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Some big guns come to the fore in reporting season over the next week, with Commonwealth Bank and Telstra scheduled to reveal full-year results.
CBA reports on Wednesday, and analysts expect cash profit (the banks’ preferred gauge of profit, calculated by removing all the non-business-as-usual items from the statutory, or reported profit) to be down by about 8%, at about $7.8 billion. On an earnings-per-share (EPS) basis, FN Arena’s collation of analysts’ forecasts arrives at a consensus fall of 13.2%, to 421.7 cents, while Stock Doctor/Thomson Reuters has 419.9 cents.
The market will be most interested in the CBA final dividend, after the impact of the pandemic on the banks was shown earlier in the year, when National Australia Bank slashed its interim dividend, while Westpac and ANZ deferred theirs. Thanks to its different reporting schedule – it has a June 30 balance date instead of September 30, as NAB, ANZ and Westpac do – CBA has already paid an interim dividend of 200 cents a share, in March.
The banks had been told by the banking regulator, the Australian Prudential Regulation Authority (APRA), in April to “consider deferring dividend decisions” until later in the year. In late July, APRA lifted its restrictions but said it wanted dividend payout ratios to stay below 50%, compared with about 80% for most banks in pre-COVID times.
Last year, CBA paid a final (second half) dividend of 231 cents a share. This year, analysts expect about 75 cents a share (FN Arena) to 82.5 cents a share (Stock Doctor/Thomson Reuters), taking the full-year dividend estimates to 274.6 cents and 282.5 cents respectively.
While that would still imply a yield of 3.8%–3.9% for CBA – equivalent to 5.4%–5.6% grossed-up – it is not the 5%–6% level (grossed-up 7.1%–8.6%) that has come to be seen as the starting point for big-bank yields for income-oriented investors.
Telstra reports full-year results on Thursday, with market opinion divided on whether the telco giant will be able to maintain its 16 cents per share fully franked dividend. In March, Telstra paid an interim dividend of 5 cents a share, with an added special interim dividend of 3 cents a share. On consensus, Stock Doctor/Thomson Reuters expects a further 8 cents in the final dividend, as does FN Arena’s consensus, placing Telstra on a FY20 yield of 4.7% (grossed-up, 6.7%). However, FN Arena’s consensus sees the dividend coming under pressure this financial year – analysts expect 15.5 cents for the FY21 year – while Stock Doctor/Thomson Reuters’ consensus collation retains 16 cents as the expectation.
On EPS basis, FN Arena’s collation (sample of six brokers) has analysts expecting Telstra’s earnings to fall by about 6%, while Stock Doctor/Thomson Reuters’ larger consensus sample (12 brokers) looks for a 22% lift in EPS, to 24.56 cents.
Analysts are reasonably positive on TLS, with FN Arena’s collation having a consensus target price of $3.788 – representing 11.4% upside from the current price of $3.40 – while Stock Doctor/Thomson Reuters’ consensus collation values the stock at $3.72.
Other major stocks reporting this week:
Full-year. The annuities specialist has provided guidance for normalised net profit before tax at the bottom end of the range of $500 million–$550 million in FY20, compared to $548 million in FY 2019. Analysts expect about a 48% drop in EPS, and a dividend reduction of about 42%, but also see price upside of more than 16%.
Global share registry heavyweight Computershare downgraded its FY20 earnings guidance in March, saying it expected its underlying EPS to be down 15% (in February, it said EPS would be down by 5%). Analysts expect EPS (in US$) to fall 29.5% to 54 US cents, with the dividend to be 4% lower, at 42.3 US cents.
Magellan Financial Group (MFG)
Magellan has already told the market that its funds under management (FUM) for FY20 increased by 26%, to $95.5 billion, and FUM edged 1.4% higher to $98.5 billion as at 31 July 2020. The wealth manager could be a star of the season: FN Arena’s analysts’ consensus actually expect a 13.3% rise in EPS, to 241.5 cents, and a dividend boosted by 17.6%, to 217.8 cents. Unfortunately, that expected profit strength is well priced-in to the share price.
