Good afternoon,

Smack bang in the middle of reporting season and the ASX 200 is up 1.51% on this time last week. Telstra (TLS) gave a bit of hope to it’s remaining shareholders and forced up the Telco sector. Decent reports for CPU, LNK and REA drove the IT sector higher, bit of profit taking in Resources as momentum slows across most raw commodity prices.

Today is going to be a short note as we are moving office this afternoon and I don’t have a lot of time today.

Our new digs are in the Professional Chambers, Level 2, 120 Collins Street, Melbourne. Same building as before, but now in the historic section above Paul Smith (rather than the tower). I’ll get a few photos up next week once we are settled in.


Jordan and I have put up another couple of podcast episodes and if you’re in the mood, you can give them a listen. Latest episodes are on Hybrid’s and Momentum. They are now available on Spotify (SPOT +12% quarter to date) as well as on any other major podcast platform.

If you like it, we’d appreciate if you subscribe/like and send us feedback – JT is the man with all the answers


Reporting Season

The Good

Breville (BRG) – it’s pretty simple for mine.
This is a business that’s growing 16%pa in the biggest consumer market on earth (US) which still doesn’t really have a European coffee culture (and I’m not talking about NYC or SF, I’m talking about Minnestoa, Iowa et al.) I can’t see a time in the foreseeable future where this business doesnt have double digit ROA, 10% eps growth, near 10% revenue growth and 10% dividend growth. Yep, it’s kinda expensive. Kinda like ARB, CSL and just about every other stock you wish you owned.

REA Group (REA) – you play with the bull…
REA managed to grow profits 23% despite listing volumes falling by 4% and rams home the cold hard fact that REA have an almost impenetrable moat. That moat is that if you are selling a house in Australia, and your agent suggests NOT listing it on, you will sack your agent. Perth’s #1 realtor, Janelle Laretive even tells me all the time how every year REA just raise there prices and there’s nothing anyone can do about it. The shorts in REA were as high as 5% back in 2017… dangerous dance with a big bad bull in my opinon.

The Bad

Invocare (IVC)... apparently people aren’t dying enough
IVC made 14% less money than last year and missed guidance (supposed to be down 12%) after a 3.5% decline in volumes resultant from weaker market volumes and a temporary closure of some of the renovated funeral homes. Competition appears to be eroding revenue per case and margins. 22x FY19 earnings and a 3.5% yield may prove challenging for investors to justify given the heightened risk of investing in a business currently undergoing such a large scale transformation. Price targets remained largely unchanged.

The Ugly

Pact Group (PGH)… don’t convince the market your a turnaround story… if you’re not in fact turning the business around.

The stock was clipped c.20% after NPAT came in well short of market estimates, with a range of cost issues, many of which will hang around, impacting profits. Raw materials costs the main cause.

Guidance was also below par, $270-285m EBITDA inclusive of acquisition was about 8-10% below what analysts had expected prior to the FY18 result. PGH is now trading close to it’s consensus price target of $4.77 with 10 out of 10 analysts downgrading earnings estimates for FY19 (chart below.)

Stock price moves below

Have a good week,