarie houses funds on its platform for companies including Perpetual and ANZ via white labelling agreements. The platform business sits with Macquarie’s banking and financial services unit run by Greg Ward. Macquarie claims it has the second largest wrap platform in Australia.
Nine Entertainment Co Holdings Ltd (NEC):
CBS, known in the US as The Eye , may not be a household name in Australia just yet, but for the Murdoch empire, it’s not the first time the two have clashed With the backing of the cashed-up CBS, Ten’s sport fortunes are expected to take a turn for the better. Many believed the struggling network was going to have trouble holding onto Cricket Australia’s Big Bash League. It is currently paying $20 million per year, but observers believe the next deal, which begins in October 2018, could be worth as much as $60 million per year. CBS will also launch its subscription video on-demand service CBS All Access into Australia. It is expected to compete with Netflix and Stan, which is 50-50 owned by Nine Entertainment and Fairfax Media, publisher of The Australian Financial Review. CBS has a content agreement with Stan.
NSX Limited (NSX):
National Stock Exchange of Australia, known as the NSX, has agreed to lift compliance and ask tougher questions of its issuers after an ASIC review of NSX listing standards uncovered ‘‘a range of concerning practices and trends’’. More than half of all listings scrutinised during the assessment had no links to Australia, including no local operations or investors, and in some instances companies recorded ‘‘limited’’ on-market trading in their securities but were being traded off market in significant volumes. ‘‘Our assessment has uncovered serious questions about the rationale for some foreign listings on NSX,’’ ASIC said, believing the prevalence of offmarket trading to be ‘‘not unique to NSX’’ and concerning enough to warrant further examination. The $4.8 billion market operator was also overly reliant in accepting facevalue statements that company directors had no criminal background instead of doing its own fact checking. Before facilitating a listing, the NSX is expected to establish that an issuer is doing so for legitimate reasons and can meet its disclosure obligations. Among its agreed compliance improvements, NSX willhave to ensure thatit has policies to verify that a business is real and that itdoes what it purportsto do.
Qantas Airways Limited (QAN):
Qantas Airways is reshuffling its senior ranks for the first time in five years, rotating two of the most likely successors to chief executive Alan Joyce into new positions and promoting a newcomer to the executive ranks to the head of its high-profile international operations. Jetstar boss Jayne Hrdlicka and International chief Gareth Evans will be given the opportunity to prove themselves in new roles while Alison Webster will run the international operations. Qantas Airways is reshuffling its senior ranks for the first time in five years, rotating two of the most likely successors to chief executive Alan Joyce into new positions and promoting a newcomer to the executive ranks to the head of its high-profile international operations. Qantas shares fell 5.7 per cent on Monday but investors said the selldown was not related to the executive revamp but in response to a broker downgrade after rallying to a 10-year high last week after the airline slightly beat forecasts with its secondhighest profit in history.
RCG Corporation Ltd (RCG):
Footwear retailer RCG Corp is aiming to beat Amazon at its own game by using its network of stores to deliver online orders within three hours and give consumers access to its entire catalogue. Australia’s largest footwear chain has brushed aside concerns that Amazon’s expansion will crimp sales and margins at stores such as Hype DC, The Athletes Foot and Platypus Shoes. ‘‘The key initiatives around how you deal with Amazon is a multi-channel strategy – click and collect, click and dispatch, endless aisles and three-hour delivery,’’ RCG’s co-chief executive Hilton Brett said on Monday after delivering the fifth consecutive year of double digit underlying earnings growth. After two major acquisitions in two years and after more than doubling its store footprint since 2015, RCG is ramping up investment in digital with the aim of lifting online sales to 15 per cent of total sales within three years. Consumers will be able to order online and collect from each of RCG’s 400 companyowned and franchised stores, starting with Hype, Platypus Shoes, The Athletes Foot and Skechers stores.
