Reporting Season Summary: 19 August 2014
About the author:
- Author name:
- By Fiona Buchanan
- Job title:
- Co-Head of Research, Senior Analyst
- Date posted:
- 19 August 2014, 3:13 PM
- Sectors Covered:
- Property, AREITS
Amcor (AMC)
Results
NPAT: A$737 million; Dividend: 43cps
The result was in-line with expectations.
Morgans comment
Operating cash flow was $891m, ahead of our expectations and a good performance. No change to our view. This is a good result and the absence of any disruptions to earnings for uncertainty in Eastern Europe may provide some relief and reinforce defensiveness. Hold recommendation.
Arrium (ARI)
Results
NPAT: A$296 million; Dividend: 9cps
The result was in-line with expectations.
Morgans comment
Result is solid with a positive surprise on debt reduction. We believe this will provide some relief to investors had the debt been consistent with FY13. Nevertheless the main driver of earnings delta remains the mining division and the sharp fall in 4Q14 pricing has not recovered so far in FY15. Given the strong leverage to iron ore prices we believe investors if they are bullish iron ore are better placed in a direct exposure such as FMG than in ARI where there are many moving parts with the other divisions. Reduce recommendation.
BHP Billiton (BHP)
Morgans comment
Results are out after the market close today. Things to watch out for:
- Market is looking for a turnaround in the onshore shale gas business - after a weak 1H (-US$298m EBIT), we expect a small positive profit from the division for FY14 on higher liquids volumes.
- Based on management commentary, weaker performance from the QLD Coal division is likely as a result of lower coking coal pricing in 2H, despite a stronger 1H14 on cost improvements.
- Although the iron ore division should deliver a strong full year result, we note that 2H FY14 benchmark iron ore was 16% lower than 1H, placing pressure on 2H division revenues, however this could be offset in part by scale benefits to unit costs.
Add recommendation.
GWA Group (GWA)
Results
NPAT: A$18.6 million; Dividend: 5.5cps
The result was in-line with expectations.
Morgans comment
Results pre-released in late July. No guidance given (as usual) and a 1Q review will be given at the AGM in Oct as is usually the case. Nothing so far that suggests material changes required for FY15 EBIT. Add recommendation.
Hills Limited (HIL)
Results
NPAT: A$27.3 million; Dividend: 3.6cps
The result was in-line with expectations.
Morgans comment
Revenue of A$737m is ahead of CIMBe of A$710m, however if we back out the contribution of discontinued businesses, the revenue from the ongoing franchises appears to be broadly in line. Normalised NPAT of A$27.3m is a touch ahead of CIMBe of A$26.5m and well within June's guidance of NPAT between A$26-28m. However, final dividend of 3.6cps a touch below our 3.8cps expectation. We view the results as in-line but guidance suggests downgrades to FY15. Add recommendation.
Insurance Australia Group (IAG)
Results
NPAT: A$1.23 billion; Dividend: 39cps
The result was in-line with expectations.
Morgans comment
The insurance profit of 18.3% was at the top end of the guidance range of 18%-18.3%. NEP of A$8.64bn was as expected. NPAT of A$1.23bn is about 2% ahead of CIMBe. Overall an outstanding result, however analysts will likely talk negatively about flat top line growth in home and motor during FY14. Divisional results all appear reasonably clean. The FY14 underlying margin of 14.2% is broadly in line with SUN's. The result should support the current share price but hard to see upside. Capital returns appear more of an FY16 story in our view. Hold recommendation.
Monodelphous Group (MND)
Results
NPAT: A$138.6 million; Dividend: 123cps
The result was in-line with expectations.
Morgans comment
MND posted a clean FY14 result in line with ours and consensus expectations. Operating cashflow conversion was solid and there is nothing in the quality of the result which will cause concern. Balance sheet remains very strong with $180m net cash position. Guidance is for some moderation in FY15 revenues and measures to protect margin. We expect consensus will not lower further as revenue decline is already at 9% and factoring 50bps of margin compression. Without further downgrades we expect stock performance could be strong over the next couple of months but we remain cautious as LNG completions will mean FY16 remains at risk of further downgrades. Hold recommendation.
