Google Chrome and Microsoft Edge are in the process of rolling out a version update which is impacting some nabtrade functionality, including buy/sell buttons and certain page loads. If you are a Chrome or Edge user and are experiencing these problems, please visit the following FAQ to review the steps that need to be taken to prevent this issue from occurring.
The June 30 Financial Year (FY20) profit reporting season hits full stride this week and next, with some of the heavyweights of the ASX reporting. Reports are expected this week from at least 40 ASX 200 companies, including BHP, CSL, Coles and Wesfarmers, with Fortescue Metals Group following on Monday.
Shane Oliver, head of investment strategy at AMP Capital, keeps one of the best tallies of reporting seasons. He says about 18% of companies, representing 36% of market capitalisation, have reported so far, and it’s clear that company earnings have been hit hard by COVID effects. So far, only 25% of results have exceeded expectations, compared to a ‘norm’ of around 44%; only 38% of results have seen earnings rise from a year earlier, compared to a norm of 66%; and 47% of companies have cut dividends, compared to a norm of just 16%.
So far, consensus earnings expectations for FY20 have fallen slightly, to –21.6% (from –21% two weeks ago), indicating that this season will be worse than the –20% earnings decline in the GFC, and the worst fall since the early 1990s recession.
Here’s a closer look at some of the heavyweight results.
Iron ore is one of the few bright spots for the Australian market, and BHP will show this. Iron ore is expected to deliver about 70% of the earnings that BHP will report. In the June quarter, BHP capitalised on high iron ore prices with its biggest-ever sales volume for a quarter, more than offsetting weaker copper and petroleum output on the back of the coronavirus pandemic.
BHP shipped 77.04 million tonnes of iron ore from Western Australia in the June quarter smashing its previous best of 72.17 million tonnes in the same period of 2019. The strong performance helped BHP meet its full-year output target, shipping 283.2 million tonnes in the year.
CommSec is expecting net profit of about US$8.75 billion – down from US$9.12 billion in FY19 – and a final dividend of 75.9 Australian cents. BHP has already paid a US65¢ interim dividend, which was a record that converted to 99.4 Australian cents. BHP’s payout formula states that at least half of underlying earnings must be returned to shareholders every six months. For the full-year, FN Arena’s consensus of analysts’ estimates looks for earnings per share (EPS) of 183.7 US cents, up 14.6%, with a dividend of 119.9 US cents, down 9.9%. EPS and dividend are both seen declining in FY21. FN Arena sees a fully franked yield of 3.9%, a grossed-up equivalent of 5.6%.
Coles Group (COL)
In Coles Group’s first full-year report since being demerged from Wesfarmers in November 2018, FN Arena’s consensus looks for EPS of 68.5 cents, down 15.2%, with a fully franked dividend of 57.3 cents, up 61.4%. The market is expecting sales to be at about $37.5 billion and net profit of about $930 million. Coles has seen the good and bad of COVID effects – benefiting from pandemic panic-shopping and the shift to online sales, but also seeing its costs rise on the back of additional staff and elevated levels of cleaning and security. The market is expecting sales and earnings growth in the current financial year – the company’s outlook statement will be closely watched. FN Arena forecasts a FY21 dividend yield of 3.2% fully franked.
COVID has hit the global hearing implant maker with elective surgeries falling, but a recent business update by Swiss competitor Sonova surprised analysts with its description of a faster-than-expected recovery in the global hearing care market. Investors will be wary of balancing this with the risk of rising infection numbers further dampening elective surgeries.
CommSec expects net profit of about $149.2 million, versus $265.9 million last year.
FN Arena’s consensus looks for EPS of 262.3 cents, down 45.3%, with a fully franked dividend of 173.5 cents, down 47.4%.
