Investment Matters

What Matters this week

It was a huge week of Company Profit results (and nice the focus turned to this, rather than macro driven press headlines).

[Unless specified results are in reference to the six months ending 31-Dec-17, with the prior comparable period (pcp) being the six months ending 31-Dec-16.]

Here is a synopsis of some of the standout (good and bad) and more interesting results:

JBHiFi’s results for its Australian operations were quite good, and showed good resilience in the context of consumer spending pressures, and what we are seeing from some other retailers.  However, the market didn’t like (by -7.8%) the start to the new calendar year, with lower than expected pcp sales growth for JBHiFi, and negative comparable sales growth for The Good Guys.

Ansell released a quite acceptable albeit complex result – including the wash through of its sale of it Sexual Wellness operations (no more condoms), and US tax changes.  Challenging operating conditions, especially cost pressures such as raw materials, are still evident.  And the earnings upgrade was technical – based on lower tax.

Also facing raw material cost pressure was packaging company Amcor.  But it wasn’t a bad result overall from Amcor, and generally in line with expectations.

Domino’s Pizza released a disappointing H1 result, with weak growth vs expectations – same-store sales +4.0%.  The company is adamant strong growth will return; 20% forecast net profit growth for FY-18, supported by improved same-store sales. The market is unconvinced.

Strong results were released by CSL (34% jump in half-year profit), IAG Insurance (24% increase in net profit, above expectations), toll road operator Transurban (strong growth continues) and Medibank (net profit up 5.9%, ahead of expectations).

Telstra’s first-half sales revenue fell 0.2%.  The 9.5% increase in underlying profit was low quality – driven by lower tax and amortisation/depreciation expense.  Earnings before interest, tax, depreciation and amortisation (EBITDA) fell 2.5%. The dividend was cut too (in line with the new dividend policy).

Oil and gas producer Woodside Petroleum released full-year results – net profit increased 18%, assisted by a stronger oil price, and other factors such as lower depreciation and exploration costs.  Oil production costs were down, but gas production costs were up and production volume was down.  All this was superseded by a seemingly too large ($2.5b) capital raising, principally to fund the acquisition of an increased stake in the Scarborough gas field.

And in other news:

Graincorp (FY ending 30-Sep) provided a slap-in-the-face reminder that it is an ag play – with the associated booms and busts. After a grain-volume driven boom in FY-17, it advised to expect sharply lower earnings) for FY-18 (little rain = low grain volumes for export).  Specifically, net profit will be 137% lower (using midpoint of FY-18 guidance).

Troubled residential real estate player McGrath has disappointed again, with revenue down 23%, and a $25.5m half year loss (including a $22.9m writedown).  It also went into trading halt, citing a statement to be released re the CEO and founder’s gambling commitments.  Which was released the evening after the trading halt was requested, and essentially said his gambling is not impacting the company. What a bizarre reason to request and grant a trading halt, and quite curious timing!  There must be something else to it…

And to wrap up – something had to give.  Myer’s CEO was fired by the company’s Board, following a continuing worsening of sales, and no end to the negative trend in sight.  Now they need a new miracle-worker CEO to get on with a capital raising, give the market some confidence, and (most importantly) to turn sales around.