Solid profit season moving to a close

Financial journalist and commentator on 3AW and Sky Business
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Three weeks in, the 2013-14 interim profit reporting season has definitely been better than expected – which helps to explain how the S&P/ASX 200 managed to touch a post-GFC high (at 5,452.4 points) on Friday.

Across the market, broking firm and investment bank analysts have lifted their market (index) target, on the back of profit and dividend increases from companies, help from the weaker Australian dollar, continuing low interest rates and the ongoing commitment to cost-cutting that companies have demonstrated over the last several reporting seasons.

Things are looking good

The generally positive tone of reported results this interim season has boosted optimism on the likely strength of the index, allowing January’s 3.3% fall to be regained, and the market is clearly in the black for 2014. The most optimistic of the major brokers, Citi, reckons the S&P/ASX 200 Index can gain a further 6.6% – to 5,800 points – by the end of the 2013-14 financial year.

The flow-through of solid company earnings has helped put a stop to the cycle of analysts cutting earnings expectations. Overall earnings expectations for FY14 and FY15 have largely stayed the same since about September. Some might think it would be good to see analysts’ earnings expectations lifted, but in the context of recent years, not having them pruned back is a victory.

Checking back in with Shane Oliver, head of investment strategy at AMP Capital, with about 70% of companies having reported, 57% of companies have exceeded expectations (compared to a norm of 43%). That’s the same percentage as last week.

About 67% of companies have seen their profits rise from a year ago (compared to a norm of 66%). That’s down from 72% of companies a week ago.

Also, 70% of companies have increased their dividends from a year ago (compared to an average of around 62% in the last two years). This measure has also come down, from 84% of companies a week ago, but it still represents a hefty majority of companies boosting their dividends.

And 54% of companies have seen their share price outperform the day they released results: last Monday, this figure stood at 55%.

Cost cutting versus revenue growth

However, the weakness of the season so far is the lack of compelling signs of revenue growth: hence the emphasis on companies’ “cost-out” performance.

The major take-out is that where the results of miners and banks drove the overall results in recent years, this year the contribution to profit growth is coming from a broader range of sectors, with housing-related and retail-oriented stocks lifting their contribution. This is consistent with the broad thrust of economic data.

Last week, BHP Billiton beat expectations for the first half, lifting underlying net profit by 30.6% to US$7.8 billion, as it stripped US$4.9 billion in costs out of its business. Fortescue Metals also beat expectations, paying a 10-cent fully-franked interim dividend that was double the payout forecast (there was no interim dividend last year.) Wesfarmers also exceeded consensus forecasts, but needed a 10.7% lift in Coles earnings to do so.

Standout results for the week included Suncorp (SUN) and Seek (SEK). The former posted a first-half profit of $548 million – more than the $491 million it earned in the entire 2013 full-year, and lifted its interim dividend by 40%. Employment website operator Seek provided one of the highlights of the interim reporting season so far, smashing expectations with a 38% rise in revenue enabling a 29% lift in net profit, and 40% boost to the dividend payout. For good measure, Seek tossed in a $580 million deal to expand in Asia by buying online employment business JobStreet.

It has been a good season too for Seek’s online peers, which have all shown an ability to provide the “missing link” that really would elevate the reporting season to impressive heights: revenue growth. REA Group (REA), the operator of real estate website, delivered a 30% jump in revenue; Limited (CRZ), which runs car-sales websites in Australia, Asia and South America, reported a 10% increase in revenue; and Webjet (WEB), which operates flights and accommodation websites, boosted revenue by 62% and net profit by 60%. All of these saw the share price spike higher by double-digit percentages in response – showing that revenue gains are how to really impress the market.

The week ahead

This week, one of the season’s lowlights is due on Thursday, when Qantas (QAN) is expected to reveal an interim net loss of at least $198.2 million, and job losses that could go as high as 3000, or 9% of the group’s workforce. If cost cutting has been a feature of the season, Qantas could turn in a gold-medal winning performance late in the piece. QBE Insurance (QBE) will also post a loss, for the full-year 2013, when it reports

But on Friday, Woolworths (WOW) should return the emphasis to the positive when it reports its interim result: the market is looking for net profit of $1.361 billion, up about 18% on the first-half performance a year ago.

Other results for the week, with UBS expectations:


  • Atlas Iron (AGO): HY. Net profit $50.4 million, dividend 1 cent.
  • AWE (AWE): HY. Net profit $23.4 million, no dividend.
  • Charter Hall Group (CHC): HY. Net profit $36.8 million, dividend 10.9 cents.
  • Flight Centre Travel Group (FLT): HY. Net profit $101.7 million, dividend 70.9 cents.
  • Growthpoint Properties (GOZ): HY. Net profit $40.7 million, dividend 9.4 cents.
  • IOOF Holdings (IFL): HY. Net profit $58.4 million, dividend 20.6 cents.
  • QBE Insurance Group (QBE): FY. Net loss $275 million, dividend 38.4 cents.
  • Ramsay Health Care (RHC): HY. Net profit $168.2 million, dividend 35 cents.


  • AGL Energy (AGK): HY. Net profit $275.0 million, dividend 30.5 cents.
  • BC Iron (BCI): HY. Net profit $73.0 million, dividend 35 cents.
  • Henderson Group (HGG): FY. Net profit $166.4 million, dividend 15 cents.
  • Infigen Energy (IFN): HY. Net profit $4.9 million, no dividend.
  • Lend Lease (LLC): HY. Net profit $250 million, dividend 21 cents.
  • Sydney Airport (SYD): FY. Net profit $90.1 million, dividend 11.5 cents.
  • Virtus Health (VRT): HY. Net profit $18.0 million, dividend 12.2 cents.
  • Whitehaven Coal (WHC): HY. Net loss $22.6 million, no dividend.
  • Worley Parsons (WOR): HY. Net profit $99 million, dividend 28 cents.
  • (WTF): HY. Net profit $29.3 million, dividend 12.2 cents.


  • Gindalbie Metals (GBG): HY. Net loss $16.7 million, no dividend.
  • Macquarie Atlas Roads (MQA): FY. Net profit $102.5 million.
  • Perpetual (PPT): HY. Net profit $46.2 million, dividend 90 cents.
  • Qantas (QAN): HY. Net loss $198.2 million, no dividend.


  • Discovery Metals (DML): HY. Net loss $4.4 million, no dividend.
  • Virgin Australia (VAH): HY. Net profit $36.9 million, no dividend.
  • Woolworths (WOW): HY. Net profit $1.361 billion, dividend 67 cents.

Important: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. Consider the appropriateness of the information in regards to your circumstances.

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