ASX Today — Live ASX News | ASX Up; US Stocks Stage Relief Rally, IOUpay, KMD, Monadelphous Feature

Last week, I got to host a livestreamed discussion between our editorial director Greg Canavan and Exponential Stock Investor Ryan Dinse about the fallout of Silicon Valley Bank’s collapse.

The conversation focused on the implications of the bank’s failure, especially for Aussie investors.

Tomorrow, I am hosting another livestreamed discussion with Greg and Ryan, this time centred on the looming US Fed rate decision and the continued chaos in the banking sector with the forced sale of Credit Suisse to rival UBS.

It’ll be a cracking conversation so please do check it out if you’re interested.

https://www.moneymorning.com.au/20230322/navigating-financial-markets-greg-canavan-ryan-dinses-analysis-live-stream.html

The Reserve Bank of Australia issued a research paper today on the slowing productivity growth in the country in recent decades.

The paper noted productivity growth is a key driver of our living standards yet growth in labour productivity has ‘slowed markedly’.

The paper warned if this growth continues to slump, it will have ‘negative implications for living standards and the budget position.’

One big reason for stagnant productivity is a ‘pervasive decline in economic dynamism’:

“Firms and product markets have become more stagnant: firms are less likely to enter and exit, the largest firms in industries have become more entrenched, and market concentration and mark-ups have increased. And labour markets have also become less fluid: job mobility and labour reallocation rates have declined, and labour has become less likely to flow to more productive firms.

“The story of Australian capital accumulation over the past decade or so is one of ‘doing less, with less’.

“We find evidence that increasing market power has played a role, muting incentives for better firms to invest and grow their capital stock. This finding complements earlier work that found declining competition had limited incumbent firms’ incentives to reallocate labour to more productive firms (Hambur forthcoming) and to innovate and adopt technologies (Andrews et al 2022). It reinforces the need to understand why competitive pressures may be declining, and whether that reflects competition policy or other frictions that prevent new firms from growing and challenging incumbents.”

 

It’s a weird dynamic in play at the moment.

Last week, fintech Latitude Financial (ASX:LFS) reported a ‘cyber incident’.

Ever since, news of the incident’s severity steadily poured in.

The incident morphed into a ‘sophisticated, well-organised and malicious cyber-attack’ now being investigated by the Australian Federal Police.

On Monday, Latitude confirmed that at least 330,000 customers and applicants have had their personal information stolen, with 96% of the information being copies of drivers’ licences or drivers’ licence numbers.

Latitude’s response to the hack involved ‘isolating’ some of its technology. As a consequence, Latitude is not currently onboarding new customers and is ‘unable to service our customers and merchant partners’.

Today, LFS provided another update, admitting ‘further evidence of large-scale information theft affecting customers (past and present) and applicants across Australia and New Zealand.’

Today’s update was low on detail, with Latitude saying it is working on establishing the full extent of the hack.

Latitude will issue another update once it has established the figure.

In a special essay for today’s Money Morning, our mining expert James Cooper gives his rundown on the outlook for commodities in today’s tumultuous market.

 

It’s been a crazy time for the markets recently.

But amidst the noise…I’ve been putting some plans in place.

In the next few weeks, I’m going to start pulling the trigger on what I call ‘Phase One’ mining stock trades.

That may seem counterproductive…or at the least super-contrarian…given the recent uncertainty in the financial system.

Miners haven’t been immune to the selling, as you know. After the resounding victory of many resource stocks in 2022, the euphoria has had a definite breather in the last few months.

But stick with me.

Phase One miners did more than OK when the markets were in a similar position 20 years ago. And I think we’re seeing a similar set-up now…

What is a Phase One miner?

Put simply: Phase One miners are the true wildcat, early explorers.

The true prospectors.

As a mining company unveils the potential of a mineable deposit…more value is created for shareholders along the way.

But Phase Oners don’t even have a mineable deposit.

They have mostly nothing.

So…there IS no value.

At this earliest stage…it all rests on the geologists. They put their necks…and jobs…on the line. They back educated hunches on where metal deposits are. Yes, they use geochemical and sampling techniques to improve the confidence of the theory…

But it remains a theory.

Until they get that very first strike…

That makes them incredibly risky.

To buy them as a stockholder.

And…to work for as an explorer (I know this first-hand!).

However…

Right now, it’s my contention that those ‘first strikes’ are coming a bit more frequently than they did even one year ago.

Mining exploration is ramping up.

Despite all the ructions in the wider markets.

And some Phase One miners are starting to fizz again.

We’ll explore why that is…and which Phase Ones you might want to look at…in the coming days.

