Reporting Season Summary

Transcription

1 12-Jan 13-Jan 14-Jan 15-Jan 16-Jan 17-Jan 18-Jan 19-Jan 20-Jan 21-Jan 22-Jan 23-Jan 24-Jan 25-Jan 26-Jan 27-Jan 28-Jan 29-Jan 30-Jan 31-Jan 01-Feb 02-Feb 03-Feb 04-Feb 05-Feb 06-Feb 07-Feb 08-Feb 09-Feb 10-Feb Reporting Season Summary Overview ASX200 as at 11/02/14 08:42 Australian corporate reporting season has kicked off and moves firmly into gear this week with a handful of companies having already posted results. As has been the case with previous reporting periods, the percentage of stocks that beat or miss expectations will be frequently cited and one that we will be monitoring and providing information on a daily basis. The guidance however, or lack thereof, will be the key focus for the market and could determine which direction we head from here for the remainder of FY14. In our recent Reporting Season Preview, we looked at current earnings expectations together with the where the market was currently sitting, noting that: The domestic equity market experienced a period of significant P/E expansion through 2013 but the question we ask is can this expansion continue without earnings improving? Maybe a little, but prices are drifting into high territory, and a significant expansion from here is asking a lot from current earnings. Earnings upgrades on a broad scale such as those witnessed in the US or EU are probably not going to occur at home. This is simply because our key market cap plays (Telco s and Banks) are not at the historically depressed levels of profitability experienced by their offshore counterparts post GFC. For example, offshore banks are benefiting from material credit growth and declining provisions while at home, credit growth is benign and provisions are already low. Distribution of Results by Week No. Companies Distribution of Results by Week 80 Week Ending No. of Companies 70 31/01/ /02/ /02/ /02/ /02/ /03/ /03/ /03/ /03/ Week Ending Reported to Date P/E expansion without an uplift in earnings looks challenging however there remains a level of support for domestic equities. 1) The significant cash balance of domestic investors combined with low interest rates means that the yield play continues. 2) A falling Aussie dollar will continue to provide a tailwind for offshore earning streams and do much of the heavy lifting for the RBA 3) companies with offshore earning streams will remain in favour as they provide exposure to offshore recoveries 4) there is still room for cost out programs to be initiated and we feel past cost reductions will continue to flow through this season. Today, we ll see results from Bradken (BKN) and Cochlear (COH). For BKN, recent acquisition, strength in Mining Products market and the continued rollout of GET product lines we believe will likely have supported earnings in the first half of 2014 and we maintain a positive view on the stock. COH on the other hand, we believe that despite the recent share price pullback, risks are skewed to the downside. Health care industry commentary suggests that COH has been losing market share to competitors while the N6 product remains only partially approved. ASX200 During Reporting Season Reported 3.98% Still to Report 96.02% Still to Report 96.02% Earnings vs Consensus Estimtes Reported 3.98% Sales vs Consensus Estimates 1.00% 0.00% Cumulative Return Beat In-Line Beat 25.00% -1.00% -2.00% In-Line 50.00% -3.00% Miss 37.50% -4.00% -5.00% Miss 62.50% Earnings Growth vs Previous Year Sales Growth vs Previous Year 1.50% 1.00% 0.50% 0.00% Daily Returns -ve Flat Flat 25.00% -0.50% +ve 50.00% -1.00% -1.50% -2.00% +ve 75.00% -ve 25.00% Source: Bloomberg

