Investment Matters

What Matters: in two words - reporting season

Monday mornings are often quite interesting on the markets.  This week was not an exception:

  • The impact of Newcorp’s ownership of Foxtel (under the Fox Sports / Telstra tie up) didn’t obscure the disappointing results from the core news division in the company’s quarterly results (US released their Friday).  Share price -10% on our Monday.
  • Also down ~10% on Monday morning was Nufarm – it suffered as a result of US legal action re glyphosate (which Nufarm also sells).
  • But nib (health insurance) upgraded FY-18 earnings guidance, citing factors including lower claims costs and cost containment.  Share price +9.6%.

Wesfarmers has continued the downsizing trend (banks and others) in selling its Kmart Tyre and Auto Service business to Continental AG (as in tyres) for $350m – a tidy profit of ~$270m (to be recognised in the FY-19 accounts).  But not nearly tidy enough to offset the $1,492m of losses incurred by shareholders in the FY-18 accounts, principally associated with the doomed Bunnings UK venture.  Otherwise, Wesfarmers’ FY-18 results were broadly in line with expectations.

Capilano Honey received a sweet takeover proposal from Wattle Hill and Roc Partners for $190m (with their focus reportedly on the Chinese export opportunity); a premium of 28% to the trading price prior to the announcement and an EV / EBITDA multiple of 12.5x.  Their FY-18 result, announced the same day, was overshadowed – but did show good underlying earnings growth (+19%).

JBHiFi released acceptable result, boosted by the core JBHiFi business.  Shareholders could rightly be questioning whether the company should have, in Nov-16, acquired the poorly performing GoodGuys business.

Domain released acceptable first results as a separately listed entity (from Fairfax), but flagged slow listings in Sydney as the new financial year commenced.  Takeover target Fairfax released results which were essentially in line with expectations – but those expectations were for a continuing decline in the business (even with profit from the 60% retained ownership of the growing Domain business).  Does Nine really know what it is getting itself in to?

Domino’s Pizza was dreaming when it affirmed its full-year guidance, released in conjunction with its disappointing H1 results announcement (the uplift that would have had to be achieved in H2 was not believable).  And guess what, it disappointed.  And the FY-19 guidance disappointed.  Equals share price -6.5%.  Even then it is still silly expensive.

A brief synopsis on some others:

  • Treasury Wine Estates (includes Penfold’s and many other renowned brands) had a good FY-18 result; profit +34%.  Share price +4.4%.
  • Telstra didn’t have any blowouts, which equated to a 5.8% relief rally.
  • A good news story in the Australian consumer sector - small appliance manufacturer Breville increased its profit 8.7% vs FY-17.  Their dividend and share price increased correspondingly.
  • Huon (Tassie salmon producer)’s FY-18 result was not well received (-7.8%).  Record tonne and revenues were offset by lower value attribution of fish in the water (due to a long hot recent summer).
  • Whitehaven Coal: high production volumes and high prices = dividend machine.  It was expected though, and thus the share price was up marginally after their announcement.
  • IAG Insurance released a good result – but perhaps a slight disappointment vs consensus expectations.  The share price that had got a bit ahead of itself, thus it fell 5.8% after the announcement.
  • Woodside is tracking along quite nicely and delivering on consensus numbers.  Share price -0.5%.
  • CSL had strong results - a 29% increase in net profit, which beat the updated guidance it released in May.  The dividend stepped up, and the result was well received by the market, +6.4%.
  • Cochlear released a good result (profit +10%, and FY-19 guidance for 8-12% growth).  But it didn’t have the consensus beat like counterpart CSL.  Thus the share price was down 3.0% after the announcement.
  • Bluescope has most certainly turned the corner from high debt / troubled times of the mid-2000’s.  It released good FY-18 results, it pointed to a 10% earnings (EBIT) increase for H1FY-19 (vs pcp), and it is acquiring and investing.
  • Link Market Services (market and funds administration services) announced today a 68% increase in net profit, supported by international expansion / acquisitions.  Share price +4.9% (as we go to print).

Reporting season continues next week, so expect another full What Matters then…