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Kaddy (ASX:KDY), formerly known as DW8, appointed voluntary administrators today. The administrators will look to ‘sell the business as a going concern or recapitalise’.

DW8, or Digital Wine Ventures, was a firm that invested in early-stage ventures that had the ‘potential to disrupt and or digitally transform segments within the global beverage market’.

In October 2021, DW8 acquired Kaddy, a B2B beverage marketplace and fulfilment platform, for about $35 million in a cash and script deal.

In November 2022, DW8 announced it will ditch its consumer fulfilment business to focus exclusively on B2B to reduce costs. It also changed its name and ticker to Kaddy (ASX:KDY) to reflect the strategic shift.

The pivot re-positioned the business as a ‘pure play B2B focused warehousing and logistics service provider for the beverages industry’.

Addressing investors in November, chief executive Steve Voorma said:

‘A review of our financial position, deep dive of the operations of the business, and discussions with customers has quickly led me to conclude that we require a significant refocus of the business on its core offering and an exit from consumer fulfilment services. Our business has huge potential and there’s a real market opportunity for us to scale in the B2B segment however this requires significant change at multiple levels through the business.

‘Drawing on my deep supply chain experience, I can see material cost savings that can be realised through exiting the consumer side but also by addressing challenges in the remaining B2B side of the business which will very quickly lead to significant improvements in efficiency as we move to solely focus on trade buyers and suppliers. We expect additional savings from follow on effects, and in parallel to implementing these changes, we will continue to review other measures that include optimising our operational footprint and 3rd party supplier network to drive further efficiencies and ongoing operational savings.

‘In financial terms, the $5.7m in annualised operating expense reduction will provide DW8 with a significantly lower cost base from which we will be well positioned to grow the solely B2B focused business. While we will see revenue loss from exiting the loss-making consumer side of the business, we expect significant growth in our B2B offering over the same time period to June.’

Kaddy had just $2 million in the bank at the end of December, 2022 with only a quarter of funding available.

The company said in its December quarterly it would seek ‘further capital’ to support growth but, clearly, its seeking failed.

Kaddy entered a trading halt on February 24th pending a capital raising announcement. It never resumed trading, extending its voluntary suspension for weeks and then months.

Its final request for extension of voluntary suspension ‘pending the release of an announcement in relation to a capital raising’ was upheld this Wednesday.

Today was Kaddy’s curtain call.

$KDY — formerly $DW8 — entered voluntary administration on Friday.

The decision to ditch its consumer fulfilment business to focus exclusively on B2B didn't work out. #ASX #DW8 pic.twitter.com/pyEPYa9R53

— Fat Tail Daily (@FatTailDaily) May 5, 2023

Afterpay-owner Block (ASX:SQ2) said its ‘doubling down’ on generative artificial intelligence in its March quarterly release.

Generative AI will be a ‘strategic priority’ for all Square product teams, said the large fintech.

In March, Block launched Suggested Actions for messages merchants send to customers. This feature uses a large language model (LLM) to ‘predict next actions that sellers may want to take based on a conversation with a customer’.

Nifty, but will it move the needle?

In its latest Statement on Monetary Policy, the Reserve Bank had a great section on whether business profits in Australia contributed to inflation.

The RBA’s research found ‘little evidence that there has been a broad-based increase in domestic non-mining profit margins, suggesting that changes in domestic profit margins have not been a significant independent cause of the increase in aggregate CPI inflation.’

The section also had a nice explanation of the causal direction of expanding profit margins on inflation.

One may reflexively think rising profit margins cause inflation. But that’s not necessarily so, as the RBA explained:

‘A rise in profit margins may be a causal factor in the increase in inflation if firms facing limited competition have taken advantage of higher inflation to raise their markup over input costs. Alternatively, rather than a driver of inflation, increased profit margins could simply be a by-product of strong demand in markets where firms are price-takers and prices have risen to match demand to limited supply, or margins could have increased temporarily in anticipation of future cost increases.’

