ASX 200 flat after July CPI beats estimates; Woolworths, Tabcorp profits hit by impairments; Fortescue dividends up; Nine cuts exec bonuses

RBA hike not ruled out as inflation remains sticky at 3.5 per cent. Controlling shareholder Rio to back ERA's $880m discounted raise. Special dividend boosts Woolworths. Tabcorp's worse than expected loss, CEO-elect Gill McLachlan's 'reality' check weighs. 

Major supermarket, mining and lottery earnings and commentary are on investor radars.

Welcome to the Trading Day blog for Wednesday, August 28. The ASX 200 index trimmed losses late, closing flat, marginally higher to 8071.40 points. US indexes eked out gains ahead of Nvidia's earnings update.

The Aussie dollar is trading around US67.94c at 5.15pm AEST after the release of July inflation data.

Updates

5:09 pm August 28, 2024

ASX 200 supported by banks, staples

David Rogers

Australia's share market was supported by banks and consumer staples, recovering from a dip that was magnified by slightly higher than expected CPI data.

The ASX 200 index closed flat at 8071.4 after hitting a three-day low of 8008.9.

The index hit its low as US futures initially fell and Australia's monthly CPI indicator rose 3.5 per cent on-year versus 3.5 per cent expected.

The rebound came as US stock index futures recovered from an intraday dip before Nvidia reports after the US close on Thursday Australian time.

Telstra's ex-dividend fall hit the consumer staples sector and materials and energy fell with BHP down 1.4 per cent and Woodside down 1.2 per cent.

Fortescue turned down 1 per cent after initially rising on its report.

Financials and consumer staples were the only significant gainers.

Major banks rose 0.8-1.1 per cent led by Westpac.

Woolworths led consumer staples with a 3.3 per cent rise on a special dividend.

Lynas rose 3.4 per cent and Flight Centre added 3.7 per cent after reporting.

5:07 pm August 28, 2024

Vic govt VC fund court fight heats up

Angelica Snowden

A medtech start-up which received a $30m injection from the Victorian government’s venture capital fund has blamed the company’s "severe financial difficulties" on one of its founders, court documents reveal.

Dean Freestone, who co-founded epilepsy monitoring company Seer Medical, is suing the start-up he helped launch along with its major investor Breakthrough Victoria and the venture capital fund’s chief asset management officer Sally McCutchan.

In his Federal Court case, Dr Freestone claimed Breakthrough Victoria and Ms McCutchan undermined a second round of capital raising for the company by allegedly withdrawing the offer of an extra $10m unless Seer agreed to "cost-cutting measures" and making certain roles redundant.

Dr Freestone claimed Breakthrough Victoria were attempting to increase its "ownership of and control over Seer’s business" and that it preferred additional investments from healthcare investor KPRx instead of a Boston based venture capital group Safar and Hostplus.

Seer’s entire board resigned on January 23 this year amid concerns about financial strains and personal liability, leaving him as the sole director, Dr Freestone said.

1:57 pm August 28, 2024 Highlight

July CPI data 'full of smoke and mirrors'

Valerina Changarathil

July's inflation print is "full of smoke and mirrors" with energy rebates artificially lowering electricity costs to make theadline number look a whole lot better, according to Moody's Analytics economis Harry Murphy Cruise.

"Governments are on the hook to pick up the tab," he says following the July CPI read of 3.5 per cent per year, down from 3.8 per cent previously.

"While the immediate impact of rebates is obvious — they lower headline inflation by shifting responsibility for paying part of what the consumer owes to the government — the secondary impacts are less clear," he says. "At best, rebates shave a smidge off underlying inflation by tempering expectations of future price rises and nipping any pre-emptive markups in the bud. At worst, they free up money for discretionary spending, adding demand to the economy and leading to higher underlying inflation".

Much depends on what households do with the savings. If they use it to get ahead on mortgage repayments, it's a win on lowering inflation. "On the other hand, if the savings are spent through the economy, the RBA’s fight against inflation will get a whole lot harder," Mr Murphy Cruise says.

He forecasts underlying inflation to stay elevated, ending the year at 3.5 per cent and sneaking back to the top of RBA's target band of between 2 and 3 per cent in the second half of 2025 and returning to 2.5 per cent in 2026.