Vicinity Centres (VCX)
Last month, Australia’s second largest shopping centre landlord erased $1.79 billion from the value of its portfolio, as it assessed the full impact of the COVID pandemic on rents and store closures, taking the portfolio value to $14.1 billion. Vicinity said values had dropped across its 60 malls – including half-ownership of Melbourne’s Chadstone, Direct Factory Outlets (DFO) and premium CBD outlet centres – by 11.3% for the six months to June 30. What’s worrying the market is that more than half (52%) of the portfolio by value is located in Melbourne, so recovery in that market is needed. FN Arena’s consensus looks for EPS of 15.3 cents, up 69.1%, with a dividend of 7.8 cents, down 51.3%.
A2 Milk Company (A2M)
The Kiwi milk and infant formula dairy company could be one of the better performers of reporting season. Profit is expected to rise with CommSec expecting about NZ$389 million in net profit, compared to NZ$287.7 million in FY19. FN Arena’s consensus looks for EPS of 47.9 NZ cents, up 22.1%. When A2 brought out its most recent business update, in April, it said it expected FY20 revenue to come in between NZ$1.7 billion–$1.75 billion, a hefty lift on the NZ$1.3 billion reported last year. The caveats here are that A2 Milk will not pay a dividend – it is expected to start dividends in the current financial year – and that analysts see it as more than fully priced.
McMillan Shakespeare (MMS)
Salary packaging and novated leasing company McMillan Shakespeare has guided the market to expect a 19%–22% drop in full-year underlying net profit, although it also says its salary packaging business is largely unaffected by the COVID pandemic, with activity to June running at about 85% of the level from a year ago. FN Arena’s consensus looks for EPS of 85.3 cents, up 10.8%, with a dividend of 56.3 cents, down 24%, for a fully franked yield of 6%. FY21 forecasts project MMS, at $9.43, paying a 6.2% fully franked yield in FY21, which represents 8.8% grossed-up – making the stock an income situation worth looking at. Also, on analysts’ consensus target price, McMillan Shakespeare appears about 5% under-valued.
Australia’s global biotech leader reaffirmed its profit guidance in April, foreshadowing net profit of US$2.11 billion–US$2.17 billion, on a constant-currency basis, compared to US$1.92 billion in 2019. COVID is hurting the company’s plasma collection operations, which is more of an issue for the FY21 result. There are early signs that plasma collections have started to recover and the market will be very interested in any guidance CSL has to offer on this point, as well as on the immunoglobulin and albumin supply picture. FN Arena’s consensus looks for EPS of 460.9 US cents, up 8.9%, with a dividend of 203.7 cents, up 10.1%. Also, analysts have a consensus target price of $301.74 on CSL, 8% above the current share price.
The global logistics business operates in a crucial business sector keeping global supply chains humming, but that means it is at risk of business shutdowns. However, authorities recognise that global trade has to be kickstarted back to somewhere approaching normal as soon as possible. In the meantime, FN Arena’s consensus projects FY20 EPS for Brambles of 35.5 US cents, down 61.4%, with a 30% franked dividend of 28.2 cents, down 2.8%. The A$ yield is middling at 3.2%, but Brambles is seen as under-valued: versus a share price of $11.07, FN Arena’s collation of analysts’ consensus price target is $12.465.
Gaming company Tabcorp has already warned the economic downturn caused by the coronavirus pandemic has reduced the value of its business by more than $1 billion, which will be taken as a write-down this year. It has guided for an FY20 net profit of $267 million–$273 million, approximately $130 million lower than the FY19 result. FN Arena’s consensus predicts EPS of 13.3 cents (down 26.2%) with a fully franked dividend of 11.4 cents, down almost half.
Crown Resorts (CWN)
The gaming company will report sharp falls in revenue, earnings and dividend for FY20. The market expects revenue to be down about 28%, while FN Arena’s consensus expects EPS of 23.3 cents (down 60.5%) and a dividend 40% lower at 36 cents. But analysts see CWN as offering some value compared to its share price of $9.53, FN Arena’s collation of the analysts’ consensus price target is $10.433.
