Monthly Archives: January 2019

post by admin | | Closed

Investors and analysts turn bearish on banks

Australia’s banks have been on a tear in recent months, catching a tailwind from the so-called “Trump” trade that enabled one major Australian lender to outperform the soaring US banks which have helped drive indices like the Dow and S&P500 to record highs.
Nanjing Night Net

But this month, a period of extraordinary investor returns appears to have dramatically come to an end as the entire Australian banking sector was heavily sold down – and analysts and fund managers are less than hopeful a recovery is in sight.

Between November 8, the day of the US election, and May 1, NAB soared 29.8 per cent. CBA rose 21.4 per cent, ANZ added 21.9 per cent, while Westpac rose a more modest 16.7 per cent.

None of the banks most directly affected by the US administration matched NAB’s spectacular performance up to the start of May.

JPMorgan gained 24.3 per cent over the period, Goldman Sachs rose 23.6 per cent, while Morgan Stanley added 28.3 per cent. Another similar bank, Wells Fargo, was hit with a lending scandal and so rose only 19.6 per cent over the period.

This is despite the US banks being far more exposed to the reflation trade, as well as US President Donald Trump’s unwinding of the Dodd-Frank regulations in February. The partial repeal pushed Goldman Sachs to a record high, but it has declined since. Local investors didn’t expect the changes to significantly feed through to Australian banks.

Since the start of May, Australia’s big four banks have lost ground, shedding a combined $50 billion in market capitalisation and between 7.2 per cent and 13.7 per cent off their share prices as they went ex-dividend, were hit by a banking levy in the budget, new macroprudential regulations and as ANZ’s earnings disappointed.

The rapid pace of the decline, JPMorgan’s equities team wrote, is surprising, but even after it the banks are not necessarily at fair value.

The big four don’t tend to do well in May, losing on average since 2000 1.6 per cent over the month. But that hasn’t stopped them surging the rest of the year before.

Two and a half decades without a recession and a decline in local interest rates “created a fertile backdrop for Australian banks to outperform both global banks and the broader Australian market”, wrote UBS equity strategist David Cassidy this month.

Since 1997, the MSCI World Bank Index, from a base of 100, hovers just above 200 index points. Australia’s banks are almost touching 1400 index points.

Peak performance in the Australian banks, Mr Cassidy wrote, was actually around the April bank reporting season in 2015. But since then, the bank bull market has proved “surprisingly stubborn”.

“Australian banks seem to have hitched a ride on the global banking rally which began in mid-2016 as bond yields started to inflect upwards. This is despite no direct benefit on Australian banks from a steeping yield curve.”

But looking ahead, Mr Cassidy is one of many analysts who now expect bank performance to decline. “Banks appear a ‘market performer’ at best from here … Headwinds and clouds seem to be accumulating”.

JP Morgan’s equity sales team wrote that “caution around house prices and impending APRA capital requirement announcements could see the sector needing to look optically cheap to increase interest on the long side”.

Many fund managers are also cautious on the sector.

The big four banks, which together comprise over a quarter of market capitalisation of the S&P/ASX200 index, are favourites with income-investors by virtue of their high dividends. But the bank levy, two of the banks said on Monday, would hit dividends – a view also expressed by many fund managers.

In his monthly note, Contango Asset Management chief investment officer George Boubouras said investors could still rely on high payouts from the banks, which in absolute terms would continue to be attractive. But “investors should simply expect that initially the growth of dividends will slow at first before we eventually see a dividend cut in the years ahead”, he wrote.

The big four have recovered somewhat in recent days, but Katana Asset Management portfolio manager Romano Sala Tenna said the “opportunistic buying” was unlikely to signal a recovery. “I’d suggest the balance of probabilities is still weighted to the downside,” he said.

This story Administrator ready to work first appeared on Nanjing Night Net.

post by admin | | Closed

Melbourne’s unloved Harbour Town to get $150m makeover

Sydney boutique bank Ashe Morgan, has unveiled a new $150 million entertainment precinct for Harbour Town, on the edge of Melbourne’s Docklands.
Nanjing Night Net

A new cinema and supermarket, designed to complement the 120-metre-high Melbourne Star ferris wheel and the Arena ice skating rink, is hoped to reinvigorate the precinct, which is plagued by strong winds and weak crowds.

Ashe Morgan principal and founder Michael Moss said the evolution of Harbour Town had not progressed as quickly as he would have liked since the group’s $150 million purchase in 2014, but he was confident of success.

“Nothing is ever as fast as you would want it to go but we can see the future. I see similarities to Darling Harbour 25 years ago, which was empty and windswept, but with a bit of love and attention and capital it can change,” Mr Moss said.

