Companies reporting this week
It’s that time of year again, when the annual profit reports for the 2016-17 financial year come out. Companies whose financial year ends on June 30 – which means most companies – will be reporting their annual results, while companies using the calendar year as their financial year will bring out interim (half-year) reports.
Three of the big four banks – Westpac (WBC), ANZ (ANZ) and National Australia Bank (NAB) – will release quarterly trading updates: their balance date is September 30 (Commonwealth Bank (CBA) uses a financial year ending June 30).
Across the market – which effectively means the stocks in the S&P/ASX 200 benchmark index – analysts don’t expect a stellar season.
Overall, analysts’ consensus sees the S&P/ASX 200 Index companies as heading for earnings per share (EPS) growth of about 13% in FY17, but that will be a very misleading picture of overall Australian corporate health, being fuelled mostly by a strong recovery in the resources stocks, on the back of stronger commodity prices. AMP Capital and broker Citi are a bit more optimistic, expecting growth of 18%–19%: AMP Capital expects the resources profits to surge by 135%, with profit growth for the rest of the market only likely to be about 5.5%, led by retailers, utilities, healthcare stocks and financials. Excluding the resources sector, Citi expects earnings growth of just 4.2%.
But FY18 looks a touch more challenging, with resources stocks plunging back into negative territory, the overall market lifting earnings by 3% and industrial stocks expected to grow by 9%.
Behind the buoyant resources profits expected for FY17, the mood could easily turn gloomy, with concerns over weak consumer spending, stagnating wages growth and tepid business investment. Results from retail stocks in particular will be closely watched, with the sector paranoid about the imminent arrival of Amazon, now that the e-commerce behemoth has actually settled on its first distribution centre, in Melbourne’s outer south-eastern suburbs.
The “confession” season over April-July, when companies alert the market to a change in their profit expectations from their previous guidance, was notable for a range of retailers, in different sectors, downgrading profit expectations. Prime among these were Myer, food and coffee franchisor Retail Food Group (RFG), luxury retailer Oroton (ORL), budget retailer The Reject Shop, car dealer group Automotive Holdings, footwear retailer RCG Corporation (RCG) (owner of Athlete’s Foot), which revealed its second profit downgrade in three months, online action sports clothing and footwear retailer SurfStitch and the recently listed 4WD and sports utility vehicle (SUV) parts and accessories company Automotive Solutions Group.
Others to own up to downgrades were insurance heavyweight QBE (QBE), tourism and leisure groups Village Roadshow and Ardent Leisure, beverages heavyweight Coca-Cola Amatil, medical and pathology centre operator Primary Health Care, media groups Fairfax Media, TEN Network and Southern Cross Media, media intelligence company iSentia (its third downgrade), wind farm operator Infigen Energy (IFN), pharmacy wholesaler and retailer Sigma Healthcare (SIG), construction groups Fletcher Building (FBU), Watpac (WTP) and Seymour Whyte (SWL), financial data provider GBST Holdings (GBT), telecommunications provider Vocus Group (VOC) and car dealer group Automotive Holdings (AHG).
But there were also companies heading in the opposite direction, lifting their profit guidance: among this happy group were global gaming machine heavyweight Aristocrat Leisure (ALL), general insurance giant Insurance Australia Group (IAG), online retailer Kogan.com (KGN), mortgage broking group Australian Finance Group (AFG), specialist dairy outfit A2 Milk Company (A2M), niche insurance company Freedom Insurance (FIG), travel and accommodation booking companies Flight Centre (FLT), Corporate Travel Management (CTD) and Helloworld Travel (HLO), jewellery retailer Lovisa (LOV), car dealer A.P. Eagers (APE), homewares and manchester retailer Adairs (ADH) (very welcome after its shock downgrade in November), translation technology firm Appen (APX) and minerals detection and radio communications provider Codan (CDA).
Citi’s analysts say companies that could surprise on the upside when they report include Qantas, energy giant Origin, office property pair Investa Office Fund and Dexus, and mining services and engineering firm Monadelphous Group. Better-than-expected news could also arrive in the resources sector, with Oz Minerals (OZL), Santos (STO), Northern Star Resources (NST), Resolute Mining (RSG) and Regis Resources (RRL) all possible sources of upside surprise.
But continuing gloom round the consumer sector – which has deepened since Myer’s downgrade – could be borne out by relatively bad news from Wesfarmers (WES), Tatts Group (TTS), Event Hospitality and Entertainment (EVT), Coca-Cola Amatil (CCL) and Asaleo Care (AHY). Citi is also concerned about what Telstra (TLS), Commonwealth Bank and Westpac might deliver given the pressure on these sectors.
Telstra shareholders would be most concerned at the prospect of the telco cutting its dividend, as it seeks to counter the impact of the National Broadband Network on its earnings. Life is getting tougher for Telstra as mobile margins get tighter and it pays more to gain access to the NBN.
Telstra held its interim dividend steady at 15.5 cents in February despite posting lacklustre results. The telco posted net profit of $1.8 billion for the December half, down 14.4%, on the back of revenue that slipped 3.6%, to $12.8 billion.
This reporting season, the analysts’ consensus of estimates, on FNArena’s collation, expects a 1.1-cent lift in Telstra’s full-year dividend, to 31.1 cents, as EPS comes in at 30.9 cents; Thomson Reuters’ collation has analysts expecting a 31-cent full-year dividend, on the back of a 7% fall in EPS, to 32.3 cents. In FY18, FNArena’s analysts’ consensus dividend expectation is 29.6 cents: Thomson Reuters still expects 31 cents. Citi expects Telstra (TLS) to cut its dividend forecast to 25 cents in FY18.
In contrast, mining giant Rio Tinto – which reports half-year results on Wednesday – could add a special dividend of about 56 US cents to its expected interim dividend of 86 US cents. For the full-year, Rio is on track to pay its largest-ever dividend, with consensus estimates sitting at about US$2.50 a share, but the most optimistic (RBC) projecting US$3.62 a share.
Also reporting this week are ResMed (RMD), Suncorp (SUN), Crown Resorts (CWN) and Tabcorp (TAH). Market consensus estimates (FNArena) are:
ResMed (RMD):
EPS: 26.8 US cents, up 6.6%
DPS: 13.3 US cents, up 12.4%
Suncorp (SUN):
EPS: 89.6 cents, up 10%
DPS: 72.9 cents, up 7.2%
Crown Resorts (CWN):
EPS: 90.3 cents, down 30.7%
DPS: $1.43, up 97.2%
Tabcorp (TAH):
EPS: 20.8 cents, up 2%
DPS: 25.1 cents, up 4.4%
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