1:38 pm August 28, 2024

Bowen Coal lashes out as vote looms on chair removal

Valerina Changarathil

Bowen Coking Coal (BCB) investors will vote on October 4 on the removal of its chairman Nick Jorss and director Neville Sneddon – both former senior Stanmore executives – and the installation of shareholder and Iolite Capital founder Robert Leitz who has called for a board overhaul.

Mr Leitz requested the meeting over his "deep concerns about the company's performance and governance". He is urging a "vote for change" by replacing the two longest-serving directors who he says "bear responsibility for the company’s current situation". Iolite, which has a 5 per cent stake "has been a supportive and engaged shareholder of BCB since our initial investment in June 2022," Mr Leitz said. "Since, BCB has tapped the capital markets three times, and the share price has plummeted by over 90 per cent".

In its statement, Bowen Coal said Mr Leitz "has a track record of shareholder interference with public companies and lacks the experience and relationships required to deliver shareholder value".

Bowen is on track to produce more coal at lower costs although the timeline for achieving profitability has been impacted by a number of factors, including the changing regulatory environment in Queensland and other external factors, including significant weather issues that have affected most coal mines in Australia. "The broader coal and steel market is also facing significant headwinds," but the board has a vision to a profitable future," BCB's statement said.

The company told investors the removal of key directors "may risk shareholder value" by jeopardising key actions underway aimed at securing more favourable debt terms and ongoing negotiations with the Queensland Government. "The current management team and board have a strategy to deliver on this and Mr Leitz does not."

1:06 pm August 28, 2024

Grain of salt in CPI data and a long wait for RBA

Valerina Changarathil

The RBA will likely require at least two "encouraging quarterly" inflation reports before any rate cuts, suggesting any easing is off the table at lease until February, Betashares chief economist David Bassanese says.

July CPI eased to 3.5 per cent for the year, slightly above analyst expectations of a 3.4 per cent result and heavily influenced by the introduction of energy subsidies. "The RBA is not likely to be overly excited by the result and it does not add to the case for a rate cut anytime soon," Mr Bassanese says.

"The total impact of subsidies since July last year appears to be keeping electricity prices 16.5 per cent lower than they would otherwise be. As and when these subsidies roll off, it should lead to a rebound in electricity prices to this extent, which implies a lift in CPI inflation of around 0.35 per cent (given a 2.2 per cent weight in the CPI)." While the easing in annual trimmed mean inflation from 4.1 per cent to 3.8 per cent is welcome, the RBA will "likely take this month’s results with a grain of salt".

It is likely to wait for the September quarterly inflation report due on October 30 and the December quarterly update due on January 29 before any easing.

1:01 pm August 28, 2024 Highlight

ERA to raise $880m in heavily-discounted entitlement offer

David Rogers

ERA plans to go ahead with a heavily-discounted entitlement offer of shares to raise about $880m to meet its mine rehabilitation requirements.

ERA had indicated it wanted to raise at least $210m, depending on what size offered the most beneficial terms to get funding for its rehabilitation requirements.

But after contacting over 90 per cent of its shareholders, ERA found the only investor willing to give a pre-commitment to support an equity raise was Rio Tinto and only on certain terms. Rio Tinto agreed to a $880m capital raise, of which it will subscribe for its pro-rata entitlement, to fund planned Ranger Project Area rehabilitation related expenditure up until about Q3 2027.

The offer price of $0.002 per share is about a 87.8 per cent discount to five-day volume weighted average price.

"Having regard to the likely timing of settlement of the Entitlement Offer and the fact that the final hearing for the Court proceedings regarding Jabiluka is not scheduled to commence until late October 2024 , noting that it is likely that a judgment would not be handed down until some time later, the IBC determined that it was necessary to proceed with an Entitlement Offer to ensure ERA remained solvent and was able to meet its ongoing obligations," ERA said.

ERA shares last traded at $0.015.

12:54 pm August 28, 2024

CPI data 'encouraging': Chalmers

Noah Yim

Jim Chalmers says today’s inflation figures, which saw headline inflation drop from 3.8 per cent to 3.5 per cent, were "quite welcome and quite encouraging".

