The August earnings season officially kicks off this week, with heavyweights Commonwealth Bank (Wednesday) and Telstra (Thursday) revealing full-year results this week.
To recap expectations across the market, consensus expectations for 2015-16 earnings are for an 8% decline in company profits, driven by a 50% slump in resources earnings and a 2% fall in bank profits, leaving earnings in the rest of the market up just 1%.
Bendigo & Adelaide Bank started the week off today with a better than expected 0.5% increase in cash earnings per share compared to a forecast decline of 4%. The net interest margin improved by 1bp to 2.17%. On the back of the result, the final dividend was lifted by 1c per share to 34c, taking the full year dividend to 68 cents per share. This puts Bendigo on a fully franked yield of 6.7%.
The Commonwealth Bank result on Wednesday will be very closely scrutinised, to see how the major banks are dealing with higher bad debts and loan impairments, and pressure on margins. The margin pressure is the main reason why banks are reluctant to pass on all of the official rate cuts: the banks need to maintain a margin to help fund loans. So while the market is expecting a slight fall in CBA earnings (on EPS basis), analysts will be zeroing in on the net interest margin: this is expected to slip slightly, to about 2.05%.
The CBA dividend will also hold a great deal of interest. In May, ANZ cut its interim dividend, by 7%, from 86 cents to 80 cents, the first cut by a major bank since the GFC. Some analysts believed that gave other banks the green light to cut too: Westpac and National Australia Bank kept their dividends steady at the time (Westpac, ANZ and NAB have a financial year ending September, so they deliver interim results for the six months ending in March), but CBA has had three more months of a tougher environment for banks, making its dividend a very important number.
The banking behemoth paid an interim fully franked dividend of 198 cents for the December 2015 half, unchanged on the previous year: most analysts expect the final dividend to be at least maintained, at 222 cents. In fact, the consensus expects a small increase, implied by the expectation that the full-year CBA dividend will rise by 0.4%, to 421.5 cents. That prices CBA on a fully franked dividend yield of 5.5%, equating to 6.7% in a SMSF in accumulation phase and 7.8% in pension phase.
Analysts see very little room left for CBA to rise – the consensus target price is $78.03, just 2.5% north of the share price on Friday, but the outlier in that consensus is Credit Suisse, which sees $85 as achievable.
Telstra on Thursday is expected to report weaker earnings, down 8.8% on EPS basis, but boost its full-year dividend by about 4%. Analysts and investors will also be very keen to hear the telco giant’s plans to return capital to shareholders: in May Telstra said it planned to hand back at least $1.5 billion to shareholders from the proceeds of the sale of its stake in Chinese online car sales business Autohome. Telstra is expected to announce specific details of the capital return with at its results, with payments expected to start in the first half of the 2017 financial year.
The market is also expecting to learn of mobile growth opportunities for Telstra in Asia, as its market dominance at home comes under increasing pressure from Optus and the rejuvenated Vodafone.
Analysts expect a final dividend of 16.2 cents, which would take the full-year dividend to 31.7 cents, up 1.7 cents, or 3.9%, on FY15. That equates to a fully franked yield of 5.6%. Next year (FY17), with 32.2 cents projected by analysts’ consensus, Telstra is priced as offering a 5.7% fully franked yield, equating to 6.9% in a SMSF in accumulation phase and 8.1% in pension phase. However, analysts see Telstra as trading almost 5% above their consensus target price.
In a low-rate, low-return environment, these projected yields from stocks such as Bendigo & Adelaide Bank, Commonwealth Bank and Telstra simply speak for themselves as reasons for yield-oriented investors to own the stocks. Yes, investors face capital risk on the share price – and these yields cannot be considered guaranteed – but the need for income means that investors gravitate to them, and that investment driver is not going away anytime soon.
Energy heavyweight AGL also reports this week (Wednesday) and there the expectation is for a strong EPS jump. A healthy dividend boost is expected, to 68.3 cents, but AGL is still not a great yield stock: that means 3.3% is expected, although next year (FY17) that is predicted to rise to 3.7%, on a double-digit dividend lift. The analysts’ consensus target price on AGL is 4% below the current share price.