Mineral Resources (MIN)
Iron ore and lithium miner Mineral Resources is also on track for a standout earnings result, after what it says was a “record-breaking quarter” for its iron ore business in Western Australia, with production up 22% and shipments surging by 53%. The lithium operation also had a belter, with record production and record shipments of spodumene concentrate from the Mt Marion project in Western Australia.
There won’t be many better profit results in the season: analysts are looking for MinRes’ EPS to double to 190.1 cents, and the fully franked dividend to be raised by 29.5% to 57 cents. But unfortunately, that has been well built-in to the share price: against a share price of $27.52, FN Arena has a consensus price target of $22.67, while Stock Doctor/Thomson Reuters’ consensus collation values the stock at $21.89.
The pandemic has hammered global online employment group Seek, which paid a 13-cent interim dividend earlier in the year, but has told the market that it won’t pay a final dividend in order to preserve capital in an uncertain environment. While analysts expect revenue to grow by about 4% – which would put it at about $1.6 billion – the consensus projection is for EPS to fall by 43%, to 29.2 cents; and without a final dividend, the full-year payout, at 13 cents, will be down by 72%. SEK is also considered fairly valued at the current price.
Transurban Group (TCL)
Toll road operator Transurban is affected by the hard lockdown in Melbourne, but it also owns 16 motorways in Australia and 4 in North America. In February, Transurban said it would pay an interim distribution of 31 cents a share, up from 29 cents a year earlier, and reaffirmed guidance for a full-year dividend of 62 cents. But the company bit the bullet in April, withdrawing that guidance. In June, the company said its expected free cash flow would dictate a final distribution of 16 cents a share, making 47 cents for the full year. This compares to 59 cents in FY19 and 56 cents in FY18. The new figure lowers TCL’s unfranked yield to 3.4%, which lessens the stock’s attractiveness considerably.
AGL Energy (AGL)
Operating Australia’s largest energy generation portfolio, AGL has plenty of attractions. It generates and sells energy from power stations using thermal and wind power, natural and coal seam gas, hydroelectricity, wind, and solar energy. AGL has predicted full-year profits in the upper half of its guidance range of $780–$860 million. Analysts see EPS down 5.8% at 130 cents, and the dividend (80% franked) down 17.8%, at 97.9 cents. That’s still enough to give AGL shareholders a FY20 yield of 5.8% (grossed-up, 7.8%) but the shares are seen as fully valued.
The embattled wealth former-giant brings out half-year results on Thursday, and they will continue the tale of woe for shareholders with the company having softened-up the market for an expected 50% fall in underlying profit for the half-year. Analysts do not expect AMP to announce an interim dividend – in fact, hardly any analysts expect anything in the way of dividend for the full-year. For the adventurous, AMP is seen as having reasonable upside – FN Arena’s collation sees a consensus target price offering 15.5% upside from the $1.41 price, while Stock Doctor/Thomson Reuters sees potential price upside of 22%.
Breville Group (BRG)
Appliance manufacturer and marketer Breville has been a star of the pandemic, with sales surging up until April (the date of the most recent market update), and it could be one of the better performers of result season too. Analysts expect full-year EPS up 12.9% to 58.5 cents, but the dividend is expected to come down by 14% to 31.8 cents – and it is only a 60% franked dividend. But at a record share price of $28.32 – up 61% in 2020 to date – there is no value in buying BRG at these levels.
Evolution Mining (EVN)
Gold miner Evolution Mining is revelling in the A$ gold price of $2,800 plus, given that its cost of production in Australia is running at about $1,008 an ounce. In the June 2020 quarter, Evolution lifted gold production by 32% and mine operating cash flow by 36%. Analysts expect full-year EPS to be up by 73%, with the dividend up almost 49% – figures that not many companies will be able to boast for FY20. Unfortunately, Evolution has a consensus valuation almost 20% lower than its share price.
