As highlighted earlier, the Latitude Financial IPO failed to get off the ground for a second time during the month. In a sign that fund managers are becoming more cautious of accepting any investment that comes to market, the company dropped its price twice before cancelling the float completely. The company offers loans through Harvey Norman and JB Hi-Fi as well as the popular 28 Degress Mastercard. Throughout the process brokers suggested the bid, or demand, for shares was oversubscribed yet investors were obviously concerned about the quality of their loan book in a weaker economic environment.
Elon Musk stunned the doubters as Tesla delivered a $143m profit in the third quarter of 2019. This defied consensus expectations of further losses and came as the company continues to cut costs, improve efficiencies and delivery more and more cars. The company lost over $1bn in the first two quarters but has now successfully commission it’s Shanghai factor, and delivered 97,000 cars in the third quarter. Shares were up 20%, seeing Elon’s fortune increase $2bn.
The airline and airport sector appears to be coming under pressure as consumers rein in spending. Sydney Airport announced that domestic traffic was down 1.1% on the previous year, while international traffic was up just 0.5% on prior and 1.4% year to date. Qantas, on the other hand was punished after a weaker than expected third quarter on the back of declining domestic travel. Jetstar earnings fell 2.6% due to issues in Hong Kong, whilst international travel remains strong, up 4.4%, albeit due to capacity constraints and higher charges. Interestingly, Qantas has teamed up with its competitors to push the Federal Government to more closely regulate the Airport charges that form the majority of SYD’s revenue.
Australian technology and broker darling, Wisetech Global, was called out by J Capital Research during the month. The previously unknown research house accusing the company of inflated profits and seeking revenue growth through questionable acquisitions. As usual, the claims were flatly denied by management, but the shares have since fallen around 30%.
October is the Annual General Meeting season where most companies either reiterate their previous forecasts, or announce weaker than expected first quarter results. The trend this quarter was for profit downgrades:
- Flight Centre CEO Graham Turner announced that underlying profit in the first half of 2020 would be below that of 2021, as both leisure travel slowed and costs increased.
- Baby Bunting issued a trading update in which comparable store sales of just 3.1% disappointed the market, but were blamed on the launch of a new web platform. The company is struggling to benefit from various competitor store closures and heavy discounting, by reiterated profit of $20m-22m.
- After being one of the standouts during reporting season Nick Scali Furniture came back to the pack, announcing that store traffic was down 10-15% as the property slowdown began to hit. The result was a substantial profit downgrade, to $17-19m, from $25m in 2019.
- Cochlear, which makes in-ear inserts, reiterated FY20 guidance at 9-13% growth, but reduced the Earnings per Share growth triggers in the incentive scheme for executives, which shocked the market. The change reflects a weaker than expected growth outlook, without adjusting their own profit guidance.
- The biggest disappointment by far was the continued deterioration of earnings at Costa Group. The company is a diversified agricultural production business with monopoly like positions in various sectors like raspberries, mushrooms and citrus in Australia. The company announced that their core production and pricing had continued to worsen and announced a capital raising to assist in paying off debt. It’s becoming increasingly evident that agricultural companies are best suited to unlisted markets given the savage reaction o what is a cyclical company.