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Earnings season – BHP, CSL, Wesfarmers

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Switzer’s Peter and Paul discuss their views on companies who have recently reported.



Paul Rickard:  Hello, and welcome to Switzer Investing Insights brought to you by nabtrade. Today, earning season's week three. Let's look at three of the biggies, BHP, CSL, and Wesfarmers, and see how they reported.

Paul Rickard:  Starting with BHP. This was a half-year. Underlying EBITDA up 21% to $14.7 billion, better than expected. Net profit was down, but that was due to some impairments for the coal business, and interim dividend of US 101 cents. That's approximately Australian $1.30, that was better than expected. That's equivalent to a payout ratio of 85% and well above BHP's minimum target of 50%.

Paul Rickard:  Positives. Obviously, the dividend better than expected, and a lot of confidence about how that might continue. A good outlook statement in terms of their expectations for the second half. And you have to say, BHP's done pretty well on the execution front. Maintained good discipline over capital, but production has largely met expectations and good work on project delivery. So, give BHP some credit for the action of the execution in the last part of 2020.

Paul Rickard:  The negatives. Well, BHP says it's a four pillar company. Well, iron ore contributed 70% of group EBITDA and copper 25%. So, there's a question mark around the other two pillars of both coal and oil to a secondary extent. And the other thing is BHP has talked a lot about cost and efficiency, and really in this report, not a lot of news on either of those two fronts. So, the question is BHP doing a lot... enough, I should say, both in regard to driving those production costs lower and becoming more efficient. At $48.60, BHP's trading on a prospective fully-franked dividend yield of 5.95%. That's pretty attractive. And although you should never buy resource stocks for income and that's been a golden rule of markets, BHP looks like it may be able to continue these super dividends for at least the next 12 to 18 months.

Paul Rickard:  Let's move on to CSL. CSL, another half-year result, and this was a real standout and largely again, because the market had been a bit negative about CSL coming to the result. This certainly met and arguably beat expectation. Net profit for the half year up 44% to US$1,810 million. Sales up 17% to $5.5 billion. Now, they've guided to a full-year sales of between six and 10% on the full-year rate. CSL's results very much skewed to the first half, but you'd have to say that's a pretty strong sales performance. The interim dividend up 9% to US 104 cents. But reflecting the challenges for Australian shareholders, that's actually only $1.34 in Australian dollars and down 9%.

Paul Rickard:  The positives, a beat on both sales and profit guidance. The Seqirus influenza business was a real standout. It increased and importantly increased its full-year guidance to the top of its range. It's now from 2,170 million to 2,265 million. That's the tightening of the range, but towards the top end, equivalent to a profit growth of between five to 8% for the full year. And an area the market had been concerned about with plasma collections, particularly in the US, they're actually running about 80% level in the month of December of 2020.

Paul Rickard:  Negatives. Well, they warned us that the result would be very heavily skewed to the first half. I think we knew that. And the other negative is that COVID-19's still causing some issue with plasma collections and that's leading to both an elevated cost of goods. However, that result for a market that's been a bit negative on CSL, I think is a real positive, and again, CSL has delivered and keeps on delivering.

Paul Rickard:  Finally, let's talk at Wesfarmers. Revenue up 16.6% to $17.8 billion and underlying NPAT up 25.5% to $1.4 billion. Again, both of those beating the market. An interim dividend at 88 cents per share. That'll be fully franked. That's up from 75 cents in last financial year.

Paul Rickard:  Positives. This is really about their retail business and particularly Bunnings. Bunnings, which contributes almost 62% of group EBIT. Its EBIT was up 35.8% on sales growth of 24.4% as we've all gone to Bunnings to keep those things going as we've been locked up. The Kmart group, again, EBIT up 42% on sales growth of 9%. That's really a function of the Target businesses coming back to form. And Officeworks keeps on delivering, EBIT up 22% and sales growth of 23.7%.

Paul Rickard:  The negatives. Wesfarmers is a conglomerate and the chemicals, energy, and fertilizer business EBIT was down 7.5%. And they did say that retail sales growth is expected to moderate. I don't think that's a huge surprise, although they've had a good start in both January and February. The interesting part about the result also, I think, that'll get a lot of attention was the go-ahead given to the Mount Holland lithium project. That's in WA, that's a 50/50 joint venture. First production is expected in 2024, and that really shows you how Wesfarmers has diversified. It's largely got out of coal and it's moved into things like lithium. And it's hoping that obviously for those sorts of investments to offset the challenges that Bunnings might have going forward. You just can't keep on growing at that rate.

Paul Rickard:  Overall, you'd have to say each of these results, BHP, CSL, and Wesfarmers, beats, and they've all done pretty well in last year of financial year '20 and have good prospects going into this financial year. Thanks for joining us on Switzer Investing Insights brought to you by nabtrade.