Reliance Worldwide Corporation Aus Ltd (RWC) & Woolworths Limited (WOW):
The chief executive of plumbing supplies firm Reliance Worldwide Corp, Heath Sharp, is putting on a brave face as the company faces a potentially bigger backlash from United States giant Home Depot as the hardware retailing wars escalate in the US. Reliance, which raised $919 million in Australia’s largest initial public offering of 2016, is forecasting robust earnings growth of between 20 and 24 per cent in 2017-18, but a potentially dark shadow is hovering above it in the US. Reliance shares had gained more than 10 per cent by mid-afternoon on Monday as investors focused on the upbeat short-term profit guidance, rather than the potential downside of any further Home Depot bruises. Reliance has its pioneering Sharkbite push-to-connect plumbing fittings now being sold through most of the 1700 Lowe’s hardware stores in the US, after deciding to try to secure Lowe’s and Home Depot as big retail channels. Lowe’s was the business partner with Woolworth in the failed $3 billion Masters hardware disaster in Australia, which was shut down in late 2016 after it failed to make inroads into the market leader, Bunnings, owned by Wesfarmers.
Seven Group Holdings Ltd (SVW) & Telstra Corporation Ltd (TLS):
As if Seven Group’s equities portfolio wasn’t having a bad enough run already. At its FY17 result last week, chief executive Ryan Stokes and CFO Richard Richards (AKA Two Dicks) reported an economic loss of $118 million and a total return of negative 11.5 per cent. Stokes jnr underperformed the ASX200 index by a blanch-worthy 27.2 per cent. Were the heir a portfolio manager at Colonial or BT, he’d be going without a bonus after such a lemon of a year. But thankfully dad is pretty relaxed about blowing the family loot. Cough, splutter . Just how far Seven wrote down its Ten investment remains a mystery – Two Dicks wasn’t feeling very expansive when queried on Monday. But given the Stokes’ are also the eighth largest shareholders in Telstra, with 53.7 million shares as at last disclosure, their $486 million portfolio’s brag of 9.4 per cent dividend yield can’t be one that’s trending in the right direction. For those living under rocks, Telstra is slashing its fully-franked dividend from 31¢ in FY17 to 22¢ in the current year.
Spark Infrastructure Group (SKI):
Spark Infrastructure managing director Rick Francis has pointed to ‘‘excellent opportunities’’ for the power grid owner in connecting new renewable energy plants to the grid, after the company posted a 2.9 per cent increase in first-half profit. Net profit for the June half edged up to $48.9 million from an adjusted figure of $47.5 million in the year-earlier half. Profit before interest on loan notes and tax climbed to $138.7 million, up 14.3 per cent from the same profit in the first half of 2016 that has been adjusted to remove gains made on derivatives held by DUET Group, from which Spark has now exited. On a statutory basis, net profit dipped 5.2 per cent. Spark, which owns stakes in distribution networks in Victoria and South Australia as well as 15 per cent of NSW high-voltage network owner Transgrid, declared an interim dividend of 7.625¢ per security, in line with its guidance for full-year distributions of 15.25¢, up 5.2 per cent on 2016.
Wesfarmers LTD (WES):
Wesfarmers has two mines on the block, a thermal operation in the Hunter Valley and a coking coal mine in Queensland that is particularly burdened by a difficult legacy thermal contract. There have been unconfirmed but persistent reports that BHP is looking to sell the shuttered Gregory Crinum complex, which is also in the Bowen.And, most famously of all, Anglo American’s efforts to complete its strategic withdrawal from Queensland coking coal were finally formally abandoned late last year as the coal price recovered and Anglo’s management decided to stick with the solid carbon fuel game.
Weatpac Banking Corp (WBC):
Westpac Banking Group will introduce a range of policies on Tuesday intended to tighten lending by increasing scrutiny of borrowers’ income, the second policy change in a week after revealing its exposure to higher-risk interestonly property buyers. The group, which includes Bank of Melbourne, BankSA and St George, wants more details about borrowers’ bonuses, casual income, superannuation payments, savings and tax benefits that may be used to qualify for a loan. Last week the group told mortgage brokers, a key distributor of loans, it was toughening scrutiny of new borrowers’ ability to service loans in response to regulator’s ‘‘refining’’ of lending criteria. Westpac has the largest proportion of interest-only loans, reflecting a book weighted towards investors who use interest-only loans to take advantage of negative gearing tax benefits.
