Investment Matters

What Matters this week

It was a huge week of company reports.  Where to begin…

[Unless otherwise 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.  Also, share price % changes refer to the movement on the day of the announcement].

If we put aside the $1.3billion Bunnings UK and Target impairment, Wesfarmers’ underlying results also showed weakness, albeit expected.  Profit decreased 2.7%, with Bunnings (Au and NZ), Kmart and Officeworks performing well and coal prices assisting their resources operations.  This was offset, however, by Coles’ performance.

Super Retail, owner of Supercheap Auto, BCF, and Rebel Sport, disappointed – profit +0.7%, like-for-like sales +2.2%.  The announcement that it would acquire Macpac and close its Ray’s Outdoors brand did little to stem the share price rout (-14.5%).  Being generally considered a good retail operator, this result speaks to the difficult conditions being experienced by retailers…

…with some notable exceptions, mostly niche players, such as now international fashion jewellery retailer Lovisa (profit +22.5%), and online retailer Kogan (trading profit +118.9%).

Speaking of struggling retailers, Godfrey’s.  Oh dear.  The dedicated vacuum cleaner retailer feels like Tupperware – something from my Mum’s generation (sorry Mum x).  Underlying profit $0.9m down 61.8% (a whole lot worse on a statutory basis), like-for-like sales -6.2%.  The new CEO needs to and appears to be shaking things up - new corporate structure, new management, new product offering etc.

Coca-Cola Amatil (full year ending 31-Dec-17) looked pretty, but look past the one-offs and the anti-sugar pressures on the business are real and continuing – especially in its main Australian division.

Invocare (funeral operator including brands such as White Lady and Simplicity) reported a strong FY-17 result (FY=CY); operating profit up 10.6%.  But also a subdued outlook, as the company looks to spend $$ revamping and modernising.  Share price down 7.5%.

Not all miners and mining services companies have booking profit boosts.  Fortescue Metal’s lower grade iron ore is out of favour with the Chinese.  Profit -44%.  Share price -4.7%.

Qantas’ underlying profit for the half increased 15%.  The company also announced a share buyback.  +5.9% share price.  Buybacks are for when a company doesn’t have anything better to do with its capital (e.g. make investments for future growth).  Perhaps Qantas should be looking to invest in upgrading its ancient aircraft fleet instead…

There were many results released that were not tales of woe – in fact, the opposite.  Some noteables:

* retirement community and caravan park operator Ingenia Communities delivered strong profit growth +37.7% underlying, or +18.3% on a per share basis, as well as being on track to deliver 260-280 new homes in FY-18.

* Greencross had a good result – underlying profit +11%, with good performance from the company’s vet operations, and retail (Petbarn) also holding its own.

* mining services companies Imdex and Monadelphous saw a clear pickup in demand flowing through to revenue and profit (Imdex profit $10.6m v pcp $9.9m loss and Monadelphous profit +31.6% to $37.6m).

* good results from online recruitment company Seek and wind farm operator Infigen.

* Chinese exporter A2 Milk +29.7% (and another +7.1% the next day) - more than doubled its H1 profit.  (Whereas Blackmores -14.7% on the back of H1 profit +20%, but a weak outlook for H2.)

* travel companies Flight Centre H1 profit +37.2%, and Corporate Travel profit +33.3%.  The market rewarded both (+10.4% and 13.8% respectively).

* Nine Entertainment increased underlying profit 55%, with better ratings and revenue share because of a focus on the 25-54 year-old age group. Share price +16.2%.  Seven West Media had a similar share price boost (+18.6%), with a focus on reducing costs and an increase in underlying profit of 10.4%.

* Brambles turning the corner - revenue (constant currency) +5% and underlying profit increased.  This follows a troubled previous year for the company.  But some challenges clearly remain in the US operations.

* Woolworths' first-half profit (continuing operations, i.e. excluding petrol) increased 14.7%, with Australian food sales +4.9%, and the troubled BigW division showing initial signs of having turned the corner.

* Tassal (Tasmanian salmon farmer) increased H1 operating profit by 26.8%, driven by strong domestic demand and a greater quantity of fish sold (+43.8% Hog tonnes).  Share price +7.1%.