With the December 2020 results reporting season in full swing, the focus is intensifying on which companies have really done well – and which have disappointed.
So many stocks have been bid steadily back-up from their COVID Crash lows as more positive expectations have been baked-in, investors run the risk of companies bringing out impressive results, but seeing share price falls as the reality meets those expectations.
Here is a look at five stocks that not only impressed so far, but look to have a compelling case for further share-price upside – as well as three stocks that languish in the dog-pound.
Those to impress
1. Amcor plc (AMC, $14.54)
Market capitalisation: $22.6 billion
Three-year total return: +5.2% a year
FY22 forecast dividend yield: 4.4% unfranked
Analysts’ consensus valuation: $16.27 (Thomson Reuters), $17.00 (FN Arena)
For a defensive stock – the world’s largest consumer packaging company with 230 factories worldwide, most of them in the US and Europe, making packaging for food and beverage manufacturers, pet food makers and healthcare products – Amcor is actually making a pretty good case for being exciting, going by the half-year result.
While Amcor’s net sales were virtually static at $US6.2 billion ($8.2 billion) in the six months ended December 31, net profit rose 65% to $US417 million ($551.5 million). For the half-year, Australian investors received an unfranked dividend of 23.5 US cents (31.76 cents), up slightly from the 23 US cents (33.8 cents) paid for the first half of FY20. Amcor lifted its full-year earnings growth guidance to 10%–14% for FY21, from 7%–12% before the result, on the back of strong volumes and operating performance in the first half. The company has been rolling-out an acquisitive growth strategy, is delivering on the proposed synergies, and appears to be looking for more. Amcor is a high-quality defensive business that is delivering double-digit earnings growth, which flows through to a 4% yield, albeit unfranked. Importantly, brokers see plenty of scope for the share price to grow, too. The highest price target in the marketplace is Morgan Stanley’s $19 estimate.
2. Super Retail Group (SUL, $11.19)
Market capitalisation: $2.5 billion
Three-year total return: +16.3% a year
FY22 forecast dividend yield: 5% fully franked, grossed-up 7.1%
Analysts’ consensus valuation: $12.95 (Thomson Reuters), $12.82 (FN Arena)
Some Australian retailers – although it’s not uniform – are front-and-centre in the good earnings news coming out of the share market, with consumer spending redirected from international travel, and plenty of the money that’s coming from government stimulus flowing straight into their tills, in-store and online. Super Retail Group – which owns and operates Supercheap Auto, Rebel, BCF and Macpac – is a good example, reporting a 23% uplift in sales in the 26-week period to December 26, 2020, powered by a 51% sales surge at its BCF (Boating, Camping, Fishing), as pandemic restrictions limited overseas travel and reduced recreation options. Online sales more than doubled at BCF. Online sales for the entire group increased by 87% to $237 million, and now represent about 13% of all transactions.
Supercheap Auto sales rose 20% to $662 million, Rebel sporting gear sales increased 15% to $624 million, while sales at adventure gear retailer Macpac fell 5% to $63 million, hit by temporary store closures due to coronavirus. Super Retail officially reports its half-year results on Wednesday, but it’s already told the stock market to expect its net profit to triple, to about $173 million. Super Retail also said it would return $1.7 million in JobKeeper wage support to the federal government. From here, analysts really like SUL’s share price prospects, and it boasts (on analysts’ consensus estimates) a very attractive yield, as well.
3. Nick Scali (NCK, $11.20)
Market capitalisation: $141 million
Three-year total return: +42.8% a year
FY22 forecast dividend yield: 6.8% fully franked, grossed-up 9.4%
Analysts’ consensus valuation: $1.39 (Thomson Reuters), $1.38 (FN Arena)
Furniture retailer Nick Scali Limited (NCK) also had an outstanding first half of the financial year, as locked-down consumers voted to upgrade their indoor environments. Sales surged 24.4% to $171.1 million, which enabled a 99.5% increase in net profit, to $40.5 million The company said the result would have been even stronger had it not experienced supply delays from China and a shortage of shipping containers. Nick Scali’s operating cashflow more than tripled (as did net cashflow); the gross profit margin improved by 1.8 percentage points, to 64%. Like- for-like sales (a figure that assumes the number of stores stayed the same) grew by 58%; New Zealand sales vaulted 85%. The interim dividend was boosted by 60% to 40 cent a share.
