By Chris Becker
Earnings reports started up again yesterday and are now accelerating with over 100 companies on the All Ords reporting this week. On Monday we had a mixed bag with an ASX8 golden giant reporting, alongside some small and microcaps that we follow at the FARM.
DWS Ltd (DWS) a small cap Australian IT company, has continued the trend with tech stocks outperforming other industrials, with an 11% increase in revenue and underlying earnings up 6%
The stock closed up 2% to $1.55, which is bang on consensus price targets for FY12 at $1.56, although the stock is not closely watched by the broker herd, with 3 Buys and 2 Holds. FARM maintains an “Investment Grade” rating on DWS, a stock we’ve covered previously in full (click here).
Here’s the five year weekly chart of DWS, which currently has a stonking 11% dividend yield:
Mirabela Nickel (MBN): the nickel explorer, with projects in Brazil, announced a 2Q loss of $33.1 million versus a $26.3 million loss a year ago. Sales revenues were similar, with guidance given that end of FY nickel production would be at the lower end of estimates, at 19-21K tons.
Whilst the stock closed at 28 c per share yesterday, analysts still have a bullish target price at 62c, with 8 Buys, 3 Holds and 5 Sells. FARM maintains its AVOID rating on the stock which has fallen from $1.60 a year ago:
Newcrest Mining (NCM) – the biggest gold miner in the country, and a member of the ASX8 (the top four banks and top four miners) reported a surprise jump in FY net income at $1.12 billion (expected was $1.09 billion). Sales were bang on target, but earnings per share (the most closely watched metric by the instos) was at $1.46 instead of the expected $1.42
This gave a big boost, alongside a 17% increase in the dividend, raising the yield to 1.44% – paltry, but the market liked it, shooting up over 4%:
Analysts still believe there is upside for NCM, with a price target of $29.73 and overwhelmingly bullish on the miner, with 14 Buys, 3 Holds and 3 Sells. FARM maintains an “AVOID” investment rating on the company.
Hills Holding (HIL): which manufacture the iconic Hills Hoist, plus a bunch of other diversified products announced a 3% increase in underlying profit to the market in what it describes as “tough conditions”. The $26 million NPAT compares to a $75 million loss last year due to impairments.
Whilst most of its divisions did very well, unsurprisingly the steel based building unit continued to disappoint, which leads to speculation it may be spin off as the company concentrates on its more profitable divisions. The dividend was unchanged – but the yield is still mouth watering at over 12% fully franked.
The share price surged on the result, up 10% and hitting analysts price target at $1.14, where the conviction is weak at only 1 Buy and 5 Hold. Prior to the earnings release, FARM had an “AVOID” rating on the stock, but you’ll have to check out the full report in next week’s Stocktake to see if there’s been any changes…
Downer EDI (DOW): the mid-cap engineering and infrastructure management firm continued the surprise following Bradken’s result last week by declaring a boost in FY net income of $112.8 million compared to $108.3 million expected. Sales numbers were also way outside expectations at just over $8 billion compared to $7.5 billion – they’re doing something right!
The stock rose nearly 10% for the day and also provided guidance that FY13 forecast underlying profit would be higher than previously estimated.
Analysts are still very bullish on the company, with a target price of $4.24, and strong conviction with 10 Buys, 5 Holds and 0 Sells. FARM had a “AVOID” quality rating and a “SELL” market condition on the company prior to the earnings release.
JB Hi-Fi (JBH) the most profitable retail company that the market loves to short reported what should be considered a mixed result yesterday. FY net income was at $104.6 million, the outer bound of the range of forecasts by analysts, with sales bang on target.
It’s still unloved, with a price target of $10.13, but some analysts have reweighted the stock now at 4 Buys, 6 Holds and 6 Sells. FARM still considers the stock a “Core” investing rating, but with a high Risk Score and an “AVOID” market condition. Although this may change as the stock climbed nearly 6% on the news:
GPT Ltd (GPT) the market’s largest listed retail/commercial/industrial property trust continued the good news reporting its first half results yesterday. Net income was up 13% on last year, with sales also expanding, up 9% to $513 million. NPAT was up a modest 2.6%, as was underlying net tangible assets (NTA).
The market loved the result, pushing the overbought stock up even higher, as Goldman Sachs reweighted the company to neutral (from Sell) with a consensus price target at $3.65 per share and 3 Buys, 7 Holds and 4 Sells. FARM had an “AVOID” quality rating but a “BUY HALF” (roughly equivalent to “accumulate”) market condition before the release, but with a high Risk Score.
UGL Ltd – (UGL) we finish on a poorer note, with the diversified services company missing estimates, even though underlying NPAT was up 2%, net income was down 15% for the full year. Sales were also well below at $4.45 billion compared to expected $4.95 billion, with the final dividend at 36 cents instead of the 41 cents expected (although the yield is now 8.7%)
The stock fell 10% on the day after a small rally recently:
The herd no longer likes the company, with Citi, Goldman Sachs and Deutsche Bank all downgrading the stock (to Neutral or Hold),. The company says it plans to withdraw from the mining sector as “the peak of the sector had passed” with a “substantial fall in capital spending (capex) going forward”. The company will focus on infrastructure which has a “more certain future”.
The consensus price target is still quite ebullient, at $12.76, with 6 Buys, 8 Holds and only 1 Sell. FARM considered the stock “Investment Grade” quality with a “Buy Half” (less than 1%) market condition and allocation before the earnings release, with a moderately high Risk Score.
Full valuations and analysis of these and all results for this week 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.