By Chris Becker
Earnings reports started up again yesterday and are now accelerating with over 100 companies on the All Ords reporting this week. Here’s Wednesdays wrap up, with some big hitters in the mix:
Commonwealth Bank Ltd – (CBA) the nations largest bank delivered a record FY profit at just over $7 billion, right on estimates, with underlying cash earnings up 11% and slightly below expectations.
The closely watched net interest margin (the spread between funding and loan interest received) was maintained at 2.09%, with the final dividend declared at $1.97 per share, fully franked, for a grossed up yield of 8.3%
The stock closed almost 1% on the day, having been in a steady rally recently:
The bank gave guidance that low loan growth and mounting costs to gain deposits for funding will impact future growth in earnings. The consensus price target is at $54.06, with many institutions now backing down their buy calls to hold/neutral, with 2 Buys, 9 Holds and 6 Sells. FARM considered the stock “Investment Grade” quality before the earnings release, with an acceptable to moderate Risk Score.
Forge Group Ltd – (FGE) the mining services and maintenance company, announced a big surge in FY net profit, up 27% to almost $50 million, with sales up a whopping 84% higher than expected. In addition to the raised dividend (but still at a poor 2.5% yield), guidance for FY13 earnings per share (EPS) was higher than expected.
The stock closed up over 2% on the day, and has rebounded from signficant recent falls:
The company gave solid guidance with strong orders in the pipeline. The consensus price target is still well above the share price at $6.05, with 4 Buys, and no Holds or Sells. FARM considered the stock “Investment grade” quality before the earnings release, with a moderate Risk Score.
OZ Minerals Ltd – (OZL) the copper/gold producer reported a slump in underlying revenue – down nearly 20% – amidst falling copper prices and higher cost increases. Although the net profit number was in line with expectations, it was down considerably on the previous period. The most problematic part of the report, from the Australian investor perspective, was the slashing of the dividend to only 10c, down 20c a share.
The stock closed down almost 7% on the day, with the weekly price showing weakness before the report:
Analysts have continued to cut their ratings in droves since the report, but the consensus price target is still above the current share price at $8.94, with 9 Buys, 7 Holds and 6 Sells. FARM considered the stock “Avoid” quality before the earnings release, with a moderate to high Risk Score.
Primary Health Care Ltd – (PRY) the healthcare services provider reported FY net income slightly above estimates at $116.6 million, with sales as expected, but underlying cash earnings and hence earnings per share were slightly higher than expected. The company provided very strong guidance on FY13, estimated earnings per share growth at 20-25%
This very positive news gave the stock the momentum it needed as it jumped up nearly 12% on the day, having been the “ugly sister” in the now slightly overheated healthcare sector:
The consensus price target is within reach at $3.62, with 10 Buys, 4 Holds and only 1 Sells. FARM considered the stock “Avoid” quality before the earnings release, but had a “Buy Full” position signal for those with a more speculative bent. Read the full review here.
SAI Global Ltd – (SAI) the standards/codes of practice publisher and distributor posted a near 6% drop in FY net profit, mainly due to increased cots, as revenue increased by nearly 6%
The stock dropped nearly 9% on the day, with the weekly price chart showing weakness:
Analysts contend that the bad news has been priced in, raising their price targets and recommendations (JPMorgan, Citigroup and Goldman). The consensus price target is some 20% above the share prices at $4.83, with 10 Buys, 4 Holds and only 1 Sell. FARM considered the stock “Investment Grade” quality but overvalued before the earnings release, with a “Sell” recommendation.
SMS Management and Technology Ltd – (SMX) the small cap IT company announced a solid net profit of nearly $31 million, right on estimates and up 5% on the year, although sales numbers were down slightly, revenue was up 10% on the year. Future growth remains tenous as demand from state governments (particularly NSW and Victoria) was flat on austerity drives.
The stock rose slightly on the day, with the weekly price chart showing a recent rebound:
The consensus price target is within reach at $6.18, but the analysts are still bullish, with 7 Buys, 5 Holds and no Sells. FARM considered the stock “Core” quality before the earnings release, with an acceptable Risk Score and “Buy” position signal.
Westfield Group (WDC) the property group with a worldwide spread of retail shopping centres which recently split its operations into two listed companies, just missed expectations for the its interim half-year figures, coming in at $751 million vs $760 million. Net profit was $800 million, some 34% higher, even though revenue had declined by nearly 11%, the company was optimistic on future growth.
The stock was up slightly on the day, with the weekly price chart showing a recent strong rally from lows:
The consensus price target is still quite high at $10.03 with not much room, with 6 Buys, 5 Holds and 3 Sells. FARM considered the stock “Avoid” quality before the earnings release (based on its poor return on capital), but had a “Buy” position signal 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, with daily updates continuing here!
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.