AGL at odds with RBA, Big Four banks report: What we learned this week

And then there were two: Bank reporting season

Australia’s big four banks submitted report cards to markets this week and the results show the lenders splitting into two camps based on their ability to offset falling margins by growing loan volume. Faster approvals and better services helped NAB and CBA increase mortgage and business loans ahead of the market, offsetting the dip in margins. Westpac’s reliance on fixed rate mortgages means growth came at a lower margin, while ANZ’s loan book was flat. Morningstar’s Nathan Zaia thinks execution issues at both banks are temporary and notes Westpac is the only one of the four still undervalued.

Changing of the guard at Magellan

Key man risk materialised at Magellan on Monday, with the departure of Australia’s would-be Warren Buffett on medical leave. Co-founder Chris Mackay will take over Magellan's underperforming global equity funds with Hamish Douglass on an indefinite break following months of scrutiny over his professional and personal life. Investors will want to forget how the 2015 divorce of Platinum Asset Management founder Kerr Neilson went alongside a two-year and 40% fall in share price. Morningstar fund analysts have placed the previously gold-rated Global Fund under review pending talks with Magellan.

Meat shrugs off record inflation

US consumer prices rose 7.5% in January, hitting a 40-year high, but that’s nothing compared to the price of meat. Tyson Foods, America’s largest producer of chicken, pork and beef, announced first quarter results on Monday, showing inflation is only a problem for some. The average price it charged for pork rose 13%, chicken 20%, and beef 32%, year on year. For investors the message is simple: buy companies selling products people can’t do without.

AGL at odds with the Reserve Bank over energy prices

At its half-yearly results Thursday, energy provider AGL told long-suffering investors a recovery could be approaching thanks to higher wholesale electricity prices. The Reserve Bank won’t be pleased. Australia has mostly avoided the soaring energy prices adding to inflationary pressures in Europe and the US and the Bank hopes it will stay that way. A sustained jump in energy and electricity prices would add pressure for faster rate hikes. The Reserve Bank expects higher wholesale electricity prices to be temporary, AGL will hope not.

Also Thursday, AGL announced it had secured debt financing for its plan to split into a fossil fuel energy generator and carbon-neutral energy retailer. The shift will cost an estimated $220 million to $260 million with savings of $250 million expected over the next two years, it said.

Sydney Airport flies away

Australia’s busiest airport left the ASX for private hands on Wednesday after shareholders voted through the $23.6 acquisition by a consortium of superannuation funds and private investment groups. It joins utility Spark Infrastructure and renewable energy generator Infigen in private hands, narrowing the number of publicly listed utilities for Australian investors. The Morningstar Australia Utilities index currently has three constituents—APA Group, AusNet Services and AGL Energy—down from seven in 2015.

ASX holds onto week’s gains despite Friday dip: Market wrap

Australian shares continued to come back this week, steadily reversing January’s losses with a third positive weekly finish amid big gains for heavyweight miners and banks as reporting season got underway.

Shares slipped 1% Friday in line with a selloff on Wall Street after US inflation hit a 40-year high. The benchmark S&P/ASX 200 booked a 1.4% gain for the week, led by a 4% jump in financials and a 3.46% rise in materials.

Iron ore trio BHP, Rio Tinto and Fortescue Metals added between 4.2% and 7.2% this week as iron ore prices continued to rebound from lows notched last November. Prices for the metal crossed the US$150 mark on Thursday, buoyed by expectations of Chinese government stimulus, restocking demand and speculative activity.

Markets responded positively to a spate of market updates from Australia’s banking sector. Commonwealth Bank rose 5.5% this week after reporting a 23% jump in net profit on Wednesday and a $2 billion on-market buyback. Westpac, ANZ and NAB added between 5.3% and 8.5%.

“Commonwealth bank is in great shape, its performance in home and business lending solid, credit quality sound, and balance sheet strong", says Morningstar equity analyst Nathan Zaia.

Insurer Suncorp’s shares were up 7.6% after it reported lower profits but a jump in premiums written.

Declines were led by the healthcare and consumer staples sectors. Shares in retailer Woolworths were down 3.5% for the week as the supermarket giant announced Friday the competition watchdog will not block its plans to acquire Priceline pharmacy operator, API. Coles was down 3% for the week.

Healthcare heavyweight CSL declined 2.8% this week, notching a 2% loss on Friday, after inflation fears triggered selling on Wall Street overnight.