Yancoal Australia Ltd (YAL):
Glencore has moved quickly to fraction down its sprawling Australian coal portfolio in the wake of its last-minute but expensive success with Coal & Allied by announcing a campaign to sell its biggest single thermal coal mine. After adding about 7 million tonnes a year of high-quality Hunter Valley coal to its annual production schedule through its $US1.5 billion peace deal with Yancoal, Glencore has called in Merrill Lynch to manufacture the sale of the Rollerston open cut in the Central Highlands of Queensland. Yancoal Australia has finalised the funding of its $US2.45 billion cash share of the $US2.69 billion acquisition of Coal & Allied with an entitlement issue that has run to its expected course with only one minor surprise. Yancoal’s majority owner Yanzhou stumped up with its $US1 billion totally while the three underwriters have been called on for $1.284 billion of the $1.3 billion that they were on the hook for. One of them, of course, is Glencore, which has been called on for the full $US300 million of its promise as part of the $US1.5 billion deal that delivered it into Hunter Valley partnership with Yancoal. There is now, apparently, but one step left to complete in Yancoal’s funding arrangements and that is confirmation of $US150 million worth of placements to two Chinese investors.
(Source: AIMS)
Homewares retailer Adairs expects earnings to grow at least 7 per cent this year after blaming unfashionable bed linen for a 23 per cent slump in net profit in 2017. Chief executive Mark Ronan said on Monday same-store sales had risen 13 per cent in the first eight weeks of 2018, after falling 1.4 per cent in 2017, underpinned by demand for a new range of more fashionable sheets, doonas and throws. ‘‘The improved sales gives us increased confidence that we are on the right track, and that the changes we have made to our product offer throughout 2017 are gaining traction with our customers,’’ Mr Ronan said. Adairs’ net profit fell 22.6 per cent to $21.2 million in 2017 after a ‘‘fashion miss’’ in the second and third quarters forced the retailer to slash prices to clear excess stock. Earnings before interest and tax fell 21.5 per cent to $30.8 million, compared with revised guidance of $30.5 million to $31 million, but EBIT was flat in the June-half after falling almost 40 per cent in the first half. Total sales rose 7 per cent to $264.9 million (adjusting for an extra week of trade in 2016), swelled by 13 new stores, but same-store sales fell 1.4 per cent after Adairs missed sales because its bed linen range failed to keep up with trends amid increased competition from international retailers such as Zara Home and discount department stores Kmart and Target.
BHP Billiton Limited (BHP):
BHP’s Gregory-Crinum mine, which was unsuccessfully marketed back in 2013, shares borders with Glencore’s strike-bound Oaky Creek complex and with Rio’s Kestrel mine. Given Rio is a seller, it would seem some sort of consolidation play might be possible there. But these are options long appreciated and, so far, left well alone. The anti-coal lobby will see affirmation in the lengthening list of assets available for sale. That is fair enough. But the biggest problem in marketing an existing coal mine is that you are also attempting to sell its operational and functional legacy. Take Rollerston, but as an example only, because I am pretty sure no one in the wide world of coal is going to be interested in taking the thing off Glencore’s hands.
Commonwealth Bank of Australia (CBA):
The prudential regulator’s dramatic intervention in the affairs of the Commonwealth Bank of Australia does not augur well for the tenure of the current management team and the board of directors. The public report stemming from the Australian Prudential Regulation Authority’s independent inquiry into CBA’s governance, culture and accountability will form the roadmap for the transformation of CBA under a new chief executive. At this stage it is highly likely chief executive Ian Narev, who is retiring by June, will be replaced by an outsider. S&P Global said any ‘‘material adverse findings’’ from the Australian Prudential Regulation Authority’s review into CBA’s governance, culture and accountability could weaken the bank’s credit profile. The ratings agency also said any indications of weaknesses in CBA’s governance and risk management frameworks uncovered by the inquiry or material damage to its reputation could also weigh on its rating, which is already on a negative outlook.
Estia Health Ltd Downer (EHE):
The beached and broke Ten Network has been swallowed by US broadcasting giant CBS and, hilariously, not one of the legion followers of this seven-year debacle imagined (let alone predicted) it. When Hamish McLennan ran the ‘‘young at heart’’ station, media scribes could accurately preempt the frequency and consistency of its shareholders’ each and every bowel movement.The gravest omission (apparently) in our Monday analysis of Estia Health’s belttightening was the identity of the aged care operator’s second largest shareholder, Kerry Stokes , whose entities speak for 8.54 per cent of the register.
