My views on reporting heavyweights CBA, Telstra, CSL and Woodside!

Financial journalist and commentator on 3AW and Sky Business
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The half-year reporting season moves into prime time this week, with the first of the heavyweight reports, in the form of Commonwealth Bank (half-year), CSL (half-year) and Telstra (half-year), as well as full-year (December 2019) results from Woodside Petroleum, QBE Insurance and the beleaguered AMP.

Commonwealth Bank’s interim result on Wednesday will draw a lot of attention. Investors are likely to see a cash profit of about $4.4 billion – down from $4.7 billion a year ago – and an outlook that remains subdued, as compliance and regulatory costs rise faster than the bank can grow its loan book. There is the possibility of some capital management initiatives, and investors will be closely watching the interim dividend ($2 a share last year) for an indication that the expected $4.31 full-year payout for FY20 is at least going to be matched.

CBA is still viewed as one of the market’s most reliable dividend milk-cows – on analysts’ consensus estimates, it trades at a prospective FY20 yield of 5.1% fully franked (grossed-up: 7.3%). But investors buying that yield at present are, on analysts’ expectations, taking price risk. CBA trades at $84.80, but the analysts’ consensus target prices are $74.00 (Stock Doctor/Thomson Reuters), $73.414 (FN Arena).

In price terms, CBA has traded sideways for five years, with a five-year total return of a paltry 3.8% a year. However, every shareholder in CBA has their own yield situation, stemming from their own purchase price. Ten years ago, in February 2010, the shares cost $52. To someone who bought the shares then, the expected FY20 fully franked dividend of $4.31 represents a dividend yield of 8.3%, equivalent to a grossed-up yield of 11.8%.

Even better, shareholders who bought the stock in the first tranche of its privatisation back in 1991 paid $5.40 a share will earn a yield, at a dividend of $4.31 a share, of 79.8% – which grosses-up to 114%.

Still, investors know by now that rising bank earnings (and dividends) are not axiomatic – CBA is expected to show sub-1% earnings growth in FY20.

Biotech star CSL also reports half-year numbers on Wednesday, and it is in a completely different situation in terms of dividend yield – in that there barely is one. Consensus expectations project a 1% dividend yield for FY20 – and unfranked, at that.

But CSL is the best Australian example of Bill Gates’ comment about Microsoft many years ago: “the dividend is the share price.” CSL’s total return (capital gain plus dividends) over the last five years is 31.2% a year.

For the full year, analysts expect earnings per share (EPS) growth of 14.2% (Stock Doctor/Thomson Reuters) and 9.9% (FN Arena): CSL reports in US$. For the half-year, a net profit of about US$1.27 billion is expected. The crucial figure there is revenue growth in CSL’s immunoglobulin (IG) business, which is a major driver of the stock’s performance. Broker UBS expects to see volume growth of more than 16% in the IG segment.

CSL is guiding for FY20 full-year net profit of between US$2.05 billion and US$2.11 billion on a constant currency basis – up from US$1.92 billion in FY19 – and it’s possible that it could lift this guidance in the first-half results.

Again, though, much of the business’ strength is in the price: CSL is trading above $320.03, where analysts’ consensus target prices are $305.64 (Stock Doctor/Thomson Reuters), $286.986 (FN Arena) and $294.34 (Bloomberg Data.)

Telstra’s half-year result on Thursday should bring net profit of about $1.2 billion, slightly lower than last year, but there is a possibility that the telco giant will surprise on the upside: full-year expectations are for TLS to return to profit growth after a 40% slump in FY19, with Stock Doctor/Thomson Reuters pegging analysts’ full-year FY20 profit estimates at 22.1%, and FN Arena expecting 13.3%. Telstra has struggled in recent years, and has actually gone backwards in terms of total return over the past five years – losing shareholders 5% a year, on Stock Doctor/Thomson Reuters numbers.

However, Telstra looks likely to start turning that around: at $3.79, Telstra is priced below analysts’ consensus target prices of $4.00 (Stock Doctor/Thomson Reuters) and $4.043 (FN Arena) and offers a projected FY20 dividend yield of 4.2%, fully franked (grossed-up 6%). For these expectations, it is crucial that the interim dividend of 8 cents per share is maintained.