#RBA: 'There is little evidence that there has been a broad-based increase in domestic non-mining profit margins, suggesting that changes in domestic profit margins have not been a significant independent cause of the increase in aggregate CPI inflation.' #auspol #ASX pic.twitter.com/x242iOFenm

— Fat Tail Daily (@FatTailDaily) May 5, 2023

Early production is the ideal investment phase in the mining lifecycle.

At this stage of development, the company holds a JORC-compliant and economically viable deposit. Resource drilling and the geological and metallurgical due diligence have been completed.

That eliminates the biggest risk of all…the geology.

Construction and finances are all controllable factors. Engineers can tweak processing facilities to optimise output while CFOs can pursue different avenues for investment — capital raisings and offtake agreements.

The deposit on the other cannot be changed, fixed, or altered…

Economic deposits are a freak of nature that sits under management’s feet as an unknown beast that can only be tamed through extensive drilling and geological interpretation.

That’s why we would expect a premium for a stock holding a known deposit with measured reserves.

But there’s another reason to favour the early producers…

Cash is king in the resource game. Production means revenue…an opportunity to pay down debt and test new exploration targets.

But why do I emphasise the need to focus on EARLY producers?

Mines are a depleting asset. Declining output is the thorn that sits in the backside of every major mining firm.

The young mid-cap producers have the advantage of YOUTH. There’s no immediate need to explore for replacement reserves or overpay for acquisitions to maintain output.

Years of production lay ahead.

It’s for this reason I tend to focus on companies operating in the early production life cycle.

But there’s another critical factor to consider…

The price of the underlying commodity.

While we can’t always get the timing right, the Goldilocks scenario is to own a company entering maiden production on the back of rising prices.

This is the sweetest spot of all for an early producer. But when the stars align, value can be hard to find as an investor.

ENTER LITHIUM STOCKS

In terms of the lithium sector, several late-stage developers are looking to begin production in the next 12–24 months.

This could occur on the back of a strong recovery in the sector…making now an opportune time to potentially add lithium stocks.

But as an investor, it’s likely you’ll be competing with the majors in the months and years ahead.

The world’s largest mining firms have been unanimous in their push to grow their exposure to critical metals.

But when it comes to the race for critical metals deposits, each mining conglomerate has their own specific shopping list of commodities…

The world’s biggest miner, BHP, has been squarely focused on nickel and copper acquisitions as it looks to boost its output of future-facing metals.

While Australia’s richest person, Gina Rinehart, made a surprise move on a REE developer based in the Northern Territory — Arafura Rare Earths [ASX:ARU] — absorbing around 10% of its stock after pumping $60 million into the company.

While Twiggy’s Wyloo Metals looks to be zeroing in on PGEs, REEs, and nickel…his latest bid was for Mincor Resources [ASX:MCR].

But so far, none of these big players have expressed any interest in lithium.

However, mining giant Glencore [LON:GLEN] is one such miner that could be about to enter this space.

This Swiss-based miner holds various coal, copper, and nickel assets in Australia and has expressed a strong interest in adding lithium assets to its commodity pipeline.

But despite voicing its intentions to break into this niche market, Glencore has not made any moves into this sector…yet…perhaps waiting for a drop in the market.

But as I’ve outlined, lithium has just had its ‘come-back-to-Earth’ moment…meaning several majors could be about to embark on their long-awaited move into the sector.

As I highlighted earlier in the piece, we just witnessed a bid from US-based Albemarle for Australia’s Liontown Resources last month.

Liontown holds a large shovel-ready deposit that’s slated for maiden production as early as 2024.

But there’s another mining conglomerate pushing its way into the lithium sector…Rio Tinto.

Early last year, the company snapped up the Rincon lithium project in Argentina for $825 million.

Rincon is a large lithium brine project holding a PROVEN resource that is also knocking on the door to maiden production.

