WealthManaged - 23 February 2016

By David Lane - February 23, 2016

While there were the poor results from the energy companies, which had been expected due to the precipitous drop in the oil price, there were a number of very impressive results.

Economics

  • Australia’s unemployment rate climbed to 6.0% in January as full-time employment slumped by the most since 2013, reflecting waning stimulus from record-low interest rates and a weaker currency.
  • The cost of living in the US excluding food and fuel (Core Consumer Price Index) increased in January by 0.3%, the most in more than four years, reflecting broad-based gains that signal companies may be getting some pricing power.
  • Japan's economy contracted at an annualised rate of 1.4% in the December quarter, hurt by weak private consumption and housing investment. The preliminary figure for Gross Domestic Product compared with the median estimate of a 1.2% contraction in a Reuters poll of economists. It followed a revised 1.3% gain in the September quarter. 
  • China’s Consumer Price Inflation continued to climb while factory-gate deflation moderated, signalling that demand is beginning to stabilise. The Consumer Price Index (CPI) rose 1.8% in January from a year earlier, while the Producer-Price Index fell 5.3%, extending declines to a record 47 months. Easing deflationary pressures offer some relief for policy makers as they battle to underpin demand while tackling overcapacity.
  • Overseas shipments in China declined 6.6% in January in Yuan terms from a year earlier, compared with a 2.3% increase in December. Imports extended a stretch of declines to 15 months, falling 14.4%, leaving a trade surplus of 406.2 billion yuan (AUD$87.2 billion). Producer Price Index. 
  • European Central Bank (ECB) President Mario Draghi told the European Parliament that the ECB is “ready to do its part” but that in order to make "the euro area more resilient, contributions from all policy areas are needed."   
  • Inflation in the U.K. edged up to its highest rate for a year last month as rises in the price of alcohol and clothing pushed up the cost of living. The CPI rose to 0.3% in January from 0.2% in December while the unemployment rate remained steady at 5.1%. 
  • Brent oil settled lower on Thursday after data showing U.S. crude inventories rose to record highs overshadowed production freeze plans by oil major producers that had sharply boosted the market this week.

Company News

  • Telstra Corporation (TLS) interim profit rose to $2.093 billion for the six months through December, a 0.4% increase on the same period last year. Revenue rose 9.1% with income growth across all segments of the business. However its operating expenditure exceeded this growth, rising 14%. 
  • Sydney Airport (SYD) has signalled that it intends to increase its generous dividends on the back of strong passenger numbers. Its profit after tax for the year ending 31 December came in at $283 million, which was markedly higher than the prior year’s result of $59.1 million. Total passenger movements increase 3% to 39.7 million people. With international passengers rising 4.3% during the year.
  • Suncorp Group (SUN) has unveiled a number of changes to its company structure following a slide in the insurer’s profitability and questions over the sustainability of the company’s dividend. The firm indicated that it would be streamlining its business into three arms, Banking and Wealth to be led by John Nesbit, Insurance Australia led by Anthony Day and Insurance New Zealand by Paul Smeaton. Each division will have end to end responsibility for product design, manufacturing and claims management. The changes will be effective from the start of March. 
  • Woodside Petroleum (WPL) logged a net profit of just $26 million (USD) for the 12 months to December, its lowest result since 2002. The result was due to a $1.1 billion (USD) write-down after the company impaired its asset following the sustained decline in the global oil price. Excluding one off items, net profit after tax for the year came in at $1.126 billion and revenues fell 32.3% to $5.03 billion (USD).

Reporting Season

To date, the reporting season has been reasonably well received by the market.  At a time when the investment world has been seeing everything through cloudy glasses, Australian listed companies have proven that the underlying economic climate is not so bad.  

While there were the poor results from the energy companies, which had been expected due to the precipitous drop in the oil price, there were a number of very impressive results.

Property companies benefitted from the improving construction cycle, as well as improving valuations through the reduction in capitalisation rates across the major cities.  Stockland (SGP), Lend Lease (LLC), Goodman Group (GMG), Dexus (DXS), GPT (GPT) and Cromwell Property (CMW) all recorded double digit growth in revenues, and solid improvements in Net Profit.

Infrastructure companies continued with their consistent revenue and profit growth.  Both Sydney Airport (SYD) and Transurban (TCL) recorded strong growth in traffic numbers, which translated into improving profits.  While share markets around the world were in a tailspin, Sydney Airport was breaking records.  January 2016 had the highest international passenger growth since June 2004 (+9.5%).  The international terminal recorded its busiest day ever on 3 January, with 53,300 passengers, while the busiest day for the domestic terminal was 22 January with over 90,000 passengers.  Traffic from China grew 38.9%, while the lower Australian dollar encouraged 15.1% more traffic from USA.

The Healthcare sector continues to produce solid results, with CSL, Cochlear (COH), Sonic Healthcare (SHL) and Japara Healthcare (JHC) all recorded solid results.  Primary Healthcare (PRY), which has been treated very harshly by the market, announced a very strong result with profits rising 28.5%.  Company management said that they expect the second half to be a better result, in spite of the pressure on margins from the government’s desire to reduce spending on frontline healthcare. The share price has responded well, rallying 37% following the result.  At $3.00, PRY shares are now 45% higher than the 12 month low.

According to the Henderson Global Dividend Index, Australian dividend payments grew by 14.8% in 2015.  The banking sector contributed a combined $21 billion in dividends last financial year, with the CBA providing the world’s 19th largest dividend ($6.8 billion).

