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Six good news stocks

Strong earnings and positive prospects could offer long term opportunity.

Guidance is only ever voluntary – it is not a mandatory requirement but it has effectively become expected by the market. Responding to the pandemic and economic downturn, the Australian Securities Exchange (ASX) told its listed companies last month that they did not have to provide forward-looking statements, and could – in light of how the economic situation had changed so drastically, so quickly – “withdraw” previously lodged guidance.

A flurry of pulled guidance statements ensued, with Morgan Stanley estimating that more than 30% of the S&P/ASX 200 stocks have withdrawn guidance. More do so every day.

The rush to back down on previously issued guidance has made the rare reaffirmations of guidance effectively an upgrade – here are 6 stocks that have had good news for the market:

 

1. Appen (APX:ASX)

Sourced via ASX.

2020 high: $27.18

2020 low: $17.14

Analysts’ consensus valuation: $30.00 (Thomson Reuters), $28.30 (FN Arena)

Data annotation and artificial intelligence company Appen has told shareholders that – based on currently available information – it restates its full-year (to December 2020) expectations for underlying EBITDA (earnings before interest, tax, depreciation and amortisation) to be in the range of $125 million–$130 million (at a US$ exchange rate of A$1 = US$0.70, February-Dec 2020).

Appen says factors that support and may increase its 2020 performance include: a pandemic-led increase in the use of search, social media and ecommerce platforms, an increase in available crowd workers, growth in current and new projects and the weaker A$. It also says that potential negatives include a slowdown in digital ad spending, a reduction in IT/digital spending, reduction or cancellation of services from Appen’s smallest customers, interruptions to global hardware supply chains and suspension of face-to-face projects such as audio data collection.

However, Appen adds that it has a “very healthy” balance sheet, with cash resources of more than $100 million, and is “well-positioned to weather the pandemic as well as respond to opportunities as they may arise.”

Given that most of Appen’s income is in US$, it is very possible that currency movements could enable Appen to beat this guidance. Broker Bell Potter, for example, expects a lower exchange rate than the company does – Bell Potter predicts a A$1 = US67.5 cents exchange rate to apply to Appen’s FY20 result – which would boost EBITDA to $135 million. (Bell Potter estimates that every 1-Australian-cent move in the exchange rate can add or subtract about $1 million to Appen’s full-year operating income.)

 

2. CSL (CSL:ASX)

Sourced via ASX.

2020 high: $341.00

2020 low: $270.88

Analysts’ consensus valuation: $320.05 (Thomson Reuters), $314.81 (FN Arena)

FY20 forecast yield: 1%, unfranked

Australia’s global biotech superstar CSL has told the market that coronavirus movement restrictions are effecting its ability to collect blood plasma – particularly in the US – but that the difficulty should not affect full-year profit guidance, which points to net profit of between US$2.11 billion–US$$2.17 billion, on a constant currency basis, which would represent growth of 10%–13%.

CSL’s plasma products arm CSL Behring is involved in a number of research and development projects for fighting coronavirus, while its Seqirus business, which produces the flu vaccine for both the southern and northern hemisphere flu “seasons,” is cranking up production to record levels to ensure it can supply both markets adequately this year.

The Australian government recently asked CSL to step up its production of the flu vaccine: the government is providing the vaccine free for people aged over 65 years, to ward off a combined coronavirus and flu crisis.

For the first-half – albeit in a world away, pre-Coronavirus – CSL lifted net profit by 11%, to US$1.25 billion ($1.86 billion), in constant-currency terms (excluding the effect of currency fluctuations, on the back of strong sales of immunoglobulin products and influenza vaccines.

 

3. Austal (ASB:ASX)

Sourced via ASX.

2020 high: $4.38

2020 low: $2.31

Analysts’ consensus valuation: $3.82 (Thomson Reuters), $4.12 (FN Arena)

FY20 forecast yield: 2.2%, unfranked

Shipbuilder Austal says its operations remain largely unaffected by COVID-19, because its defence contracts with the US Navy and the Australian Defence Forces are considered essential activities. (Although Austal has had four employees test positive for the virus, three in Australia and one in the US.) Austal has a $4.3 billion order book, with most of this in defence vessel programs with the US Navy and the Australian government. (Austal is the only foreign company ever to have designed and built warships for the US Navy.)