Global packaging leader Amcor (AMC) is also out with US$ half-year earnings on Wednesday: the market is looking for about US$479 million in net profit, up from US$328.5 million a year ago. This would buttress optimistic full-year expectations: Thomson Reuters posts an analysts’ consensus EPS growth expectation of +40.2%, while FN Arena sees +67.1%. But Amcor appears fully priced at $16.18), against analysts’ consensus target prices of $15.93 (Stock Doctor/Thomson Reuters) and $16.243 (FN Arena). The stock is priced at a FY20 yield of 4.3%, unfranked.

Insurance pair Suncorp Group (SUN) and Insurance Australia Group (IAG) report half-year numbers on Tuesday and Wednesday respectively. In two separate announcements, Suncorp has reduced its insurance margin forecasts on the back of three natural hazard events since the start of the second half of the financial year – being the Victoria/NSW/Tasmania bushfires, the South-East states hailstorms and the south-east Queensland/NSW heavy rain. The market has been relaxed with this.

In January, IAG (whose brands include NRMA Insurance, CGU Insurance, RACV and WFI) told the market it was is on track to blow its natural perils allowance for the second year in a row due to the catastrophic bushfires, and the hailstorms. IAG’s reported insurance margin is expected to land between 14.5% and 16.5%, down from previous guidance of 16% to 18%.

The company did not make any change to its earnings guidance, but some brokers lowered their estimates.

At $12.65, SUN compares well to analysts’ consensus target prices of $13.43 (Thomson Reuters), $13.351 (FN Arena); as does IAG, at $7.07 versus analysts’ consensus target prices of $7.78 (Stock Doctor/Thomson Reuters), $7.479 (FN Arena). SUN is priced at a FY20 dividend yield of 5.6%, fully franked (grossed-up: 8%) while IAG’s expectations imply a FY20 dividend yield of 4.1%, 81% franked (grossed-up: 5.5%).

Global financial systems, software and services provider Computershare (CPU) reports half-year numbers on Wednesday. FY20 guidance released late in 2019 was lower than some analysts expected: the company will update this guidance at the first-half results, and there could be a downward surprise. The stock is over-valued on analysts’ consensus, trading at $17.68 versus analysts’ consensus target prices of $17.56 (Stock Doctor/Thomson Reuters) and $16.246 (FN Arena).

Troubled wealth group AMP reports full-year results on Thursday: the market expects profit of about $540 million–$550 million, well down on 2018’s $2.4 billion. There appears to be very little to attract an investor back into AMP at present: at $1.745, the share price is close to analysts’ consensus target prices of $1.70 (Stock Doctor/Thomson Reuters) and $1.827 (FN Arena), and the FY20 dividend yield on offer is relatively desultory, at 1.7%, 90% franked (grossed-up 2.4%).

Also up for full-year results is Woodside Petroleum (WPL) on Thursday: the market expects about US$1.27 billion in net profit, up from US$1 billion last year. Woodside’s growth drivers over the next few years will be progress in bringing its big developments at Scarborough and Browse (Australia) and Sangomar (Senegal) into development, as it scales-up to meet rising gas demand. At $33.85, WPL is priced well beneath analysts’ consensus target prices of $37.37 (Stock Doctor/Thomson Reuters) and $36.734 (FN Arena), and is also attractive on a yield basis, priced at a prospective FY20 dividend yield of 4.1%, fully franked (grossed-up: 5.8%).

US$ full-year results will also come from QBE Insurance on Monday 17 February. The market expects a cash profit of about US$778 million, up from US$715 million a year ago. There is possibility for a positive surprise, and there would need to be to make QBE attractive: at $14.02, QBE is at the analysts’ consensus target prices of $14.03 (Thomson Reuters) and $14.087 (FN Arena), and the FY20 expected dividend yield of 3.5%, 60% franked (grossed-up: 4.4%) does not look alluring enough.

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