Domino’s Pizza Enterprises (DMP)
On earnings grounds, Domino’s is expected to show a healthy earnings uplift, but even with a boosted final dividend, its full-year payout is unlikely to match last year’s. FN Arena’s consensus looks for EPS of 174.4 cents, up 28.7%, with a fully franked dividend of 110.6 cents, down 4.3%, But Domino’s has paid the price, in value terms, for a very strong recovery from $44.75 at the bottom of the COVID Crash – at $76.28, the stock is trading well above its analysts’ consensus price target, of $61.50.
WiseTech Global (WTC)
Considered one of the ASX’s star technology stocks, it is a world-leading developer and provider of software solutions to the logistics industry – WiseTech Global downgraded its earnings guidance in February on the back of manufacturing and trade concerns in the pandemic. Global trade data is still weak and that’s going to be the big issue – the market will be very interested in WTC’s outlook. FN Arena’s consensus looks for EPS of 20.4 cents, up 15.2%, with a steady dividend of 3.5 cents. The yield situation is derisory, but the stock appears to offer some value with an analysts’ consensus price target of $21.52, compared to the current share price of $19.93.
The office and industrial property heavyweight has not suffered as much as its retail peers in valuations. In June, it said its 42 office properties had declined 1.5% in value, while the 65 industrial properties saw their assessed valuations decline by 0.7%. On EPS grounds, the result won’t be great, but the distribution should actually increase. FN Arena’s consensus looks for EPS of 64.4 cents (down 48.3%) with a dividend of 50.8 cents, up 1.1%. DXS trades on a 6% expected yield in FY21, unfranked. Analysts see the stock as undervalued, with a consensus price target of $9.985 18% above the share price of $8.46.
Wesfarmers’ Bunnings and Officeworks businesses are running strongly in the pandemic and the online Catch Group (that WES bought last year) is powering along as shoppers shift online. But these success stories will likely not be enough to push the conglomerate over the line into earnings growth for FY20. Last year, Bunnings churned out about 55% of Wesfarmers’ earnings – analysts say that could almost reach two-thirds in FY20 – and it is also the source of most of the dividend largesse. Analysts expect double-digit growth in both EBIT (earnings before interest and tax) and revenue for Bunnings. But there are problems elsewhere in the portfolio. In May, Wesfarmers announced that it would close Target stores across the country and rebrand to the more profitable Kmart. It has begun rebranding some Target stores as Kmart ‘K Hubs.’ These problems will dampen the Bunnings story. Overall, FN Arena’s consensus of analysts’ estimates projects EPS of 168.7 cents, down just 1.3%, but with a dividend of 143.2 cents, down 48.5%. WES is seen as well short of good value.
Domain Holdings Australia (DHG)
After rival REA Group reported revenue for FY20 slipping by 6% to $820.3 million, with net profit down by 9% to $268.9 million (on the back of national property listings being down 12% with Sydney listings 6% weaker and Melbourne listings off 8%) it is unlikely that Domain will shoot the lights out. On FN Arena’s consensus collation, the market expects EPS of 3 cents for DHG – up from a loss of 23.7 cents per share in FY19 – and a dividend of 2.8 cents, down 53.3%.
Qantas Airways (QAN)
Hello, loss – but who could say that they were surprised? Qantas may actually eke out a profit before tax and also on an ‘underlying’ basis, but on a net basis, QAN will be in the red. CommSec expects a loss of just over $1 billon after earning 55 cents a share in FY19, FN Arena’s consensus expects a loss of 2 cents a share in FY20, with a dividend of 2.3 cents (down 82.7%). Qantas actually declared a fully franked interim dividend of 13.5 cents a share in February, but the extraordinary hit to the business from COVID saw the company announce in March that it would defer the payment of its interim dividend from April 9 until September 1. Some brokers do not expect Qantas to pay shareholders a final dividend. The market will be very keen to hear what CEO Alan Joyce says about the timeline for expected incremental resumption of Qantas’ business. In the meantime, analysts actually see the stock as good value against a share price of $3.70, QAN has a consensus price target of $4.225.
