News Analysis: Qatar Airways buys into Virgin; Origin exits hydrogen; IPO market weakens

Welcome to the essential investor brief, featuring handpicked news for the week ending 4th October 2024.

This week's highlights include:

-Qatar's long game pays off: The Qatar Airways and Virgin Australia deal represents a significant power shift in Australian aviation, breaking Qantas' dominance. The partnership positions Virgin for greater international growth while giving Qatar critical access to a lucrative market, marking a strategic victory against Qantas' longstanding efforts to hinder Qatar's expansion in Australia.

FINANCE & MARKETS

Australia's IPO market struggles as companies prefer private funding over public listings.

News highlights

Australia's IPO market raised just $495 million in the first nine months of this year, the lowest since 2012, with only 15 floats. More companies are opting for private funding due to the costs and scrutiny associated with public listings.

• Takeaway: While some companies will continue to list on the public markets, there is a significant shift towards private equity. In response, investors may need to adapt their portfolios to include private assets, which could offer higher returns and greater diversification benefits.
  
  

The IMF has warned that any further unexpected rise in Australian government spending may compel the Reserve Bank to maintain high interest rates. It has called for a comprehensive tax overhaul, suggesting the phasing out of superannuation tax concessions in order to lower personal and corporate tax rates.

• Takeaway: Investors should watch for shifts in government fiscal policies as targeted support for households could impact market conditions. Sustained high interest rates could also affect borrowing costs, necessitating strategic adjustments.
  
  

Investors urge companies to balance shareholder returns and growth as unused franking credits rise. Morgan Stanley identified Rio Tinto, REA, JB Hi-Fi, and Ramsay Health Care as having the largest excess franking credit balances per share.

• Takeaway: This indicates potential opportunities for special dividends from companies with excess franking credits. Investors may see increased cash returns, improving their portfolio yield after recent regulatory changes that limit the relative attraction of buybacks.
  
  

CORPORATE NEWS

The lack of new models and slowing demand raise concerns about Tesla's growth trajectory.

News highlights

Tesla’s Q3 deliveries missed expectations causing a 6% share drop. Rising competition and slowing demand put Tesla at risk of its first annual delivery decline after years of rapid growth.

• Takeaway:Tesla's reliance on price cuts and incentives without new vehicle releases is squeezing margins and challenging profitability. Investors should watch for Q4 deliveries and upcoming product developments.

OpenAI has secured $6.6 billion in funding, nearly doubling its valuation to $157 billion. The investment, led by Thrive Capital with support from Microsoft and Nvidia, will enhance AI research while OpenAI explores a transition to a for-profit model.

• Takeaway:OpenAI's latest funding round reflects confidence in AI's future potential and OpenAI's pivotal role in the sector. However, the lack of profitability and competitive pressures highlight significant ongoing risks.

Origin Energy is exiting its hydrogen plans due to high costs and will focus on renewable generation instead. This decision follows Fortescue’s withdrawal from its green hydrogen production plans in July, highlighting ongoing challenges in the hydrogen sector.

• Takeaway:Origin Energy's exit from hydrogen ventures underscores substantial hurdles in the sector, especially concerning high costs and slow market development. This shift reflects a broader trend towards prioritising renewable energy initiatives that offer quicker returns.

Virgin Australia will restart long-haul international flights following Qatar's acquisition of a 25% stake in the airline.

• Takeaway:Virgin Australia's partnership with Qatar Airways strengthens its competitive position against Qantas. The deal could lead to lower operational costs and improved services, and boost Virgin’s market share in the Australian aviation sector.
  
  

Until next time...