Earnings Update: Dutch disease hits Coke

Five companies reported earnings yesterday on the ASX: Reckon (RKN), Bradken (BKN), Cochlear (COH), Coca-Cola Amatil (CCL) and an update from National Australia Bank (NAB). Macrobusiness will be reporting on earnings and valuing the key companies throughout the earnings season. Remember to bookmark the overall update here.

Reckon (RKN)
The accounting software company posted its Half Year announcement, including a 5% increase in net profit to $9.3 million, with earnings per share up 7% to 6.8 cents.

Margins improved from 33 to 35.5% whilst the interim dividend will be paid at 3.5 cents per share (90% franked).

Reckon remains debt-free, has substantial positive cashflow and a sound balance sheet.

Empire Investing considers Reckon a Very Good company valued at $1.86 per share.

The mining services company posted a full year $87 million profit, with earnings per share increasing 13% from last year, but profit down 4% due to one-off items (24% increase before charges). The company had substantially lower operating cashflow, mainly through increased capital expenditure but managed to reduce debt through an equity raising.

Bradken will be paying a 21 cent fully franked dividend, with the ex-dividend date 16th of August. On yesterday’s closing price that gives a dividend yield of 5.2%

Although the company gave a very positive outlook, with net profit for FY12 to increase 35-40% with strong sales expected in its rail and engineered products divisions, its Return on Equity (ROE) has substantially declined over a 5 year period to below 15% and its debt levels have been reduced through equity raising, not cashflow. Capital management decisions also remain a concern. Due to these factors, Empire Investing does not consider Bradken investment grade at this time.

Cochlear (COH)
The hearing implant manufacturing company netted a 16 per cent increase in full-year net profit to $180.1 million, with revenue increasing 10% and implant sales rising 17%

Management said it was positioned for long term growth, unable to meet continuing growing demand, particularly from emerging markets and the outlook was very positive.

The company declared a final dividend of $1.20 per share, 70 per cent franked, slightly increasing their franking percentage (which also increases normalised returns to Australian shareholders), which equates to a full year dividend yield of 3.5%, going ex-dividend on the 26th of August.

Empire Investing considers Cochlear a “Wonderful” company, with high growth prospects, a very high normalised Return on Equity (NROE), and a sound balance sheet with excellent working capital and management. We value the company at $78.30, some 20% above yesterday’s closing price.

Coca Cola Amatil (CCL)
Coca-Cola Amatil, the Australiasian bottler of Coke and other products reported a 27% drop in net profit for the six months to June 30. The $153 million profit result was hampered by writedowns in inventory and assets due to a forced restructure, mainly because of the high AUD impact on imported brands.

The restructure includes a $80 million writedown and the loss of 150 jobs (although most are likely to be reabsorbed into the bottlers other businesses)

Setting aside the writedown, net profit actually increased more than 5 per cent and are slated to increase earnings growth in the second half of the year, but note the consumer caution seems widespread.

A sometime overlooked factor in Amatil’s business is their Indonesian (and PNG) operations, which is generating 20% year-on-year growth in earnings due to the emerging consumer spending power in the Asian giant to Australia’s north. The company has the exclusive bottling rights to the ever popular Coca Cola brand throughout the 300 million archipelago.

The company’s balance sheet also improved, reducing net debt to equity and increasing free cashflow. A 22 cent fully franked interim dividend was declared, a rise of 7% on the previous period, with the ex-dividend date of 12th August. On yesterday’s closing price of $10.65 this represents a 3.75% yield.

National Australia Bank (NAB)
National Australia Bank updated the market with a 27 per cent rise in third-quarter profit.

Key points of the update included:

  • Downgrade in forecast of loan growth to business sector
  • Continued slowing of mortgage sector loan growth
  • Continued tightening of gap between deposit growth and wholesale funding
  • Bad debt charges unchanged
  • Funding for FY11 almost complete at $29 billion (target was $30 billion)
  • Net interest margin increased to 2.32 from 2.23

No other financial information was forthcoming on the update.

Disclosure: The author is a Director of a private investment company (Empire Investing Pty Ltd), which may have a current interest in some of the businesses mentioned in this article. The article is not to be taken as investment advice and the views expressed are opinions only. Readers should seek advice from someone who claims to be qualified before considering allocating capital in any investment.

Latest posts by Chris Becker (see all)


  1. with respect to Cochlear:
    We value the company at $78.30, some 20% below yesterday’s closing price.

    you mean :: 20% ABOVE yesterday’s close.