Also in the travel business, Webjet will also report a loss of about $85 million, according to analysts. Where WEB earned 47 cents a share in FY19, FN Arena’s consensus expects a loss per share of 6 cents, but still able to pay a dividend of 3.9 cents, down 82.4%. But analysts also see a fair bit of value in WEB. Compared to its share price of $3.46, FN Arena’s consensus arrives at a price target of $4.07 for the stock.
Sonic Healthcare (SHL)
While COVID testing demand will help boost SHL’s revenue growth, this will be offset by weakness in other areas. FN Arena’s consensus looks for EPS of 108.6 cents, down 11.3%, with a dividend of 72 cents, down 14.6%.
Origin Energy (ORG)
In its June quarterly report, Origin Energy told the market it had received $1.275 billion in cash from its 37.5% ownership in the Australia Pacific LNG joint venture, much more than the market was expecting. However, energy/electricity demand is expected to show COVID impact in both business and household sectors. FN Arena’s consensus looks for EPS of 57.5 cents, down 16.4%, with a dividend of 26.4 cents, up 75.8%. But ORG is another stock that analysts view as attractive value. Compared to its share price of $5.78, FN Arena’s consensus posits a price target of $6.77 for the stock.
In profit terms, SUN is expected to be one of the stronger performers of the season. FN Arena’s consensus looks for EPS of 55.9 cents, more than four times the FY19 EPS of 13.5 cents, but with a dividend payment of 37 cents, down 52.6%. Analysts’ consensus target price target on SUN is $9.57, almost 10% higher than the share price of $8.74. As well, the projected FY21 fully franked dividend yield is 5.5%, or 7.9% grossed-up.
Fortescue Metals Group (FMG)
The iron ore star twice beat its export guidance over the past year with shipments of 178.2 million tonnes, up 6 per cent better than last year. This was achieved with a business that was supposed to have a maximum export capacity of 155 million tonnes per year when construction started in 2011. More importantly, Fortescue had a cash production cost of US$13.02 for the June quarter, and an average of US$12.94 over the financial year. But it realised an average US$81 a tonne for the June quarter, bringing average prices to US$79 a tonne for the financial year. That’s why analysts expect a big final dividend, of up to $1, which would be a 40-cent lift on last year. In February, shareholders received an interim dividend of 76 Australian cents a share, more than twice the 30-cent interim payout in FY19.
For FY20, analysts expect EPS of 156.5 US cents, up 51.8%, with a dividend of 161.5 US cents, up almost 42%. The dividend yield is likely to come in at about 12.6% fully franked in FY20, and for FY21 it is projected (at current exchange rates) to be something like 9.7% for an Australian investor – boosted to 13.9% on a grossed-up basis. The market will also be interested in the outlook statement and a progress report on the Eliwana project, which is expected to be shipping ore by the end of this year, but COVID issues have caused delays and pushed up the cost of the project. FMG is seen as significantly over-valued, with an analysts’ consensus price target of $14.78, well underneath the share price, at $17.94.
Super Retail Group (SUL)
Late last month, the retailer said it had seen better-than-expected sales during the fourth quarter. With a shift to online spending, as well as pent-up demand for fitness and sporting products from Rebel as most of Australia came out of lockdown, and Supercheap Auto benefiting from people shelving international travel plans and heading out on the road in Australia. The company operates chains including Supercheap Auto, Rebel, BCF camping and outdoor lifestyle and the Macpac outdoor clothing chain. Super Retail said like-for-like sales were up 3.6% across its four businesses in the 52 weeks to June 27, with total sales up 4.2%. Super Retail Group foreshadowed FY20 revenue of about $2.8 billion, up from $2.7 billion in FY19, but the FY20 net profit is expected to be virtually flat compared with $153 million in FY19. FN Arena’s consensus expects EPS of 72.7 cents (up 3%), with a dividend of 12.4 cents, down 75.3%