Booming profits for small companies … Backflip on MIS … Super rules not affecting commercial property … Retirees shun work and fund reforms … Labor unfair dismissal stance up in air

Good profit results from small caps

Small listed companies are performing well this profit reporting season, led by good results from home entertainment retailer JB Hi-Fi and employment website Seek.

Ed Prendergast, small cap fund manager at Pengana Capital, says the sharemarket has responded positively to “strong” small cap profit results, with only a couple of companies failing to meet expectations.

JB Hi-Fi posted profit of $26.2 million for the six months to December 31, 2006, up 39.08% on the previous half. Shares in Seek jumped 9.3% yesterday to a record high after it reported a 63% increase in half-year net profit to $23.9 million.

Austock senior client adviser Michael Heffernan says companies such as Seek and JB Hi-Fi have succeeded, despite softening economic conditions.

“They have insulated themselves from the economy; for example JB Hi-Fi moving into large screen TVs, which is a real growth area,” he says. “They are in the right place at the right time, and well managed too.”

Prendergast says telco Reverse Corp, budget retailer The Reject Shop, construction firm Crane Group and IT services provider Oakton have all performed well. Healthcare provider Vision Group and construction firm Boom Logistics are two that have disappointed.

BT Financial head of small company investment Paul Hannan says the market expects strong results from small caps and will move against those that fail to make the grade.

But he believes the retail sector will continue to perform well.

PM backflip on agriculture tax breaks

Agricultural businesses under threat from the removal of upfront investment tax concessions for managed investment schemes are expected to be given a one year reprieve by the Federal Government.

Prime Minister John Howard has responded to a strong backlash from affected rural businesses and his own backbench to the changes that were to come into effect from 30 June 2007.

Affected businesses, including olive, nut and grape growers, have been able to take advantage of generous up-front tax concessions in the first year of the investment.

Critics complained that millions in investment in rural businesses and hundreds of jobs will be lost if the concession is abolished.

The short-term reprieve will mean investors can continue to claim the concession until 30 June 2008, giving affected businesses time to restructure.

New super rules not affecting commercial property…yet

The new superannuation rules and recent interest rate rises, which have led to a crisis in residential rental markets in Australia, will not affect rental rates for commercial and industrial property – at least in the short term.

Investors getting out of the housing market to put their money into superannuation, to take advantage of tax breaks and rising interest rates, has led to borrowing for negatively geared property investments plunging 30% since June. Rental vacancy rates around Australia have also plunged from a long term average of nearly 3% to 1.8%.

Scott Keck, managing director of property valuer Charter Keck Cramer, says much of the activity in superannuation is under the $1 million threshold. “Most people with assets under that value who might be selling and moving money into superannuation are in residential, not commercial, property,” he says. “The people responding to the $1 million opportunity are very small investors, and we are talking to a number of them about selling properties and shifting the money into superannuation. Residential property in the outer suburbs will particularly be affected. However the commercial market has not been affected.”

Stuart Colquhoun, director of leasing Jones Lang LaSalle, says the superannuation changes do not affect institutions or wealthy individuals who own commercial and industrial property. “The commercial market is being more affected by mergers and acquisitions. Ten years ago everyone was cutting costs and trimming back. Now companies are growing fast, acquiring others and consolidating operations. This means people are moving into larger premises, many on the fringes of the CBD.”

Colquhoun does point out that the commercial property market will be affected by the flood of superannuation money once it is allocated. “We will see more demand from institutions to acquire better sites,” he says. “And that will affect prices.”

Retirees shun work and fund reforms

The Howard Government’s “simplified superannuation” bills, intended to encourage older people to keep working, passed through the House of Representatives on Wednesday morning.

But the results of a Citibank Retirement Index survey published today in The Australian show that only 26% of retirees intend to look for part time work in retirement, a fall of 9%.

In worse news for the Government, the survey indicates that most people are not aware of the implications of the new super laws, which offer a one-off $1 million tax-advantaged contributions to super before June 30, and no tax on super benefits at age 60. Almost half of the over-55s surveyed in November and December said they had little or no knowledge of the changes.

Labor must clarify unfair dismissal stance

Labor is refusing calls to clarify its stance on unfair dismissal, leading to concerns that all businesses will once again face unfair dismissal claims if Labor is elected later this year.

Labor has indicated it would consider the needs of very small business, resulting in reports this week that small businesses (with less than 15 employees) could be exempt from a blanket reintroduction of unfair dismissal rules. However Labor has refused to clarify its position and industry groups fear that Labor will merely create different procedures for small businesses, and that all companies will once again be subject to onerous unfair dismissal rules.

Meanwhile federal Opposition leader Kevin Rudd is shifting the focus from industrial relations, gaining further ground against a faltering Prime Minister after John Howard has refused to debate Rudd. Rudd is pushing home his advantage, challenging Howard once again on TV Wednesday morning to debate him on Australia’s involvement in the Iraq war and on the environment and the lack of emission statement.

Economic round up

Yesterday’s strong wage growth figures from the NAB Monthly Business Survey and St George/ACCI business expectations survey. Both reports show wages growth at its highest level in years, the St George/ACCI report recording the highest figure in its 12 year history.

If wages growth continues to leap ahead in the next few months, the RBA may have to take action on interest rates despite soft economic data in New South Wales and Victoria.

The interest rate risk created by wages growth also fed into the value of the Australian dollar, which rallied slightly after the announcement to stand at US77.88 cents.

The sharemarket recovered from lower levels earlier this week to close at a new record high of 5936.6 at close of Tuesday’s trading. Positive profit results from companies such as JB Hi-Fi and Seek drove the recovery.

A snapshot of the Tasmanian economy released by the Australian Bureau of Statistics today shows the island state’s economy lagging behind the mainland.

New car sales, retail turnover and new house approvals all declined in Tasmania over December, and its unemployment rate was 1.3% higher that the national average.