Investment Matters

What Matters this week

Reporting season began in earnest this week, with some big names presenting a mixed bag of results.

Former dividend machine Telstra (-2.18% on the day of announcement) reported a reduction in underlying total income (-1.8%) and a resulting decline of 11.2% in underlying profit. While mobile income grew (mainly due to handset pricing), the fixed division (broadband and fixed line) continues to languish due to unsustainable NBN payments, which its cost out program is struggling to offset.

JB-HIFI (+0.83% on the day of announcement) managed to shrug off the retail collywobbles (given retail sales were down 0.4% over December) and deliver a net profit increase of 4.8%. Sales increased for both JB-Hifi and The Good Guys, posting like-for-like sales growth of 3.0% and 2.8% respectively.

Commodity producers passed with flying colours this week:

Woodside Petroleum (+1.92% on the day of announcement) and Beach Energy (up 5.33% on the day of announcement) benefited from higher oil prices and increased production. Woodside reported a 28% year on year increase in full year net profit and an 83% increase in free cash flow, surprising shareholders with a final dividend of 91 cents per share (totalling 144 cps for the year).

Beach upgraded guidance for FY19 after revenue was up a whopping 147% and underlying net profit was up 199%, largely due to an increase in production volumes on the back of its acquisition of Lattice Energy.

The other standout was South 32 (+3.54% on the day of announcement), which benefited from a currency tailwind, increased commodity prices and higher production volumes leading to an increase in revenue of 9% and underlying operating profit of 20%.

Whitehaven Coal (-9.81% as at time of posting) posted an increase in net profit of 19% on the back of higher prices. However it signalled rising unit costs.

High flyer CSL (-3.92% on the day of announcement) delivered a result that was in line with expectations (sales revenue +11%, NPAT +10% at constant currency). Behring (its fractionated blood product division) demonstrated weak earnings growth (-2% vs pcp) which was offset by Seqirus’ (its vaccine division) growth (+61%) on the back of higher value flu vaccine sales. Furthermore, it signalled FY19 profit would be the upper end of its guided range and increased its dividend to 0.85c per share (up 8%). Its shareholders are a hard to please bunch though (not surprising given its valuation), punishing it on the day.

Carsales (-5.42% on the day of announcement) screeched to a halt, with a result almost as disappointing as the preceding pun. While dealer and private revenue continued to grow (8% and 12% respectively), display (advertising revenue such as banner ads) fell off a cliff (down 16%) as new car sales weaken and manufacturers cut their ad spend. Declining margins in its Stratton Finance business (post-flex commission ban) added to this, culminating to revenue growth of 3% and a decline in EBITDA of 7% (excluding the impact of its SK Encar acquisition).

Tassal (+4.52% on the day of announcement) managed to swim upstream, with a record harvest and higher prices resulting in strong sales growth (+21.7%). Operating NPAT for 1HFY19 was up 22.3% to $31.7m and operating cash flow up 96.3% to $79.6 m.  

Treasury Wine Estates (+0.60% on day of announcement) reported net sales revenue up 16% (vs pcp), with sales in Asia (what slowdown in China?) and the Americas continuing to surge (+32.4% and 20% respectively), while sales at home were down (0.1% vs pcp). Margin growth flattened (22.4% vs 21.9% in pcp) however, which all together translated to a growth in profit of 19%.

Virgin Australia (+7.69% on the day of announcement), announced an underlying profit before tax of $112.3m (up from $30.4m vs pcp), in spite of higher oil prices during the period and a weaker Australian dollar. Results were led by the strong performance of its domestic service, with revenue and underlying profit up 10.3% and 26.8% respectively on the back of increases in revenue per seat and overall passenger carrying capacity. Their international business however remains to be a drag on earnings (underlying loss of -12m).

Domain (+15.80% as at time of posting) showed signs of a slowing advertising and development market, with operating profit shrinking by 12%. Revenue from Media, Developers and CRE was down 10.1% while consumer solutions (its home loan and insurance broking service) was a drag on earnings due to continued investment (revenue in this segment grew by 33.9%). Furthermore, it continues to see lower listing volumes into the second half

Lastly, AMP (-7.79% on the day of announcement) had a messy result (as expected, with divestment, remediation and royal commission related costs) that concluded with underlying profit being down 35% (A$360m). Digging deeper, operating earnings for its retained businesses (excluding NZ wealth protection and mature, Australian wealth protection and Australian mature) were down only 1.9%. The headline grabber was profit from its Australian Wealth Management division, which was down 7.2% due to an outflow of close to $4 billion dollars of funds (with assets under management down 5.5%). On a positive note, its other divisions performed better, with AMP capital profit up 7.1% and AMP Bank profit up 6%.

Make sure you join us next week for more excitement as reporting season continues.

- Paul Grace