For now, I just want to quickly look at a core factor you need to monitor with these kinds of companies. And all miners in general…

‘Insider buying’

The term itself sounds dodgy and illegal. But it’s not to be confused with insider trading.

It’s actually a lot more straightforward (and legit) than you might think.

Insider buying is when people WITHIN mining explorers…management, team, board of directors, even the geos out in the field doing the exploring…start buying the company’s shares on the open market. Or get involved in a new equity financing round.

The consensus is that insiders tend to only load up if they are confident in the company’s prospects…and think the shares might be worth a fair bit more down the track.

It’s by no means a perfect science.

Especially when it comes to the really small exploration stocks.

But I’ve been tracking this activity recently, and some interesting stuff is going on…

https://www.moneymorning.com.au/20230322/insider-buying.html

If the ‘suspected significant fraud’ wasn’t bad news enough for IOUpay, it is now being hit with legal action by Clee Capital — an IOU shareholder.

Clee Capital launched legal proceedings in the Federal Court of Australia seeking an overhaul of the IOUpay board, among other orders:

• ‘The Company be restrained from making any payments or incurring any liabilities other than in the ordinary course of business;
• ‘The Company hand over all of its hard drives and data servers to Clee Capital’s lawyers;
• ‘The appointment of an independent investigator into the financial affairs of the Company; and
• ‘A receiver and manager be appointed to all of the Company’s property’

Intriguingly, the legal claim includes a witness statement from Kenneth Kuan Choon Hsuing himself, the former CFO dismissed earlier this month.

IOU said Mr Kuan is ‘assisting Clee Capital in this legal action’.

IOUpay quickly added that Mr Kuan is ‘currently being investigated by the Malaysian police in relation to the suspected significant fraud involving misappropriation of the company’s funds.’

The $IOU drama rolls on.

✅Fraud investigation
✅Legal proceedings #ASX #ausbiz pic.twitter.com/eJgTxNiXom

— Fat Tail Daily (@FatTailDaily) March 22, 2023

Seeking to secure its dwindling assets following revelations of fraud allegedly purported by a former senior executive, IOUpay halted the ‘offer of loans in its BNPL business.’

IOU thinks the instalments business can be restarted soon, with a ‘focus on a strictly limited number of existing profitable merchant customers.’

The fintech is also cutting staff in its Malaysian office, including a ‘number of senior managers associated with the former senior executive [who the firm has leveled the fraud accusation against] leaving the business.’

IOUpay didn’t elaborate under what circumstances these senior managers are leaving the business or whether they will be part of any fraud investigation.

The firm will also reduce the size of its office premises and cut back on outdoor advertising and staff travel expenses.

Basically, IOUPay is trying to save any money it can.

But does it have enough cash to survive?

IOUpay’s board thinks so, but that hinges on a potential $5 million loan from a ‘friendly party’:

“As a result of these immediate actions, the Board is currently of the view that there is enough cash available to support operations, but this will continue to be carefully monitored and assessed on an ongoing basis, and will require the careful management of creditors. In order to remove any doubts over solvency and to ensure sufficient cash flow for operations, pending the recovery of the misappropriated funds, the Board has held initial positive discussions with a friendly party interested in supporting the Company during this period. The proposed support would involve a loan on favourable terms of approximately $5 million, which is a modest amount when compared to the value of the Company’s assets. Full details of these arrangements will be disclosed if and when they are concluded. In relation to any potential capital raising, the Board will continue to act in the best interests of shareholders, and will do whatever is in its power to avoid the risk of insolvency caused by the misappropriation of funds. An equity capital raising would only be undertaken if clearly in the interests of shareholders.”

Former fintech darling IOUpay (ASX:IOU) said the suspected ‘significant fraud’ conducted by former chief financial officer will now be investigated by Malaysian police.

IOU believes the fraud involved ‘actively concealing the true status of approximately $7 million in cash that was purportedly held by a reputable stakeholding firm in Malaysia.’

The fintech went on:

“Following the renegotiation of that transaction in August 2022, only $3m was required for completion, with the remaining AUD4m classified as cash available in the Company’s financial reports. Based on the current status of the investigation, the Company’s accounts will have to be restated.”

IOU also said it is seeking to recover the misappropriated funds.

IOUpay said it is shoring up its assets to ensure ‘there is sufficient cash to support operations’.

$IOU has provided a further update on the 'suspected significant fraud' conducted by its former CFO.

The fintech admitted its accounts will have to be restated following further revelations. #ASX #ausbiz https://t.co/BkgBLC3mKm pic.twitter.com/ETpmokNNCA

— Fat Tail Daily (@FatTailDaily) March 22, 2023