Behold the profits bonanza

Company earnings results to date are a good signal for equities investors.

Summary: The latest reporting season is still in progress, but the results so far are encouraging. Four out of every five companies that have reported their results have beaten, or are in line with, market expectations.
Key take-out: Of 38 companies that have reported results to date, only eight have released results below expectations. This suggests a beat rate of about 79%.
Key beneficiaries: General investors. Category: Shares.

With the earnings season in full swing and some stand-out names making headlines, here’s an at-a-glance guide to the performance of the market to date.

Four out of every five companies that have reported their results so far have beaten, or are in line with, market expectations, according to analysts at Patersons Securities. See the table below.

Crucially, several of those companies include bellwether stocks. Commonwealth Bank (CBA) reported a 14% boost to crash profit of $4.27 billion, when analysts were expecting just $4.17 billion, while Telstra (TLS) lifted its dividend for the first time in eight years to 14.5 cents a share, citing its growth opportunities ahead.

Australia and New Zealand Banking Group (ANZ) made a good start to 2014 in its first-quarter results, announcing growth in home lending and a fall in bad debts. Australia’s third-largest bank expects revenue to grow 4-5% and expenses to only rise 2% for the full year.

And the good results aren’t only confined to the heavyweight income stocks either.

Computershare (CPU) rose 6.4% to $11.80 – the most in three months – on Wednesday despite Stuart Crosby stepping down as chief executive, as the company’s net profit surged 47.4% to $139.4 million and it raised its earnings per share growth forecast for the full year.

JB Hi-Fi (JBH) disproved those negative towards the retail sector after lacklustre results from peers The Reject Shop (TRS) and Super Retail Group (SUL), delivering comparable sales growth of 2.8% with momentum continuing well into January.

Online market leaders REA Group (REA) and Carsales (CRZ) sustained their reputations for deserving their high price earnings multiples of 35 times and 23 times respectively. REA Group soared 6.9% when it told the market revenue grew 30% and net profit surged 37% to $70.7 million, beating already lofty expectations, while Carsales surged as much as 7% – the most in six months – as new products and its expansion into Asia helped lift net profit 17% to $43.9 million.

Emerging company Credit Corp Group (CCP), which is engaged in debt purchase and collection, surprised the market with net profit above what analysts had pencilled in for the first half of 2013-14. Net income came in 6.2% higher than anticipated at $17.2 million, and full-year guidance was raised to between $33-35 million from $31-33 million in net profit on strong growth on consumer lending. 

Downer EDI (DOW), which Eureka Report has a buy recommendation on, proved it wasn’t all doom and gloom in the mining services sector. Though revenue fell 17% due to volume reductions and contract completions, Downer didn’t disappoint as it said it was on track to meet a full-year net profit of $215 million. Shares are now up around 50% since June lows.

Equities market operator ASX’s (ASX) half-year results were in line despite being impacted by its capital raising in June last year and challenging market conditions from the slowdown in China and declines in commodity prices. The 10% rise in net profit to $189.6 million was attributed to 11.3% increase in the number of companies listing on the exchange, with ASX’s largest business segments lifting their revenue year-on-year for the first time since the GFC.

But it wasn’t all good news in the blue-chip space, particularly for Australia’s health care companies. Hearing aid device maker Cochlear (COH) missed expectations on Tuesday with first-half net profit down 73% to $21 million, citing a lack of regulatory approvals for new devices and weaker sales and margins pressures. The company downgraded its net profit for the second half to between $70-80 million when it had previously guided for the previous year’s level of around $130 million.

Despite being a broker favourite, sleep disorder equipment maker ResMed (RMD) fell 4.9% to $5 in late January and then kept falling to as low as $4.81 in the ensuing week after reporting that revenue missed expectations in the second quarter. However, its shares have since bounced back to $5. The company faces increased competitive activity, but the market is hopeful about its new mask launch.

Blood plasma products company CSL (CSL) slumped the most in six months, falling as much as 4.5% in intra-day trading, after revenue missed expectations. Though the company affirmed its full-year guidance for 7% net profit growth, it said competition is strong, and analysts market share gains to slow as rivals overcome their supply issues.


Sam Fimis is a private client adviser with Patersons Securities and author of Premiership Portfolio: 6 Step Guide to Succeeding in the Stock Market, which can be found at www.premiershipportfolio.com. Kien Trinh is a senior quantitative analyst with Patersons Securities.

* This article is part of the 'It's Time' series in Eureka Report focussing on new opportunities for investors in 2014. Click here to see the entire series.

CompanyActual B4 AbnormalsMarket Expectations
NPAT ($M)DPS (cents)Abnormals/
Writedowns ($M)
Profit Change  (% pcp)NPAT ($M)DPS (cents)Profit Surprise (%)Net Annual Yield
G.U.D. Holdings14.918.0-5.5-31.414.518.0Inline6.5
ResMed Inc.167.62.50.012.0174.53.0Below2.5
Navitas Limited36.19.40.03.038.59.3Above3.3
Credit Corp Group17.220.00.018.016.220.0Above4.6
Energy Resources-136.00.00.020.0-124.00.0Inline0.0
JB Hi-Fi Limited90.355.00.010.083.255.0Above4.7
Downer EDI Limited99.111.00.05.4102.011.0Inline5.3
REA Group70.722.00.037.070.020.0Inline1.6
Echo Entertainment71.54.0-25.41.376.85.0Below3.8
FlexiGroup Limited39.08.00.012.038.97.7Inline4.5
TABCORP Holdings Ltd74.68.00.04.274.68.5Inline4.9
Twenty-First FOX Inc1,774.012.50.015.01795.012.5Inline0.9
News Corp..327.00.00.09.0310.00.0Above0.5
ANZ Banking Grp LtdInline6.0
Bradken Limited38.115.00.0-18.443.015.0Below8.1
Cochlear Limited36.8127.0-15.8-53.042.5126.0Below4.9
Macquarie Group LtdBelow5.5
Boral Limited90.07.0-117.073.085.46.0Above3.6
BWP Trust42.96.80.014.743.06.8Inline6.8
Commonwealth Bank.4,268.0183.0-61.014.04172.0178.0Above5.3
Computershare Ltd163.614.00.09.5158.015.0Above3.0
Carsales.Com Ltd43.914.70.016.044.014.0Inline4.1
CSL Limited645.753.00.03.4666.056.0Below2.1
Domino Pizza Enterpr21.417.72.738.821.218.0Inline2.5
Dexus Property Group189.83.10.06.0188.03.0Inline6.3
Goodman Fielder.30.11.0-94.9-9.042.42.0Below5.9
OZ Minerals-62.510.0-231.9n.a-79.012.0Above2.5
Primary Health Care78.59.0-3.013.081.08.0Below4.5
Stockland267.012.00.04.8264.212.0Inline6.4
Skilled Group Ltd26.07.5-4.0-11.027.07.4Inline6.8
ASX Limited189.688.20.010.8191.087.0Inline5.5
Inline
Goodman Group296.010.40.06.0291.710.5Inline4.7
GPT Group447.720.4123.86.1445.020.3Inline6.1
Transurban Group556.217.00.011.1554.216.5Inline5.7
Telstra Corporation.1,861.014.5-221.09.71864.014.5Inline5.9
Webjet Limited9.17.00.024.07.96.5Above6.2
STW Communications49.58.60.012.550.58.7Inline6.9
Source: Patersons.

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