This order book underpins Austal’s guidance, which it has reaffirmed at:

  •  Group revenue of no less than $1.9 billion;
  •  Group EBIT (earnings before interest and tax) of no less than $110 million; and
  •  US shipbuilding EBIT margin of 7.5%–8.5%.

These figures allow analysts to project 19%–20% earnings growth for Austal in FY20.

Also, Austal has a strong balance sheet, with a net cash position of $152.4 million as at 31 December 2019.

 

4. Ansell (ANN:ASX)

Sourced via ASX.

2020 high: $32.63

2020 low: $21.43

Analysts’ consensus valuation: $30.84 (Thomson Reuters), $30.15 (FN Arena)

FY20 forecast yield: 2.6%, unfranked

As a big maker of Personal Protective Equipment (PPE), Ansell is benefiting from the Coronavirus crisis to some extent and has ramped up its global production of healthcare protection products, including medical gloves. While this business generates about 53% of revenue, Ansell also makes industrial safety gloves, and that business has been hit hard by the economic downturn – even with some of its chemical safety products re-purposed into helping healthcare workers where possible. Ansell has been able to maintain underlying guidance, which calls for earnings per share (EPS) of US$1.12–US$1.22 in FY20, which at the mid-point of US$1.17 would represent a 5% lift on FY19’s EPS figure. Ansell is also in a very robust balance sheet position, with $515 million of cash and committed undrawn bank facilities available.

 

5. BWX (BWX:ASX)

Sourced via ASX.

2020 high: $4.65

2020 low: $2.54

Analysts’ consensus valuation: $4.15 (Thomson Reuters), $4.20 (FN Arena)

FY20 forecast yield: 1.4% fully franked (grossed-up, 2%)

Skincare and beauty products maker BWX has responded to the Coronavirus by launching a natural, aloe vera-based hand sanitiser and ramping up its production of soap. BWX does rely heavily on China for components – it gets its glass bottles, plastic tubes and plastic pump mechanisms from China – and was hit by slowdown there, but the company managed, after some scrambling, to secure supply, and now has six months’ supply of both materials and finished product.

The company has also put a lot of work into social media marketing to tell customers that its ‘natural’ skin and hair care cleanser, gel and shampoo products from the flagship Sukin and Andalou Naturals ranges contain surfactants that lift dirt, grease and microbes from the skin, and “can be just as effective as hand wash if used correctly.”

BWX had previously guided for sales growth of 20%–25%, flowing-in to EBITDA growth of 25%–35% in FY20; the company released an “investor update regarding current COVID-19 business developments,” on 23 March, but did not alter this guidance.

 

6. Origin Energy (ORG:ASX)

Sourced via ASX.

2020 high: $8.76

2020 low: $3.80

Analysts’ consensus valuation: $6.90 (Thomson Reuters), $6.44 (FN Arena)

FY20 forecast yield: 5.6% fully franked (grossed-up, 8%)

Electricity and gas supplier Origin Energy is likely to come under pressure the longer the Coronavirus-inspired downturn lasts, as customers start to struggle to pay their bills, but it has not lifted provisions for bad debts yet. Origin has told the market that it is cutting its expected levels of capital spending this year and next, but it has maintained guidance (at least for FY20) for earnings both from its energy business and the cash it expects to receive from its LNG export project in Queensland.

Origin has retained guidance for underlying earnings from the energy markets business at $1.4 billion–$1.5 billion for the year to June 30, while expected cash distributions from the Australia Pacific LNG project in Queensland were kept at $1.1 billion–$1.3 billion, assuming no further “material” drop in oil prices.

Origin says it had liquidity of $3.8 billion as at December 31, including $800 million in cash and $3 billion in undrawn debt, which should be enough to meet upcoming debt maturities this year and next. Under the company’s financial stress-testing, Origin says it maintains 24 months of adequate liquidity.


About the Author
James Dunn , Switzer Group

James Dunn is an author at Switzer Report, freelance finance journalist and media consultant. James was founding editor of Shares magazine, and formerly, the personal investment editor at The Australian. His first book, Share Investing for Dummies, was published by John Wiley & Co. in September 2002: a second edition was published in March 2007, and a third edition was published in April 2011. There have also been two editions of the mini-version, Getting Started in Shares for Dummies. James is also a regular finance commentator on Australian radio and television.