Oakton (OKN)
Results
NPAT: A$8.3 million; Dividend: 8cps
The result missed expectations.
Morgans comment
2H14 NPAT of A$4.2m was down 11% yoy and up 2% on 1H14 versus guidance for growth on both periods. Given a general deterioration in operating conditions (and soft Federal Government spend) we thought it unlikely that OKN would achieve this target and downgraded our forecasts last month but today's result was 4% below our revised FY14 forecast. It's really all about the proposed acquisition by Dimension Data / NTT. As a reminder, they have offered $1.90 in cash per share for 100% of OKN. Shareholders will also receive the final 4cps dividend. We place a HOLD recommendation to existing shareholders. Hold recommendation.
QBE Insurance Group (QBE)
Results
NPAT: A$392 million; Dividend: 15cps
The result was in-line with expectations.
Morgans comment
QBE's 1H14 result of $392m (CIMBe: A$394m) was in line with the A$390m flagged at the July downgrade. But the result was secondary to the announced capital and business restructuring plans, which should when complete bring QBE's gearing to the bottom end of its 25-35% range from the current 38.4%. With our biggest concerns on gearing and outcomes from the new CFO review now addressed, we believe value outweighs risk. Although we downgrade FY15F NPAT by 5%, we remove our significant valuation discount reflecting uncertainty and move QBE to Add.
Dick Smith Holdings (DSH)
Results
EBITDA: A$74.4 million; Dividend: 8cps
The result was in-line with expectations.
Morgans comment
DSH has reported FY14 EBITDA of A$74.4m, 4% above pro-forma of A$71.8m, but in-line with our target at A$74.1m. A final div of 8.0cps has been announced, above consensus at 6.6cps. Importantly, the first 7 weeks of FY15 are strong with +1.8% LFL growth. No FY15 guidance has been provided, however the commentary suggests further margin expansion is expected via cost reduction in the supply chain. FY15 NPAT consensus at A$48.0m looks reasonable at this stage (FY14 A$42.1). Add recommendation.
Transpacific Industries (TPI)
Results
NPAT: A$11.5 million; Dividend: 1.5cps
The result was in-line with expectations.
Morgans comment (updated)
A significant increase in landfill remediation provision, a weak operating performance, and reinstatement of the dividend were the key take-outs from the FY14 result. The company expects it to take 18-24 months to gain traction on its initiatives and the cash drain from landfill remediation will extend for five years. Given this outlook, we downgrade to Hold with a Target Price of 95cps (down 27cps).
Cardno Limited (CDD)
Results
NPAT: A$78.1 million; Dividend: 36cps
The result was in-line with expectations.
Morgans comment
No surprises, tough year as is evident by organic growth decline. No guidance but organic growth likely to be the hot topic and whether CDD can return to organic growth in FY15. We have seen nothing yet that will lead to a change in forecasts, but note our FY15 NPAT of $88m is below consensus of circa A$93m. Happy to keep accumulating around current price, becomes compelling value of you can buy below $6/sh but dividend may prevent that. Add recommendation.
Sonic Healthcare (SHL)
Results
NPAT: A$385 million; Dividend: 40cps
The result missed expectations.
Morgans comment
Headline numbers look soft, with NPAT of A$385m (cons A$394), EBITDA of A$733m (cons A$741m), but revenue of A$3,913m was in line (cons A$3,913m). The final div was in-line (40cps; cons 41cps). The outlook also looks softer than expectations (EBITDA growth 5%, A$770m), but is in constancy currency (cons A$807m statutory; CIMB A$794m in cc). Given the softer result and outlook, shares should be weaker today. Add recommendation.
Oil Search (OSH)
Results
NPAT: US$152 million; Dividend: 2cps
The result was in-line with expectations.
Morgans comment
The financial result appears in line to a slight beat to consensus. The positives are the increase of the lower end of guidance, the intention of an increased dividend in the 2H, and the positive discussion around potential oil upside in PNG at Mananda. The strategic review is ongoing but is moving toward conclusions in some areas which may start to be announced to market this quarter - with the full result now expected to be presented in 4Q. Plenty of drilling activity is ongoing, with a significant number of wells expected around 4Q14-1Q15 which may have an impact on growth.
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