Dividends continue to be a reward for loyal shareholders in these times of volatility.  Increased interim dividends have been announced by a string of companies, including Telstra (TLS), JB Hi-Fi (JBH), AGL Energy (AGL), Boral (BLD), Stockland (SGP), BWP Trust (BWP), Transurban (TCL), CSL, Coca-Cola Amatil (CCL), Challenger (CGF), Lend Lease (LLC) and Sydney Airport (SYD).

Following extensive pressure from institutional investors, BHP Billiton (BHP) has decided to slash its dividend.  The company has announced a loss of US$5.669 billion, following a 37% decline in revenue to US$15.7 billion.  The company reduced its interim dividend from US$0.62 to US$0.16, citing the need to ensure that the strength of the company’s balance sheet is maintained throughout the uncertain and volatile times.  While the headline result is a significant loss, this is largely attributable to the Samarco dam failure and US$7.2 billion impairment to the company’s Onshore US assets, following the oil price decline.  The underlying EBITDA from continuing operations was US$6 billion, with an underlying EBITDA margin of 40%.

A summary of some of the major results announced last week follows

Company

Currency

Revenue

+/-

NPAT

+/-

Dividend

     

($M)

 

($M)

 

($ per share)

Resmed (RMD)

USD

                454

7.00%

                      91

-1%

0.03

Tabcorp (TAH)

 

            1,136

2.00%

                      82

-33.1%

0.12

Ansell (ANN)

USD

                785

-7.40%

                      70

-20.6%

0.20

JB HiFi (JBH)

 

            2,117

7.70%

                      95

7.5%

0.63

SCA Proprty Group (SCP)

 

                  99

15.60%

                      91

-7.5%

0.06

AGL Energy (AGL)

 

            5,601

8.10%

                    375

24.2%

0.32

Boral (BLD)

   

            2,194

-4.00%

                    137

31%

0.11

Commonwealth Bank (CBA)

 

          21,924

-4.00%

                4,618

2%

1.98

CIMIC Group (CIM)

 

          16,219

-12.00%

                    520

-23.0%

0.50

Stockland (SGP)

 

            1,581

19.20%

                    313

8.1%

0.12

ASX (ASX)

   

                455

6.20%

                    213

7.3%

0.99

BWP Trust (BWP)

 

                  75

4.90%

                      53

8.5%

0.08

Cochlear (COH)

 

                582

32.00%

                      94

32%

1.10

Goodman Group (GMG)

 

            1,747

56.60%

                    357

9%

0.12

Mirvac Group (MGR)

 

            1,168

2.70%

                    165

-29%

0.05

Rio Tinto (RIO)

USD

          34,829

-26.90%

-              1,719

N/A

1.08

Suncorp (SUN)

 

            7,797

-7.88%

                    530

-16%

0.30

Transurban (TCL)

 

            1,056

9.50%

                      62

19.2%

0.23

Amcor (AMC)

USD

            4,548

-5.40%

                    306

-4.9%

0.19

Aurizon (AZJ)

 

            1,758

-11.00%

                    237

-23%

0.11

Bendigo Bank (BEN)

 

                782

-0.60%

                    209

-8.2%

0.34

Newcrest Mining (NCM)

USD

            1,546

-13.00%

                      63

-65%

0.00

Challenger (CGF)

 

                950

12.20%

                    234

80.1%

0.16

CSL Limited (CSL)

USD

            3,100

10.30%

                    719

3.8%

0.58

Invocare (IVC)

 

                446

6.10%

                      55

0.6%

0.22

Monadelphous (MND)

 

                739

-29.92%

                      38

-37.93%

0.28

Orora (ORA)

 

            1,899

13.90%

                      88

27.2%

0.05

Star Entertainment (SGR)

 

            1,053

-3.20%

                      60

-37.9%

0.06

Arrium (ARI)

 

            2,765

-14.10%

-                    24

7.6%

0.00

CocaCola (CCL)

 

            5,187

3.00%

                    393

4.8%

0.24

Dominos Pizza (DMP)

 

                445

29.60%

                      43

45.6%

0.57

Dexus Property (DXS)

 

                524

24.80%

                    261

8.4%

0.23

Fletcher Building (FBU)

NZD

            4,434

2.00%

                    172

51%

0.19

Insurance Aus Group (IAG)

 

            8,235

3.70%

                    466

-19.5%

0.23

Japara Healthcare (JHC)

 

                154

13.55%

                      16

2.5%

0.06

Lend Lease (LLC)

 

            7,340

24.50%

                    354

12.1%

0.30

Primary Health Care (PRY)

 

                835

4.60%

                      69

28.5%

0.06

Sonic Health Care (SHL)

 

            2,435

21.80%

                    188

8%

0.30

Woodside (WPL)

USD

            5,030

-32.30%

                      26

-99%

0.43

AMP (AMP)

   

          14,049

-20.00%

                    972

10%

0.14

Cromwell Property (CMW)

 

                302

85.00%

                    196

124%

0.04

Charter Hall Retail (CQR)

 

                106

4.30%

                    104

23.8%

0.14

Fairfax Media (FXJ)

 

                958

1.60%

                      27

4.2%

0.02

GPT Group (GPT)

 

            1,316

23.00%

                    868

34.5%

0.12

Investa Office Fund (IOF)

 

                110

-2.70%

                    281

182.2%

0.10

Origin Energy (ORG)

 

            6,130

-14.00%

-                  254

N/A

0.10

Seven West Media (SWM)

 

                896

-4.10%

                    135

N/A

0.04

Sydney Airport (SYD)

 

            1,229

5.60%

                    1,003

5.8%

0.13

Telstra (TLS)

 

          14,194

9.10%

                2,093

0.4%

0.16

Tatts Group (TTS)

 

            1,607

6.50%

                    147

5.2%

0.10


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