Japara Healthcare Lytd (JHC):
Investors punished aged care operator Japara Healthcare, stripping more than 12 per cent from the stock after its 2017 profits and distributions fell. Japara’s 2017 full-year earnings slipped 2.3 per cent to $29.7 million. Distributions fell as well, with a final dividend of 5.75¢ per share taking the total payout to 11.25¢. Last year it paid out 11.5¢ in total. Adding insult to injury, the final dividend was 70 per cent franked. Japara closed down 25¢ to $1.77. An increase in depreciation and financing costs affected the operator’s 2017 result, while a one-off tax benefit boosted the previous year’s result. Even so, CEO Andrew Sudholz described the result as ‘‘solid’’ with revenue and pre-tax earnings growth in ‘‘a sector currently experiencing ongoing regulatory reform’’. The aged care operator’s bed prices rose 8 per cent and it gained an extra 266 bed licences during the 2017 financial year. Japara expects its 2018 pre-tax earnings to be in line with or slightly above the 2017 result. From the 2019 financial year, it expects pre-tax earnings to rise as more greenfield developments are completed and indexation increases kick in for government funding.
Lendlease Group (LLC):
Funds giant China Investment Corporation has emerged as one of the candidates taking a closer look at Lendlease’s retirement villages portfolio. The sovereign wealth behemoth is controlled by China’s State Council. With its privileged position investing state-owned capital, it so far remains unfettered by the government’s drive to rein in investment abroad by local entities. CIC joins one or two other offshore heavy hitters in the ring for the $1.7 billion portfolio of villages that Lendlease owns and operates. Lendlease has $1.7 billion invested across 71 villages and in its annual result on Monday said it was ‘‘exploring the potential introduction of capital partners’’. For its full-year 2017 result, it posted a 9 per cent lift in after-tax profit to $758.6 million. CIC’s zeal for offshore deals shows no signs of waning. In June, it struck a blockbuster $24 billion deal to acquire European warehouse firm Logicor from Blackstone.
Macquarie Group Ltd (MQC):
Morgan Stanley Wealth Management has walked away from entering into a binding contract with Macquarie Group for back office platform administration. As Street Talk revealed on Monday, a transaction is off the cards for Morgan Stanley’s $27 billion in funds under management locally, after the firm shied away from the potential disruption caused by the deal. Under the proposed agreement, Morgan Stanley would have continued to manage its funds while the back office functioning was to occur on the Macquarie platform. Morgan Stanley is said to have opted against the Macquarie deal to maintain stability in the short to medium term and will review its platform arrangements again in 2019. The firm’s wealth business is now profitable after instituting a raft of measures including changes to commission payments for advisers. Macquarie’s growth of funds on its platform has been buoyed by the migration of ANZ Banking Group’s Oasis wrap and super investment assets. Macquarie houses funds on its platform for companies including Perpetual and ANZ via white labelling agreements. The platform business sits with Macquarie’s banking and financial services unit run by Greg Ward. Macquarie claims it has the second largest wrap platform in Australia.
Nine Entertainment Co Holdings Ltd (NEC):
CBS, known in the US as The Eye , may not be a household name in Australia just yet, but for the Murdoch empire, it’s not the first time the two have clashed With the backing of the cashed-up CBS, Ten’s sport fortunes are expected to take a turn for the better. Many believed the struggling network was going to have trouble holding onto Cricket Australia’s Big Bash League. It is currently paying $20 million per year, but observers believe the next deal, which begins in October 2018, could be worth as much as $60 million per year. CBS will also launch its subscription video on-demand service CBS All Access into Australia. It is expected to compete with Netflix and Stan, which is 50-50 owned by Nine Entertainment and Fairfax Media, publisher of The Australian Financial Review. CBS has a content agreement with Stan.