2 Upcoming Results Report Date Code Company Est. EPS Est. Sales What to look for - eqr Comment 11-Feb BKN Bradken Ltd $575 Recent acquisitions, strength in Mining Products market and continued roll out of the GET product lines likely to support earnings. 11-Feb 12-Feb BWP BWP Trust 12-Feb CBA Commonwealth Bank of Australia $11, Feb CPU Computershare Ltd $ Feb CSL 12-Feb DMP Domino's Pizza Enterprises Ltd $ Feb GFF Goodman Fielder Ltd $1, Feb OZL OZ Minerals Ltd N/A N/A 12-Feb COH Cochlear Ltd $ $58 CSL Ltd $2,767 PRY Primary Health Care Ltd $ Feb SGP Stockland $ Feb SKC SKYCITY Entertainment Group Lt N/A N/A Risks are to the downside as N6 remains only partially approved. Industry commentary also suggests that COH is ceding share to competitors. Whilst BWP has a very stable portfolio and an attractive dividend yield, it appears fully priced. Market likely to focus on rent reviews and debt costs. Potential for escalation in loan loss charges given subdued domestic economy alongside implications for sustainable net interest margins. Already seen corporate activity improve in 1H14. Strong IPO & M&A activity only partially offset by declining shareholder accounts. Despite strong share price, we wouldn t rule out small upgrades given strong momentum in IG, Albumin and Specialty Care products. Priced for perfection. Needs to deliver on: turnaround in Europe, at least half of store rollout targets, strong progress from Japan. Required reinvestment in opex likely to reduce earnings growth. Increase in price on proprietary brands will drive lower margin private label products. Production, sales, costs and cash balance are known so low risk at this earnings release. Upside potential resides with Medical Centres. Pathology business has turned the corner, with strong top line and margin improvement. Strong EPS growth should be underpinned by recovery in residential earnings. High productivity relative to occupancy costs a positive. Auckland machine and table growth looks soft. 13-Feb ASX ASX Ltd $ Feb GMG Goodman Group $ Feb GPT GPT Group N/A N/A 13-Feb MIN Mineral Resources Ltd $ Feb RIO Rio Tinto Ltd N/A N/A 13-Feb TCL Transurban Group $ Feb TGR Tassal Group Ltd N/A N/A 13-Feb TLS Telstra Corp Ltd $12, Feb WEB Webjet Ltd N/A N/A 14-Feb CQR Charter Hall Retail REIT $90 14-Feb NCM Newcrest Mining Ltd $2, Feb SCP Shopping Centres Australasia $0 14-Feb TPI Transpacific Industries Group $ Feb AAD Ardent Leisure Group $ Feb ALZ Australand Property Group N/A N/A 17-Feb ANN Ansell Ltd $ Feb AZJ Aurizon Holdings Ltd $2, Feb BEN Bendigo and Adelaide Bank Ltd $ Feb FWD Fleetwood Corp Ltd N/A N/A 17-Feb UGL UGL Ltd $2, Feb AIO Asciano Ltd $1, Feb AMC Amcor Ltd $6,116 Regular market activity updates results in low earnings surprise at reporting. Remains quality company with high margin and strong cash flow. Run rate of developments and AUM ahead of forecasts. Well placed to beat growth target as China and high margin Japanese projects come online. Mild upgrade cycle, falling cost of debt, accretive M&A activity or asset acquisitions will be focus. Growth in iron ore production and CSI iron ore crushing volumes; offset by lower iron ore pricing and weaker demand for PIHA construction services. Production levels have been in line with guidance. Sales have been ahead of production and expectations, leaves door open for re-evaluation. Proportionate 1H14 traffic was up 3.3% and toll revenue was up 12.6%. The strong performance from the M2 bodes well for a strong 1H14 result. Expect volume increases in retail to be offset by decrease in wholesale. Major supermarket chain contract renegotiations a positive. Focus on proceeds from recent asset sales. TLS preference is for acquisition options, but failing that, capital management is an option. The underlying core air business remains pretty flat and we believe WEB has lost market share. However, downside appears to be priced in. Focus on timing of US & NZ settlements and Australian interest rates. We like the strategy of returning to 100% domestic assets, but looks expensive. Production, sales, and costs are known so a fairly low risk to earnings. The operational performance of the assets and realised prices are the key. Low risk to guidance being achieved due to rental guarantee and interest rate hedging. New contract wins, and refinancing to assist profitability. Sale of non-core businesses will assist in paying down debt which is positive. Dec and Jan are the biggest trading months for AAD. Expecting growth in Theme Parks attendance due to a pick up in Gold Coast Tourism. Best leverage to improving residential prices. Timing of settlements of developments and industrial tenant demand will be key for the result. Outlook remains bleak for ANN with no growth in Europe, a slowing of Asia Pacific which is offsetting some improvement in US and Latin America. We expect AZJ to report a ~5% increase in underlying NPAT pre abnormals. Implications for sustainable net interest margins given current levels of pricing volatility in the competitive domestic deposit market. Manufactured Accomm. still faces patchy demand from the resources and education sectors. The Rec. Vehicles also remains subdued. Report likely to be once again split between underlying weakness in Engineering business and positive signs for DTZ. Coal division performing strongly with volumes up 16.5% in 1Q14. Risk is that PN Rail and terminals perform poorly and diluting coal division. Benefit from moderating input costs. Adverse weather conditions in the US and Europe in the DecQ likely to result in weak food and beverage volumes.

