Australia’s big four banks delivered scores to markets this week, and the results reveal the lenders splitting in two camps depending on their ability to cover falling margins through loan volume or not. Faster approvals and better services enabled NAB and the CBA to grow mortgage and business loans ahead of the market, which cushioned the blow from falling margins. The growth was at a lower margin for Westpac due to its reliance on fixed rate mortgages, while ANZ’s loan book was flat. Nathan Zaia believes execution challenges at both banks are short-lived and observes Westpac is the only one of the four that is still cheap.
New winners and losers, changing of the guard at Magellan
Key man risk came home to roost at Magellan on Monday with Australia’s never-been Warren Buffett going on medical leave. With Hamish Douglass on an indefinite break after months of scrutiny of his professional and personal life, co-founder Chris Mackay will take the reins of Magellan's underperforming global equity funds. Investors will be hoping to forget the 2015 divorce of Platinum Asset Management boss Kerr Neilson played out against a two-year and 40 percent decline in his share price. Fund analysts have put the previously gold rated Global Fund on watch pending discussions with Magellan.
Meat shrugs off high inflation
Consumer prices jumped 7.5% in the US in January, a 40-year high, but that’s chump change compared with meat. Tyson Foods, the country’s biggest producer of chicken, pork and beef, reported first-quarter results on Monday and showed that inflation is a problem for some, not all. It raised the average price it charged for pork 13 percent, chicken 20, and beef 32, year over year. The message to investors is clear: buy companies peddling products people cannot bear to be without.
AGL in dispute with Reserve Bank over energy costs
Energy provider AGL informed its long-suffering investors on Thursday that a turnaround may be in sight: higher wholesale electricity prices. The Reserve Bank will not be happy. Australia has largely escaped the surging energy prices exacerbating inflationary pressures in Europe and the US, and the Bank hopes to keep it that way. A sustained spike in energy and electricity prices would increase pressure for more rapid rate increases. The Reserve Bank expects elevated wholesale electricity prices to be temporary; AGL will be hoping that is not true.
On Thursday too, AGL also said it had secured debt financing for its plan to split into a fossil fuel energy generator and a carbon-neutral energy retailer. The move will cost $220 million to $260 million without the anticipated savings of $250 million over the next two years, it said.
Sydney Airport flies away
Australia’s busiest airport was handed over to private ownership at the ASX on Wednesday as shareholders approved the $23.6 billion acquisition by a group of superannuation funds and private investment groups. It follows utility Spark Infrastructure and renewable energy generator Infigen into private hands, reducing the number of publicly listed utilities for Australian investors. The Australia Utilities index now carries three constituents: APA Group, AusNet Services, and AGL Energy compared to seven in 2015.
ASX clings to week’s gains despite Friday fall: Market wrap
Australian shares bounced back again this week with a third positive weekly finish as big gains for heavyweight miners and banks kicked off the reporting season, steadily reversing January’s losses.
Shares fell 1% in line with a broad selloff on Wall Street after US inflation hit a four-decade high on Friday. The benchmark S&P/ASX 200 was up 1.4% for the week, dragged higher by a 4% jump in financials and a 3.46% rise in materials.
The iron ore trio are broadening gains, with BHP, Rio Tinto, and Fortescue Metals adding between 4.2% and 7.2% this week as iron ore prices continued to recover from lows logged last November. The metal surged through the US$150 threshold last Thursday on the back of optimism around stimulus from Chinese authorities, as well as restocking demand and speculative behaviour.
A slew of market updates from Australia’s banking sector drew a positive reaction from the markets. Commonwealth Bank gained 5.5% this week following the forking up of a 23% increase in net profit on Wednesday and a $2 billion on-market buyback. Westpac, ANZ, and NAB gained between 8.5% to 5.3%.
“Commonwealth bank is in excellent shape, with sound home and business lending performance, sound credit quality, and a strong balance sheet,” says equity analyst.
Shares in insurer Suncorp rose 7.6% after it reported lower profits but a jump in written premiums.
Healthcare and consumer staples sectors led the declines. Retailer Woolworths (ASX:WOW) was 3.5% lower for the week after the supermarket giant said the competition watchdog won't stop it from acquiring Priceline pharmacy operator, API. Coles was 3% down for the week. Healthcare giant CSL, which dipped 2 percent on Friday, was down 2.8 percent for the week, after fears of inflation sparked selling on Wall Street overnight.
