What’s a fair share?

It has always been a common wisdom that the Far North is not getting it’s “fair share” when it comes to government funding. Queensland Economy Watch has posted on Huge regional disparities in Qld Government capital spending per capita

regional_capital_spend

The surprise for many here would be that SEQ does not appear after all to be a villainous suck-hole draining the wealth from our fabulous regions. However capital expenditure is always going to be lumpy and what is really needed is more transparency around this as Gene points out in that post.

Bill Cummings has also been reported in local media this week on the subject. There is a report posted last year at Cummings Economics: Queensland State Budget 2016-17 Capital Expenditure by Region (pdf)

I have a couple of problems with this typically agenda driven report. Given that regional capex numbers are likely to be lumpy it doesn’t really help to provide analysis on a selected base year even if the time frame is longer. There are however some good points made.

It would be nice to have much better data over a more extended period. However a quick observation on what is easily available here would be that if FNQ is not getting a “fair share” it is more likely to be because it is going to other regions and not down some Brisbane gurgle hole.

It’s June! FY end duck hunting season is officially open!

Yes, the end of financial year is nigh. Certain regions and demographics feature prominently for scammers and dubious offerings at this time of year.

Excellent find from Pete Wargent:

Buy an apartment off the plan, get a new car!

That’s the selling pitch for a luxury apartment complex at West End on the edge of Brisbane’s CBD.

The car offer is for buyers if they secure a contract before the end of the financial year, i.e. June 30.

Online property agency iBuyNew is offering on behalf of a Brisbane developer 10 Toyota Yaris hatchbacks for purchases made in the recently launched ‘The One’ apartment complex.

Luxury apartments a bit beyond you? Never mind ANZ have the margin lending deal for you:

Did you know you can leverage your investments by using an ANZ Share Investment Loan? And right now, with our low End of Financial Year interest rates, it’s a great time to apply.

Plus, open or refinance to an ANZ Share Investment Loan by 30 June 2017 and draw down at least $20,000 before 31 July 2017, and you’ll also receive a special gift: the Zero-X Raven, a robust, lightweight drone with a built-in high definition camera.

I would go the drone scheme because is more easily gamed and much more fun. Nobody has ever had fun in a Yaris. Consult your professional adviser.

We is winners Cairns

Reef Casino attributed weakness in their EGM (pokie) business to “aggressive competition” particularly from clubs. There is official monthly data from OLGR for the last 3 years which includes locations, EGM numbers and also metered win.

It may be a “win” from the perspective of clubs, pubs and tax collectors but for our purposes we will refer to it as the “metered player loss”. Which is what it is. The net amount lost through the machine by the punters.

The data is provided at SA4, LGA, and SA2 level. However “for privacy reasons, monthly metered win totals for regions with less than 5 operating sites are not released”. This means the only SA2 region in Cairns with available metered player loss data is Cairns City. The data does not include casinos. Reef Casino has more than 60% (500+) of the machines in Cairns City SA2. So that’s all good then we will have to make do without the casino.

Anyway, derivation from the available data of available permutations for our region came up looking like this (ex-casino):

Pokies1

Scale can be deceptive there for the seasonal pattern in the City. Maybe a comparison with Townsville. Cairns is displayed in deep green and Townsville in baby shit yellow:

Pokies2

I hadn’t expected the seasonal pattern in Townsville to be so similar to Cairns or the correlation generally to be so close. However over the period of the data the number of machines in Townsville has remained about the same while Cairns has been a regional star with a 12% increase in reported operational machines. A look at the rolling annual aggregates over the last two years may be better:

Pokies3

Well done Cairns. We is winners. Any tourism boost, or other factor, is more than enough to overcome a population deficit with Townsville for respective LGA’s (161,932 v 195,914) at June 2016.

Most surprising is that the Cairns Post has missed two headline opportunities; when we surpassed Townsville and then cracked the $100 million annual player loss milestone (ex-casino).

Source: OLGR gaming statistics

ACCC Petrol Report

Report on the Cairns petrol market:

The value chain shows in broad terms the elements of the price of a litre of petrol from the imported refined petrol price through to the pump. Analysis of the value chain in Cairns and Brisbane in 2015–16, for those companies that operate in both markets, indicates that there are four main influences which explain the higher prices in Cairns. These are:

• higher costs of getting petrol to Cairns (accounting for around 1 cpl)

• higher wholesale costs and margins (around 2 cpl)

• higher operating costs at the retail level (around 2 cpl)

• higher retail margins and profits (around 3 cpl).

The Cairns Post front page splash has claimed the ACCC found that petrol prices in Cairns were 11c per litre too high. That is not accurate reporting of what they found. The 11c is the historical differential above the average for the 5 largest cities. As demonstrated above from the report costs in Cairns are going to be higher than those cities. The ACCC also found that prices in Brisbane were above the capital city average which will be subject of a further report.

The introduction of new players into the market, particularly those that price competitively, could lead to increased competition. Local governments may wish to consider promoting new entry into the market and ensuring that unnecessary planning or infrastructure barriers do not restrict or impede new entrants. As discussed above, the entry of the United site in the Innisfail market in February 2016 has had a downward effect on petrol prices in Innisfail. In the first nine months of 2016–17 Innisfail prices were on average 2.3 cpl lower than Cairns prices.

Curious Contradictions

Who knows?

Cairns Airport Commentary:
The Asian Lunar New Year was celebrated on January 28th, but last year it fell on February 8th. In Korea, the Lunar New Year is celebrated as Seollal. The demand for Seollal travel helped successfully fill Jin Air’s charter flights.
Reef Casino Commentary:
A complete absence of charter and direct flights from China and other parts of Asia into Cairns resulted in an ordinary Chinese New Year trading season in January and February 2017 for Cairns as a whole.
We can only hope one of the two more significant business institutions in Cairns are simply mistaken rather than misleading.