3 In Focus - CBA What to look for: Charts as at 11/02/14 08:42 Our forecasts: We are forecasting CBA 1H14E cash earnings of A$4,124m, in line with consensus at A$4,140m. Our 1H14E interim dividend forecast is A$1.80/share (consensus A$1.80/share), representing a ~71% payout ratio, in line with CBA s interim payout ratio target of being closer to ~70%. In our view, CBA remains well positioned as mortgage growth is coming back strongly in a low growth environment. Major Banks - NIM Through Time 2.5% 2.4% 2.3% 2.2% NIM: Our forecast 1H14E margin of 2.14% is flat relative to 2H13 levels, noting that CBA s margin run-rate was broadly stable at its 1Q14 trading update. Growth: We are forecasting 1H14E domestic housing loan growth of ~6% and expecting domestic business loans to remain unchanged from the previous half, however, recent data from APRA suggest a reprise in business lending growth with CBA displaying an above peer growth rate. Provisioning: Our forecasts 1H14E provisioning charge of A$446m reflects ongoing benign conditions since the A$228m of provisioning reported at 1Q % 2.0% 1.9% 1H06 1H07 1H08 1H09 1H10 1H11 1H12 1H13 1H14E ANZ CBA NAB WBC Housing Credit Growth 10% 8% Capital: We are forecasting a Core tier 1 ratio of 8.16% (7.30% on an exdividend basis) with CBA requiring a minimum Core Tier 1 ratio (including D-SIFI buffer) of 8.0% by 1 January The Mortgage Market: From a major banks perspective there is some level of diversification with respect to originations in individual product lines - 1) ANZ - geared towards re-financings, 2) CBA with higher market share in first home buyer originations, 3) NAB - equally positioned across most product sets and, 4) WBC an overweight position in the investor segment. 6% 4% 2% Nov-12 Feb-13 May-13 Aug-13 Nov-13 ANZ CBA NAB WBC Total ADIs Mortgage Originiations - Bank vs Non-Bank 80% 30% CBA: Sees the highest market share for first home buyers at ~35% of new mortgage originations despite subdued conditions overall for this borrower segment. Conversely, re-financings represent the lowest market share segment for new mortgage originations for CBA at ~20%. 78% 76% 74% 72% 28% 26% 24% 22% 70% Jan-13 Apr-13 Jul-13 Oct-13 Major Banks Non-Majors (rhs) 20% Mortgage Originations by Product 40% 35% 30% 25% 20% 15% 10% 5% 0% Total Re-Fi FHO Invest Total Re-Fi FHO Invest Total Re-Fi FHO Invest Total Re-Fi FHO Invest ANZ CBA NAB WBC Mar-13 Jun-13 Sep-13 Dec-13

4 Last Reported Company Releases Price Charts as at 11/02/14 08:42 News Corporation (NWS): NWS 2Q14 EBITDA of $327m was ahead of consensus (c.$270m) and our estimates. Weak revenue conditions at NWS Australian newspapers continue to weigh on the News & Info Services division. Australian revenue declined -17% (-10% FX related), accounting for nearly 60% of News & Information Services -9% revenue decline (-4% on an adjusted basis). Total segment ad revenues fell -10%, a slight improvement over 1QFY14 s -12%. News Australia did see some sequential moderation in ad declines in 2Q14 with an improvement in Real Estate, Retail and the Auto advertising categories. $21.00 $20.00 $19.00 $18.00 $17.00 $16.00 NWS $15.00 Tabcorp Holdings (TAH): TAH reported a reasonably solid result with EBIT ~2% ahead but NPAT missing by ~2% on higher than expected interest. The underlying wagering result was the key highlight with EBIT growing by 9.2%. Following the result, we are more confident that the mix shift to higher margin products will support Variable Contribution growth going forward. $3.70 $3.60 $3.50 $3.40 $3.30 $3.20 TAH $3.10 $3.00 DownerEDI (DOW): DOW s 1HFY14 results were in-line with expectations at the NPAT line but there were a number of swing factors above this. Revenues were broadly below expectations but Fit4Business cost out has helped minimise the hit at the EBIT line. Further, while Group EBIT fell short of expectations, a large portion of this reflected higher than expected restructuring/redundancy expenses taken in Downer Australia and Rail to respond to weak end market conditions. DOW s diverse operations, strong focus on cost/debt reduction and rising WIH position the Group well to meet FY14E guidance and navigate continued end market headwinds. $6.00 DOW $5.50 $5.00 $4.50 $4.00 $3.50 $3.00 Woolworths Limited (WOW): WOW reported 2Q14 sales from continuing operations (excluding Petrol) up 6.2%. Australian Food & Liquor LFL sales were up 3.4%, with volume growth increasing to 7.2%. NZ Supermarkets and Hotels came in ahead of expectations, while Big W and Home Improvement were again weak. While risk on Home Improvement remains to the downside, we continue to have a positive view on the company due to increasing confidence that WOW will narrow the LFL sales growth gap with Coles and CODB reductions driving EBIT growth. $38.00 $37.00 $36.00 $35.00 $34.00 $33.00 $32.00 $31.00 WOW $30.00 Challenger Diversified Property Group (CDI): CDI reported 1H14 Operating Profit of $23.9m, 1% above our estimate of $23.6m. NTA fell 1% to $2.71 despite a currency tail-wind, driven by valuation softness in its domestic office portfolio. Occupancy fell 30bp to 95.4% and the portfolio WALE was down 0.3yr to 4.6yr. The only notable leasing deal announced was the QLD Government renewing ~5,500sqm at Makerston House. $2.90 $2.80 $2.70 $2.60 $2.50 CDI $2.40 $2.30 REA Group Ltd (REA): REA reported a strong 1H14 result, 1H14 Revenue/EBITDA was +5.5% and +6.6% ahead of our forecasts. The increase in Australian revenue +30% was the highlight driven by a material increase in Australian listing depth revenue +67%. Key issues for REA remain: 1) the background of new management & 2) future capital allocation. $52.00 $47.00 $42.00 $37.00 REA $32.00 $27.00 $22.00 Source: Bloomberg

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