AMP Ltd (AMP); IOOF Holdings Ltd (IFL):
The total cost of compensation paid to customers by AMP and IOOF is poised to rise sharply over the next 12 months with analysts at Macquarie estimating the two companies will need to make additional provisions of more than $2 billion. Macquarie says AMP and IOOF have failed to make adequate arrangements to repay customers for practices unearthed by the Hayne royal commission which include charging of services that clients never received. "We believe AMP may need to potentially increase remediation by $1.5 billion (in addition to the $778 million they have recognised). We believe IOOF's guidance of $5m to $10m in remediation is insufficient and estimate they may potentially need to increase remediation to $600m," the note from Macquarie says. The note draws on the UK experience where customer compensation for junk consumer credit insurance policies known as payment protection insurance or PPI have risen to 33 billion pounds and rising. In Australia the big four banks and AMP have made provisions for $2.5b in compensation.
Atlas Arteria Group (ALX):
The earnings outlook for tollroad company Atlas Ateria has dimmed amid expectations income from its French tollroads will be hurt by France's "yellow vest" movement after protesters blocked tollroads and set toll booths on fire. French tollroad group Autoroutes Paris-RhinRhone (APRR), Europe's fourth-largest motorway operator, is the biggest asset owned by Atlas Arteria, which was formerly known as Macquarie Atlas Roads. The Australian company, which has been externally managed by Macquarie but will split from the financial group by May, owns a 25 per cent stake in APRR, which extends for more than 2300 kilometres in eastern France and is majority-owned by France's Eiffage group. Morgan Stanley has scaled back its earnings estimates for APRR, estimating a 3 per cent hit to earnings per share in 2019 due to the protests, citing concerns over falling traffic, discounts to toll fares, delays to corporate tax cuts and the potential for staff bonuses. Atlas Arteria's 12-month share price target has also been cut by Morgan Stanley to $6.66 from $6.99 previously. The stock is up 12 per cent over the past 12 months and closed at $6.41 on Tuesday.
Bki Investment Co Ltd (BKI):
The $1.1 billion listed investor BKI Investments Company will pay shareholders a special dividend in response to concerns about Labor's franking credit policy, which would see cash refunds arising from imputation credits scrapped. BKI said it would pay the fully franked dividend of 1.5¢ per share in addition to its interim dividend of 3.625¢, explaining that it had been "overwhelmed by the level of angst" expressed by investors. The company announced the dividend alongside its first half financial results, which showed a 12 per cent rise in its net operating result, its preferred measure of profit, to $25.5 million. BKI will join a growing number of listed investment companies that have taken action on behalf of investors in anticipation of the change, which Labor is expected to enact if it wins the next federal election. Already this year the $7.3 billion Australian Foundation Investment Company, and other LICs in its stable such as Mirrabooka, Djerriwarrh and Amcil have brought forward shareholder returns.
Challenger Ltd (CGF):
Listed annuities provider Challenger has downgraded its earnings, citing market volatility in the first half of 2019. In an ASX statement, Challenger said it expected its 2019 financial year earnings to be between $545 million to $565 million, compared to a previous guidance of $591 million to $613 million. Challenger shares were down 13.4 per cent to a 12-month low of $7.95 in morning trading on Wednesday. Earnings have been hit by "increased market volatility" during the half, including lower cash distributions on its life division, the provider of annuities, Challenger said. It also said earnings have been hit by lower funds management performance fees.
AMP Ltd (AMP); Infratil Ltd (IFT):
AMP group’s subdivision, AMP Capital, is believed to be running hard at dual-listed infrastructure manager Infratil's stake in a student accommodation concession based in Canberra. It is understood AMP Capital is into the second round of the ANU Student Accommodation auction, and has tapped Macquarie Capital for advice and to help fund the bid. Up for grabs is Infratil's 50 per cent stake in the development, which holds a 30-year concession to provide student housing at the Australian National University. Infratil has the stake on its books for $107 million, and it was responsible for $5.5 million in underlying earnings in the six-months to September 30. But AMP Capital is not the only bidder vying for a slice of the ANU project. QIC Ltd - which is best known for taking stakes in ports and utilities assets - is also understood to be into the auction's second round and has tapped RBC Capital Markets to help with its bid. The deal is expected to be an IRR shootout between domestic PPP investors, with similar deals typically done in the 8 per cent to 10 per cent range. Such metrics would imply a $150 million to $200 million sale. Ironstone is expected to call for bids in about eight weeks. Infratil flagged a strategic review of its ANU student accommodation concession on November 8.
IOOF Holdings Ltd (IFL):
IOOF has repaid members of Bendigo and Adelaide Bank's Staff super fund $180,000 after it raided the fund's reserves to fix a botched trade made almost four years ago. IOOF said the payment had been made at the same time as a similar sized payment was made to resolve a long-standing issue with its cash management trust, for which IOOF was lambasted at the Hayne royal commission last year. The payments were approved by the board on October 25, 2018. The accidental sale of assets owned by members of Bendigo and Adelaide Bank's Staff super fund took place in 2015 and was triggered by an administrative error, according to IOOF's records. When the sale was discovered IOOF bought back the assets for $156,988 more than it sold them for, using the fund's reserves to plug the gap. Shares in IOOF fell steadily during calendar 2018 from a high of $11.36 in January to a low of $4.20 in December. They have since rebounded and added another 6c, or 1.1 per cent, to close at $5.73 on Tuesday.
TPG Telecom Ltd (TPM):
The planned $15 billion merger between Vodafone and TPG suffered another setback on Tuesday when the Australian Competition and Consumer Commission revealed it was delaying its decision on the market-defining deal for a second time, blaming the companies for not providing information required on time. The delay will further frustrate the two companies, which were caught unawares by the ACCC's announcement on December 13 that it was deferring its decision for 3½ months. In the statement ACCC chairman Rod Sims expressed serious concerns that the merger would soften competition in the mobile market. TPG and Vodafone are seeking to persuade the ACCC that TPG's plans to build a mobile network will not result in a serious competing network, and that only a merger between the two companies will result in a nationwide, comprehensive 5G network to compete with Optus and Telstra's networks. TPG's plan is to build a cheap 4G network using Huawei equipment with limited national reach. Vodafone Australia chief executive said the government's decision to ban low-cost Huawei equipment from the 5G network would make it difficult for TPG to build a comprehensive 5G network. Vodafone Australia's high debt to EBITDA ratio of seven to one has also been tipped as an impediment to building a comprehensive 5G network on its own. The hotly anticipated decision is now likely to land in mid-April.
(Source: AIMS)
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