Full-year 2018 reporting season is winding up. Here is the expected tale of the tape for the major stocks that bring out results this week.
Tuesday 28 August
1. Boral (BLD)
Building products company Boral is benefiting from the momentum in US house-building as well as Australian infrastructure. There are also benefits flowing from its 2016 purchase of US building products group Headwaters – although there have been recent concerns about the fly ash (a by-product of coal combustion in power stations, and used as a concrete additive) side of Headwaters’ business. At the half-year, excluding significant items, Boral lifted net profit by 44% to $213.9 million, and the company was confident that the global economic growth picture augured well for it, forecasting continued growth across all business units during the 2018 financial year.
In April, Boral disappointed the market by reporting that earnings were below expectations for the March quarter. However, analysts are confident of a strong full-year result. The collation of analysts’ estimates by FN Arena looks for earnings per share (EPS) of 40.7 cents for FY18, up almost 40% on the 29.2 cents earned in FY17, with a 50% franked dividend of 26.4 cents, compared to 24 cents in FY17. Thomson Reuters’ collation expects EPS of 39.2 cents, with a dividend of 25.8 cents. The analysts believe Boral, at $6.46, is well under-valued: FN Arena has a consensus target price on the stock of $7.50, while Thomson Reuters has it at $7.60.
2. Blackmores (BKL)
China is the big story for health products heavyweight Blackmores – the company finds itself having to boost its marketing spending in China against arch-rival Suisse, which benefits from the marketing infrastructure of its Hong Kong parent, Biostime. In the March-quarter report, there were issues of supply chain disruption and customer renegotiations in China, and analysts were concerned about the effect of marketing spending, discounts and rebates on Blackmores’ margins. There will be a big focus on this in the full-year report.
Blackmores’ most recent update, for the March 2018 quarter, showed a profit jump of 19% for the first nine months of FY18, to $52 million. On the back of that, FN Arena’s collation comes up with an analysts’ consensus estimate of FY18 EPS at 410.7 cents, up almost 20% on the 342.6 cents in FY17, with a fully franked dividend of 318.3 cents, versus 270 cents in FY17. Thomson Reuters is looking for EPS of 409 cents and a dividend of 318 cents.
At $150.15, analysts see BKL as over-valued: FN Arena has an analysts’ consensus price target of $130.00, while Thomson Reuters has this figure at $138.65.
Wednesday 29 August
3. Bellamy’s Australia (BAL)
The market will be keenly interested in Bellamy’s forward guidance and an update on its application to the China Food & Drug Administration (CFDA) to sell its reformulated product in China. There is some nervousness that Bellamy’s may find this delayed, caught up in tensions between the governments of Australia and China. It’s possible that the Huawei ban recently announced by the Australian government could be a complication. The company has deferred a major upgrade of its Camperdown plant, pending the outcome of its CFDA licence application.
In January, infant formula maker Bellamy’s Australia lifted its full-year profit guidance on the back of better-than-expected sales in China during the first half. Bellamy’s lifted its revenue growth target from between 15%–20%, to between 30%–35%. The company said its earnings (EBITDA) margin would lift from between 17%–20% to a higher range of 20%–23%. In February, it reaffirmed that guidance.
From that, analysts have extrapolated to a consensus estimate, on FN Arena’s collation, that has Bellamy’s earning 37.9 cents a share in FY18, versus a loss of 0.8 cents in FY17, and paying a dividend of 1.5 cents, versus no dividend in FY17; while Thomson Reuters is looking for EPS of 39 cents for FY18, and a dividend of 1.5 cents.
Analysts see Bellamy’s as offering plenty of value at present. The current share price is $9.86, but FN Arena shows an analysts’ consensus price target of $16.35, and Thomson Reuters’ price target collation is even more optimistic, showing a consensus target of $17.90.
4. Independence Group (IGO)
Nickel and copper miner Independence Group reported last month that it had achieved a record quarter in June in terms of revenue and underlying EBITDA, which were up 33% and 78% respectively, but the market was more interested in the fact that both copper and nickel production missed FY18 guidance and cash costs came in above expected levels.
Reduced grades from the reserve at the flagship Nova was also a worry, with production expectations for nickel and copper coming down for FY19 and FY20, and thus earnings expectations. But analysts predict a big profit jump for the miner in FY18. The market will also expect news on a site for Independence’s plans for a large-scale processing plant to produce nickel sulphate for battery manufacturers. Recent trials of a process to convert nickel concentrate to nickel sulphate were so successful, Independence has applied for a patent.
But analysts predict a big profit jump for the miner in FY18, with the analysts’ consensus estimate for EPS rising on FN Arena to 7.2 cents, well over double the 2.9 cents earned in FY17, and a fully franked dividend of 3.8 cents, nearly twice the 2-cent payout in FY17. Thomson Reuters reckons analysts’ consensus for EPS at 8.9 cents, with a dividend of 3.5 cents.
Analysts see Independence showing a lot of value. The share price is $4.16, but FN Arena has an analysts’ consensus price target at $4.76, while Thomson Reuters sees the consensus target at $4.85.
