The Month Ahead - August 2023
Reporting season for all companies with a June or December year-end is upon us. The month of August will see most of the stocks listed on the ASX release earnings results. This is typically a month for even more share price volatility and information overload than in other months.
To help make sense of it all, our Research team publishes a comprehensive report every six months that previews the upcoming results. The Reporting Season Playbook (found here) includes previews of 147 company results. To help you cut through the noise, we have identified 45 stocks, including 14 large caps, that we think could surprise or disappoint investors. Overall, we expect EPS erosion across the market, but certainly not a collapse. Outlook comments are likely to be cautious, which may lead to dividend restraint, especially as financing costs are on the rise.
In The Month Ahead for August, we have selected three stocks that we think merit a place on your watchlist during reporting season.
Have a great month.
CSL (ASX: CSL) is a leading global speciality pharmaceutical company and vaccine manufacturer. Despite unfavourable Seqirus seasonality and Behring margin headwinds, CSL’s recent reaffirmation of its FY23 guidance net profit implies a solid second half in FY23, with declining plasma costs, ongoing demand across both Behring and Seqirus, along with full Vifor contribution. The fundamental outlook remains ‘really strong’.
We think CSL’s result will reassure investors and remind them of the compelling fundamental attributes of the growth story. The result itself was pre-announced and so shouldn’t serve up many surprises. CSL is targeting the upper end of its guidance for constant currency growth of 28-30% in revenue and 13-18% in net income (net profit after tax before amortisation or ‘NPATA’). Currency headwinds are expected to shave US$230-250m off statutory NPATA, but this should be well understood by investors. Looking forward to FY24, CSL is targeting constant currency NPATA growth of a further 13-18%. Behring margins are expected to improve modestly. Cost per litre is expected to improve, but elevated donor fees and labour require other levers to pull (like operating efficiencies; yield improvement; new products; and pricing) to get margins back to pre-COVID levels over the medium term. Seqirus profit is skewed to the second half, with strong seasonal influenza vaccine uptake and shift to differentiated products, while Vifor remains on track, with integration going well, synergies on target and loss of EU patent exclusivity for IV iron Ferinject (c5% of group revenue) well known and in FY24 guidance.
Download our latest CSL research.
Hello World Travel Limited (HLO)
Helloworld Travel (ASX: HLO) is a leading Australian & New Zealand travel distribution company, comprising retail leisure travel and business travel networks, travel broker networks, destination management services (inbound), air ticket consolidation, tourism transport operations, wholesale travel services, online operations and event-based freight operations. It has over 2,000 members across its travel agency networks in Australia and New Zealand. We think Helloworld has managed the COVID travel downturn and recovery extremely well. Recent bolt-on acquisitions, the ETG acquisition (and synergies), the scaling of its event-based freight operations and structural cost out means that Helloworld has more than offset the lost earnings from selling its Corporate business to Corporate Travel Management. Post all of this, its balance sheet is still strong with plenty of cash and no debt and it retains some of its shares in Corporate Travel Management. This position will allow it to fund further M&A and/or capital management. We think Helloworld is materially undervalued, especially when we back out its investment in Corporate Travel Management from its enterprise value.
We are expecting a beat. Helloworld’s FY23 EBITDA guidance of A$38-42m still looks conservative despite two upgrades this financial year. If there isn’t a third one coming, we think the company will easily beat the top end of its guidance range when it reports in August. Guidance assumes a weaker 4Q vs 3Q, despite the 4Q being the seasonally stronger period. Its EBITDA margin will be a highlight. In line with seasonal trends, Helloworld should report strong operating cashflow in the 2H. FY24 is shaping up to be a big year for Helloworld. Not only will travel markets continue to recover post COVID, it will also benefit from all the rockstars coming to town (Taylor Swift and P!nk etc). The proposed acquisition of Express Group Travel (ETG) and the synergy benefits appear highly EPS accretive. None of the recently announced acquisitions are in consensus estimates, so large upgrades are expected when they complete.
Download our latest HLO research.
Orora (ASX: ORA) is a global packaging manufacturer. We see it as a solid, defensive business with a healthy balance sheet and an experienced management team. We think the valuation looks attractive and have confidence in management’s ability to maintain pricing discipline and extract further business optimisation gains in North America. Lower commodity prices, such as of aluminium and soda ash, should also help Australasian margins. We think some key catalysts include value-accretive acquisitions and the AGM trading update in October.
Orora rarely disappoints! It has a good track record of exceeding expectations with the last four EBIT results beating consensus forecasts by an average of 5%. This has mostly been driven by benefits from business optimisation initiatives in North America. For FY23, we forecast Australasia EBIT to be down 1% vs management’s guidance for earnings to be broadly in line with FY22. We estimate North America EBIT (in USD) to rise by 11%, compared with management’s guidance for ‘higher earnings’. We think Orora is unlikely to provide quantitative earnings guidance for the year ahead. In line with previous years, we expect management simply to say that FY24 earnings will be higher than in FY23.
Download our latest ORA research.
Disclaimer: 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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