NSX Limited (NSX):
National Stock Exchange of Australia, known as the NSX, has agreed to lift compliance and ask tougher questions of its issuers after an ASIC review of NSX listing standards uncovered ‘‘a range of concerning practices and trends’’. More than half of all listings scrutinised during the assessment had no links to Australia, including no local operations or investors, and in some instances companies recorded ‘‘limited’’ on-market trading in their securities but were being traded off market in significant volumes. ‘‘Our assessment has uncovered serious questions about the rationale for some foreign listings on NSX,’’ ASIC said, believing the prevalence of offmarket trading to be ‘‘not unique to NSX’’ and concerning enough to warrant further examination. The $4.8 billion market operator was also overly reliant in accepting facevalue statements that company directors had no criminal background instead of doing its own fact checking. Before facilitating a listing, the NSX is expected to establish that an issuer is doing so for legitimate reasons and can meet its disclosure obligations. Among its agreed compliance improvements, NSX willhave to ensure thatit has policies to verify that a business is real and that itdoes what it purportsto do.
Qantas Airways Limited (QAN):
Qantas Airways is reshuffling its senior ranks for the first time in five years, rotating two of the most likely successors to chief executive Alan Joyce into new positions and promoting a newcomer to the executive ranks to the head of its high-profile international operations. Jetstar boss Jayne Hrdlicka and International chief Gareth Evans will be given the opportunity to prove themselves in new roles while Alison Webster will run the international operations. Qantas Airways is reshuffling its senior ranks for the first time in five years, rotating two of the most likely successors to chief executive Alan Joyce into new positions and promoting a newcomer to the executive ranks to the head of its high-profile international operations. Qantas shares fell 5.7 per cent on Monday but investors said the selldown was not related to the executive revamp but in response to a broker downgrade after rallying to a 10-year high last week after the airline slightly beat forecasts with its secondhighest profit in history.
RCG Corporation Ltd (RCG):
Footwear retailer RCG Corp is aiming to beat Amazon at its own game by using its network of stores to deliver online orders within three hours and give consumers access to its entire catalogue. Australia’s largest footwear chain has brushed aside concerns that Amazon’s expansion will crimp sales and margins at stores such as Hype DC, The Athletes Foot and Platypus Shoes. ‘‘The key initiatives around how you deal with Amazon is a multi-channel strategy – click and collect, click and dispatch, endless aisles and three-hour delivery,’’ RCG’s co-chief executive Hilton Brett said on Monday after delivering the fifth consecutive year of double digit underlying earnings growth. After two major acquisitions in two years and after more than doubling its store footprint since 2015, RCG is ramping up investment in digital with the aim of lifting online sales to 15 per cent of total sales within three years. Consumers will be able to order online and collect from each of RCG’s 400 companyowned and franchised stores, starting with Hype, Platypus Shoes, The Athletes Foot and Skechers stores.
Reliance Worldwide Corporation Aus Ltd (RWC) & Woolworths Limited (WOW):
The chief executive of plumbing supplies firm Reliance Worldwide Corp, Heath Sharp, is putting on a brave face as the company faces a potentially bigger backlash from United States giant Home Depot as the hardware retailing wars escalate in the US. Reliance, which raised $919 million in Australia’s largest initial public offering of 2016, is forecasting robust earnings growth of between 20 and 24 per cent in 2017-18, but a potentially dark shadow is hovering above it in the US. Reliance shares had gained more than 10 per cent by mid-afternoon on Monday as investors focused on the upbeat short-term profit guidance, rather than the potential downside of any further Home Depot bruises. Reliance has its pioneering Sharkbite push-to-connect plumbing fittings now being sold through most of the 1700 Lowe’s hardware stores in the US, after deciding to try to secure Lowe’s and Home Depot as big retail channels. Lowe’s was the business partner with Woolworth in the failed $3 billion Masters hardware disaster in Australia, which was shut down in late 2016 after it failed to make inroads into the market leader, Bunnings, owned by Wesfarmers.