Thursday 30 August
5. Perpetual (PPT)
Like many of its financial services peers, Perpetual is battling poor market sentiment – although it managed to avoid any Royal Commission baggage. In the June quarter, funds under management (FUM) suffered net outflows of $300 million, marking the fifth consecutive quarter of net outflows. Over FY18 the business lost $2.5 billion in FUM, to $30.8 billion. The major problem is that the company’s main Australian equity funds are under-performing, and it has lost institutional clients on the back of this. The company is in leadership limbo until its new chief executive officer (CEO), Rob Adams, starts work in September.
FN Arena says the analysts’ consensus earnings-per-share (EPS) estimate for FY18, at 299.3 cents, will be slightly less than the 300 cents earned in FY17, although it expects the fully franked dividend to be lifted from 265 cents in FY17 to 269.6 cents. Thomson Reuters puts FY18 analysts’ consensus for EPS at 302.2 cents, with a dividend of 270 cents.
At a current share price of $44.03, Perpetual is trading very close to FN Arena’s assessment of analysts’ consensus target price, of $44.12: Thomson Reuter says its consensus target figure is $45.50.
6. Ramsay Health Care (RHC)
Private hospital operator Ramsay has been doing it tough lately. The nation’s largest private hospitals operator has been forced to look offshore for growth, as it has been prevented by the corporate regulator from buying more Australian hospitals. Some of the risks of this were seen in June, when Ramsay slashed its earnings guidance, on the back of onerous lease provisions and asset write-downs in its UK hospitals business, following a significant downturn in National Health Service (NHS) volumes. Ramsay’s French subsidiary is trying to buy Swedish hospitals group Capio to expand its operations in Europe further. The company is now tipping full-year core EPS growth of 7%, compared to prior guidance of 8%–10%.
In the full-year result, investors will focus on the company’s guidance for FY19 and whether trading conditions have improved. On FN Arena’s collation, analysts’ consensus estimate for Ramsay’s EPS is 269.9 cents, up from 261.4 cents, with a fully franked dividend lifted by 9%, to 146.1 cents. Thomson Reuters puts FY18 analysts’ consensus for EPS at 280 cents, with a dividend of 143.8 cents.
There appears to be a small value window: at $56.95, Ramsay Health Care is trading below what FN Arena sees as analysts’ consensus price target, of $59.56: Thomson Reuters sees the consensus price target more optimistically, at $62.28.
7. Sandfire Resources (SFR)
Copper miner Sandfire Resources expects to bring its new high-grade Monty copper-gold project into production by March next year: the small-scale underground mine will operate as a satellite project for the company’s flagship DeGrussa project, just 10 kilometres away. The company has struck a $72 million deal with its joint venture partner in Monty, Talisman Resources, to take out its 30% stake and assume full control of the asset.
Sandfire has already told the market that FY18 copper production met its guidance, coming in at 64,918 tonnes – down 3.2% – with gold production of 39,273 ounces, up 1.7%. Cash cost of production was 93 US cents a pound of copper, although the June quarter ran at 80 US cents.
FY19 guidance is for 63,000–67,000 tonnes of copper and 37,000–40,000 ounces of gold at a cost of US$1.00–US1.05 a pound of copper: that’s a higher production cost than brokers were expecting. But Sandfire ended FY18 with a cash stash of $243 million, well above forecasts, and giving a solid platform for exploration and acquisition spending. (Macquarie analysts expect Sandfire’s cash on hand to hit $1 billion within two-and-a-half years.)
FN Arena’s analysts’ consensus estimate for Sandfire’s EPS is 83.8 cents, up from 49.2 cents in FY17, with a fully franked dividend of 28.5 cents, up 58% on the 18 cents paid last year. Thomson Reuters puts FY18 analysts’ consensus for EPS at 83 cents, also with a dividend of 28.5 cents.
At $7.17, SFR is trading well below FN Arena’s consensus price target of $7.92: Thomson Reuters has $7.80.
Friday 31 August
8. Harvey Norman Holdings (HVN)
Harvey Norman was always going to be up against it to repeat FY17’s record net profit of $448.9 million after riding the tailwinds of the housing and property booms.
In the first-half, Harvey Norman’s profit slipped by 14%, as the company reported losses on its non-core dairy investment, weaker earnings from franchisees and increased investments in e-commerce and IT systems, so it could be “fighting fit” against Amazon and JB Hi-Fi. The result went down poorly on the market, with the shares falling by 15%.
Given a cooling housing market and the increased competition it faces, Harvey Norman is now one of the top-10 most short-sold stocks on the Australian Securities Exchange (ASX). And for this week’s result, analysts see a fall. FN Arena has consensus EPS expectation at 32.7 cents, down from 40.4 cents in FY17, and with a fully franked dividend of 23.3 cents, short of last year’s 26 cents. Thomson Reuters sees EPS coming in at 33.1 cents, with a dividend of 24 cents.
At $3.69, Harvey Norman shares are down 30% from their 2018 peak, and analysts don’t see that changing soon. Thomson Reuters gives an analysts’ consensus price target of $3.65, while FN Arena’s consensus target is slightly higher, at $3.807.
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