Economy

Beacon lights up ASX. China's growth slows. Lenders mortgage insurance scrutiny. By Kirsty Simpson.

Beacon shines bright in ASX debut

Four decades since Ian Robinson bought the first Beacon Lighting store in Melbourne’s Chapel Street, the now 71-store chain has listed on the Australian sharemarket – and rewarded maiden investors with a 62 per cent “stag” profit on its first day.

Robinson, the executive chairman, has kept his stake while partner Martin Hanman sold his 45 per cent in the float – at 66 cents a share. As Beacon debuted on Tuesday, its shares quickly spiked to above $1 a share and, after falling a little during the day, closed back at the $1.06 high point. This put the value of the Robinson family’s remaining 55 per cent stake at $125.3 million and gave Beacon a market capitalisation of $228 million on its first day as a public company.

The float comes just weeks after BRW released its list of “The 100 Wealthiest Bosses in Australia” – and if Beacon’s share price stabilises at these levels, it would place Robinson at 19 on the list, in the company of fellow retailer Gerry Harvey (6) and James Packer (2), among others.

Of course there is no guarantee the share price will continue to outperform – the long-term outlook of the stocks will depend on economic conditions, margins and how much hardware giants Bunnings, Masters and Mitre 10 muscle in on the residential lighting market.

There have been only a few retailers listed on the stock exchange in recent years, with Dick Smith (last December) and Myer (in November 2009) the most prominent.

During its first day, Dick Smith rose briefly above its issue price at $2.20 and was again back at these levels this week; Myer shares, issued at $4.10, slumped on their first day and have only spent a few months above those levels, and were trading at about $2.25 this week.

China's growth slows

Further afield, Australia’s biggest trading partner officially slowed from its 7.7 per cent growth rate in 2013. The quarterly growth figures showed the Chinese economy was still travelling a little faster than most expected – at 7.4 per cent for the three months (this compares with the government’s target of about 7.5 per cent).

Economist Saul Eslake, of Bank of America Merrill Lynch, says the figures were “better than expected, especially following the very weak data on exports for both February and March”. But before anyone gets too excited, Eslake says they do not contradict “the widespread understanding that China’s trend growth rate is slowing, both in line with demographic trends and as a result of the Chinese authorities’ clear strategy of shifting the principal engine of growth from fixed investment to household consumption”.

Concerns about the ramifications of a Chinese slowdown have been escalating this year, with some observers now expecting the 2014 growth rate to stay at 7.4 per cent all year. If it does, 2014 will be the slowest year in a quarter of a century – or since 1990, at the time of sanctions following the Tiananmen Square massacre, says the The Financial Times.

Lenders mortgage insurance scrutiny

Meanwhile, in matters closer to home, mortgage brokers and the Housing Industry Association have called on David Murray’s Financial System Inquiry and the federal government to take action to encourage competition in a little-reported but critical component of the housing market – lenders mortgage insurance.

Finance Brokers Association of Australia president Peter White, a former boss of Wizard Home Loans, says the expense of this insurance, and an inability to transfer it between lenders, is a far greater disincentive to switch home loans than the bank exit fees that were axed by the previous federal Labor government.

More than a quarter of Australians who buy a house have saved less than 20 per cent for a deposit. Banks generally require all of these buyers to stump up for LMI to cover the bank in case of default. Two players – QBE and Genworth – dominate the market and the HIA and the FBAA both argue that prices are too high. The FBAA is also concerned that consumers should be offered a product disclosure statement with their mortgage, as they get with other forms of insurance (even though technically it is the bank not the home buyer that is the beneficiary of the policy).

“People are not aware that if you refinance or discharge your loan in the first one to one-and-a-half years, you are entitled to a refund,’’ White tells The Saturday Paper, adding that he’s heard of one case where a home owner refinanced three times and had to pay insurance in all cases. “How does the insurer justify that? The risk hasn’t changed. I just want fair play and transparency.”

White wants the inquiry to examine this issue, which he says he has already raised with several senior ministers.

“Lenders and LMI providers are operating in a way that is not transparent and not in the best interests of consumers. This lack of transparency gives rise to the possibility of lenders seeking to take advantage of consumers who are uninformed and unaware to seek refunds,” the FBAA submission says.

While the HIA is less exercised by a lack of product disclosure, it is concerned about a lack of competition and is calling for the government to consider setting up its own scheme. “We believe that the inquiry should examine pricing and competition within the LMI market as it lacks a competitive number of suppliers. A Commonwealth-backed LMI scheme similar to that available in Canada should be considered within the terms of the inquiry,” the HIA submission says.

QBE, on the other hand, says that “there are a number of LMI providers in the Australian market” but that the “market is typically very concentrated and throughout the globe usually has only a small number of providers in each jurisdiction due primarily to the extremely high capital and regulatory requirements that are required of LMI providers. Concentration does not mean, however, that there is a lack of competition.”

But while QBE believes the market is competitive, it says other changes are needed to improve affordability. At the moment, when the big four banks take out LMI, it does not reduce their “capital requirements” (the level of assets a bank needs to hold).

QBE wants regulators to recognise “the additional benefits and capital that LMI provides … This recognition is key to ensuring consumers’ costs remain affordable, and therefore home ownership remains possible.

“With insurance, one of the biggest costs of doing business is how much capital we are required to hold against the policies we write, so [some of the big lenders] are bearing this cost without receiving the benefit. Ultimately [this] creates higher costs which are ultimately borne by the consumer,” a QBE spokesman said.

This article was first published in the print edition of The Saturday Paper on Apr 19, 2014 as "Beacon shines bright in ASX debut". Subscribe here.

Kirsty Simpson
is The Saturday Paper’s business editor.

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