The majors have shown that they move on these opportunities when the market turns down. We saw that last year with Gina Rinehart’s move on Arafura Rare Earths. We also saw it amongst BHP execs winning a bid on copper producer Oz Minerals.

Andrew Forrest also lit a match under the M&A mining space with his bid for the nickel play, Mincor Resources in March 2023.

That’s why, if Rio Tinto is prepared to make a serious commitment to lithium, then now is the time to make its move on a late-stage developer.

But acquisitions aside, adding lithium stocks to your portfolio could offer strong upside as sentiment returns to the sector.

With more EV gigafactories coming online each month, a short-term glut in the lithium market could soon be replaced with supply pressure and renewed excitement amongst investors.

You’re reading an excerpt from our commodities expert James Cooper.

***

Over the last two months, our focus at Diggers and Drillers has made a dramatic shift toward adding lithium stocks. But that wasn’t always the case…

In an article I published in November 2022, I had this to say about the commodity (emphasis added):

‘Most market commentators have stated future demand for EV batteries will continue to drive a boom in lithium prices.

‘But that’s the typical mainstream sentiment; I believe much of the excitement has already been priced in. In my opinion, I see much stronger opportunities presenting in other areas of the commodity sector.’

You can read the full article here.

Indeed, by November 2022, the lithium hype had been ‘fully priced in’.

Lithium carbonate reached its highest-ever-recorded price of around 600,000 Chinese yuan on 15 November.

From there it fell a staggering 70% into April 2023.

See for yourself below:

Coincidentally, our Diggers and Drillers publication was launched that same month…

This was when the lithium story was reaching its euphoric peak. Investors were clambering into stocks as they continued to defy all other sectors of the market.

However, using the lithium story would have been an easy but (in my mind) reckless way to promote our release.

Given what we were seeing play out in the market, we steered clear and focused on other areas of the resource sector.

That’s why avoiding certain markets is JUST as important as picking the right areas for investment.

As an investor that places you in a MUCH stronger position to capitalise on lower prices…both financially and mentally!

So, with the correction well and truly underway, is there any justification for adding lithium stocks now?

RUMBLINGS OF A RECOVERY ARE EMERGING…

Opportunistic bids from majors in the industry offer investors clues that the lithium market is preparing to stage a comeback.

It started in March when US chemical giant Albemarle made a $3.7 billion bid for West Australian lithium developer Liontown Resources [ASX:LTR].

That sent LTR’s share price soaring more than 60% in a single trading session.

The company is now trading above its all-time highs, despite the underlying commodity still languishing well below its November peak.

But in many ways, Liontown stood out…

In terms of scale, Liontown’s enormous Kathleen deposit in Western Australia will be competing with Pilbara Minerals’ [ASX:PLS] Pilgangoora Project.

As you might remember, PLS was the darling of 2022’s lithium surge…rocketing around 150% through the second half of last year.

With very few active producers in the lithium sector, PLS stood out. That’s why new upcoming producers could be about to repeat Pilbara Minerals’ success.

It’s one of the reasons we’ve been adding lithium stocks over the last two months…focusing on both the hard-rock lithium miners in Australia and lithium brines in Argentina.

https://commodities.fattail.com.au/is-it-time-to-add-lithium-stocks-for-a-coming-recovery/2023/05/05/

The Reserve Bank warned higher rents threaten its inflation forecasts.

Underlying inflation will take a ‘couple of years to return to the inflation target’ but may drag on if rents remain high.

RBA explained:

‘Rent inflation could also be higher and more persistent than forecast. The pick-up in population growth is occurring at a time when the rental market is already very tight, and it will take time for supply to respond. Higher rents are likely to encourage the average number of people living in each dwelling to increase, which would be a reversal of the decline that occurred during the pandemic as people sought more space. It is possible that rents need to rise by more than expected to bring about this increase in household size. On the other hand, a larger increase in household size would moderate demand and price increases by more than expected.’

The Reserve Bank expects the household saving ratio to continue falling ‘over the next year or so’ before picking up ‘gradually’ from mid-2024.

