By Chris Becker
Yesterday was day one for earnings, and we’ve had quite a few surprises and non-surprises with announcements. First off the rank was Bradken (BKN), a major supplier and manufacturing of mining equipment, surprising estimates by posting a 49% leap in profit for the year. The stock lifted off on the result, closing up over 11% after being in decline since early April:
Brokers had estimated 58c earnings per share (EPS), but BKN surprised with a 61c print, and an increased dividend. The most interesting part of the result was the forward looking statement, where the company noted it had a record number of orders, operating at full capacity for half of this financial year, but as I mentioned this morning, capital expenditure projections are being pared back “until the outlook becomes clearer”. And coal prices climb again! It was Leighton’s (LEI) day in the sun next, having had a bad run due to cost underestimates, and yesterday announced losses on its Airport Link and the Victorian desal plant. Sales were down on analysts estimates, and the company posted a net profit of $115 million for the half year to 30 June (up from the $626 million loss in the first half). This is another company that has good operational expenditure contracts, but may face slowing capex contracts in the medium term. The EPS printed at 34c and the share price fell 1.5%, where it remains depressed at GFC lows:
Credit Corp (CCP), a debt collection and credit management services company that I’ve covered at Macro Investor previously, announced a 26% rise in net profit for the year, but on the back of lower revenue (down 10%) and a tough environment for purchasing debt ledgers, with a lot of competition. CCP announced a new debt purchasing program in the US, an interesting development, but also noted in guidance that conditions will remain tough with the purchasing outlook remaining subdued – because disleveraging continues!
Guidance for FY13 came in at $27-29M net profit, which is only slightly above the FY12 bottom line of $26.6M, although dividends are increasing smartly (up 45% to 29 cents a share) as recurring revenue grows. The market sold the share off on the lower expectation of future growth, down over 7% for the day:
Cochlear (COH) announced its expected hit to the bottom line with its topline Nucleus product recall, which cost some $101 million and resulted in lower revenue (down 4%, sales down 6%) The net profit came in at just under $57 million, down from $180 million last year – a big slug, but all metrics were in line with analysts expectations, with sales, dividends, and FY net income all higher. The major concern for analysts was loss of market share, down 5% from its 70% dominance.
As a result of these fears, particularly emanating from Deutsche Bank (which has a very low target price of $56 vs our 12 month price target of $65) the market sold the stock off heavily, down just over 5% for the day:
Cochlear is also hurting from the higher AUD against the USD and Euro, as I mentioned in last week’s edition of Macro Investor, with over 80% of its revenue from overseas. US sales fell 2%, but up 2-4% around Europe/Asia/Pacific. The company also announced that the failure rate of its implant is falling fast, at about 1/3rd the rate last year. The dividend has been increased by 9% – its has increased fourfold in the last ten years, although franking was reduced from 70% to 35% – which will impact the valuation slightly.
The company provided a very healthy outlook, specifically naming the macro driver of growing demand from an ageing population and increased pipeline of products from its increasing research and development investments.
Codan (CDA), a designer and manufacturer of remote area communications equipment and systems is another ICT stock we’ve covered previously, with a “Buy” signal in mid June when it was trading at $1.36 a share, now almost $1.60 per share. The growing company had lots to say today, and is in fact in a trading halt as it announced a capital raising to purchase an American mobile communications company (good timing with the AUD so high). This dilutes existing shareholders, with the acquisition only partially funded by debt. The purchase is expected to generate $2 million in EBITDA for the 10 months remaining in the fiscal year, or just under 11 times earnings, which seems moderately expensive at first glance, but translates into an earnings yield of over 9% for the first year.
CDA announced a record profit, up 6%, with earnings per share (EPS) surprising to the upside to 17c for the year (on expectations of 16 cents). As we noted in the report, CDA has a very good dividend yield, nearly 9% fully franked and slated to increase:
Full valuations and analysis of these results will be posted in the next edition of Macro Investor in the “Stocktake” section.
Chris Becker is an investment strategist at Macro Investor, Australia’s leading independent investment newsletter covering stocks, trades, property and fixed interest. Each week Macro Investor publishes tables on the top ten most undervalued and overvalued stocks on the ASX. A free 21-day trial is available at the site.
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The author owns Cochlear (COH) shares for his family superannuation fund, and the Macro Investor model portfolios have positions in some of the stocks mentioned above.