"What these numbers show today is that we’re making welcome and encouraging progress in the fight against inflation but people are still doing it tough and that’s why our cost of living help — which Peter Dutton didn’t support — is so important," the Treasurer said.

"We’d like inflation to fall further and faster and we expect it to. What we’ve seen in this data today is really quite welcome and quite encouraging because it shows that monthly inflation, headline, underlying, and non-tradable has all gone down in July and that’s a good thing."

12:37 pm August 28, 2024

RBA gets 'breathing space' from noisy July CPI

Valerina Changarathil

'Noisy' July inflation numbers will provide the RBA with some breathing space, says KPMG senior economist Dr Michael Malakellis.

July's consumer price index fell to 3.5 percent in annual terms, from 3.8 percent, slightly above the consensus forecast of 3.4 percent and back to the levels observed in the first quarter of the year.

"Monthly inflation data is always 'noisy' and July’s has been particularly impacted by the energy subsidies," Mr Malakellis says. "However, with the RBA looking for evidence of easing price pressures, the fall in both headline and trimmed mean inflation provide the bank with some breathing space. "This will be welcome, especially when the RBA's minutes of the last meeting showed it was giving careful consideration of whether another rate hike was necessary, with inflation stubbornly high."

He does not expect the RBA to follow central banks around the world, who are kicking off or have kicked off their post-Covid easing cycles. "KPMG's central view remains unchanged that the RBA won’t follow suit and reduce rates, until early next year… based on our observation that the inflation cycle in Australia tends to lag 6-9 months behind those in other advanced economies (US, UK or EU) and continued uncertainty about how the stage 3 tax cuts and the government’s cost of living measures will impact the economy over the remainder of 2024."

12:14 pm August 28, 2024

Synlait down on ex-CEO's complaint

Valerina Changarathil

Shares in dual-listed dairy giant Synlait are down 7 per cent to 34c in afternoon trading after a fresh hurdle in its fight to avoid insolvency via a critical recapitalisation.

Current 2.3 per cent shareholder and former chief executive and chairman Dr John Penno, who left the board in May this year, has complained to NZ regulators – NZ RegCo and the Takeovers Panel – about the recapitalisation meeting to be held on September 18.

At the meeting Synlait wants all shareholders to approve the issue of $NZ185m worth of shares to Bright Dairy, giving it a controlling stake in the business, and the issue of $NZ32.8m of shares to A2M to maintain its circa 19 per cent stake, and the settlement with A2M over past disputes.

Dr Penno's complaint asserts that under the NZX Listing Rules and Takeovers Code, Bright and A2M should not be able to vote on resolutions.

Synlait reminded investors earlier on Wednesday the yes vote is "a critical step for the future of the company". "If the resolutions are not approved and the recapitalisation is not implemented, Synlait would likely need to cease trading and initiate a formal insolvency process…" Synlait said it would be hard to secure support from the banks if the vote failed.

11:59 am August 28, 2024 Highlight

RBA rate hike not ruled out: Judo

Joe Kelly

Judo Bank chief economist Warren Hogan is sceptical July inflation data shows prices are coming down and is not ruling out the chance the RBA goes on to hike rates later in the year.

Headline inflation in July came in slightly higher than expected at 3.5 per cent, with economists having predicted it would moderate to 3.4 per cent in the year to July.

“We knew that the (energy) subsidies … would be kicking in and they have,” Mr Hogan told Sky News. The latest figures showed that electricity prices fell 5.1 per cent in the 12 months to July, down from a rise of 7.5 per cent in June, with the ABS saying the introduction of new energy rebates “drove the fall in July.”

Mr Hogan said the result for July was “good news but, of course, the subsidies aren’t real. They are a government intervention.”

“Inflation is not coming down. It’s going sideways,” he said. “That’s not good for the RBA … We still don’t have interest rates at the right level to get inflation all the way to target.

“At the moment, it just looks like it’s stuck at four (per cent). And of course that’s not good for the RBA, they need it to keep coming down to 2.5 per cent. So probably not as good a number as people were hoping.

“I don’t think we can say there’s no chance of a rate hike in November.”