ASX Updates: Big Earnings Week

Amid a muted economic calendar, the attention was mostly on the earnings reports as investors geared up to the busiest week of the Australian earnings season. We have updates from big retailers, iron-ore miners, major banks, and tech stocks. As of writing, Information Technology, Consumer Discretionary and Health index were leading the gains on the Australian share market. Energy and Consumer staples were among the laggards the worst-performing sectors.

Source: Bloomberg

Information Technology

Wisetech Global, the leading developer and provider of software solutions to the logistics execution industry globally, led gains on the ASX following its FY20 results. Despite the challenging times due to the pandemic, revenue and EBITDA growth was in line with guidance and the Company is striving for a positive strategic and financial outlook:

• Revenue up 23% and EBITDA up 17%
• NPATA up 3% at $ 64.6 million
• Fully franked final ordinary dividend of 1.60 cents per share declared, payable on 2 October 2020

Afterpay share price rose by 6.8% on Thursday following the July Trading Update which shows a positive change in net transaction margin and loss and EBITDA. The Buy Now Pay Later company has even hit a new record intraday high of $82 on Thursday.

Altium, the electronic design software platform also reported strong growth of 10%, record EBITDA margin of 40%, strong profits before tax growth of 12%, 17% increase in subscriber base to 51,006 and 15% in Altium Designer seats with 9,251 new licenses sold. The company’s share price rose to a high of $37.02 before retreating slightly lower. The strong corporate results were unable to push Altium’s share price to pre-COVID19 price levels.

Source: Bloomberg

As of writing, Wisetech Global and Altium share price was up by 40% and nearly 6% respectively.

Consumer Discretionary

The Consumer Discretionary sectors were also among the best performing sectors for the week led by the outstanding performance by IDP Education. The company which is a global leader in connecting international students and offering student placements reported $107.8 million earnings before interest and tax (EBIT), representing an increase of 11 per cent compared to FY19. The company have also pivoted towards product innovation to respond to COVID-19 restrictions with agility and customer-centricity.  The Company reached a high of $20.54 on Thursday.

The retailers like JB Hi-Fi and Kogan performed strongly as expected. In the pandemic-induced environment, work-from-home spending boom where households spent more on homewares, electronics and furniture drove the retailers to a huge jump in sales and earnings.

Wesfarmers reported an NPAT up by 8.2% to $2,099m and a final dividend of $0.77 per share; full-year dividends of $1.52 per share. The company run retail chains like Bunnings, Kmart, Target and Officeworks, among others. On the reporting day, the Company’s share price closed lower as its profits took a hit this year following more than $500 million in write-downs and provisions at department store chain Target. As of writing, Wesfarmers’ share price was up for the week by 3.58% at $49.11.

Webjet was the only stock in negative territory in the consumer discretionary sector dragged by expected awful reports due to COVID-19 disrupting the global travel industry. The company’s total earnings swung from $123.1 million in FY19 to a loss of $91.3 million in FY20, while revenue fell by 27 per cent to $266.1 million, and total transaction value sunk by 21 per cent to $3 billion.

Source: Bloomberg

Health Index

CSL Ltd and Cochlear Ltd contributed to the gains in the health sector. The global biotech leader which business in over 60 countries and have major facilities in Australia, Germany, Switzerland, the UK and the US reported an increase of 9% in revenue and profit after tax of 17%. As widely expected, the pandemic has caused disruptions in the plasma collection which is expected to improve as the pandemic recedes. As of writing, CSL’s share price is up by 5.41% for the week.

Cochlear another market leader in its category of implantable hearing devices has a strong start to FY2020 but the second half of the year was impacted by the COVID-19 outbreak. The impact of COVID-19 on profitability was significant with underlying net profit declining by 42% to $153.8 million. After factoring in patent litigation expenses and innovation fund gains, Cochlear recorded a net loss of $238.3 million for FY20. Its share price rose despite the loss in profits on the approval of a number of new products, the dominance of the company as a global leader and the easing of lockdown measures.

Source: Bloomberg

Financials

The immediate focus remained on banks. Given the low-interest rates environment and loan deferrals, investors were expecting profits to take a hit. On the advice of APRA, we note that banks were also expected to differ payments of dividends.

ANZ and Westpac issued their third-quarter update. Westpac unaudited third-quarter updates show lower margins and an impairment charge of $826m. The bank also announced that no 2020 interim dividend will be paid. ANZ announced an unaudited statutory profit for the third quarter to 30 June 2020 of $1,327 million with an unaudited cash profit from continuing operations of $1,498 million. The bank also reported an additional $500 million in provision charge following a charge of $1,674 million in the first half of the year.

Bendigo & Adelaide, Australia’s fifth-largest retail bank reported:

• Statutory net profit: $192.8 million, down 48.8 percent
• Cash earnings after tax: $301.7 million, down 27.4 percent
• Net interest margin: 2.33 percent, down 3 basis points (bps)
• Total income on a cash basis: $1.61 billion, up 0.9 percent
• Bad and doubtful debts: $168.5 million, influenced strongly by COVID-19 collective provision of $127.7 million

As of writing, the ANZ’s share price was 1.3% up for the week compared to its peers which were down by 1% or more.

Suncorp Group was seen outperforming on Friday following the release of its corporate results. As of writing it is currently up by 7.7% and is the best performer of the financial index. In 2019, the company reported a fall in annual profit of 83.5% from a year ago to $175 million due to its $910 million non-cash loss following the sale of the life insurance and wealth arms. The company reported a net profit after tax of $913 million – a significant improvement compared to last year.

Source: Bloomberg

Energy and Consumer Staples

The energy and consumer staples were the laggards this week. The two oil and gas companies’ corporate reports were widely expected. Both companies’ earnings took a hit dragged by lower oil and gas prices and COVID-19 related shutdowns.

Origin Energy reported a statutory profit of $83 million for the gull year ended 30 June 2020 compared to a statutory profit of $1,211 million in 2019. However, underlying profit remained stable at around $1,023 million. The board determined an unfranked final dividend of 10 cents per share, bringing total dividends for the year to 25 cents per share.

Source: Bloomberg

Consumer Staples index was mostly dragged by Source: Bloomberg, A2 Milk and Treasury Wine Estates. While sales have risen significantly due to panic buying, the costs related to COVID-19 preventions such as more staff, cleaning, doorkeepers and security remains elevated. Despite solid results and a good dividend payout, Coles’ share price trading was volatile this week and as of writing, its share price was down by 1% to $18.73.

Treasury Wine Estates’ share price slumped after reports that China is preparing to impose hefty import duties on Australian wine exports emerged. Its share price is currently down by 19.3% for this week.

Coca-Cola Amatil reported a 9.2% decline in group trading Revenue for the first half of the year 2020. Statutory net profit after tax (NPAT) was a loss of $8.7 million versus a profit in 1H2019 ($168.0 million) reflecting non-trading items of $120.8 million, announced on 23 July 2020, relating to Amatil’s Indonesian, Fijian and Samoan businesses. However, the Company still managed to grow its market share demonstrating the power of its brands. The Board has declared a9.0cents per share unfranked interim dividend signifying its confidence in the strength of Amatil’s business. Its share price rose higher is poised to end the week in positive territory despite the downbeat results.

Source: Bloomberg