QBE Insurance (QBE)
The insurance heavyweight is bringing out half year results and has already told the market to expect a first-half loss of $US750 million ($1.1 billion) on the back of the pandemic and natural disaster claims. However, brokers are bullish on QBE going forward, with 10%-plus upside on projected valuations.
Treasury Wine Estates (TWE)
Treasury Wine has guided to $530 million–$540 million in operating earnings for FY20, amid lockdowns and continuing travel restrictions across the company’s markets as well as commercial oversupply in the Americas. This implies that earnings fell by about 50% in the second half. The company has forecast a 14% decline in FY20 operating income for its Asian markets, showing that it is having a tough time in one of its most crucial operating environments. EPS for the full-year is expected to be down by about 24%, with the fully franked dividend falling by about 31% to 26.2 cents – with little prospect seen of rebound in FY21.
Woodside Petroleum (WPL)
The oil and gas giant reports half-year earnings, and while the company has told the market it expects to book a net profit in the first half, it will be well down on the US$419 million interim profit reported last year. In the June quarter, Woodside’s revenue dropped by almost 29% to US$768 million, a worse-than-expected result that was hammered by weaker oil and gas price, including record low spot LNG prices. Woodside has already warned that it will take big write-downs this year. However, analysts see strong scope for share price rise from the current $20.09. FN Arena says the analysts’ consensus price target is $23.76, while Stock Doctor/Thomson Reuters sees $24.94.
National Australia Bank (NAB)
Third-quarter update on Friday: the market is looking for cash earnings of about $1.26 billion, and an indication of what APRA’s new dividend stipulations mean for NAB’s full-year dividend picture.
Newcrest Mining (NCM)
For the full FY20 year, the gold miner produced 2.17 million ounces of gold – within their 2,100 million ounces–2,200 million ounces guidance, which was lowered from 2,375 million ounces–2,535 million ounces. The year’s production was 13% lower than in FY19 production, but that was expected after Newcrest sold the Gosowong mine in Indonesia. The company said its total production costs in the June quarter were $US878 an ounce, which makes it very profitable with gold holding above US$2,000 an ounce. Analysts are looking for full-year EPS up about 16% in US$, with a dividend lifted by about 28% to 18.5 US cents.
Tech star Altium reports on Monday, and the electronic printed circuit board (PCB) design software specialist has flagged FY20 unaudited revenue of US$189 million, which would represent a 10% lift on FY19’s revenue. Altium had hoped to push through the US$200 million revenue level in FY20, but COVID put paid to that. However, subscriptions rose by 17% in FY20, and there were more than 3,000 Altium Designer upgrades, a 47% increase. On the profit side, analysts expect EPS to be down by about 24% in US$, but a slight lift in full-year dividend, from 30 US cents last year to 31.3 US cents.
JB Hi-Fi (JBH)
The electronics retailer could be another star of the season. In June, the company estimated FY20 revenue of $7.86 billion, a 10.9% increase on the $7.1 billion last year – and an 8.4% increase on the initial FY20 revenue forecast. That would be a tremendous effort in the pandemic. Analysts expect EPS to be up by about 27% for FY20, with the fully franked dividend boosted by 18% – a great set of numbers, but unfortunately, again, well and truly baked in to the strongly performing JBH share price.
Sydney Airport (SYD)
The airport’s June traffic data, released in July, showed a rebound in domestic travellers to 140,000 passengers – more than double the 62,000 in May. But that was before NSW shut its borders to Victorians on July 8. In any case, about 70% of revenue comes from international traffic, and that will be hammered, with a return to 2019 levels not expected until 2022 at the earliest, and FY24 in the gloomier predictions. SYD is expected to fall to a loss in FY20, with last year’s dividend of 39 cents evaporating to nothing. EPS is seen returning to the black in FY21 and a dividend of 21.7 cents is projected by analysts’ consensus, but the days of yield-oriented investors clipping the ticket on the hordes of travellers pouring through Sydney Airport have been heavily interrupted.