The RBA wrote:

‘From the second half of 2023, consumption growth is expected to gradually increase towards its average rate prior to the pandemic, as a range of factors support both wealth and household disposable income growth. The recent stabilisation in housing prices supports household wealth relative to expectations in February. Additionally, a pick-up in real household disposable income growth is supported by lower inflation, as well as the legislated ‘Stage 3’ tax cuts from mid-2024.

‘The household saving ratio is expected to continue to decline over the next year or so, before increasing gradually from mid-2024.’

The Reserve Bank thinks inflation has peaked in Australia, with the central bank lowering its inflation outlook in the near term.

However, further out, the RBA’s outlook is ‘similar to a few months ago’, driven by a stronger outlook for rent inflation.

RBA’s CPI inflation forecast has been revised down to 4.5% from 4.75% in the December quarter. Trimmed mean inflation is now forecast to be 4% instead of 4.25% in the December quarter.

The June quarter CPI inflation forecast marked the biggest revision, from 6.75% to 6.25%.

The RBA found it tricky in forecasting longer-term inflation due to the ‘high degree of uncertainty around the speed and extent of the disinflation expected in the period ahead’.

Stubborn services inflation and a worrying trend in the tight rental market may see inflation remain elevated:

‘Services inflation is forecast to remain high in 2023, before moderating slowly over the forecast period; as a result, inflation is expected to be above the target band over most of the forecast period. Growth in unit labour costs is expected to be solid over the forecast period, adding to cost pressures for labour-intensive market services. Rental vacancy rates are low and stronger population growth will contribute to further tightness in the rental market in the period ahead. As a result, rental price inflation is expected to increase further over coming quarters as higher rents work their way through the stock of outstanding rental agreements.

‘Underlying inflation is expected to decline over coming years to be around the top of the inflation target range by mid-2025 (Graph 5.2). The disinflation in 2023 is expected to be driven by the resolution of supply disruptions (Graph 5.3). Ongoing tightness in the labour market and further energy price increases are expected to keep domestic price pressures elevated in the near term before they start to ease later in the forecast period. There is a high degree of uncertainty around the speed and extent of the disinflation expected in the period ahead. On the one hand, lower goods prices from the resolution of supply chain issues could come through sooner and swifter than anticipated. On the other hand, domestic price pressures may be stronger and more persistent than expected.’

The Reserve Bank has published its latest statement on monetary policy.

You can read it in full here.

I will go through the most interesting sections now.

Yesterday, we got our first glimpse of performance from one of the Big Four.

NAB reported its half-year results to 30 March, and they were impressive.

A 17% increase in cash profit to $4.07 billion would normally delight investors. But because it fell short of the $4.2 billion expectation, it will be remembered as a failure instead.

As a result, NAB shares were dumped on the market. The stock fell 6.41% yesterday despite its relatively strong profitability!

It just goes to show not even the Big Four are safe from volatility.

Also, keep an eye on ANZ and Macquarie shares today after the release of their latest earnings. Because as robust as their profits may be, it seems investors are looking beyond just the bottom line…

After all, we’re in the midst of a lending war. Or, at least, nearing the end of one.

Because as the RBA has continued its aggressive rate hike cycle, the Big Four have been jostling to retain their home loan market share against each other — a key factor in the weaker-than-expected results of NAB, in my view.

But beyond this, I wonder if the banks are prepared for even further competition that’s coming…

Forgotten ASX fintech stocks

Remember Afterpay?

Remember Zip?

Remember the ‘buy now, pay later’ bubble of 2021?

Fintech was a huge trend on the ASX not that long ago. A trend that made many investors a whole lot of money with their astounding growth.

But now that trend is all but dead in the water. BNPL doesn’t draw headlines quite like it used to. In fact, fintech as a whole has been one of the biggest losers in our current, higher interest rate era.

Which makes perfect sense, when you think about it. It stands to reason that the Big Four were always going to be better equipped to withstand the cost pressures of current monetary policy better than the upstarts.

