Key points:
- The market is looking for good news. Macquarie jumped 10% after an earnings upgrade.
- Ramsay Health Care will benefit from a lower Aussie dollar but also strong business operations and expansion into Asia.
- Fund management companies like HFA Holdings and Magellan Group could also surprise.
Heading into the February 2015 interim corporate earnings season, there has not been much in the way of rays of brightness, but one definitely arrived with the earnings upgrade proffered by Macquarie Group. The falling A$ and an increase in financial markets volatility helped Macquarie lift its profit estimate for the 2014-15 financial year (ending March 31) to a 10–20% rise, up from its previous forecast of profit being “slightly up,” made at its half-year results announcement in October.
Macquarie shares surged 5% on the news, and have since raised that gain past 10% – showing how keen the market is to hear good news. And with Macquarie citing the weaker Australian dollar as boosting its profitability, it is logical to look for other companies with similar currency exposure to follow suit with profit upgrades in the lead-up to earnings season.
But it’s not just enough to say that a large chunk of foreign-currency earnings will see a company upgrade – how their business is going also determines that.
Ramsay Health Care (RHC) is one stock that could upgrade before it reports. At its AGM in November, Ramsay announced its first move into China, and reiterated guidance of core net profit and earnings per share rising between 14% and 16% in FY15. Now one of the top five private hospital operators in the world, Ramsay has entered China through its Asian joint venture, Ramsay Sime Darby, which itself has gone into joint venture with Jinxin China to operate five hospitals in Chengdu, the capital of Sichuan province.
Ramsay Health Care (RHC)
[1]
Source: Yahoo!7 Finance, 27 January 2015
Ramsay Sime Darby is the first major international hospital operator to establish operations in China, and even despite China’s slowing economic growth, the venture should benefit from rising demand for better healthcare due to improved economic status. With improved business likely to be reported from Australia, France, UK and the Asian operations (Indonesia and Malaysia), Ramsay could bring shareholders good news. The weaker A$ should help, but as broker JP Morgan points out, Ramsay has even more upside building from its ability to leverage its global size for buying medical supplies.
Another potential upgrader could be funds management group HFA Holdings (HFA), which has two subsidiaries, the Australian-based Certitude Global Investments Limited, and US-based fund manager, Lighthouse Investment Partners. The group has partnerships with a range of global hedge fund and absolute-return fund managers, through which it offers retail, high-net-worth and institutional investors a multi-strategy menu designed to tap into active manager ‘skill’ to generate high risk-adjusted investment returns, as opposed to relying on market moves.
HFA Holdings (HFA)
[2]
Source: Yahoo!7 Finance, 27 January 2015
Capitalised at $248 million, HFA has had a stellar rise since June 2014, moving from 95 cents to $1.53. The company continues to increase its funds under management (FUM) and there could be earnings upgrades on the back of that, given the weaker A$. For the full financial year, Thomson Reuters has analysts expecting strong growth in both earnings and dividends, with the stock priced on a FY15 estimated yield of 8.5%, franked to about 40%.
Improving FUM is also the story at Magellan Financial Group (MFG), which offers international investment funds to high net worth and retail investors in Australia and New Zealand. MFG’s four global investment funds are the Magellan Global Fund, the Magellan Infrastructure Fund, the Magellan High Conviction Fund and the Magellan Flagship Fund. MFG recently reported record FUM at 31 December 2014, at $31.6 billion, up 34.5% since June 2014. The company estimated performance fees for the December half at $32 million, but this has not yet been accompanied by a formal earnings upgrade – although analysts have moved their earnings forecasts higher.
Magellan Financial Group (MFG)
[3]
Source: Yahoo!7 Finance, 27 January 2015
Meanwhile, gold heavyweight Newcrest Mining (NCM) reports its quarterly production update this week, and there is an outside chance that it could talk about its earnings outlook as well. After years of write-downs and under-performance, Newcrest has responded to the improving gold price, lifting from $8.80 in November to $13.80 at present, as it recovers from a very over-sold position.
Newcrest Mining (NCM)
[4]
Source: Yahoo!7 Finance, 27 January 2015
New chief executive Sandeep Biswas has spent six months stripping back the company’s costs (he was studying every cent of spending for the six months before taking over) and the effect of falling costs of production and a rising gold price on Newcrest’s cash flow could become apparent in the production update.
Actual production is not considered likely to be upgraded – Newcrest’s FY15 production target remains at 2.2–2.4 million ounces. The declining copper price is a concern for Newcrest – its copper credits help its cost of gold production – but gold and currency are going in the right directions, and Newcrest could have something to say in its production update about the impact of this on earnings.
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