Seven Group Holdings Ltd (SVW) & Telstra Corporation Ltd (TLS):
As if Seven Group’s equities portfolio wasn’t having a bad enough run already. At its FY17 result last week, chief executive Ryan Stokes and CFO Richard Richards (AKA Two Dicks) reported an economic loss of $118 million and a total return of negative 11.5 per cent. Stokes jnr underperformed the ASX200 index by a blanch-worthy 27.2 per cent. Were the heir a portfolio manager at Colonial or BT, he’d be going without a bonus after such a lemon of a year. But thankfully dad is pretty relaxed about blowing the family loot. Cough, splutter . Just how far Seven wrote down its Ten investment remains a mystery – Two Dicks wasn’t feeling very expansive when queried on Monday. But given the Stokes’ are also the eighth largest shareholders in Telstra, with 53.7 million shares as at last disclosure, their $486 million portfolio’s brag of 9.4 per cent dividend yield can’t be one that’s trending in the right direction. For those living under rocks, Telstra is slashing its fully-franked dividend from 31¢ in FY17 to 22¢ in the current year.
Spark Infrastructure Group (SKI):
Spark Infrastructure managing director Rick Francis has pointed to ‘‘excellent opportunities’’ for the power grid owner in connecting new renewable energy plants to the grid, after the company posted a 2.9 per cent increase in first-half profit. Net profit for the June half edged up to $48.9 million from an adjusted figure of $47.5 million in the year-earlier half. Profit before interest on loan notes and tax climbed to $138.7 million, up 14.3 per cent from the same profit in the first half of 2016 that has been adjusted to remove gains made on derivatives held by DUET Group, from which Spark has now exited. On a statutory basis, net profit dipped 5.2 per cent. Spark, which owns stakes in distribution networks in Victoria and South Australia as well as 15 per cent of NSW high-voltage network owner Transgrid, declared an interim dividend of 7.625¢ per security, in line with its guidance for full-year distributions of 15.25¢, up 5.2 per cent on 2016.
Wesfarmers LTD (WES):
Wesfarmers has two mines on the block, a thermal operation in the Hunter Valley and a coking coal mine in Queensland that is particularly burdened by a difficult legacy thermal contract. There have been unconfirmed but persistent reports that BHP is looking to sell the shuttered Gregory Crinum complex, which is also in the Bowen.And, most famously of all, Anglo American’s efforts to complete its strategic withdrawal from Queensland coking coal were finally formally abandoned late last year as the coal price recovered and Anglo’s management decided to stick with the solid carbon fuel game.
Weatpac Banking Corp (WBC):
Westpac Banking Group will introduce a range of policies on Tuesday intended to tighten lending by increasing scrutiny of borrowers’ income, the second policy change in a week after revealing its exposure to higher-risk interestonly property buyers. The group, which includes Bank of Melbourne, BankSA and St George, wants more details about borrowers’ bonuses, casual income, superannuation payments, savings and tax benefits that may be used to qualify for a loan. Last week the group told mortgage brokers, a key distributor of loans, it was toughening scrutiny of new borrowers’ ability to service loans in response to regulator’s ‘‘refining’’ of lending criteria. Westpac has the largest proportion of interest-only loans, reflecting a book weighted towards investors who use interest-only loans to take advantage of negative gearing tax benefits.
Yancoal Australia Ltd (YAL):
Glencore has moved quickly to fraction down its sprawling Australian coal portfolio in the wake of its last-minute but expensive success with Coal & Allied by announcing a campaign to sell its biggest single thermal coal mine. After adding about 7 million tonnes a year of high-quality Hunter Valley coal to its annual production schedule through its $US1.5 billion peace deal with Yancoal, Glencore has called in Merrill Lynch to manufacture the sale of the Rollerston open cut in the Central Highlands of Queensland. Yancoal Australia has finalised the funding of its $US2.45 billion cash share of the $US2.69 billion acquisition of Coal & Allied with an entitlement issue that has run to its expected course with only one minor surprise. Yancoal’s majority owner Yanzhou stumped up with its $US1 billion totally while the three underwriters have been called on for $1.284 billion of the $1.3 billion that they were on the hook for. One of them, of course, is Glencore, which has been called on for the full $US300 million of its promise as part of the $US1.5 billion deal that delivered it into Hunter Valley partnership with Yancoal. There is now, apparently, but one step left to complete in Yancoal’s funding arrangements and that is confirmation of $US150 million worth of placements to two Chinese investors.
(Source: AIMS)
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