Not that that has stopped many of those upstarts from trying.

Just last month, two of the latest entrants into the market — Intelliflo and Nuvei — made their Australian debut. The former is a British-based business that provides ‘hybrid financial advice’, essentially offering clients a largely digital experience, but with the option to talk to a real person too.

In contrast, Nuvei is more akin to your typical fintech payment processor. They focus on e-commerce acquiring, processing, and risk management, for their merchant customers. Something that is certainly not new to Australians, but still ripe for disruption for the right offering.

Oh, and then there’s Alex.Bank as well. As the newest authorised deposit-taking institution (ADI) in Australia, it’s the latest in a long line of neobank hopefuls.

There is certainly no shortage of new competitors looking to cut away market share from the Big Four. And the reason I think you should care is because once the tide turns on interest rates, the fintech sector could be the biggest beneficiary…

https://www.moneymorning.com.au/20230505/why-big-banks-have-more-to-fear-than-just-volatility.html

Apple released its latest quarterly results, largely beating analyst estimates (but set a bar low enough and everyone’s a world-beater). Apple shares were up about 2% in after-hours trade.

The tech giant’s overall revenue fell 2.5% to US$94.8 billion but analysts predicted a deeper slide to US$92.6 billion.

Better than expected, but still a second straight quarter of falling sales.

Earnings were steady, though, at US$1.52 a share. The market was pencilling in US$1.43 a share.

The interesting result came from the sales breakdown.

iPhones continued to be Apple’s breadwinner, generating US$51.3 billion in sales, better than the US$49 billion analysts predicted.

While exceeding expectations, iPhone sales still only grew 1.5% from a year ago.

But sales of iPads and Macs plummeted. The Mac segment fell the most, registering a 31% drop to US$7.17 billion. This time, the performance was worse than consensus estimates of US$7.7 billion.

BNPL firm Splitit (ASX:SPT) is up over 8% in early trade after announcing a partnership agreement with payments giant VISA.

SPT signed a two-year agreement with Visa to ‘pilot an enhanced instalment solution upon which companies have collaborated to optimise consumer experience for Visa Instalments embedded in the Splitit solution’.

Come again?

The Splitit-Visa collaboration will let acquirers and merchants access a BNPL payment option that combines SPT’s ‘instalments-as-a-service’ with Visa Instalments, a ‘suite of solutions offered to issuers, acquirers, and merchants.’

From what I can gather, Visa has a BNPL marketplace of sorts, where clients seeking to offer their customers BNPL solutions can find a Visa partner specialising in BNPL.

Conversely, a BNPL provider may join this partner program to access Visa’s massive network of clients.

According to Visa’s website, there are ten BNPL partners offering BNPL services to Visa clients in Australia. Splitit is one of them.

Across its whole network, not just Australia, Visa has 31 partners offering BNPL.

Importantly, Splitit CEO Nandan Sheth said the ‘economic materiality’ of the partnership is ‘unknown’. But he expects the Visa collaboration ‘may have a material impact on Splitit’s brand and business development prospects’.

Lithium developer Vulcan Energy (ASX:VUL) is down 17% after completing its $109 million placement at a discounted $5.10 a share.

Vulcan’s Managing Director Francis Wedin said:

“The ~300-strong Vulcan team remains focused on the execution of Phase One of our industry-leading Zero Carbon LithiumTM Project, providing the European market with critically-needed secure supply of sustainable, battery-grade lithium hydroxide for the electric vehicle market, as well as increased renewable energy supply for energy and climate security.

“The Placement positions us to continue delivering our integrated renewable energy and lithium project execution strategy, in line with the recently published DFS development plan.

“It is shaping up to be an exciting, transformative year for Vulcan, with planned start-up of optimisation plants towards training for commercial operational readiness, production well development to increase current brine flow, completion of bridging engineering, award of key contracts and ordering of commercial long lead items for our Phase One commercial plants.”