Darling Harbour, a shopping and tourist precinct built on a revamped wharf on Cockle Bay in the centre of Sydney, was opened in 1988 and struggled for an identity for many years.

“Our investors are with us. They like the place and the long-term strategy.”

“The demographics of this place are unlike anywhere in Australia. Two million people living within 20-25 minutes of this location,” Mr Moss said.

A new Woolworths supermarket and a fresh food market, covering 10,000 square metres, will round out the final stage of the revamp, complementing the Costco hypermarket.

“We think the concentration of the retail offer will make it a much stronger shopping destination,” Mr Moss said.

The area also suffers from strong winds from the south and the east but new roofing and strategically placed buildings and walls are being constructed to shield Harbour Town and create a sheltered piazza, he said.

The centrepiece of the new redevelopment will be an eight-screen Hoyts cinema next to Costco boasting Christie laser projection, Dolby Atmos sound and motorised reclining seats. Two of the auditoriums will be fitted out with the “Hoyts Xtremescreen”, with 24-metre-wide screens.

FunLab, the owner of Strike bowling alleys and Holey Moley mini-golf, will also open in the precinct, along with hawker-style restaurant 8EightStreet and pancake house Route 66.

Singapore-based SC Capital Partners paid $146 million for a 50 per cent stake in the 40,000 square metre project just one year after Ashe Morgan bought the precinct from ING Real Estate.

The precinct struggled for years, plagued by the Melbourne Star’s safety problems and the poorly located discount shopping arcade.

A swanky theme park with roller coasters was once the headline plan for the western corner of the Docklands urban renewal project. Redevelopment of the 146-hectare docks area started in 1997 and is two-thirds finished.

Investment worth $12 billion has been pumped into the CBD-fringe suburb, including massive office and residential towers.

This story Administrator ready to work first appeared on Nanjing Night Net.

post by admin | | Closed

SurfStitch faces $100m class action over share wipeout

Online fashion retailer SurfStitch is facing a $100 million class action launched on behalf of shareholders whose investments have been wiped out by the troubled company’s plunging share price.
Nanjing Night Net

Quinn Emanuel partner Damian Scattini said the law firm filed the open class action in the Supreme Court of Queensland on Monday on behalf of anyone who bought or held SurfStitch shares between August 27, 2015 and June 9, 2016.

The action accuses SurfStitch of misleading and deceptive conduct and breaching its continuous disclosure obligations over comments about the future of the business that it claims led the market to believe the shares were worth more than their true value.

SurfStitch said in a statement to the ASX on Tuesday that it had not received any claim or other communication relating to the class action.

SurfStitch listed at $1 in late 2014 and was trading at a record high of $2.09 in November 2015. It shares had fallen 90 per cent to 22?? by June 2016 following three profit warnings.

Mr Scattini said SurfStitch’s decline had been a “tragedy” for the many “mum and dad” investors who bought the company’s pitch of becoming the Amazon of surfwear, with about $500 million of shareholder value eroded.

The statement of claim says SurfStitch on several occasions told the market it expected earnings before interest, tax, depreciation and amortisation (EBITDA) of between $15 million and $18 million in 2015-16.

These claims were made without reasonable grounds, the claim says. It also accuses SurfStitch’s board and management of failing to appropriately disclose to the market that EBITDA would be lower than forecast.

In August, SurfStitch revealed an EBITDA loss for 2015-16 of $18.8 million, and a statutory EBITDA loss of $139.1 million, sparking a sell-off that cut its share price in half.

Mr Scattini said Quinn Emanuel would investigate what assets SurfStitch had and look into cross-claims against directors and auditors, which was KPMG in the relevant year. The action will be funded by Vannin Capital. iFrameResize({enablePublicMethods : true, heightCalculationMethod : “lowestElement”,resizedCallback : function(messageData){}, checkOrigin: false},”#pez_iframeA”);

Yet another earnings downgrade on Monday sent SurfStitch shares plunging around 30 per cent to a record intraday low of 6.9??, before closing 23.5 per cent down at 7.5??. The company said it now expected to report an EBITDA loss of between $10.5 million and $11.5 million this financial year, double its previous forecast of a $5 million to $6.5 million loss.

The shares had fallen another 6.6 per cent by Tuesday afternoon.

The business has been in turmoil since Justin Cameron, its co-founder and CEO, unexpectedly quit the business in March last year to weigh up a privatisation bid.

This story Administrator ready to work first appeared on Nanjing Night Net.

post by admin | | Closed

Goodman Group restructures debt, wins a ratings upgrade

Goodman Group has restructured its capital management with a reduction in gearing and amended US based banking covenants, the group has revealed.
Nanjing Night Net

This has led to an improvement in credit rating from both S&P and Moody’s Investors Services.

