THE DISTILLERY: ASX goes retro

Jotters see broader worries in reduced market activity on the ASX, while some target the latest Wesfarmers results.

Fairfax’s Malcolm Maiden writes that the daily trading average of the Australian Securities Exchange gone backwards to the tune of seven years. As if that wasn’t enough for our market operator, The Australian’s John Durie explains, chief executive Elmer Funke Kupper has yet more problems on his plate.

Elsewhere, three other commentators look at the latest set of Wesfarmers results, the only retailer that can consistently deliver news the market actually likes.

Firstly though, let’s hear from Fairfax’s Malcolm Maiden, who has a great opening about how the ASX gives us glimpses of the "new normal”.

"The daily average value of share trading on the ASX is back at 2005 levels, and while global markets have staged a tentative rally since European Central Bank president Mario Draghi's declaration late last month that regulators and lawmakers would do what it takes to save Europe, volumes remain depressed. Average daily share trading volume between June 30 and the end of last week was $3.5 billion, 36 per cent below the same period last year, and 25 per cent below the average daily volume in the year to June. ASX businesses that feed off sharemarket activity are feeling the effects of the trading drought. Listings revenue slumped 52 per cent to $60.5 million in the June year as the number of new floats fell from 160 to 99.”

The Australian’s John Durie explains how Funke Kupper used yesterday’s presentation to avoid talking about his "conflicts” and more about his "concerns”.

"The worries are spreading from the immediate industry, with the country's top finance chiefs (under the banner of the Group of 100) about to conduct a major review of the issue. An internal Australian Securities & Investments Commission taskforce is already on the job and Financial Services Minister Bill Shorten has made his concerns about market integrity known. Group of 100 president and Wesfarmers chief financial officer Terry Bowen said yesterday that he was worried the growth in electronic trading would undermine confidence in the stockmarket.”

Meanwhile over at the other big corporate to report yesterday, Wesfarmers, Fairfax’s Elizabeth Knight says Coles is still the primary focus for the conglomerates shareholders – even though it’s a conglomerate, not a pure retailer.

"While Wesfarmers is a conglomerate that spans several retail brands, resources, insurance, chemicals and fertilisers, the response to the 10.6 per cent increase in group profit was not behind all the excitement. The focus on the company's performance is directly on how the Coles supermarket chain is performing. In this respect the company has delivered all it promised. It has been an arduous process but Coles is clearly still on a roll – increasing profit by an impressive 16.3 per cent. The liquor part of this business continues to be a problem and one that will take time to fix, but the supermarkets are travelling well. While Coles and most of its individual retail businesses are getting the upside from being in turnaround mode they are also sitting in a sweet spot relative to industrial companies trading on the Australian market. Given the largely poor conditions prevailing in the Australian retail sector, the place a company wants to be is in the non-discretionary segment. Goyder takes the view that poor consumer sentiment is understandable and rational.”

Digging a little deeper into the results, The Australian Financial Review’s Chanticleer columnist Tony Boyd finds that Kmart has been turned around so successfully that it should become a case study of sorts.

"At a time when many retailers are complaining about the negative impacts of the high Australian dollar, the internet, rising costs and consumer reluctance to spend, Kmart is showing how to succeed. In the year to June, it lifted its earnings before interest and tax by 32 per cent to $266 million on flat sales of $4 billion. Its return on capital rose from 15.7 per cent to 18.7 per cent. Its EBIT margin rose from 5 to 6.6 per cent. Kmart has now recorded 10 consecutive quarters of growth in customer transactions and units sold. The question that will be asked by other retailers is whether the changes to Kmart’s operating model can be replicated elsewhere.”

Similarly, Business Spectator’s Stephen Bartholomeusz says Kmart’s turnaround has been something to behold and even Target is showing signs of life.

"Both Kmart and Target are at the end of the market where competition has been most torrid and where their rivals have been ravaged by deep discounting, anxious consumers and the emergence of online retailers. Against that backdrop, Kmart, pursuing its distinctive and disruptive strategy of a radically reduced range and very deeply discounted pricing, is performing brilliantly and Target has done well to stabilise its earnings. It is apparent, and has been for some time, that the management teams Wesfarmers appointed are talented and creative and have been quicker on their feet than their peers. Their performance post-acquisition would also suggest that the former managements of those businesses don’t fare well by comparison. It would also appear safe to conclude, five years after the brands became part of the Wesfarmers conglomerate structure, that the Wesfarmers’ model – which gives its businesses considerable operational independence but strict financial accountability – has demonstrated its effectiveness and value.”

Still on Wesfarmers, Fairfax’s financials writer Eric Johnston says the company’s general insurance arm lost almost all its profits from the New Zealand earthquake, but are expected to rebound as sales through Coles increase. Knight is right about Coles being the sole focus because Johnston was the only one to meaningfully run with this angle.

In other company news, The Australian’s Bryan Frith explains how there appear to be contradictions between Singapore’s Wilmar International and Goodman Fielder about whether a "proposal” has been put but by the former to the latter.

Fairfax’s Insider columnist Ian McIlwraith brings us the story of Lion Advantage chief executive David Hickie, who’s seeking to overturn a two-year ban from the Australian Securities and Investments Commission.

Writing in The Australian, Giles Parkinson says wind power is rapidly changing the energy profile of Germany’s second largest energy utility, RWE.

Elsewhere, Fairfax’s Michael West calls for an inquiry into energy prices, but concedes that there are a few too many inquiries going on right now. Over at The Australian Financial Review, Jennifer Hewett urges her readers to prepare for a whole truckload of fluff from the federal government after the delivery of the report on the Australian manufacturing industry.

And finally, The Australian’s economics correspondent Adam Creighton reveals his envy at the turn political debate might take in the US towards something substantial with presumptive Republican nominee Mitt Romney’s selection of fiscal conservative Paul Ryan as his running mate.

An argument to be jealous of the state of US politics... thank the heavens it's Friday.

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