Nick Scali is positioned strongly, with $54 million of net cash on the balance sheet. And 2021 has started well: orders in January surged a record 47% year-on-year after growing 52 per cent in July-December, presaging a strong June 2021 half-year. Analysts expect about 90% growth in full-year earnings per share (EPS). About the only blemish for Nick Scali was a clumsy mis-step on the $3.5 million in JobKeeper subsidies (and rent concessions) it received last year: the company initially defended keeping the JobKeeper money, saying it paid more in tax than it received – but a week later, NCK bowed to the bad optics of accepting government help while reporting record sales and profits, and handed the money back.
With analysts’ high confidence in share price growth and highly alluring dividend yield prospects, NCK looks very good value coming out of interim profit season.
4. JB Hi-Fi (JBH, $50.89)
Market capitalisation: $5.8 billion
Three-year total return: +31.6% a year
FY22 forecast dividend yield: 3.9% fully franked, grossed-up 5.6%
Analysts’ consensus valuation: $52.10 (Thomson Reuters), $52.29 (FN Arena)
JB-Hi Fi is another retailer to have shot the lights out in the first half – it boosted total sales for the period by 23.7%, to $4.94 billion, and lifted net profit by 86.2%, to $317.7 million. To put that profit performance into context, on consensus, analysts were expecting JB-Hi Fi to earn $349 million for the full-year. The company increased the interim dividend by 81 cents, or 82%, to $1.80 a share. The pandemic restrictions appear to have, for whatever reason, sent consumer demand for electronics skyrocketing. JBH has successfully built-out its online offering to the point where JBH’s market share of online electronics retailing has grown from about 5% to about 11%, and it now accounts for 13.7% of total revenue. Analysts don’t see much room for capital growth from here, but JBH offers a more-than-handy yield – with 5.2% fully franked (7.4% grossed-up) expected for FY21.
5. Alliance Aviation (AQZ, $4.34)
Market capitalisation: $696 million
Three-year total return: +41.4% a year
FY22 forecast dividend yield: 3.6% unfranked
Analysts’ consensus valuation: $5.00 (Thomson Reuters), $5.22 (FN Arena)
Niche aviation operator Alliance Aviation is enjoying its moment in the sun, with demand improving, charter and contract services rebounding, and a recent “wet lease” (where the lessor provides not only the aircraft, but the crew, to the client) with Qantas, a deal that has significant scope to expand to satisfy demand. AQZ reported a 2.3% increase in total revenue to $154.8 million for the December half, and a 116.8% jump in net profit (underlying net profit up 72.3%, to $26.7 million). Possibly the only blemish is that AQZ did not declare an interim dividend, opting to preserve cash, in light of its significant capital commitments. Neither was there any formal FY21 guidance. But the capital-gain prospects could, on a total-return view, ameliorate the yield situation.
Disappointments
In terms of disappointments, it’s hard to look past the likes of CIMIC (CIM, $20.85), AGL Energy (AGL) and AMP (AMP).
1. CIMIC (CIM, $20.85),
CIMIC posted a below-expectations statutory net profit of $620 million for the full 2020 financial year, an improvement on the $1.4 billion loss it made in 2019, but underlying net profit slipped almost 25% to $601 million, adjusted for the company’s sale of Thiess, Gorgon, and other one-off items. Revenue fell 22.4%, to $11.4 billion.
2. AMP (AMP, $1.327)
In its full-year results, AMP reported underlying net profit of $295 million, down 33% on the $439 million the previous year, reflecting the impacts of COVID-19 – and shareholders learned they will not receive a final dividend for 2020. To make matters worse, takeover talks with US private equity and credit investment group Ares Management ended: the American firm revealed a $6.4 billion bid for AMP in November, and AMP shares surged from $1.28 to $1.77 on that news, but it’s back to reality for AMP. Analysts seem to still think it’s worth about $1.50.
3. AGL Energy (AGL, $10.89)
Falling power prices and an outage at its Liddell coal-fired power station. in NSW had a bad effect on AGL Energy’s half-year earnings, with a statutory half-year loss of $2.29 billion – largely because of a one-off charge of $2.69 billion, due to write-downs of previously signed wind energy contracts and the weak outlook for the energy market – and underneath the bonnet, an even more disappointing 27% fall in underlying profit, to $317 million. The company said that reflected the sharp decline in wholesale prices for electricity and large-scale renewable certificates (LGCs). AGL did at least come good with an ordinary interim dividend of 31 cents a share, and a special dividend of 10 cents — having slashed it in December after the Liddell outage. But the company has a long way to go to match the 98 cents it paid in FY20.
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