According to the chief executive Greg Goodman, these changes provide the group with greater operational and balance sheet flexibility for the long term.

“As part of the Group’s capital management strategy, Goodman has been focussed on reducing our financial leverage in the business to counterbalance our active earnings,” Mr Goodman said.

Under the changes, Goodman has reduced its gearing targets in its Financial Risk Management Policy (FRM) from 25-35 per cent to 0-25 per cent. Mr Goodman said the change brings the FRM in line with the group’s current operating practice.

Mr Goodman said the level of the group’s gearing will be “determined with reference to the mix of earnings and credit ratios consistent with the rating of the group”. There are no changes to the forecast 2017 financial year operating earnings of the group, of 7.5 per cent.

Moody’s vice president and senior credit officer, Maurice O’Connell, said of the news: “Goodman’s revised gearing policy will result in a stronger credit profile through the cycle, which underpins a higher rating.”

“The rating reflects Goodman’s strong market position and brand name as the largest owner of good-quality industrial properties in Australia and its market-leading position globally. This situation helps underpin the Baa1 rating,” Mr O’Connell said.

But the stock has had some mixed reviews with Credit Suisse issuing a downgrade to neutral, based on the fact it is trading 6 per cent below the analysts’ target price.

But the analyst added that Goodman is the most obvious “winner” from the growth of online retail globally, and in particular Amazon’s flagged entry into the Australian market.

It has been said Goodman is in discussions with Amazon to lease its first fulfillment centre at the Oakdale industrial estate at Eastern Creek Sydney. The site is already home to DHL which is a key delivering group for parcels.

“If we assume that Goodman is awarded two of our three assumed 90,000-square-metre distribution centres, this implies about $300 million of additional Goodman Australian development work, versus Australian Work In Progress of about $630 million, as at December 31, 2016,” Credit Suisse analysts said.

“Over the longer term – and as we have highlighted in previous research, we would expect Goodman to benefit from supply chain reconfigurations by existing retailers adapting to meet a new competitive threat.”

The analyst at CLSA, Sholto Maconochie, has maintained his buy recommendation, saying he likes Goodman due to the favourable thematics associated with the e-commerce trend and as traditional retailers focus on supply chain efficiencies and online channels/sales.

“This should see work in progress being elevated at or above the current $3.5 billion across 16 countries. We believe Goodman is Amazon’s preferred developer for its rollout in Australia which we estimate could be 1.0-3.6 per cent accretive to 2018 earnings per security, with Amazon currently Goodman’s second-largest tenant,” Mr Maconochie says in a recent note to clients.

This story Administrator ready to work first appeared on Nanjing Night Net.

post by admin | | Closed

Zara commits to Australia as sales jump

Spanish fast-fashion chain Zara will continue to support its Australian operations after the offshoot posted another year of double-digit sales growth.
Nanjing Night Net

Zara sells clothing, footwear and accessories and is among the highest-profile international fashion chains to enter Australia in recent years.

It began trading here in April 2011 and had grown to 18 stores and almost 1700 employees by the end of January this year.

Zara generated $256.36 million in sales during the year to January 31, its accounts show, thanks partly to three new stores in the Sydney suburb of Parramatta, the Gold Coast and Brisbane. The accounts suggest Zara increased its staff numbers by 600 over 12 months.

The $256.36 million sales figure was a 15.5 per cent improvement on the previous year’s $221.95 million – strong growth in the tough apparel market but a slowdown on the previous year’s growth of 24 per cent.

But the company’s profit fell to $10.3 million, from $15.26 million previously, accounts filed with the Australian Securities and Investments Commission show.

Furthermore, the accounts show that Zara’s net profit as a percentage of sales has fallen to 4 per cent from 6.8 per cent over the past two years.

This was better than the likes of Swedish fast-fashion chain H&M but inferior to many Australian retailers, one retail executive said.

Group Zara Australia is 90 per cent owned by its Spanish parent, Inditex, and 10 per cent by Peter Lew’s International Brand Management. Peter Lew is the son of billionaire rag trader Solomon Lew.

Inditex and Mr Lew’s company last financial year enjoyed $55.6 million in dividends from the Australian business.

These dividends, and $51 million in inter-company loans due next January, led to a blowout in Group Zara Australia’s net current liabilities to $56.8 million.

“The continuity of such ordinary activities is dependent upon the continual financial support of its parent entity, Inditex SA (the parent entity),” the accounts state.

“The parent entity has committed to continue providing such support to the company for the forseeable future.”

This story Administrator ready to work first appeared on Nanjing Night Net.