Reporting season road map: 14 August 2015

About the author:

Tom Sartor
Author name:
By Tom Sartor
Job title:
Senior Analyst
Date posted:
14 August 2015, 10:19 AM
Sectors Covered:
Junior (Emerging) Resources, Bulk Materials

Our calls to action based on reporting season results from this week:

Happy to buy today

CSL Limited (CSL) - investing for the future

FY15 results for CSL were in line with expectations and guidance, demonstrating solid underlying growth across the breadth of the portfolio, good cash flow generation and favourable margin trends. While the outlook calling for c5% earnings growth is subdued, it reflects additional investments in the business, helping to drive a competitively-positioned R&D pipeline and commercial capabilities in front of new product launches. It does not reflect fundamental concerns with the core business.

GBST Holdings (GBT) - growth story intact

GBST's underlying net profit of A$14m (excluding one-off tax benefits) was in line with our expectations, with the benefit of prior-year contract wins more than offsetting tough conditions in the Australian capital markets business. FY16 will be a heavy investment year, as we had expected, with a build-up in costs associated with supporting a much larger global client base. New contract wins were far better than expected, locking in major new long-term licence fees.

Domino's Pizza Enterprises (DMP) - the power of scale

The power of DMP's scale and digital investment is coming through with 40% NPAT growth delivered in FY15. DMP can double its store footprint from here, deliver above-market comp sales growth and expand margins further (materially in Europe). This combination should see the group maintain its significant profit growth in years to come. An acquisition or acquisitions are close, providing clear re-rating potential.

Happy to sell today

Orica Limited (ORI) - operating conditions implode

The deterioration in ORI's 2H15 earnings in concerning. Large asset impairments shouldn't come as a huge surprise, however they should have been taken earlier. While there might be some 'clearing of the decks' from a new Managing Director, the operating environment remains too uncertain for our liking.

Sirtex Medical (SRX) - risk remains to the downside

FY15 earnings for SRX were solid, underpinned by double digit dose sales across all the main geographies, price uplift and favourable foreign exchange. While dose sales remain solid, we note 2H weakness, with volume gains lagging earnings growth. We remain apprehensive, especially on the heels of the SIRFLOX study, and are less sanguine than management that trial results will change standard of care and drive momentum into earlier treatment lines over time.

Widely held stocks

Telstra Corporation (TLS) - serious networking

TLS reported a solid FY15 result that was in line with guidance and came with a 15.5c final fully franked dividend. The outlook is for mid-single digit income growth which should support incremental dividend growth and create substantial balance sheet optionality. We retain our Hold recommendation.

Commonwealth Bank (CBA) - have they raised enough?

CBA's FY15 cash NPAT of 9.1bn was about 0.5% ahead of consensus ($9.08bn), and equated to headline cash earnings growth of c5% on the pcp. CBA has addressed its capital position with a A$5bn capital raising that increases its CET1 ratio to 10.4%, the highest of the big four banks. However, despite this, we do not think further capital raising initiatives are necessarily ruled out. We downgrade both FY16/17 cash EPS by c6% reflecting earnings changes and the capital raising. We retain our Hold recommendation.

National Australia Bank (NAB) - improved credit quality

NAB's third quarter trading update was largely without surprise, although slightly softer at the revenue line than we expected. The major take-away was improved asset quality with bad debts down 15% for the quarter (to A$193m) in contrast to the 37% increase seen by ANZ in 3Q15. We retain our Hold recommendation.

More information

Morgans clients can access our detailed research (including share price targets) on all stocks under coverage. If you are interested in finding out more, please contact your nearest Morgans office.

Disclaimer(s): An Analyst or Analysts in the Morgans Research Team may own shares in some or all of these companies.

The information contained in this report is provided to you by Morgans Financial Limited as general advice only, and is made without consideration of an individual's relevant personal circumstances. Morgans Financial Limited ABN 49 010 669 726, its related bodies corporate, directors and officers, employees, authorised representatives and agents ("Morgans") do not accept any liability for any loss or damage arising from or in connection with any action taken or not taken on the basis of information contained in this report, or for any errors or omissions contained within. It is recommended that any persons who wish to act upon this report consult with their Morgans investment adviser before doing so.

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