The last week of August sees the final act of the June 2013 reporting season, and it is likely to reprise the theme of the season, which has been in one word, patchy.
According to Shane Oliver, head of investment strategy at AMP Capital, 66% of companies have seen their profits rise from a year ago (down from 70% at the start of last week), while 40% of companies have exceeded expectation, (down from 42% seven days ago.)
Emphasis on cost-cutting, and stronger dividends, are the prominent themes to come out of the season: 62% of companies have increased their dividends from a year ago, with only 12% cutting them.
About 30% of companies have fallen short of expectations – which is still disappointing, but not enough to alter materially the expectations for the current financial year.
Analysts know that resources companies’ earnings are going to fall by about 20% in the year just concluded: the industrial and financial companies are projected to lift their profits by about 7%, which works out to about a 0.5% fall in the market’s earnings in 2012-13.
Analysts still expect the current year (2013-14) to show about 12%–15% growth in earnings, driven mostly by a strong recovery in resources companies’ profits – which could be as much as 35%–36% higher. There has not been the swathe of earnings downgrades expected.
Some good news stories
The patchiness of results can be seen in the sheer variation of corporate experiences, which has been a theme of the season, and which continued last week. For example, iron ore miner Fortescue Metals brought out a ripper of a result, well above expectations, with the company’s strong free cash flow generation, boosting the fully franked dividend to more than twice expectations, at 10 cents.
Likewise, employment website operator SEEK lifted profit by 8% to a record result of $141 million, on the back of 40% growth in revenue. Dairy group Bega Cheese cracked $1 billion in revenue for the first time, and lifted net profit by 25% to $25.4 million. iiNet, the country’s second-largest DSL internet service provider, also hit a record result, at $60.9 million, up 64% and well ahead of expectations.
Entertainment and theme parks group Village Roadshow lifted net profit by more than 50% to $50.9 million. Gaming and wagering company Tatts lifted its underlying net profit by 41%, despite the loss of the Victorian pokie operations dragging net profit down by 22%.
And some disappointments
In contrast, the likes of iron ore miner Atlas Iron, casino operator Echo Entertainment, taxi payments system provider Cabcharge, media heavyweight Fairfax, QBE Insurance, building products group Boral all disappointed, while wine group Treasury Wine Estates missed forecasts made only a month ago.
In the cases of Fairfax, QBE Insurance, Boral, Pacific Brands and Atlas Iron, the earnings disappointment was compounded by further downgrades to current-year expectations.
What makes the season so difficult to get a handle on is the uncertain – even gloomy – outlook from some companies, even if they have done reasonably well. Transport group Toll Holdings, for example, lifted 2012-13 net profit by 29% and raised its dividend by one cent to 14.5 cents, but gave a downbeat assessment of the year ahead.
Clothing and home wares wholesaler Pacific Brands reported its first net profit in three years – which still came in lower than expectations – and was also sombre in its outlook, warning that earnings are likely to fall in 2014 due to the weaker Australian dollar and a continued downturn in the workwear market.
In contrast, both Lend Lease and Mirvac were reasonably optimistic about the state of the nation’s housing market.
The week ahead
This week, the focus shifts to Woolworths, which is expected to lift earnings by about 27% (due to impairments in 2012, the increase in underlying earnings is 5.7%), and its dividend by about 5.4%. Also in the retail space, Harvey Norman reports this week, but is expected to find profit growth a bit harder to come by.
The nation’s airlines – Qantas, Virgin Australia and Regional Express – all step up to the plate this week, but results are not expected to be pretty. At least Qantas is forecast to return to net profit.
One of the better performers this week should be travel company Flight Centre, which is projected to boost profit by about 19% and global hospital operator Ramsay Health Care is forecast to lift profit by about 12%.
Ainsworth Game Technology, Corporate Travel Management, Jetset Travelworld and Slater & Gordon are all small-caps expected to produce healthy profit rises.