Reef Casino: Updated

I had wondered when the Reef Casino (RCT) AGM was called for a Friday afternoon. Wonder no more:

Reef0117*RCT preliminary forecast based on initial 4 months trading

What was effectively a profit warning was delivered to ASX an hour or so before the meeting:

Our current estimate of the distributable profit* for the first half year from 1 January 2017 to 30 June 2017 is approximately $3.5 million.
The Trust’s main revenue is rent from the Reef Hotel Casino.  The first half year is the low season for Cairns. For the first 4 months, rentals paid to the Trust was 17% below last year.
A complete absence of charter and direct flights from China and other parts of Asia into Cairns resulted in an ordinary Chinese New Year trading season in January and February 2017 for Cairns as a whole.  So far this year, Cairns’ economy has been quiet and softer than the previous year. Local slots competition from clubs and hotels/pubs remain strong. The major clubs had renovated their premises some 2 years before us as our own renovation plans were delayed by the takeover bid in 2013/14.
Trust depreciation is higher than the previous year following the refurbishment of level 1 of the complex.
Our new facilities on level 1 of the Reef Hotel Casino complex have been well received by our patrons and our ongoing challenge will be to leverage complex patronage into casino slots patronage.  Already we are seeing increased patronage and revenues from our new BAR36 and expanded Tamarind Restaurant.
We will further update unitholders about the Trust’s likely first half year results and any use of the undistributed income account which has a balance of 12.11 cents per unit or $6.03 million as at 31 December 2016 in late June, about 4 weeks from now, when we release our unit distribution announcement.

In the broader economic context the two key points from this emphasised at the meeting were tourism issues in the initial months of the year, mostly but not solely the charter flights from China, and a generally softer local economy. Whether that is correct or the profit warning is related to business or sector issues will only be clear in hindsight. However the key casino business sector under pressure has been pokies which could be interesting.

In the narrow business context the commentary around depreciation and competition from clubs on pokies is noted. Who would have thought these facilities required continual capex to maintain their position? The alternative way to look at this is that the delayed capex inflated prior year reported profits.

The announcement was a revenue fall of 17% for the first 4 months. This translates into a distributable profit decline of 38% on my numbers and the RCT profit guidance provided for 1H. Will have to await further detail and breakdown analysis relevant to the RCT trust structure.

Rental Affordability

There has been media coverage following recent release of the Rental Affordability Index from SGS Economics. Most commentary has related to the capitals. The Cairns region displays in the acceptable to affordable range with numbers apparently not far out of line with Townsville and Mackay despite the rental gap which has opened up.

However it isn’t quite so positive at the alternative Queensland Rental Vulnerability Index from UNSW: Two pictures of rental housing stress and vulnerability zero in on areas of need.

Mapping this out we see that rental vulnerability in Queensland is highest in the regions. In particular, it is high around Bundaberg, Fraser Coast and Gympie, with a band of vulnerability skirting the regions west and south of Brisbane. Cairns also has several highly vulnerable postcodes.

RVI

 

There is also a report from Anglicare Australia released last month which includes commentary on Cairns: Rental Affordability Snapshot

The Snapshot highlights very little change from the 2016 Snapshot in terms of the statistics relating to affordable and appropriate household type. The findings indicate that approximately 6.3% of advertised properties were available (47 properties) to households on income support and approximately 25% of the advertised properties (188 properties) were available to households on a minimum wage.
The 2017 Snapshot reveals 72 fewer properties listed from the previous Snapshot in 2016 and again 61 properties down from 2015. Cairns is experiencing a housing shortage overall, and a gradual decrease in available private rental stock more specifically.
The Rental Affordability Snapshot for the Cairns Regional Government Area for 2017 evidences three key issues:
 The rental market is priced beyond the means for household types with income less than that of a couple with two children, where both adults earn the minimum wage and are in receipt of FTB (A).
 The Snapshot evidences a consistent decline in available properties for rent. This is certain to be putting even more downward pressure on household types with low incomes in Cairns.
 There is insufficient social housing stock within the Cairns Regional Government Area.

I haven’t had time to look through the different methodologies which may have to wait for the next round of rental data.

 

 

A quick peek at rental bonds data

The Residential Tenancy Authority rental data includes historical numbers on rental bonds. Have always wanted to look into this more deeply but a very quick look on a 5 year perspective of total rental bonds lodged for the northern tropical cities:

2012 2017 Growth
Cairns Regional Council 22668 23871 5.3%
Townsville City Council 20409 24165 18.4%
Mackay Regional Council 9768 12443 27.4%

Total bonds lodged includes some minor sectors where reporting may have changed. This has also been adjusted for Douglas de-amalgamation. Something doesn’t look right so hope I haven’t got something wrong.

 

Airport halts descent in April

Cairns Airport passenger numbers halted the recent descent in April and recovered some altitude assisted by a seasonal Easter tailwind.

Blogposta1Blogposta2

Attempting to derive a trend without an adequate lunar monthly seasonal adjustment in the earlier months of the year is probably pointless with some recent commentary around this appearing confused.

BITRE airport traffic data updated to February confirms previous relative weakness at Cairns in that month. However Cairns does remain among the leading group of tourism related destinations for growth over the full year to February.

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A sign of the times in the BITRE top 20 airports summary data has removed Port Hedland and Gladstone for the inclusion of Ballina and Hamilton Island.

Further data and graphs will be updated imminently at Cairns Airport