Investors continue to sift through company profit results, with the imperative being to find companies that have impressed – but where there is still scope for the share price to be re-rated a bit higher.
Too many companies’ reports are merely catching-up to where the price has been pushed, leading to a share price fall as the reality of the numbers catches up.
The situations that investors are looking for are not only good results that genuinely impress by beating expectations, but situations where analysts can see clear water ahead for the share price. Here are six such scenarios.
1. CSL (CSL, $274.43)
Market capitalisation: $124.9 billion
Three-year total return: +22.1% a year
FY22 forecast dividend yield: 1.1%, unfranked
Analysts’ consensus valuation: $310.20 (Thomson Reuters), $302.01 (FN Arena)
Source: Google
CSL just keeps on delivering – the biotech heavyweight smashed expectations by reporting a 16.9% increase in revenue to US$5.74 billion and an outstanding 45% jump in net profit in the first half, to US$1.81 billion. The company said this was mainly driven by growth in its core immunoglobulin portfolio, the successful transition to its own distribution model in China, strong growth in sales of its HAEGARDA medication, and exceptionally strong demand for seasonal influenza vaccines, sales of which rose by 44%.
CSL said the COVID-19 pandemic has “tempered” the performance of its CSL Behring business, which is the leading plasma therapies company in the world, while boosting the performance of the Seqirus division, which is the second biggest influenza vaccines company globally. Seqirus’ revenue increased 38%, and earnings before interest and tax (EBIT) surged 112%; while CSL Behring’s sales lifted 11%, and EBIT rose a still-healthy 24%.
Probably the only thing that constitutes a disappointment was that after such a strong half, CSL did not lift its full-year guidance – it left in place its full-year forecast a net profit after tax of US$2.17 billion–US$2.27 billion, on a constant-currency basis. That would represent growth of 5%–8%, which implicitly warns investors of a weaker second half – but CSL has a habit of under-promising and over-delivering.
2. Adairs (ADH, $4.10)
Market capitalisation: $693 million
Three-year total return: +34% a year
FY22 forecast dividend yield: 6% fully franked, grossed-up 8.5%
Analysts’ consensus valuation: $4.50 (Thomson Reuters), $4.45 (FN Arena)
Source: Google
Home goods retailer Adairs is another of the retailers coming out of the COVID-19 pandemic in great form. Sales surged by 34.8% to $243 million, with like-for-like sales (that is, as if the number of stores was static) up 32.4%, and online sales rocketing 163.2%, to $90.2 million, to represent 37% of group sales. Adairs’ online sales rose by 95% while those at its Mocka chain, which specialises in contemporary indoor, outdoor and nursery furniture and home decor products such as rugs, mirrors and cushions, were up 44%. Mocka, which is based in New Zealand but also has outlets in Australia, has been an excellent performer for Adairs since it bought the company in December 2019.
Adairs’ annualised net profit grew by 124%, while on a statutory basis, net profit more than tripled, to $43.9 million. The company’s return on equity (ROE) almost doubled, from 24% a year ago to 45%. The interim dividend was 13 cents, fully franked: last year, Adairs declared a 7-cent interim dividend, but cancelled it in March, before paying an 11-cent final dividend. With free cash flow per share coming in at 67 cents a share, the dividend appears sustainable, even increasable: this is important for yield-oriented investors, because ADH already stands-out as a yield stock based on expected dividends.
Adairs said the second half had started strongly, with the first seven weeks showing a total sales rise of 25%, driven by both Adairs online sales (up 65.9%) and Mocka sales (+48.6%). However, the company did not “consider it appropriate to provide guidance for the FY21 full year at this time” – given the momentum, this could prove to be a very conservative stance.
3. Booktopia (BKG, $2.79)
Market capitalisation: $383 million
Three-year total return: n/a
FY22 forecast dividend yield: no dividend expected
Analysts’ consensus valuation: $3.48 (Thomson Reuters), $3.48 (FN Arena)
Source: Google
Despite only having been on the share market for a matter of weeks – the stock was floated in December at $2.30 a share – online bookseller Booktopia delivered a very impressive result for the December half-year, hitting expectations out of the ground.
Booktopia’s revenue for the first half jumped 52% to $113 million, fuelled by what it said was its strongest-ever sales through December, with nearly 730,000 books sold through its Booktopia, Angus & Robertson, eBay and TradeMe channels. Active customers grew by 25% to 1.71 million, while their average spend rose by 20%, to $123.57. On the back of this, underlying earnings (EBITDA, or earnings before interest, tax, depreciation and amortisation) swelled more than 500%, to $8 million for the half-year.