This week’s major full-year reports, with consensus earnings per share (EPS) and dividend per share (DPS) expectations, are as follows:
Tuesday
Abacus Property Group (ABP): EPS 19.5 cents (19.2 cents FY12), DPS 16.7 cents (16.5 cents FY12)
Ainsworth Game Technology (AGI): EPS 15 cents (22 cents FY12), DPS 7.2 cents (nil FY12)
Corporate Travel Management (CTD): EPS 17.9 cents (15.6 cents FY12), DPS 10 cents (9 cents FY12)
Billabong International (BBG): EPS –11.5 cents (–90.8 cents FY12), DPS nil (3 cents FY12)
Jetset Travelworld (JET): EPS 6.2 cents (1.2 cents FY12), DPS 3 cents (1.1 cents FY12)
Regional Express (REX): EPS 12 cents (22 cents FY12), DPS 5 cents (9 cents FY12)
Silver Chef (SIV): EPS 42.5 cents (41.1 cents FY12), DPS 28.5 cents (28.5 cents FY12)
Specialty Fashion Group (SFH): EPS 7.4 cents (–1.5 cents FY12), DPS 3.2 cents (nil FY12)
Watpac (WTP): EPS 7.5 cents (–27.2 cents FY12), DPS 5 cents (1.5 cents FY12)
Wednesday
AGL Energy (AGK): EPS 109.9 cents (100 cents FY12), DPS 63.8 cents (61 cents)
Flight Centre (FLT): EPS 238.5 cents (200.1 cents FY12), DPS 132.2 cents (112 cents FY12)
Mastermyne Group (MYE): EPS 15 cents (20 cents FY12), DPS 7 cents (7.8 cents FY12)
Resolute Mining (RSG): EPS 24.9 cents (18.6 cents FY 12), DPS nil (nil FY12)
Resource Equipment (RQL): EPS 2.3 cents (5.6 cents), DPS nil (nil FY12)
Perseus Mining (PRU): EPS 6.3 cents (10.6 cents FY12), DPS nil (nil FY12)
Servcorp (SRV): EPS 21 cents (18.5 cents FY12), DPS 15 cents (15 cents FY12)
Seven Group Holdings (SVW): EPS 114.2 cents (43 cents FY12), DPS 40.2 cents (38 cents FY12)
Seymour Whyte (SWL): EPS 11 cents (11.4 cents FY12), DPS 5 cents (6 cents FY12)
Wotif.com (WTF): EPS 25 cents (27.4 cents), DPS 23.2 cents (25 cents FY12)
Southern Cross Electrical Engineering (SXE): EPS 11.4 cents (8.5 cents FY12), DPS 3 cents (2.2 cents FY12)
Transfield Services (TSE): EPS 1.3 cents (15.6 cents FY12), DPS 5.8 cents (14 cents FY12)
Warrnambool Cheese (WCB): EPS 6 cents (27.8 cents FY12), DPS 3 cents (15 cents FY12)
Woolworths (WOW): EPS 188.8 cents (148.7 cents FY12), DPS 132.8 cents (126 cents FY12)
Thursday
Ausdrill (ASL): EPS 33 cents (37.3 cents FY12), DPS 12.4 cents (14.5 cents FY12)
Austal (ASB): EPS 18.1 cents (6 cents FY12), DPS 3 cents (nil FY12)
Blackmores (BKL): EPS 151 cents (165.8 cents FY12), DPS 115 cents (127 cents FY12)
Forge Group (FGE): EPS 77 cents (58.9 cents FY12), DPS 19.7 cents (14 cents FY12)
Medusa Mining (MML): EPS 39.5 cents (26.1 cents FY12), DPS 5.7 cents (10 cents FY12)
Perpetual (PPT): EPS 187 cents (64 cents FY12), DPS 125.3 cents (90 cents FY12)
Qantas (QAN): EPS 2.9 cents (–10.8 cents FY12), DPS nil (nil FY12)
Ramsay Health Care (RHC): EPS 137.1 cents (112.7 cents FY12), DPS 68.6 cents (60 cents FY12)
Virgin Australia (VAH): EPS –2.6 cents (1 cent FY12), DPS nil (nil FY12)
Friday
Harvey Norman (HVN): EPS 17.5 cents (16.2 cents FY12), DPS 9 cents (9 cents FY12)
Prime Media Group (PRT): EPS 9.6 cents (9.1 cents FY12), DPS 7.4 cents (6.6 cents)
Reece Australia (REH): EPS 109.6 cents (111 cents FY12), DPS 61 cents
Evolution Mining (EVN): EPS 1.3 cents (7.1 cents FY12), DPS 0.7 cents (nil FY12)
Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.
Also in the Switzer Super Report:
- Peter Switzer: Be a realistic optimist [1]
- Rudi Filapek-Vandyck: Buy, Sell, Hold – what the brokers say [2]
- Fundie’s Favourite: A small cap to get excited about – ASG Group (ASZ) [3]
- Penny Pryor: Property and power [4]