Here are the earnings expectations for companies reporting this week (analysts’ consensus figures from FN Arena):
Tuesday August 9
REA Group (REA)
Over-valued – $55.49 versus share price of $60.20
FY16 EPS change: +3.9% to 165.6 cents
FY16 DPS change: +20.9% to 84.6 cents
FY17 EPS change: +22.8% to 203.4 cents
FY17 DPS change: +22.3% to 103.5 cents
Cochlear (COH)
FY16 EPS change: +29.8% to 332.4 cents
FY16 DPS change: +20.4% to 228.8 cents
FY17 EPS change: +14.9% to 381.8 cents
FY17 DPS change: +17.9% to 269.8 cents
IOOF Holdings (IOF)
FY16 EPS change: –10.3% to 26.2 cents
FY16 DPS change: +2.3% to 19.7 cents
FY17 EPS change: +1.1% to 26.5 cents
FY17 DPS change: +0.5% to 19.8 cents
Transurban Group (TCL)
FY16 EPS change: from –9.5 cents in FY15 to 16.3 cents
FY16 DPS change: +14.3% to 45.7 cents
FY17 EPS change: +42.9% to 23.3 cents
FY17 DPS change: +9.6% to 50.1 cents
Carsales.com.au (CAR)
FY16 EPS change: +4.9% to 45.3 cents
FY16 DPS change: +9.7% to 37.2 cents
FY17 EPS change: +11.7% to 50.6 cents
FY17 DPS change: +9.9% to 40.9 cents
Wednesday August 10
Oz Minerals (OZL)
Half-year result
FY16 EPS change: –36.8% to 27.1 cents
FY16 DPS change: –36.5% to 12.7 cents
FY17 EPS change: +11.4% to 30.2 cents
FY17 DPS change: +1.6% to 12.9 cents
AGL Energy (AGL)
FY16 EPS change: +171.5% to 90.4 cents
FY16 DPS change: +6.7% to 68.3 cents
FY17 EPS change: +29% to 116.6 cents
FY17 DPS change: +11.7% to 76.3 cents
Computershare (CPU) (reports in US$)
FY16 EPS change: +83.6% to 50.7 US cents
FY16 DPS change: –15.8% to 26.1 US cents
FY17 EPS change: +3.7% to 52.6 US cents
FY17 DPS change: +4.2% to 27.2 US cents
Commonwealth Bank (CBA)
FY16 EPS change: –1.9% to 550.2 cents
FY16 DPS change: +0.4% to 421.5 cents
FY17 EPS change: +13% to 233.4 cents
FY17 DPS change: +6.2% to 201.1 cents
Covata (CVT)
FY16 EPS change: –4.4% to 206.5 cents
FY16 DPS change: –5.3% to 189.4 cents
FY17 EPS change: +1% to 555.5 cents
FY17 DPS change: +0.2% to 422.4 cents
Fairfax Media (FXJ)
FY16 EPS change: +62.9% to 5.7 cents
FY16 DPS change: –2.5% to 3.9 cents
FY17 EPS change: +17.5% to 6.7 cents
FY17 DPS change: +2.6% to 4 cents
G8 Education (GEM)
Half-year result
FY16 EPS change: +10.6% to 26.4 cents
FY16 DPS change: +1.7% to 24.4 cents
FY17 EPS change: +14.4% to 30.2 cents
FY17 DPS change: –1.6% to 24 cents
Thursday August 11
Telstra (TLS)
FY16 EPS change: –8.8% to 34.3 cents
FY16 DPS change: +3.9% to 31.7 cents
FY17 EPS change: +5% to 36 cents
FY17 DPS change: +1.6% to 32.2 cents
Goodman Group (GMG)
FY16 EPS change: –23.4% to 44.7 cents
FY16 DPS change: +8.1% to 24 cents
FY17 EPS change: –4.5% to 42.7 cents
FY17 DPS change: +6.3% to 25.5 cents
Bradken (BKN)
FY16 EPS change: from –141.1 cents in FY15 to 21.8 cents
FY16 DPS change: –40% to 6.6 cents
FY17 EPS change: –24.8% to 16.4 cents
FY17 DPS change: –65.2% to 2.3 cents
Capitol Health (CAJ)
FY16 EPS change: –35.7% to 1.6 cents
FY16 DPS change: –76% to 0.3 cents
FY17 EPS change: –6.3% to 1.5 cents
FY17 DPS change: steady at 0.3 cents
Greencross (GXL)
FY16 EPS change: +117.9% to 37.4 cents
FY16 DPS change: +11.8% to 19 cents
FY17 EPS change: +11.5% to 41.7 cents
FY17 DPS change: +15.8% to 22 cents
Magellan Financial Group (MFG)
FY16 EPS change: +1.4% to 110.7 cents
FY16 DPS change: –3.3% to 72.4 cents
FY17 EPS change: +0.7% to 111.5 cents
FY17 DPS change: +0.3% to 72.6 cents
Nick Scali (NCK)
FY16 EPS change: +47.9% to 31.2 cents
FY16 DPS change: +44% to 21.6 cents
FY17 EPS change: +9.3% to 34.1 cents
FY17 DPS change: +8.8% to 23.5 cents
Friday August 12
GBST Holdings (GBT)
FY16 EPS change: –1.9% to 22.5 cents
FY16 DPS change: +4.8% to 11 cents
FY17 EPS change: +17.8% to 26.5 cents
FY17 DPS change: +6.4% to 11.7 cents
K2 Asset Management (KAM)
FY16 EPS change: –79% to 1.7 cents
FY16 DPS change: –76.5% to 2 cents
FY17 EPS change: +35.3% to 2.3 cents
FY17 DPS change: steady at 2 cents
Royal Wolf (RWH)
FY16 EPS change: –22.3% to 10.1 cents
FY16 DPS change: –35.6% to 5.8 cents
FY17 EPS change: +17.8% to 11.9 cents
FY17 DPS change: +17.2% to 6.8 cents
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