Booktopia is the largest Australian-owned online book retailer by market share. While about 85% of the items it sells are books, Booktopia Group also sells eBooks, DVDs, audiobooks, magazines, maps, calendars, puzzles, stationery and cards.
The full-year FY21 projections given in the prospectus in December have been raised: from a revenue forecast of $204.5 million, the company now expects $217.6 million; while for EBITDA, the initial expectation of $9.4 million has been lifted to $12.9 million. Analysts say the company is tracking well ahead of forecasts – but investors to have to accept that BKG is reinvesting its cashflow in growing the business, and there won’t be a dividend this year or next, at least. But this is a stock kicking goals.
4. Shaver Shop (SSG, $1.17)
Market capitalisation: $151 million
Three-year total return: +45% a year
FY22 forecast dividend yield: 6.3% fully franked, grossed-up 8.8%
Analysts’ consensus valuation: $1.39 (Thomson Reuters), $1.38 (FN Arena)
Source: Google
Personal grooming retailer Shaver Shop is another retailer that is slaying it: SSG reported a 15% lift in sales, to $123.6 million, in the first half of FY21. Online sales more than doubled to $37.6 million, which now represents more than 30% of total sales. It looks like facial hair is back, in the wake of the pandemic, and a desire for better hygiene has shoppers (particularly men) splurging on beard trimmers, hair clippers and body groomers – which happen to be some of Shaver Shop’s higher-margin products.
Net profit jumped by almost 86%, to $14.2 million. The interim dividend was increased to 3.2 cents a share: last year, SSG cancelled its interim dividend, but subsequently paid a special dividend of 2.1 cents a share, in July. Analysts are very keen on SSG’s price prospects from here: it was one of the stocks we picked to rebound in July last year, when it was very good buying indeed.
5. Brambles (BXB, $10.20)
Market capitalisation: $15 billion
Three-year total return: +5.1% a year
FY22 forecast dividend yield: 2.9%, 30% franked; grossed-up 3.3%
Analysts’ consensus valuation: $12.36 (Thomson Reuters), $12.098 (FN Arena)
Source: Google
The global pallets giant was a bit of a quiet achiever of results season, producing a better-than-expected first-half performance and upgrading its outlook. Brambles not only boosted its volumes, it also managed to lift its pricing. Sales revenue grew by 7%, to US$2.57 billion; underlying operating profit was also up 7%, to US$465 million; and net profit increased by 6%, to US$295.2 million. Brambles declared a 10 US cents a share interim dividend (paid at 13.08 Australian cents, and 30% franked), an 11% boost on the 9 US cents a share paid a year ago.
At its first-quarter trading update in January, Brambles expected, for the full FY21 year, revenue growth of between 2%–4% at constant foreign exchange rates, and underlying profit growth between 3%–5% at constant FX rates. But as activity rebounds in the global economy, the company has now lifted this projection to revenue growth of 4%–6% in constant currency, with improving profit margins, and underlying profit growth of 5%–7% in constant currency.
While those upgrades don’t sound like massive improvements, upgrades to full-year guidance have been rare on the ground this season. Analysts like the look of BXB’s scope for share price improvement.
6. Sonic Healthcare (SHL, $34.22)
Market capitalisation: $16.3 billion
Three-year total return: +15.8% a year
FY22 forecast dividend yield: 3.2% fully franked, grossed-up 3.6%
Analysts’ consensus valuation: $38.50 (Thomson Reuters), $37.35 (FN Arena)
Source: Google
Australia’s biggest pathology company saw a 33% boost to revenue in the first half, to $4.4 billion, as volume of COVID-19 testing surged. Net profit ballooned 166%, to $678 million, and Sonic was able to boost its interim dividend by 2 cents (6%) to 36 cents a share.
The company said the laboratory division achieved organic revenue growth of 39% in the half year, with very strong growth in the USA, Germany, Belgium and the UK, while without the benefit of COVID-19 testing, its Imaging division grew revenue by 14%, much higher than long term industry averages – in fact, Sonic said the division had been able to grow its market share.
What has analysts excited about SHL is that with profit growing faster than revenue, the global scale of Sonic’s business gives it a lot of operating leverage.
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